The Market Won’t Provide: How Libertarians Get It WrongPosted: October 12, 2012
Ever since I was a kid, I wanted a flying car. I know I’m not alone in this, since roughly everyone since ever has wanted a flying car. Cars have been around for over a hundred years, and people have been talking about delivering a flying car for at least half that time, so if as I hear so often “the market will provide”, where’s my damn flying car?
1. The market can’t defy the laws of physics. Don’t get me wrong, I’m not the kind of naysayer who looks at an airplane and says “that thing will never fly”. Of course I understand that man will continue to push past the boundaries of the present, and I fully believe the free market is the best motivator to allow the best ideas to flourish and make their way to the top. But I too often hear libertarians make impossible (for today) wishes, and when you call them on it, they just say, “the market will provide” as if that’s some kind of answer. Yeah, maybe it will someday, but today’s not the day, and tomorrow doesn’t look too good either.
2. The market might provide, but not in the way you think. Actually, my father-in-law has been behind the wheel of a flying car more than once. He has a pilot’s license. I’m not even talking about those big, giant private jets (which are the stretch limos of flying cars), I’m talking a Piper Cub and the ilk. It may not be the flying car everyone envisions, but that’s how I’ve been taught markets work: when you can’t get exactly what you want, they provide a more reasonable alternative. But when most libertarians say “the market will provide” they usually mean it as a blind faith assumption that they can get what they want – somewhere. Which leads to…
3. The market might provide, but not at a price you want to pay. There’s a term I’ve become very familiar with of late: “market clearing price.” It goes like this: say someone actually does invent a flying car. And say they start selling them for, oh, one million dollars. Guess what I won’t be buying anytime soon? And neither will anyone I know, despite the fact that we all want a flying car. The demand is there! It’s there, I tell you! In fact, I’m demanding a flying car right now. And yet I can demand it all day and I still won’t get one until I pony up the cash, because there will be enough people who do.
That’s what a market clearing price is. Even if they could make them cheaper, there’s no incentive to. Same with anything else; as long as people will buy at the price they set, there’s no incentive to lower the price. “But wait!” cry the libertarians, “the free market means someone else can make another flying car at a lower price! Competition, that’s the answer!” Fair enough. But competition will only bring the cost down just so low before it’s no longer the best use of their time and money before they have another, better way to make money. That’s how free markets work, remember?
4. The market only provides to meet demand. Yes, I want a flying car. Yes, I know a lot of other people who want flying cars too. I also know a lot of people who want adult-sized Underoos (no, I am not one of them, no matter what my sister tells you). That doesn’t mean the market will start providing them tomorrow, even if it could meet the engineering feat, and considering the size of some of these people I really hope it can’t. Why? Because there’s just not enough money to be made. Money is just a proxy for demand, which tells us the best use of resources, and quite frankly I don’t ever see adult size Underoos being a good use of resources. For anyone. Ever. And just because everyone I know wants a flying car, or claims they do, doesn’t mean there is enough real market demand for them, because I don’t know everyone. That’s what economists call a knowledge problem. That’s kind of what markets are there to solve, and sometimes the solution is you don’t get your flying car (or Underoos).
It’s time to think in new ways, and hopefully some of the libertarians I know will think about some of the things I’ve written here and lose some of the utopian idealism they have about markets. Markets aren’t perfect. They are the best system we have in an imperfect world to achieve very specific objectives, but there are some things they can’t do. They can’t provide the perfect product at the perfect price in the perfect time frame. More often markets are about finding the best compromise with the resources at hand in the time you have. Or as my mechanic used to say, “we have three options: good, fast and cheap. Pick two.”
So what am I driving at here? Am I trying to tell libertarians to throw in the towel, stop worrying and learn to love the government? Far from it. What I am saying is that faith-based arguments only work when you are preaching to the choir. For everybody else, a little humility can go a long way. Acknowledge the weaknesses of the market, and then point out a few things. Things like the government can’t defy physics either, that government services often cost more than private solutions, and that government options are often more limited than free market solutions when they exist at all.
The false dichotomy of “perfect government solution” vs. “pie in the sky by and by” is a loser every time. But once you start putting real world options next to each other, admitting that each has something to offer but each has inherent weaknesses, you start a meaningful dialogue. The result of that dialogue, hopefully, is that by treating the person you are speaking with as an intelligent person they will offer you the same courtesy, and you can give them a new perspective and something to think on. You may not make a convert out of them, but you won’t make an enemy either, and you might at least get them thinking in new ways.