Russ Roberts

Marglin on Markets and Community

EconTalk Episode with Stephen Marglin
Hosted by Russ Roberts
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Stephen Marglin of Harvard University and author of The Dismal Science: How Thinking Like an Economist Undermines Community talks with EconTalk host Russ Roberts about the markets and community. Marglin argues that markets and commercial transactions undermine the connections between us. He wants people to pay more attention to what is lost and not just what is gained by the pursuit of material well-being. Topics discussed include the nature of community, the role that voluntary associations play in our lives, the costs and benefits of mobility, the role of insurance in reducing our dependence on each other, and the nature of knowledge.

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0:36Intro. EconTalk survey on Main page. Attack on methodology of economics. What is harmful about economics? Crime of undermining community. The main actor is the market system--not individual markets, but a system that not only allocates goods and services but shapes us as people. In addition to the market, the state has played an important role in undermining community at least since the French Revolution. Worst when state and market get together, and state uses the market or market forces use the state. Unholy alliance between market and economist. What do you mean by "community?" One sense is neighborliness, fellow-feeling; another sense is about neighborhood, your town, your village. Bedroom community, oxymoron, no connection with each other. Principle distinction is between community and association. Associations like PTA, Knights of Columbus, Temperance Union: join for mutual goal, leave if it is not accomplishing it for you. Community: can be born into a community and may not have a choice about joining. To leave a community, there is always some cost, unlike leaving an association where you can just decide one day to leave. May be a neighborhood, commitment. Notion of identity in community is central. More examples of associations, more glamorous: local synagogue or church, group of people with whom you interact temporarily on the Internet. May have aspects of community. Really a spectrum. Sociologists call it "ideal types." Religious organizations were in the past more of our communities. Many have transformed into associations today. Chapter 2 of book, 13th century Jew who wanted to leave his village, but to do so would have left the Jewish group without a minion--the ten men required for certain prayers. Leading Rabbi of the day ruled that the man could not leave unless he found a replacement. Quintessential community. Unthinkable today; and not recommending this.
9:38Is capitalism destroying those communities? How would you know that what has been lost or gained in that transition is good or bad? Up to the individual. Two-fold argument: The balance has shifted markedly since an earlier time, and not in a way that favors people in their humanity, their relations with other people. Second, argument is really about economics. Economics's basic assumptions blinds economists to communities because it is based on individuals. Economics can take account of association, but not community. There is only one community for economists--the community of the nation-state. No other community has any meaning for economics. Use term "undermining" rather than "destroying." Economics is the facilitator, accessory before and after the fact. James Buchanan on clubs. Modern theoretical economics is strikingly sterile in its limits to talk about some of those things, which are the sources of deep joy. But Adam Smith was deeply interested in these issues--perhaps for the better he didn't put them into a utility function, which didn't exist in those days. He argued that the market economy enhanced our fellow-feeling. Marglin: I disagree with Adam Smith. There is a lot of wisdom in the Wealth of Nations and the Theory of Moral Sentiments. Smith makes the classic argument, one of his most quoted sentences: That it is not to the fellow-feeling of the butcher and baker and brewer that we look for our sustenance; it's to their interests. Implicitly: this way we economize on the scarce resource of fellow-feeling, which we can then apply in better circumstances. But if you don't use it you lose it. Economizing on love comes from a quote by Dennis Robertson. Larry Summers made a similar argument. Smith argues the difficulty of empathizing with the victims of a Chinese earthquake. Real issue may be time.
19:21Source of underlying community. Smith pointed out that the division of labor is limited by the extent of the market. What is undermining community is two things: specialization that encourages us to find stuff from far away and strangers. The other is mobility. Or is it deeper than that? Off the cuff. Example of general argument: Insurance. If my barn were to burn down I'd call my agent who would send out an adjuster and he'd cut me a check. I'd hire a contractor who would hire subcontractors. How is it still done by the Amish? Harrison Ford movie, "The Witness," great scene, happy guys putting up the barn, exercise in nostalgia. But there is a serious purpose involved: it reinforces all the ties of affinity that hold people together. Economists will generally say yes but there is survival of the fittest and it's more efficient to use subcontractors. If you are interested in barns or in the individual who uses the barn, the economist is right. But if you are interested in the community of people who use those barns, then the Amish position of not allowing insurance, rejecting the market when it undermines the community, is something we can learn from. Lesson is that markets ought to be scrutinized for what they do to community. NAFTA, free trade should be subject to a scrutiny of what it does to the community. No effective provision for that in our governance or in our modern society. Four kids, blessed to receive dinner every night for about two weeks from members of our synagogue. Some people are busy and buy a meal, but most cook their own. Inefficient, but something special about it. Question of balance. Amish versus communes stemming from the 1960s: as soon as you ran into some difficulty, the communes would split. No shared tradition or sense of values. Might need some set of religious or quasi-religious values to give you shared convictions to help you get through the difficult times. Kibbutz movement in Israel has struggled. Mobility: How do you keep them down on the farm after they've seen Paree?
