The market economy is the most efficient of all economic systems. Adam Smith’s eighteenth-century take on market efficiency was metaphorical, nearly metaphysical: he said that it seemed to be guided by an “invisible hand” that produced outcomes beneficial to society. In the mid-twentieth century, Friedrich Hayek observed that no central-planning institution could possibly manage the huge quantity of information that the market organized automatically and spontaneously by pricing resources. More recently, Berkeley economist Gérard Debreu has used computers to demonstrate that the spontaneous order that Hayek postulated does indeed exist in a mathematical world. Market mechanisms are so efficient that they can manage threats to long-term development, such as the exhaustion of natural resources, far better than states can. If global warming does become a real problem, for example, price mechanisms or a carbon tax would easily encourage a more efficient use of energy. It’s worth recalling that during the 1970s, when an excess of sulfur in the atmosphere was sometimes producing acid rain harmful to North American forests, the U.S. government didn’t ban sulfur emissions outright. Instead, it created a market in which companies could buy and sell the right to pollute above a certain amount or “cap,” pricing emissions so that factories had a financial incentive to turn to non-sulfurous technology, which was already available. Over time, companies shifted to cleaner technology and the acid rain disappeared—to the dismay of many green activists, who tend to prefer doomsday discourse to efficient market solutions. Some economists favor free markets not only for their efficiency in allocating resources but for political reasons as well, fearing that central planning or excessive bureaucratic controls could, in the guise of rationality, stifle individual freedom. Markets leave us “free to choose,” wrote Rose and Milton Friedman, and society is the better off for it
Posted on: Mon, 07 Oct 2013 00:29:02 +0000
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