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August 10, 2006

Neal Lawson: Idiot

Sigh,

It is certainly not a Labour response, as markets create winners and losers. That's their function.

How is it possible that this idiot is in fact part of the political conversation in the UK? How can such drivelling lunacy be put forward as a description of the world?

The essence of a market is voluntary transaction. Each person involved in each transaction swaps what they have for something that they value more. Thus, each and every person involved in a market transaction is a winner.

The function of markets is thus to create winners, by moving scarce resources to those who value them most.

The only time this does not happen is when there are involuntary transactions. Like being mugged in the street. Or being taxed, or jailed because the BBC wants your money while you watch Sky.

Then there are winners and losers, sure, but to have losers you need to have either criminals or government but I repeat myself.

(Please note that I’m aware of externalities which can indeed create losers in markets but that’s a level of sophistication far ahead of Lawson’s dire stupidities.)

August 10, 2006 in Economics | Permalink

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Th headline on Tim Worstall's post says pretty much all that needs to be said: Neal Lawson: Idiot My eyes were slightly glazed when I first read this and I thought it said 'Nigel Lawson: Idiot'. Hmmm, I thought, it'll... [Read More]

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» Nigel Lawson - the most intelligent? from Stephen Pollard
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Comments

You are quite right to point out the idiocy in claiming that a market's function is to create winners and losers. Yet you are being disingenuous to claim that markets only create winners. In the context of the university marketplace, those who cannot afford to buy anything become comparative losers once the wealthy hoover up all places and thus exacerbate inequalities in social and economic capital. You are free (ho, ho) to peddle libertarian wares but beware the age-old economist's conceit that yours is the one true faith in social science.

Posted by: MayIBeSoBold | Aug 10, 2006 10:48:07 AM

Yeah, but she's got an ace recipe for flan.

Posted by: P. Froward | Aug 10, 2006 10:50:05 AM

Tim,

I'm (almost) loathe to go down this road - but if the function of markets is to move scarce resources to those who value them most, surely you'd agree that pumping more and more people into the labour market distorts it? And that those buying the resources consequently don't really want to pay what the market might otherwise demand?

Tim adds: Those people also create demand for the labour of others.

Posted by: Martin | Aug 10, 2006 12:16:31 PM

Debt and economic conditioning discourages graduates from going into lower-paid caring jobs - and instead into the City, where the real "value" is.

This is the real gripe here. Student that have to pay for their education will be unlikely to choose a mickey mouse degree, followed by a career in the parasitic sector.

Posted by: EU Serf | Aug 10, 2006 12:46:10 PM

MayIBeSoBold,

"In the context of the university marketplace".

Which isn't a marketplace at all, but run by the state.

Who determines how many universities there are? Where they are? Who runs them? How much lecturers get paid? What qualifications you need to go to them?

Every example I've had presented of "the market doesn't work" normally has some government interference behind it.

Posted by: Tim Almond | Aug 10, 2006 1:38:38 PM

Well markets can fail. Part of the job of economists is to look an see at the wider social consequences of market transactions and behaviour.

The market in itself is a powerful too - but its rare that it works absolutely perfectly and you have to remember that.

Externalities are just one manifestation of market failure btw.

Posted by: angry economist | Aug 10, 2006 1:47:53 PM

Tim Almond,

RE: *University marketplace*

It's PPP not the GDR - there is diversity of price, product, buyer and seller.

RE: *Every example I've had presented of "the market doesn't work" normally has some government interference behind it.*

The question about "the market doesn't work" is entirely dependent what do you mean by "work"?

Whether optimal policy outcomes corresponds to economic efficiency really depends on your politics.

To borrow from angry economist: the market is a powerful tool.

But anyone who thinks it is the only tool worth using in public policy is either (a) very poor at conceptualising any kind of world outside graphs or (b) Hayek.

Posted by: MayIBeSoBold | Aug 10, 2006 2:26:19 PM

MayIBeSoBold,

The market is not a powerful tool. It is led by consumers.

