Sunday, June 17, 2007

Free to Choose?

There was, in some ways, more to Milton Freidman than met the eye. He was far from a typical conservative for a start: he opposed military conscription; he was in favour of the legalisation of drugs; he opposed the invasion of Iraq. He even had the decency to admit at least once before his death that key elements of his his hard-line monetarism (quantity of money targeting) were flawed. Yet he remained, to the end, an advocate of small government and free markets.

In Matt Parker's biography of John Kenneth Galbraith (on page 522) there is a quote which summarises nicely Freidman, the social liberal's, distain of economic liberals (I'm using the word liberal here in the American sense).

Many reformers...have as their basic objection to a free market that it frustrates them in achieving their reforms, because it enables people to have what they want, not what the reformers want. Hence every reformer has a strong tendency to to be adverse to a free market.
In short, part of us reformers' problem with free markets is that we don't like people being free to choose. Particularly, as they will probably choose things we don't like.

So is that true? As a reformer do I really hate freedom, so to speak.

Um, no.

My problem with under-regulated markets is not that they provide too much freedom of choice. Almost the opposite, in fact: my problem with unrestricted markets is that they reduce the freedom to choose of a majority of the population. There are four key reasons why I feel this way.

First up, the sum total of choices that any one person has in their life is not simply a derivative of negative liberties. It's also a function of entitlements: ceteris paribas a person with a million dollars in the bank has a whole heap more choices available to her than a person with $10. And, whatever else you may say about markets, they don't guarantee entitlements. For this we need government. This isn't to say that the state should intervene to ensure absolutely equal entitlements but that it should provide people - where it can - with enough resources that they can have at least some good choices in their lives.

Second, is the fact that people's choices are usually only as good as the information they base them on. To use the famous example of this problem, if I am to be really free to choose to by a car or not, I need to know whether it's engine will still work once I get it home. Most likely the car salesperson knows the answer to this question, but whether they tell me or not is another thing altogether. So if we want me to be able to choose wisely when buying a car we'll need a law or two intervening in the pure market process to prohibit the salesperson from lying to me.

Related to imperfect information is contaminated information. What if the information we receive about products was designed not to tell us what we need to know to choose but rather to manipulate us into purchasing? Well hey, then we'd call it advertising - the business of influencing our choices. Freidman thinks that I dislike free markets because the let people choose things I don't like; to the contrary, my problem with the sort of free markets that Freidman advocates is that they end up manipulating people into buying things that they don't like. It's hard to see what's free about this.

Finally, there's the fact that the choices I make will influence the choices that you make. If I choose to built a 10 story house on my section then your choice to live in sunlight may be rather diminished. But free markets alone - unless you somehow an implausible market for sunlight and shade had been developed - won't let you stop my choices from restricting yours. The government might though.

All of these limitations of markets can be found in any first year economics textbook. So, presumably, you'd imagine that Freidman might have heard them sometime. Which makes his accusation that reformers don't want people to be free to choose disingenuous plain and simple.


Tim said...

Hey there Terence

It's been a little while since I've had a good read of your blog, so I thought I'd sit down tonight and look at a few (of the econ) posts.

Funnily enough I'm reading Free to Choose right now, and am halfway through (it's not that big a coincidence - I'm halfway through about 6 or 7 books).

Maybe I shouldn't make any judgements until the end, but I'm a bit disappointed. I was under the impression it was a 'landmark' kind of book - the best exposition of a small-government philosophy of the time, or something like that. It's much fluffier than I thought, and really easy to chow through.

I'm only a beginner in reading this kind of stuff, so I might be way off base, but my impression of Free to Choose and other small-government stuff I've read is that it all seems to be about prescribing a 'direction' for which to reform government, without a clear description of what the 'destination' should be, and why. This is frustrating, because it's all I'm really interested in, and I'd love to come across some pro- free market writing that at least tries to fairly balance up competing arguments about the role of government.

Free to Choose, for example, seems to be 75% depictions and examples of government idiocy, perverse consequences, bloated bureaucracy, etc etc, 20% analysis of the causes of such, and 5% brief prescription of what a better state of affairs would be. And the prescriptions are pretty simple, along the lines of 'reduce this, cut these' rather than 'in a better world, we'd have government doing this and this, but not that or that, for these reasons'.

There is the familiar sounding postscript of 'of course we'll need courts, rule of law, and an army', but there isn't really any mention of externalities, public goods, information asymmetries, or where market failure should and shouldn't be addressed by government.

Perhaps these ideas weren't really circulating at the time? I don't really have a handle on the history, but surely the standard kind of market failure justification for government was alive and well. I presume...?

Anyway I was a little disappointed. I should probably be looking elsewhere for the best statements of that particular position. Something that at least acknowledges all the other arguments out there. Free to Choose seems to just be a rant. I guess I had somehow absorbed the idea that it was some kind of key work. Oh well.

Speaking of rants, I better stop. Hope you're well

Terence said...

Hey there Tim,

I hope all is good with you too. Yeah I would've expected that free to choose was more sophisticated. But I'm impressed you're reading it. The way I always understood the new-right arguments against the state (the sophisticated ones - maybe they're to be found in public choice literature?) were using the theories of government failures and second best (i.e. sure there's a market failure, but government intervention's even worse, so let's just keep with the market failure).

Anyhow, Friedman's arguments sound pretty similar to those of the Nats and Act, so I suspect they never found anything better either.