For example, Uwe Reinhardt, an economics professor and advocate of government-controlled medicine, writes, “In short, free markets are not an alternative to rationing. They are just one particular form of rationing. Ever since the Fall from Grace, human beings have had to ration everything not available in unlimited quantities, and market forces do most of the rationing.”
Sadly, interventionist economists are not the only economists who talk this way. Most free-market economists would agree that where there is scarcity there must be rationing and that the most efficient way to ration is by price, that is, through the market.
This is factually wrong and strategically ill-advised. As we’ll see, markets-even completely free markets-do not ration. Thus the health care debate is not about which method of rationing–State or market–is superior.
This is from Sheldon Richman, “The Market Doesn’t Ration Health Care.”
I am one of those economists who has often claimed “where there is scarcity there must be rationing and that the most efficient way to ration is by price.” But Sheldon Richman’s article has talked me out of that on both grounds: it is factually wrong and strategically ill-advised.
I won’t bother repeating his argument here. He states it eloquently and tersely.
Immediate Update: I just noticed that Don Boudreaux already posted on this, writing:
No non-economist has taught me as much economics as has Sheldon Richman – and few economists have taught me as much economics as he has. Sheldon’s essay here just taught me that I have, until now, misused the term “rationing.” It’s an important lesson.
I would second that, except that there is one non-economist who taught me more economics than Sheldon Richman–a mutual friend of Sheldon and mine named Roy Childs.
READER COMMENTS
Ken B
Jul 17 2012 at 2:25pm
This is very congenial to my prjudices. But, what about emergent behaviour in markets? Take big complex asset markets and you get bubbles, power laws, etc. These are all ultimately the result of individual choices, but those choices are affected by the market. So a simple reductionism won’t do. If there is emergent behaviour in markets, and I have seen arguments for it, then saying the market doesn’t ‘do’ anything is won’t cut it. This is like saying we don’t need engineering if we know physics.
Ken B
Jul 17 2012 at 2:35pm
David occasionally airs his pet peeves about linguistic abuse. I take that as licence to air mine about ‘mutual’ friend. Two can have mutual admiration, mutual loathing, mutual obligations, mutual ignorance, but not strictly speaking mutual friends. Mutual means reciprocal.
David R. Henderson
Jul 17 2012 at 2:37pm
@Ken B,
If “mutual friends” is not the right term, what is? Would it be “friends in common?”
Ken B
Jul 17 2012 at 2:44pm
@DRH:
Hey, I don’t make the rules I just enforce them with unthinking fanatic zeal!
🙂
Yes, that would be a good term.
In the long run I expect to lose this battle btw. Charles Dickens has more sway than I have and must triumph eventually. But I recall you fighting some such lost cause as well.
Sheldon Richman
Jul 17 2012 at 2:52pm
Thanks, David! I do not mind placing second to Roy.
E. Barandiaran
Jul 17 2012 at 3:07pm
Earlier today Don Boudreaux posted two entries closely related to Richman’s view of markets.
First, Don posted this quotation of the day (from Sowell’s Knowledge and Decisions)
To “solve” [through government] some social “problem” is (1) to move the locus of social decision making from systemic processes of reciprocal interaction to intentional processes of unilateral or hierarchical directives, (2) to change the mode of communication and control from fungible and therefore incrementally variable media (emotional ties, money, etc.) to categorical priorities selected by a subset of a population for the whole population, and (3) because of the diversity of human values, which make any given set of tangible results highly disparate in value terms (financial or moral), pervasive uncompensated changes through force are likely to elicit pervasive resistance and evasion, which can only be overcome by more force – which is to say, less freedom.
http://cafehayek.com/2012/07/quotation-of-the-day-350.html
Second, Don posted the following paragraph as part of a letter to WSJ
But Smith and Friedman and other people of good sense understand also something that Mr. Obama does not. They understand that the agreements through which each of millions of people contracts to contribute to the production of coats and pencils and peas and policing and roads and barges and engineering textbooks and on and on and on are not open-ended. Selling wool to tailors does not thereby give shepherds an open-ended claim upon the wealth of coat owners. Government’s success at persuading taxpayers to fund the hiring of more teachers and the construction of new highways does not thereby give government (or teachers or highway workers) an open-ended claim upon the wealth of private citizens who benefit from these teachers or who use these highways.
http://cafehayek.com/2012/07/a-society-of-contract-or-one-of-status.html
James Wilson
Jul 17 2012 at 3:37pm
Who knew that Sheldon Richman is not an economist?