29:38Trade and scrutiny. Who is going to do the scrutinizing? Politicians are not particularly benevolent. How might we structure the scrutiny to make sure it doesn't fall prey to special interests? No good answer, but maybe the book will stimulate conversation and real answers. Larger role for local government and local organizations on whether plants can just shut down and move to Mexico or China. How do you balance the various interests and concerns? But it's a different question when posed this way. Preaching: could encourage people to buy local and to make economic choices accordingly. Ironically, that solution is part of the individual choice paradigm. Solutions are not either/or. Capital, the corporation, currently it's a business decision where to produce things that local communities have no role in even though they will be severely impacted. Washington Post, Dana Milbank, op-ed contributor, what happens when people take economists' advice seriously: lose your job, follow the money. Follows what happens to a family as they take this advice, and it leads to all kinds of problems. Relocating makes it hard on the kids, the parents, and even the family dog had to be shot because there was no room for it. Story in early 1990s. Question of balance. There are gains from mobility, but we don't take account of the losses and have no real way of doing it. Don't necessarily take the job that pays the most money. Economics does try and capture these kinds of things.
39:21Mobility. Moving a lot as a kid can mean not having close childhood friends. Mobility takes a toll on both the community left behind and those who move. Immigrants leave behind friends and family and raise kids who have different values. But the gains are so glorious that it's worth it. Lots of students from all over the world. Aren't people aware of them? NAFTA: doubtful that the vast number of economists who signed petitions in favor of legislation had read the legislation, economists who just believe they should be in favor of free trade.
42:11Knowledge and experience; equilibrium analysis. Tangent. Various kinds of knowledge that we as people deploy. Two of the kinds: algorithmic and experiential knowledge. Algorithmic, Euclidean geometry, axioms, self-evident truths plus rules of logic, powerful conclusions, remarkable, rational deduction. Horses have a lot of experiential knowledge, know who is afraid of them and who is comfortable with them. As human beings we have both kinds of knowledge. Economics takes algorithmic knowledge and argues that that is at the very least the most respectable and at the most the only kind of knowledge. Pure ideology. May not be wrong but it's not proven. Dogma. Peculiarly modern, Western dogma that economics has taken over. Community: experiential knowledge is encoded in community, always about relationships and can't be separated from community. Algorithm thrives in an individualistic context. Equilibrium theory, important tangent: Economics is impoverished even on its own terms in terms of trying to understand a world that is largely individualistic. Peculiar ideology of knowledge enfeebles economics as a tool for understanding.
47:49Take Friedrich A. Hayek, "Use of Knowledge in Society"--paper was written in response to a debate about the economic feasibility of socialism: could you have an efficient allocation through a top-down socialist economy? Oskar Lange and Abba Lerner argued that you could--virtual markets with computers, doing it all on paper but being able to achieve the results of markets. Hayek's intervention in this debate would be to say that that understanding of the market as an analog for a computer is based on a faulty knowledge. Lange-Lerner view assumes that all knowledge is algorithmic, soluble like the Pythagorean Theorem. But a good part of knowledge is experiential. Keynes, Schumpeter. You don't know till you are called upon to act so you can never have the knowledge in advance to articulate it in the Lange-Lerner way. People sometimes miss this point and mistakenly think Hayek's point was that computers just can't be that big. Cooking example: I can tell you what I put in it but I can't tell you how much till I do it. We don't have the words always. Irony is that economics profession regarded Hayek as the loser in that debate. Pro-calculation people were viewed as the winners in that debate, which had a lot to do with the development of general equilibrium theory, which in turn reinforced the idea that the market is an analog to a computer. Markets in fact capture information and do it better. Why then is Marglin not a Hayekian? Have to temper enthusiasm: What is it that the market is actually doing so well? It's producing more and more goods. In large parts of the world that's still the prime necessity. In the U.S., though, we have plenty of goods, enough to lead a dignified life. Why is enough never enough? Dismal science, what does pursuit of more and more does to our relationships? Threatening a fragile and delicate ecology--may be true. Threatens a delicate ecology of human relationships.
57:50Ironically, Hayek was very aware, in The Fatal Conceit, championing the extended order of the market economy. Felt we had to be of two minds, interacting with our friends and loved ones differently. Dangerous to extend either realm into the other, though we may disagree where to draw that border. Equilibrium theory. Samuelson, modern economics born with 1948 Foundations of Economic Analysis, subsequent mode, Arrow, Debreu, welfare analysis created a very Hayekian conclusion. Under certain conditions, letting people make free choices, everything turns out perfectly. Wrong, but at the time it was a defense of capitalism; but it also opened the opportunity to ask what if the assumptions didn't hold, which allowed a critique of free market capitalism. Sterility issue agreement, and reliability of traditional welfare economics. So where do we disagree? Probably disagree on where the boundaries should be drawn. "Circle of we"--Marglin wants to push that circle outwards and not limit it to close family and friends. You want to draw a firmer line between the libertarian argument for markets per Hayek and Friedman and the mainstream of economics which is not libertarian. The arguments of welfare economics are not libertarian, all about the biggest pie. Pareto-optimality, efficiency, eliminating waste, how to make the pie bigger. This is not the libertarian argument. Grounds of the argument are clear to both of us: the tension between the individual and the community. For the economist there is no tension because there is no community. Harberger welfare triangles, goal of good economic policy is to make the pie big. Austrian. Economist as engineer. All about Keynes. Sham, fantasy.

