What If The Price Was Never Right?
Prices are the magic in free-market stories. But what if prices were never right? Then free markets wouldn’t work as their fans claim. The ‘markets in everything’ crowd don’t tackle the following three issues well. First, the “invisible hand” can’t benignly solve every problem, rather it creates ills that need nonmarket cures. Second, self-interest often obstructs voluntary solutions. Third, self-interested winners often distort free markets.
Free-market stories rely on price signals to coordinate “spontaneous order” from innumerable voluntary (so presumed beneficial) choices. “Spontaneous” here means undesigned. No individual needs, or can have, all the information that shapes prices. Demand changes are reflected in price changes and markets adjust automatically using the “dispersed knowledge” of many. No dreaded “central planning” is needed.
But this dispersed knowledge story concentrates attention on only one type of spontaneous order: wherein individual incentives align with collective goals. But nothing guarantees that. In “Darwin’s Wedge” situations individual and group incentives diverge.
Darwin's Wedges abound in free markets, creating openings for profitable “price errors.” For example, polluting manufacturers have incentives to not pay for cleanup. The excluded costs create errors in price signals. And dispersed self-interest complicates voluntary fixes. Both sellers and buyers “benefit” when externalized costs yield lower prices. The seeming self-interest of market participants differs from society’s. Such divergences aren’t minor imperfections that we can safely ignore.
Generally Darwin’s wedges don’t fix themselves. Collective interests require the protection of universal rules enforced by independent referees. They’re like pro-sports salary caps: rich teams buying all the best players hurts the sport overall. Some centralized restrictions on freedom in sports, and in markets, can be beneficial.
Free markets tend to undermine themselves, but not only as Marx warned from the bottom. Self-interested winners, while seeming to be market promoters, often become market distorters, as soon as they can benefit. Many corporations decry government involvement while happily pocketing public subsidies.
Better use of market magic requires attention to the underlying motives of market-fans. Market-lovers can be easily bewitched, like those that Paul Krugman says mistook “beauty, clad in impressive mathematics” for truth. They can be too rosy-eyed about business leaders: Robert Nozick implausibly believed “the future orientation of the market entrepreneur” would conserve natural resources. Some like Milton Friedman hate or distrust government, assuming they’re blundering or corrupt bureaucracies. Among business leaders many, who honestly serve their customers, pay taxes and play fair, are vital (though flatteringly casting them as heroic savior-entrepreneurs encourages arrogance). But others are lazy, favoring deregulation to make their lives easier. And some are just scoundrels seeking easier exploitation.
The price of leaving the massive power of markets to the wrong kind of market-fan is too high. Market realists should recall Upton Sinclair’s warning: we’re all motivated to discount logic that endangers our livelihoods (or pet-theories). The “free markets” vs government frame isn’t helping. Both are needed, and neither can be safely trusted, so a balance of these powers, fitted for each empirical context, is required. Or dispersed self-interest and mindless spontaneous order won’t have benign results.
Illustration by Julia Suits, The New Yorker Cartoonist & author of The Extraordinary Catalog of Peculiar Inventions.
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A vertical map might better represent a world dominated by China and determined by shipping routes across the iceless Arctic.
- Europe has dominated cartography for so long that its central place on the world map seems normal.
- However, as the economic centre of gravity shifts east and the climate warms up, tomorrow's map may be very different.
- Focusing on both China and Arctic shipping lanes, this vertical representation could be the world map of the future.
The world, but not as we know it<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMDU1Nzg1NS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYzNTkwMjIyNn0.qmQfwUdjQka8JX6q4KGANagleiuucpWay5ytMenZxUU/img.jpg?width=980" id="b95e4" class="rm-shortcode" data-rm-shortcode-id="ac088ec55c0585a93a9a310faab9a4c7" data-rm-shortcode-name="rebelmouse-image" />
A Chinese 'vertical world map,' showing the world in a different perspective from the one we're used to.