Chris
Jul 17 2012 at 3:46pm
@ James Wilson:
Agreed. I guess since he’s not PhD Econ, but what do I know. Far as I can tell, the man has been applying and spreading good economic thinking for many years. Seems enough to call him “economist”.
david
Jul 17 2012 at 3:51pm
The problem with this sort of essay is that, gauging from the history of left-wing movements, whenever you convince a statist that markets don’t do anything, people do and people have these fundamental rights to justly-earned property, they never seem to renounce being statists. Faced with a choice of violating fundamental rights and retaining their policy goals through state action, they go with the latter and deny the legitimacy of any of the right altogether.
So they just become a little less enthusiastic about regulation – but far more enthusiastic about words like “nationalization” and “seizure”.
Tom West
Jul 17 2012 at 4:48pm
I found the piece a reasonable attack on the stretching of the word “rationing” to suit the political ends of the left.
Two points, however:
It is simply a legal framework in which people do things with their justly acquired property and their time in order to pursue their own purposes.
“Justly”?? There’s nothing inherent about markets having to be just. Slave markets existed for thousands of years. Markets are simply a transaction mechanism.
Second point: david is right. If the idea of the markets being simply a mechanism took off, you could see some nasty attacks from the left.
“To whom should you trust your fate? The government, that *you* elected to serve *your* interests, or a market that is literally incapable of caring. A mechanism that by definition cannot have human welfare as a goal.”
Total claptrap, of course, although technically accurate (mechanisms don’t care and don’t have goals), but quite possibly rhetorically effective.
MingoV
Jul 17 2012 at 5:37pm
Sheldon Richman wrote: “The market does not do anything…. It is simply a legal framework in which people do things with their justly acquired property and their time in order to pursue their own purposes.”
If one uses that definition of market, then markets don’t ration. However, I believe that the definition of market includes the people making exchanges, not just the legal framework for the exchanges. If one accepts this definition, then markets do ration.
Greg G
Jul 17 2012 at 7:48pm
Now I am not a libertarian but one thing that always surprises me about libertarians is how often they want to redefine common and important words away from the common usage of other English speakers. Don’t get me wrong. I’m OK with it. I am for free speech and and all. I just don’t understand why you think this is an effective way to spread your ideas.
Language is entirely conventional. And it is arbitrary. That is why different words are used to refer to the same thing in different languages. When people who aren’t libertarians realize you are sometimes speaking a different language, they tend to react by tuning you out. Couldn’t you make the arguments you want to make by just avoiding the words you feel have ben corrupted by the majority of English speakers?
There is one important detail about the word “rationing” that I think both sides of this particular skirmish are missing. The word, in fact, is not normally used to describe all situations where there is a limited supply of something that people want more of. It is normally only applied to things people think are critically important and in short supply.
David R. Henderson
Jul 17 2012 at 9:13pm
@Greg G,
Now I am not a libertarian but one thing that always surprises me about libertarians is how often they want to redefine common and important words away from the common usage of other English speakers.
Exactly, Greg. And that was why Sheldon wrote his piece. Libertarian economists have been sloppy, by and large, using the word “rationing” in a way that average people don’t. Sheldon was writing to correct that.
When people who aren’t libertarians realize you are sometimes speaking a different language, they tend to react by tuning you out. Couldn’t you make the arguments you want to make by just avoiding the words you feel have been corrupted by the majority of English speakers?
