Is Market Love Blind?

Many market lovers hate what their love needs to work. An incomplete logic has them in its spell, blinding them to the fact that “invisible hand” cuts both ways.


Many market lovers are so bewitched, they’re blind to their beloved’s faults. Worse, they hate what their love needs to work. Seen clearly, “invisible hand” logic is incomplete and cuts both ways.

1. Adam Smith wasn’t market smitten: “He who intends only his own gain ... is ... led by an invisible hand ... [and] frequently promotes” society’s interests. That’s “frequently promotes” — not always ensures.

2. The “invisible hand” metaphor predates Smith (he got it from William Shakespeare, Saint Augustine used it). Economists mostly ignored it until Paul Samuelson’s 1948 textbook preached to millions that it ensured “the best good of all.”

3. If selfishness in markets has unintended benefits, aren’t unintended harms logically possible? Perhaps inevitable?

4. Markets, as complex wholes, risk “fallacies of composition”: The properties of parts needn’t apply to wholes. Silly example: All atoms in an apple are invisible; therefore, the apple is invisible. Likewise markets composed of voluntary, desirable, and locally "rational" transactions don’t always combine for rational and desirable outcomes overall. Unsilly example: Few buy products intending to pollute; yet producers pollute.

5. Pollution shows why free markets have built-in incentives to obstruct voluntary fixes. Manufacturers gain by avoiding cleanup costs; buyers by the resulting lower prices. What’s collectively bad “benefits” voluntary sellers and buyers.

6. Such “costs that people impose on others ... yet have no individual incentive to” fix are called“negative externalities.” They’re not always safely ignorable or small (e.g. $200 burger). Markets, without accurate prices, are like doctors without reliable tests. They can’t dependably decide what’s best.

7. Two cures are known: Either regulate, or tax to adjust incentives. Yet many market-lovers resist both, often for non-market ideological reasons (believing governments are unavoidably bad).

8. Markets could collectively optimize if prudently avoiding collective harm reliably trumped profit, or if prices perfectly included full costs (no externalities). But neither condition applies in any real market.

9. Only a non-market entity can police and manage real markets. Otherwise markets coordinate mindlessly (see “Markets Dumb as Trees”).

10. Joseph Stiglitz says the “invisible hand often seems invisible” because “it is not there." Better to say it’s not reliably benign. The claimed automatic alchemy of solo greed becoming social good is love-struck, logically incomplete, and impractical. Real lovers of real markets must deal with their real disorders. Without the medicine of regulation and taxation, however bitter, our beloved markets can’t thrive. Let’s be market realists.  

Illustration by Julia Suits, The New Yorker Cartoonist & author of The Extraordinary Catalog of Peculiar Inventions.

 

Related Articles

How schizophrenia is linked to common personality type

Both schizophrenics and people with a common personality type share similar brain patterns.

(shutterstock)
Mind & Brain
  • A new study shows that people with a common personality type share brain activity with patients diagnosed with schizophrenia.
  • The study gives insight into how the brain activity associated with mental illnesses relates to brain activity in healthy individuals.
  • This finding not only improves our understanding of how the brain works but may one day be applied to treatments.
Keep reading Show less

Human skeletal stem cells isolated in breakthrough discovery

It's a development that could one day lead to much better treatments for osteoporosis, joint damage, and bone fractures.

Image: Nissim Benvenisty
Surprising Science
  • Scientists have isolated skeletal stem cells in adult and fetal bones for the first time.
  • These cells could one day help treat damaged bone and cartilage.
  • The team was able to grow skeletal stem cells from cells found within liposuctioned fat.
Keep reading Show less

How exercise helps your gut bacteria

Gut bacteria play an important role in how you feel and think and how well your body fights off disease. New research shows that exercise can give your gut bacteria a boost.

National Institutes of Health
Surprising Science
  • Two studies from the University of Illinois show that gut bacteria can be changed by exercise alone.
  • Our understanding of how gut bacteria impacts our overall health is an emerging field, and this research sheds light on the many different ways exercise affects your body.
  • Exercising to improve your gut bacteria will prevent diseases and encourage brain health.
Keep reading Show less