Image: Prior Probability<p>Europe is tucked away in a corner, an appendage of Asia dwarfed by neighboring Africa. North America is stood on its head, facing the rest of the world from the top of the map — cut off from South America, which cuts a solitary figure at the bottom. Africa is justifiably huge, but equally eccentric. </p><p>The eye scouts elsewhere for a place to land: not the Indian Ocean, which dominates the middle of the map, but some terra firma. Antarctica and Australia are too small, mere stepping stones for the land mass of Asia. Ultimately our gaze is drawn toward China, the lynchpin of this unfamiliar world. </p><p>Managing to leave both poles intact, this "vertical" world map is about as far away as you can get from the classic Mercator projection – which slices up both, giving center stage to a puffed-up Europe. Perhaps this new map will become more familiar soon: It may do more justice to the world of the near future, dominated by China and determined by shipping routes across the iceless Arctic. <br></p>
China's 'ten-dash line'<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMDU1Nzg1Ni9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY1NTI4MzQyNn0.sBe0oFTif4Jef1vWh1kAnUylU_QMPXT5xQjm-5aA3sA/img.jpg?width=980" id="a3b81" class="rm-shortcode" data-rm-shortcode-id="80fc6e4f5c9c1c978f698be2c8de5484" data-rm-shortcode-name="rebelmouse-image" />
'China without any part left out': includes Taiwan and the islands and atolls in the South China Sea, surrounded by a ten-dash line
Image: Global Times<p>While there's no indication that this map represents the Chinese government's "official" worldview, it is no secret that China has a thing with maps – and more specifically, the country's representation on them. </p><p>In China, the country's current economic success is seen as a redress of the unequal treatment meted out by western superpowers in the 19th century. China's world dominance is a return to a more natural state of world affairs, many feel. Cartographic rectifications are a symbolically significant corollary of that sentiment.</p><p><a href="https://www.citylab.com/equity/2015/12/china-cracks-down-on-politcally-incorrect-maps/421032/" target="_blank">Fines are regularly imposed</a> on companies – domestic and foreign – that fail to represent China to the fullest extent of its external borders, disputed though they may be by others (e.g. India, Taiwan and any of the countries with claims overlapping China's in the South China Sea). But the People's Republic's cartographic obsession doesn't end at China's territory itself. It also includes the country's position on the world map. <br></p>
The Kingdom at the Middle of the World<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMDU1Nzg2MS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYyOTkwODEzMX0.SGrAZBH6iJVggFYSaIahzv9GvfEh17y1SwUNINbVicQ/img.jpg?width=980" id="1774c" class="rm-shortcode" data-rm-shortcode-id="99790d80a909d17a948f7c5d463d7d98" data-rm-shortcode-name="rebelmouse-image" />
Early Japanese color copy of Ricci's world map
Image: public domain<p>China's name for itself is <em>Zhōngguó</em>, which means 'Central State' or 'Middle Kingdom', reflecting its ancient self-image as the civilized center (<em>Huá</em>) of the world, with wild tribes (<em>Yí</em>) at the edge. That view is not unique to China. Vietnam, for example, at certain times also styled itself as the "central state" (<em>Trung Quóc</em>) – considering the Chinese in turn as the uncouth outsiders.</p><p>It may be surprising to recall, but Europeans themselves once considered their own continent a relative backwater, viewing Jerusalem as the true center of the world. That changed with the Age of Discovery, which placed Europe at the center of an ever-expanding world. Maps reflected that worldview, and largely continue to do so. That's why today's standard world map still has Europe at its center – with China off toward the periphery on the map's right-hand side. </p><p>The most notable feature of the very first major modern world map produced in China, the <em>Kunyu Wanguo Quantu</em> (1602), is that it places China firmly at the center of the world. Produced for the Chinese emperor by Jesuit missionary Matteo Ricci, it was the first map ever to combine that perspective with modern western knowledge: it was the first Chinese map to show the Americas, for instance. </p><p>That representation may not have taken off elsewhere, but it will be instantly recognizable to Chinese students, as it's the standard format for world maps in China's schools today.<br></p>
America on its head<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMDU1Nzg2My9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYwMzQ5NTc0MH0.EqadI2Yp-2dPwi3VccFZelIDK4V9t0ZOfTfHjdB6wVw/img.jpg?width=980" id="97104" class="rm-shortcode" data-rm-shortcode-id="2b66e8de389b3d736bc28e019e445cd0" data-rm-shortcode-name="rebelmouse-image" />
Upside down you turn me: North America on its head, in Chinese characters
Image: Prior Probability<p>For those used to "classic" Eurocentric world maps, Europe's marginalization may come across as a bit of an upset. America's new position on the horizontal Chinese world map is less jarring: It merely moves from the left- to the right-hand side of the picture. But then there's this vertical world map, which deals a similar blow to the American land mass: divided in two and pushed to the upper and lower edges of the map.</p><p>Unfamiliar? Sure. Shocking? Perhaps. Wrong? Not really. First off, no world map is totally right, since it's mathematically impossible to transfer the surface of a three-dimensional object onto a flat surface without some distortion. And since the world is a globe, where you center that map is a matter of purely subjective choice.<br></p><p>Those choices have historical reasons. Mercator's map was not specifically designed to put an inflated Europe at the center of the world. That was just a side effect; its main purpose was to aid shipping: Straight lines on the map correspond to straight lines sailed on the seas.</p>
By 2050, a completely melted Arctic could enable the Transpolar Passage, shortening trade routes between Asia and Europe and boosting business for Alaskan ports like Nome and Dutch Harbor.