What you mean is economic intervention by government in a market, which is a powerful tool, whether it be direct financial subsidy or regulation.

Consumers can end up choosing product x over product y because the government tips the balance in favour of product x by intervention.

I support markets because they deliver better value to consumers than when the state tries it. Primarily because the people who run companies have a self-interest in maximising their income, which means delivering to consumers what they want, and doing it better or at a lower price than the next guy.

The state takes your money, and then maybe spends it well, maybe not. But it can work to its own agenda, not that of the people it is supposed to serve. So, it's role in society should be limited to those things that cannot be provided in a market sense, like the roads, law and order, and defence.

Posted by: Tim Almond | Aug 10, 2006 5:29:27 PM

"The essence of a market is voluntary transaction. Each person involved in each transaction swaps what they have for something that they value more. Thus, each and every person involved in a market transaction is a winner."

You're just trying to define away the problem by leaving out those who are excluded from the transaction, because they either can't pay enough or can't sell for low enough. People who die because they can't afford essential medicines, for example, or someone who loses their job when market demand shifts. Luckily for them, the state may step in to help them out, at which point people like you complain about having to pay taxes.

Posted by: Jim | Aug 10, 2006 5:44:27 PM

Tim,

"Those people also create demand for the labour of others".

Hmmm...

There has ben a wholesale change to the labour market in this country over the past decade which has turned out not to be to the advantage of low skilled natives. Whilst migration has increased unemployment is also increasing. The costs that brings, regardless of the defective political models by which the unemployed are supported, mean that the attendant, some would say alleged, benefits of mass migration haven't really been passed on all round.

Posted by: Martin | Aug 10, 2006 8:49:30 PM

Jim wrote: "People who die because they can't afford essential medicines..."

Their death is because you did not provide enough charity.

"...someone who loses their job when market demand shifts."

Why do you stop them getting a job supplying this new demand?

"Luckily for them, the state may step in to help them out, at which point people like you complain about having to pay taxes."

So rather than provide sufficient charity yourself, you want someone else to pay, that is a reflection on your morality, not the market's.

Posted by: Forester | Aug 11, 2006 2:30:36 AM

Forester,

"Their death is because you did not provide enough charity."

Not just me, everyone. I'm glad you accept that private charity will never be enough to meet people's needs - obviously, that means there has to be a role for tax-funded state provision.

"Why do you stop them getting a job supplying this new demand?"

I don't.

"So rather than provide sufficient charity yourself, you want someone else to pay, that is a reflection on your morality, not the market's."

I want those of us who benefit most from the market to help out those who lose out most. It's called redistribution and yes, it is a reflection on my morality.

Posted by: Jim | Aug 11, 2006 8:09:27 AM

"People who die because they can't afford essential medicines, for example"

Patented medicines are a state-granted monopoly, so hardly a good example in a discussion about markets.

Posted by: Tim Almond | Aug 11, 2006 8:51:15 AM

"Patented medicines are a state-granted monopoly, so hardly a good example in a discussion about markets."

And without patents medicines would be free, right?

Posted by: Jim | Aug 11, 2006 10:15:55 AM

Jim,

Did I say that they would be free? Compare the cost to the NHS of a non-patented drug like valium with the cost of something like herceptin.

And just to make it worse, who's negotiating the price down? The NHS certainly isn't.

Posted by: Tim Almond | Aug 11, 2006 11:45:50 AM

"The essence of a market is voluntary transaction. Each person involved in each transaction swaps what they have for something that they value more. Thus, each and every person involved in a market transaction is a winner.

The function of markets is thus to create winners, by moving scarce resources to those who value them most."

But in my area, trade, there is always one partner with a stronger suit, a stronger hand. My Min recently was in Geneva and that was not an 'every person is a winner' scenario. It was an ultra-nice, diplomatic, take-it-or-leave it scenario.

There are very much losers in the trade game, if not in company-on-company transactions.

Posted by: james higham | Aug 12, 2006 10:47:01 AM