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COMMENTS (43 to date)
Andy Kneeter writes:

I disagree with Stephen Marglin's premise that embracing economics nurtures cold, materialistic values at the expense of community values. While much of my experience with economists is through Econtalk ("Thank You"), I find most of your guests to be thoughtful on the human forces driving economics.

Economics is the study of the motivations for all kinds of human transactions, not just monetary ones. Unregulated markets ultimately make peoples lives better (materially & socially).

The societal problems Marglin identifies are the result of the "unintended consequences" of governmental meddling in markets. Life's necessities that are becoming increasingly unaffordable are the most regulated, discouraging capital investment in innovative businesses that would drive down prices, increase choice & quality (i.e. - healthcare, energy, housing, etc...).

To improve lives, governmental regulation should be minimized to encourage capital flow into new businesses. New businesses compete for talent, creating better employers that are friendlier & better paying. Technological evolution provides wide-spread self-employment opportunities to millions, resulting in both greater wealth & personal independence (Dan Pink's Econtalk podcast addresses this). Markets make for better lives on all levels, not worse.

Competition from free trade creates unpleasantness in lots of people's lives, but overall, it's a net positive on society. Restricting competition makes us all poorer by raising prices (it's effectively as destructive as a widespread tax).

Communities still thrive in modern society, though competition makes them more accountable to their members. If people don't embrace them, it's by choice, not the fault of economics.

scott clark writes:

Once again, good job, Russ.

You showed remarkable restraint in not attacking Prof. Marglin's weaker arguments. It seems a shame that he would attempt to roll back the important insights gained from methodological individualism, and that he would feed into outside economic prejudice that this science is all about materialism.

Not to mention that the revealed perferences of most of the actors in the market is to rely on and participate in the extended order of the market and enjoy the gains thereof. Even in the insurance/barn raising example, the Amish pool their risk in the community, and pay the policy off with their direct labor, in the insurance market you have pooled risk through a community 10,000x larger and more diverse and a policy is paid out from premiums. The only difference is that Marglin finds the former romantic and the latter calculating. I find the latter to be wildly ingenious, a marvel of trust, cooperation, and coordination. Marglin's academic time would be better spent, I believe, the way Russ spends his academic time, pointing out the rhythms and melodies that undergird the market, subtle music that can be missed if you are not listening for it.

Marglin might need to sit in on one of Tom Rustici's lectures.
http://www.gmu.edu/departments/economics/faculty/trustici.html

Rustici has a lecture about the power of markets which features the refrain about how you need these strangers in your life in order to enjoy anything like a modern day standard of living. Now that is a community.