Again, on target. And Sheldon was advising us not to use the word “rationing” in a way that normal people don’t. When I would use the word “rationing” in class to describe how goods are allocated in a market, I would get a quizzical look and then have to explain. Sheldon just saved me the detour.
Thomas Esmond Knox
Jul 17 2012 at 9:43pm
“Allocative Efficiency of Markets with zero-intelligence Traders: Market as a Partial Substitute for Individual Rationality” Gode & Sunder (JNL POLIT ECON 1993 #1)
http://www.jstor.org/discover/10.2307/2138676?uid=3739832&uid=2&uid=4&uid=3739256&sid=21100952809423
[format edited for clarity; url supplied; with permission of commenter–Econlib Ed.]
Mike W
Jul 17 2012 at 10:02pm
“When I would use the word “rationing” in class to describe how goods are allocated in a market, I would get a quizzical look and then have to explain. Sheldon just saved me the detour.”
So…now you’re going to say “allocate” rather than “ration”? Oh yeah, that’ll change the whole issue. Why would liberals not just say, “OK then, the market “allocates” in an inequitable manner and therefore we need government to compensate”?
I had higher hopes for the Richman piece before I read it. It’s really just like Clinton defining “is”.
Greg G
Jul 17 2012 at 10:07pm
David,
I think you misunderstood the point I was trying to make. I think the average person would be entirely comfortable using the word rationing to describe how healthcare is allocated by the market.
And I do not believe that this is because the average person has some strange belief that the market has purposes and intentions of its own. The average person thinks of rationing as a method of deciding who gets critically important goods or services services that are in short supply, especially when the availability of those services can be a matter of life or death. This is why people are inclined to think that health care is rationed but not inclined to think vacations are rationed even when they would like more than they can afford of both.
David R. Henderson
Jul 17 2012 at 10:28pm
@Greg G,
You’re right that I didn’t understand the point you were trying to make. But I think I understood the point you did make. I think the average person would not think a good sold in a market undistorted by huge subsidies and/or price controls is rationed.
Greg G
Jul 17 2012 at 10:52pm
David
It may be true that in an imaginary world where the healthcare market was undistorted by huge subsidies and/or price controls people might not think of health care as rationed.
However that’s not how it is on this planet where all modern healthcare systems are in fact distorted by huge subsidies and/or price controls and health care is allocated with a messy mix of rationing by governments and markets.
David R. Henderson
Jul 17 2012 at 10:56pm
@Greg G,
It appears that we agree.
Silas Barta
Jul 17 2012 at 11:07pm
@Tom_West:
Oh, tell me about it! Four years ago I was unable to have a productive discussion with other libertarians (mainly Bob Murphy) on AGW & Cap/Trade because they couldn’t accept that a “market” can have property rights that they disagree with and still be a market. So, for example, Cap/Trade can still be a “market solution”, even if you think it’s a bad solution, or that the rights shouldn’t have been assigned that way.
Predictably, they refused to answer exactly that question: “Is a slave market a market?”
The general form of the fallacy is:
1) I like markets.
2) I don’t like X.
3) Therefore, X doesn’t involve a market.
And I still don’t see the point of nitpicking the use of “rationing”, especially when the context of the argument is well defined and valid (here, that the ability to provide health care is limited in the aggregate). It’s like debating whether US Dollars are “really” “gift certificates to the Unites States market”.
Sheldon Richman
Jul 18 2012 at 7:32am
MingoV wrote:
>Sheldon Richman wrote: “The market does not do anything…. It is simply a legal framework in which people do things with their justly acquired property and their time in order to pursue their own purposes.”
>If one uses that definition of market, then markets don’t ration. However, I believe that the definition of market includes the people making exchanges, not just the legal framework for the exchanges. If one accepts this definition, then markets do ration.
Please reread my article because I addressed this as my central point. It is precisely because the market consists in people making exchanges (within the specified framework) that the word “rationing” is inappropriate for what “it does.”
Mike W wrote:
>So…now you’re going to say “allocate” rather than “ration”? Oh yeah, that’ll change the whole issue. Why would liberals not just say, “OK then, the market “allocates” in an inequitable manner and therefore we need government to compensate”?