Image: The Maritime Executive<p>The vertical world map, showing the relative proximity of China (and the rest of Asia) to Europe and (even the East Coast of) North America, has a similarly maritime <em>raison d'être</em>, or it will have by mid-century. <a href="https://www.maritime-executive.com/editorials/the-arctic-shipping-route-no-one-s-talking-about" target="_blank" rel="noopener noreferrer">Experts project</a> that by 2050 (if not sooner), the Arctic will be sufficiently ice-free to enable the so-called Transpolar Passage, i.e. shipping straight across the North Pole. </p><p>That would shave more than three weeks off a traditional sea voyage between Europe and Asia, via the Suez Canal – and even be significantly faster than other northern alternatives like the Northwest Passage (via Canada) or the Northern Sea Route (hugging the Siberian coast). Since ships would not need to go through locks or pass over shallow waters, it would also remove current restrictions on tonnage per ship. <br></p><p>The only country seriously preparing for such a future: China. None of the other Arctic powers is giving the Transpolar route any strategic thought. On the other hand, China's Arctic Policy document, released in January 2018, already matter-of-factly refers to the Transpolar route as the 'Central Passage' – one of several 'Polar Silk Roads' that China seems to want to develop. And they already have the world map to go with it.</p>
The Labour Economics study suggests two potential reasons for the increase: corruption and increased capacity.
Cool hand rebuke<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDQyMTIyNy9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY0NjY1NTYyOH0.0MCPKN3If94mYCNf3mMNrnTvJXjXN_bKLhgk9203EXk/img.jpg?width=917&coordinates=0%2C0%2C0%2C0&height=453" id="1627b" class="rm-shortcode" data-rm-shortcode-id="6d76421ba1ea0de4b09956b97e80c384" data-rm-shortcode-name="rebelmouse-image" />
A chart showing prison population rates (per 100,000 people) in 2018. The United States has the highest rate of incarceration in the world.
Who profits with for-profit prisons?<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="97ac37e6c7f6f22ec130ea2d56871701"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/dB78NV2WpWc?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span><p>The Labour Economics study suggests that privately-run prisons do convicts a few favors at the moment of sentencing. However, proponents of private prisons often point to other benefits when making their case. Specifically, they argue that private prisons reduce operating costs, stimulate innovation in the correctional system, and reduce recidivism—the rate at which released prisoners are rearrested and return to prison.</p><p>In regard to recidivism, the research is mixed. <a href="https://journals.sagepub.com/doi/abs/10.1177/0011128799045001002" target="_blank">One study</a> compared roughly 400 former prisoners from Florida, 200 released from private prisons and 200 from state-run facilities. It found the private-prison cohort maintained lower rates of recidivism. However, <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-9133.2005.00006.x" target="_blank" rel="noopener noreferrer">another Florida study</a> found no significant rate differences. And two other studies—one from <a href="https://journals.sagepub.com/doi/abs/10.1177/0011128799045001002" target="_blank" rel="noopener noreferrer">Oklahoma</a> and another out of <a href="https://journals.sagepub.com/doi/abs/10.1177/0734016813478823" target="_blank" rel="noopener noreferrer">Minnesota</a>, both comparing much larger cohorts than the first Florida study— found that prisoners leaving private prisons had a greater risk of recidivism.</p><p>The research is also inconclusive regarding cost savings. <a href="https://www.hamiltonproject.org/assets/files/economics_of_private_prisons.pdf" target="_blank" rel="noopener noreferrer">A Hamilton Project analysis</a> noted that such comparisons are difficult because private prisons, like all private companies, are not required to release operational details. In comparing what studies were available, the authors estimate the costs to be comparable and that "in practice the primary mechanism for cost saving in private prisons is lower salaries for correctional officers"—about $7,000 less than their public peers. They add that competition-driven innovation is lacking as the three largest firms control nearly the entire market.</p><p>"We aren't saying private prisons are bad," Galinato said. "But states need to be careful with them. If your state has previous and regular issues with corruption, I wouldn't be surprised to see laws being more skewed to give longer sentences, for example. If the goal is to reduce the number of incarcerated individuals, increasing the number of private prisons may not be the way to go."</p>
What exactly does "questions are the new answers" mean?
- Traditionally, intelligence has been viewed as having all the answers. When it comes to being innovative and forward-thinking, it turns out that being able to ask the right questions is an equally valuable skill.
- The difference between the right and wrong questions is not simply in the level of difficulty. In this video, geobiologist Hope Jahren, journalist Warren Berger, experimental philosopher Jonathon Keats, and investor Tim Ferriss discuss the power of creativity and the merit in asking naive and even "dumb" questions.
- "Very often the dumb question that is sitting right there that no one seems to be asking is the smartest question you can ask," Ferriss says, adding that "not only is it the smartest, most incisive, but if you want to ask it and you're reasonably smart, I guarantee you there are other people who want to ask it but are just embarrassed to do so."