Marglin has a feeling that something has been lost, he thinks it may have something to do with being part of a defined and distinct community, but I just happen to think he is off base here.

Peter Bullock writes:

Thank you, Russ, for reaching out to interview economic thinkers who are possibly outside the libertarian mold, in which I expect most of your listeners, and certainly myself, are more comfortable.

Although I probably do not agree with many of Stephen's positions, I found your interview with him exceedingly instructive, and surprisingly comforting - for the following reason.

Personally, I have been preoccupied by the obvious dichotomy in world views, which Thomas Sowell so ably characterized in his "Conflict of Visions". But how to resolve this conflict? For years now, I have not been seeing any pathway that might lead to resolution of this fundamental conflict of visions among people. In other words, I continually see libertarians and progressives talking past one another and never communicating - to the detriment of both, I might add.

Suddenly, like the strike of a lightning bolt, your two most recent interviews - this one with Stephen Marglin and last week's interview on Rathonality with Vernon Smith - seemed to have illuminated that pathway considerably, which has been so elusive to me for so long.

Last week Vernon Smith pointed out that individuals are not optimizing their materialistic utility, but rather individuals are optimizing the totality of their desires - which include social needs just as much as economic needs. In today's interview, I think Stephen is arguing much the same point. In fact, I suspect the two might hold considerable agreement on this point, though they may be phrasing their language differently. I suspect both may be equally critical of the simplistic models, which the social science professions use to characterize individual motivation and behavior. That simplisticness may be at the root of much of this conflict of visions.

I am exceedingly grateful for the effort you make in providing these incredibly valuable educational resources to those of us in the general public. I am currently going back and listenting to all of your archived interviews. I am also broadcasting to all my friends and acquantences who might have an interest: how fabulous the EconTalk interviews are. You are creating an incredibly valuable resource for society, and I thank you for sharing it with us.

LemmusLemmus writes:

A premise that either of you seems to be taking for granted is that "community" is necessarily a good thing.

True, it has positive consequences, some of which you mention. But the downside is higher amounts of monitoring, which limits individual freedeom. That's a good thing if this concerns actions that limit third parties' freedom (e.g., rape), but if we're talking about neighbours putting you down about, say, the clothes you wear, it's not.

Mark Koyama writes:

Excellent podcast.
I wrote a post on Marglin's book a few weeks here that might be interesting
here and your podcast has stimulated me to write another one!

[Fixed link. (You left out the final quote mark the first time, and added a slash after the html the second time.)--Econlib Ed.]

Unit writes:

First, a joke: Marglin's argument is undermining the community of economists!

Second, a puzzle: individuals belong to many different communities that only partially overlap. My understanding was that the "market" is the union of all such communities, i.e., it's the totality of all voluntary exchanges in society. So how can one possibly pit markets against communities?

Third, a critique: Marglin's arguments are too anecdotal. To everyone of his examples one can produce a counterexample, e.g., I just see how easy it is for me to keep in touch with my high-school friends as opposed to my parent's generation.

enronal writes:

The previous posts are on the mark. I would add that Marglin's argument foundered and sank 29 minutes into the discussion when Marglin said the "applications of markets should be scrutinized." The use of the passive tense is revealing, because as Russ asks, "who's going to do the scrutinizing?" Marglin has no answer. History suggests a few though: When the scrutiny is structured by people who have a better model than the individuals trying to live their own lives, the result ranges from stagnation, as in, say, Argentina--the richest country per capital in the Western hemisphere 100 years ago--to murderous tyranny, as in say, Stalinist Russia or Pol Pot's Cambodia. All Stalin and Pol Pot were trying to do was create better communities, after all. To do so, of course, you had to kill some fools with outmoded bourgeois ideas, but you have to break eggs...

Marglin love the example of the Amish community--but hastens to say he wouldn't want to live in such a community. Would they have thought three horses (the number Harvard Prof Marglin has on his farm) were excessive? Other models beckon. How about Iran, or Saudi Arabia, which have found substitutes for the dismal models of economists?

Justin R writes:

I learned a lot about economics in this podcast that I did not learn in the course of my PhD in econ. For example:

1. Economists ignore the community - I guess I was confused by the field of urban and regional economics, the models of community and peer effects (Google Scholar the names Hoff and Sen), as well as the robust literature on social capital and the use of local knowledge.