I included “allocate” in my catalog of imprecise words. People allocate their own resources when they make budgets, etc., but The Market does no such thing. It’s the same fallacy.
Greg G wrote:
>When people who aren’t libertarians realize you are sometimes speaking a different language, they tend to react by tuning you out.
I agree that language is conventional. But where do you get the idea that people think markets ration? Despite economists’ having said this for years, I see no evidence that people actually think that. I’ve never heard a lay person talk about market rationing. People are far more in tune with the micro aspects of markets than the abstractions and metaphors macroeconomists concern themselves with. When regular people hear descriptions of competitive markets in Austrian terms, they readily nod their heads because those descriptions faithfully accord with their everyday experiences.
The current health care system is certainly no refutation of my point. Heavy government intervention indeed introduces elements of rationing into the fettered market. But it certainly is not The Market that is doing the allocating. Rather it is particular firms and agencies operating under incentives created and enforced by the threat of state violence.
Greg G
Jul 18 2012 at 8:34am
Sheldon,
Our language often uses verbs to describe processes that occur with “no purpose or objective.” And it does so with little confusion. We routinely use verbs of all types to describe things like weather, natural selection, the progression of an illness etc.
The thing these usages all have in common is that they refer to processes, not conscious agency. Luckily today it is rare to hear lay people talk of rationing of any kind. If I ever, even once, run into a person who thinks that markets really have conscious purposes and objectives I will reconsider your point. So far it hasn’t happened.
Greg G
Jul 18 2012 at 8:43am
I just realized that when I said above that “Our language often uses…” I inadvertently provided another example of how routine it is for us to use verbs without anyone believing that conscious agency must attach to the usage.
R Richard Schweitzer
Jul 18 2012 at 10:51am
Participants in exchanges seek results by engaging in exchanges.
Exchanges (the acts of exchanging) have results.
The results are not caused by the exchanges that occur, they are caused by the actions of the participants.
As said, “Markets” are nothing more than a description of the actions of participants in seeking results by attempting exchanges.
One can attempt to analogize the procedures followed by participants to “mechanisms,” but, it is never more than an analogy.
MingoV
Jul 18 2012 at 5:23pm
This entire argument depends on the definitions assigned to market and rationing. Here’s my simple example.
There are only 10 widgets available for sale from a vendor. There are 100 people who want to purchase a widget.
Rationing (by all common definitions) occurs when:
1. A government agent tells the vendor what price the widget will sell for and chooses which buyers will get one.
2. A government agent tells the vendor what price the widget will sell for and buyers are chosen by lottery.
One definition of rationing is the controlled distribution of scarce resources.
By that definition, rationing also occurs when:
3. The vendor auctions each widget.
The auction method of sale (conducted in a free market) determined who received the scarce widgets. Thus, the widgets were rationed within the free market. Market rationing was the better choice: it was not as restrictive and coercive as examples 1 and 2. But, by at least one definition, it was still rationing.
Mike W
Jul 18 2012 at 8:33pm
@Sheldon Richman, “I included “allocate” in my catalog of imprecise words. People allocate their own resources when they make budgets, etc., but The Market does no such thing.”
So liberals would say, “Ok then,
markets “result in” inequitable allocations therefore government intervention is necessary”.
Your arguement is a distinction without a difference…academic navel gazing. Krugman would eat your lunch.
Thomas Esmond Knox
Jul 27 2012 at 2:07am
“Sheldon Richman wrote: “The market does not do anything…. It is simply a legal framework in which people do things with their justly acquired property and their time in order to pursue their own purposes.””
This may be another definition of “market” but it does not seem to fit physical markets such as livestock markets, where there is plenty of “doing” going on.
In addition, if a market participant is not subject to a “budget constraint” then that market may not be allocatively efficient; whereas if all market participants are subject to a budget constraint then the market will be allocationally efficient.
Many economists have little intuitive knowledge of markets.
Comments are closed.