This Straw Man Is a Regulator’s Best Friend

‘Markets don’t always work perfectly.’ But who ever said they did?

Letters to The WSJ.

"In support of some market interventions endorsed by the populists who today dominate the GOP, Glenn Hubbard counsels traditional conservatives to agree “with populist conservatives that markets don’t always work perfectly” (“The Economic Populists Have a Point,” op-ed, July 19).

I challenge Prof. Hubbard to identify a single serious conservative or libertarian scholar whose case for free markets rests on the belief that markets “always work perfectly.” Such a creature is imaginary. Not Adam Smith; not F.A. Hayek; not Milton Friedman; not Vernon Smith; not Deirdre McCloskey; not your frequent contributor, Phil Gramm; not anyone of any stature who supports free markets has ever grounded that support on the assumption of perfect markets.

The case for free markets—and against nearly all interventions desired by today’s populists—is that markets are less imperfect than governments. Most market imperfections are profit opportunities that in time attract entrepreneurs to experiment with ways to improve matters. Some experiments work, many fail. Unlike government officials, private market actors spend their own money and have no power to coerce.

Markets identify and correct mistakes more quickly than do governments, are less prone to be captured by interest groups and are more driven to strike trade-offs in mutually advantageous ways rather than in ways that compel some individuals to pay for the gains of others.

Prof. Donald J. Boudreaux

Mercatus Center, George Mason U.

Fairfax, Va.

Mr. Hubbard is right to seek a balance between promoting “economic growth and living standards” and “protecting jobs and communities.” But he frames the point in ways that tilt the playing field in favor of progressives.

Mr. Hubbard contends that “markets don’t always work perfectly.” This is a needless concession to a technocratic view that inherently favors bureaucratic discretion. Markets create as much wealth as possible, given the constraints of resource availability and public policy. This is neither good nor bad. It just is. As systems theorist Stafford Beer recognized, “The purpose of a system is what it does.” Insisting on market imperfection judges markets based on irrelevant standards.

This is no mere semantic dispute. Mr. Hubbard’s paradigm inadvertently empowers regulators, who can always justify their meddling by claiming they want to make our economy fairer and more competitive. A better paradigm recognizes that, although markets reliably generate wealth, there are valid national interests beyond wealth maximization. Prudent statesmen should weigh the value of additional wealth against alternative moral goods.

Mr. Hubbard proposes to “assign specific goals to particular interventions.” This is wise. But it will work only if we stop comparing real-world markets to textbook imaginings. It makes no more sense to blame markets for not protecting jobs than to condemn a hammer for not being a screwdriver.

Prof. Alexander William Salter

Rawls College of Business, Texas Tech

Lubbock, Texas"