Are We Letting Unnatural "Laws" Mislead Us?

Free markets aren’t like gravity. They’re ruled by neither laws of nature nor commandments carved in stone. Delegating our ethics to markets risks costly error. All things are not equally auctionable.

Are We Letting Unnatural "Laws" Mislead Us?


We’re letting unnatural “laws” mislead us. Markets aren’t like gravity; they’re ruled by neither laws of nature nor commandments carved in stone. Delegating our ethics to markets risks costly error.

1. A failed 50-fold drug price increase (Daraprim $13 to $750) is revealing. It recalls the irritation over Uber’s 700 percent snowstorm “surge pricing,” when free-market fans groaned: People just don’t understand “simple economics.”

2. I’d say some free-marketers simply don’t understand people. Or people's ethical reactions. Despite labeling large price hikes “logical and fair” or rational and efficient, they still smack of exploitation and upset people. Economics entails ethics (forceful, systemic, global, ethics) and rightly provokes “fairness” reactions.

3. The relevant “simple economics” is the “law” of supply and demand. Roughly: Price signals ensure markets “clear” efficiently. Rising prices = greater demand = encourage more supply, and vice versa. “Clearing” means all supply is sold (not necessarily used efficiently).

4. Let’s compare two allocation schemes: An entrepreneur makes 100 widgets for $10 each. Using cost-plus pricing, she sells all for $13 each = $300 profit. Using what-the-market-can-bear price maximization she sells at $750 each = $74,000 profit. Way better for her, obviously. But overall? Is it better that 100 customers have $737 less? How they use $737 might benefit the economy more (higher economic multiplier).

5. Again, market rules aren’t facts of nature. They’re choices, which shape incentives and guide markets toward certain goals. Our rules needn’t prioritize supplier profits over other community goals. Note: Cost-plus doesn’t limit profit — to make more, satisfy more customers. Free-marketers might prefer price-gouging, but its benefits aren’t self-evident. Unless taught, market logic is “cognitively unnatural.”

6. Plus market “mechanisms” empirically vary (whereas gravity-like laws of nature are nonnegotiable — they work the way they work no matter what we do). E.g., some markets use cost-plus pricing (= once popular within economics).

7. Before heeding the “free-markets-in-everything” crowd, remember that markets are human-made systems for allocating resources. Before letting market forces (mindlessly) coordinate countless transactions, remember how flat-out wrong economists can be (and that they use "rational" and "efficient" differently, sometimes misleadingly).

8. Besides, economics and its “laws”/claims often fail. Free markets neither logically nor empirically automatically convert self-interest to social good, nor generate “spontaneously ordered” optimal outcomes. It’s not that simple.

9. Those who love the many great things that markets do could work harder to fix related ills. Nothing compels us to let Californians water lush lawns while the poor’s wells run dry, or make musical toilets while some starve. Widgets, medicine, Uber, musical toilets, food, and water aren’t ethically equivalent, or equally auctionable. Let’s pick allocation schemes accordingly.

10. We can use the massive power of market forces to support our ethical goals. Perhaps America’s founding goal of rules “wholesome ... for the public good.”

But if you’d prefer a world safe for price gouging, let’s do more “simple economics” training: market-gouging drills in kindergarten? Daily pledges “one Nation under” profit ... dedicated to the idea “that government of the people, by the people,” for the profit, shall not perish from the Earth?

 

Illustration by Julia SuitsThe New Yorker cartoonist & author of The Extraordinary Catalog of Peculiar Inventions

Golden blood: The rarest blood in the world

We explore the history of blood types and how they are classified to find out what makes the Rh-null type important to science and dangerous for those who live with it.

What is the rarest blood type?

Abid Katib/Getty Images
Surprising Science
  • Fewer than 50 people worldwide have 'golden blood' — or Rh-null.
  • Blood is considered Rh-null if it lacks all of the 61 possible antigens in the Rh system.
  • It's also very dangerous to live with this blood type, as so few people have it.
Keep reading Show less

How space debris created the world’s largest garbage dump

Since 1957, the world's space agencies have been polluting the space above us with countless pieces of junk, threatening our technological infrastructure and ability to venture deeper into space.

Space debris orbiting Earth

Framestock via Adobe Stock
Technology & Innovation
  • Space debris is any human-made object that's currently orbiting Earth.
  • When space debris collides with other space debris, it can create thousands more pieces of junk, a dangerous phenomenon known as the Kessler syndrome.
  • Radical solutions are being proposed to fix the problem, some of which just might work. (See the video embedded toward the end of the article.)
Keep reading Show less

Looking for something? A team at MIT develop a robot that sees through walls

It uses radio waves to pinpoint items, even when they're hidden from view.

TORU YAMANAKA/AFP via Getty Images
Technology & Innovation
In recent years, robots have gained artificial vision, touch, and even smell.
Keep reading Show less
Quantcast