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Bromley disagrees: markets not appropriate for social choices

Daniel Bromley, R ethinking Markets (AJAE, 2001) (Professor Emeritus, University of Wisconsin, 2011). Making social choices (K. Arrow – Stanford U. – Nobel Prize 1972). M edicare Welfare Crime & Punishment. 1) Politics (voting). 2) The Market.

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Bromley disagrees: markets not appropriate for social choices

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  1. Daniel Bromley, Rethinking Markets (AJAE, 2001)(Professor Emeritus, University of Wisconsin, 2011) Making social choices (K. Arrow – Stanford U. – Nobel Prize 1972) Medicare Welfare Crime & Punishment 1) Politics (voting) 2) The Market Bromleydisagrees:markets not appropriate for social choices 1) Markets are for exchange, - choices have social consequences 2) Concern: many believe the market can be used for social choice 4 Examples to illustrate his thesis

  2. 1 Environment concerned “free market environmentalism” we get what we are willing to pay for Problems with this approach (2) • Future generations not represented (equity) • Who could speak for them? 2) Who should pay ? those harmed or polluter ? reflects a value judgment on how rights should be allocated

  3. 2 Education Many advocate for more competition among schools (public/private) Use vouchers Public schools would perform as well as private schools. Location – getting to school Public schools can not exclude 3 Markets can guarantee Freedom Milton Friedman (Chicago – Nobel 1976) markets free people, while regulation stifles freedom “freedom to chose” through market transactions Ayn Rand – Atlas Shrugged Neil Peart – Rush – Anthem (Fly by Night) Bromley disagrees One dimensional vision of freedom Contrasting conceptions of freedom

  4. C.B. McPherson (U. of Toronto – Political Science - 1965 Massey Lecture) - freedom includes freedom NOT to choose – supply/withdraw labour services AmartyaSen (Nobel Economist: 1998; Harvard U.) • Freedom to choose – one can be autonomous; be a moral agent (right/wrong) • Freedom to achieve – are the opportunities available? • Freedom from encroachment – by others, in particular by corporate interests Bromley: those who promote the market are reacting to their aversion to regulation

  5. Ron Paul - September 2013 http://blog.sfgate.com/hottopics/2013/09/19/ron-paul-more-women-should-sacrifice-career-to-homeschool-kids/

  6. 4 Socialism versus Capitalism (1989, democracy & markets won, communism lost) Bromley: time to re-consider the role of markets • doubts about the benefits of unbridled market development • shortcomings may lead to an attack on markets as an institution USSR – deregulation, selling of state assets Financial crisis (2008)

  7. On Markets: • “metaphor of the market” permeates our lives • ultimate coordinating institution in the face of scarcity - conflicts “Constructed Order” Can markets emerge on their own and lead to allocations that are socially ideal ? 1 - Creating Markets - Russia and East Block • need to be placed within a functioning nation-state • signaling devices (through prices) • motivate self-interested agents to act in the social interest Minimizing transactions costs Getting information (search) Negotiating contracts (exchange process) Enforcing contracts (property rights)

  8. What is necessary for transaction costs to be reasonable? Market needs to be embedded in other social institutions, a higher authority Create the legal rules through which exchange takes place What you must or must not do, foster competition Protect property rights (enforcement) Ensure predictability in exchanges Create a sense of fairness Markets can only existwithin “ordered domains of exchange” that are created by social and legal institutions

  9. 2 - Adjustments in Markets(maintenance in the public interest) What happens when markets generate unacceptable outcomes? • need for institutional flexibility in market design • they can evolve as the society evolves around them Is change needed to improve efficiency, or improve distribution ? Bromley: There is a role for economists so that they are useful to the public policy process • Politicians ask the wrong question, or the question incorrectly • Support more logic and clarity in the way problems are defined and framed

  10. Who Decides? Using High Quality Farmland for a Solar Farm

  11. Who Decides? Clear cutting forests to grow more corn, when the price is good Before ----> After ----> There is private benefit from this activity, but the ecological services of the forest are lost.

  12. Who Decides? Almost, clear cutting a forest to have a nice view of the Ottawa River? A new land owner, cuts most trees to get a view, but there is a steep slope and significant erosion is a certainty.

  13. 3 - Relations among market economies • proliferation of trade agreements in the post WWII era • eliminate “trade distortions” • what qualifies as a distortion? E.G. agriculture and the environment, and health and safety concerns Problem 1: jointness of agr. output and other amenities (landscape preservation) Problem 2: health and safety issues (hormone treated beef in the EU) Conflict: national perceptions, policies and the demands of free markets and science • consequences for the world trade system • agreements are only as solid as the will of nation-states • Doha round of negotiations, proliferating bilateral agreements “the role of the market in weaving together a seamless world of trade and commerce is a fragile thing”

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