2. Economists define self-interest in terms of maximizing consumption of "goods and services" - I always took "goods" to serve as a metaphor which were things that made us happy. I thought this could be anything as there is no accounting for preferences. I guess it could be anything except community involvement.

3. Communities are helpless actors in the Market - I guess I was confused by Fischel's research with zoning as a collective property right among municipalities.

4. Markets discourage helping others - Here I thought the best way to succeed in Market Economies over the long run was to build mutually beneficial relationships.

5. Some entity is walking around out there "the market" and economists are the ones who have ensured that it runs the world. - If only.

Tony Lekas writes:

The author says that communities are groups of people that you would suffer a loss by leaving. That is true to some degree of any association. I don't really see a distinction. I have a number of "circles" of people that I interact with. Most of them are groups of friends and/or relatives that I would suffer a loss by stopping my association with. There are also costs to maintaining the associations/communities but the benefits out way those costs.

The author's indictment of markets implies that without large scale markets people would be forced into closer interdependence with those physically near them and that this will result in a "community" which will have benefits that will be greater than the what is lost by forgoing the larger markets. That is a romanticized view of such communities. While they can have real advantages they can also become oppressive and limiting.

I see government as a greater threat to community. Welfare programs discourage private charity and the dependence on family which certainly reduces the incentives to have strong communities. Zoning makes it harder for people to do their business at home or near their homes and tends to create the bedroom communities the author decries. I could come up with many other examples.

While the author denies it, I get the feeling that he wants government used to "force" people into the sorts of communities that he believes is best for them. If I was convinced that he only wanted to achieve this through education and persuasion that would be fine. There are certainly people who would do well to reflect on how they live their lives and to reconsider their priorities. While I could be wrong, the impression I got was that the author would not stop at that. In particular his opposition to free trade clearly is a call for the use of government force to prevent exchanges people want to make.

I live in the US. If we still had a very limited government, especially federal government, we could have this discussion and I would feel secure in knowing that the author could not start a "return to community" movement that could turn into more government oppression. For our own good of course. However I can not be confident of that and the result is that I have a visceral negative reaction to the authors argument even though there is much that I agree with him about. Utopian government social engineering has a horrible history and this feels too much like that.

Mark Koyama writes:

As Russ notes, open, market based societies create associations and social capital aplenty. The point I got from the podcast is that what they seem to create less of are binding communities which are very costly to exit from.

Now is this a good thing or a bad thing? I know Marglin states that he doesn't think one can analyze the extent of community quantatively. But I think that revealed preference demonstrates that most (not all) people wish to leave these when they have the opportunity. This indicates that on balance many people prefer to live in more open societies with looser associative ties. Now there is no counter-veiling evidence in favour of community. Very few people choose as adults to become Amish for instance. Instead what we have a lot of people effectively saying “look aren’t old fashioned communities picturesque”. This is cheap talk. It does not mean that these people actually want to live in communities like this it just means that they like the idea of other people living in such communities. Marglin does not make the mistake of romanticising of a past that never existed but he does not have strong evidence that people on balance want to have more community and less of the market.
transactions between individuals.

Miles Stevenson writes:

I really wasn't impressed with Marglins' insights into destructive markets. From the beginning of the conversation I wasn't satisfied with his definition of "community" in the first place so it was difficult for me to understand the argument he was trying to make without understanding the subject of his argument. But from what I was able to gather from his talk, I think he was arguing that free markets destroy the power that special interest groups have over individuals and that it is a *bad* thing to do so because special interest groups don't end up getting what they want? Or is it because we lose our souls or something?

It's unfortunate to see an economist fall into the same traps that I think the general public does in their understanding of economics, which is the misunderstanding that because a free market does not require everyone to love each other and get along to be successful that it somehow turns us against each other socially and destroys our human relationships.

I don't know, I feel like I just heard a biological scientist say that evolution is nonsense.

mauricio flores writes:

great podcast! I really liked the last points that Russ and Marglin made, the pie maximation problem, and whether socialism and planning or free markets can maximise the pie. The thing is that none of them can actually maximise the pie to reach its maximum size, but free markets and willing interaction between individuals in the market place DO maximise a lot better than concious planning can do. That's exactly the point...and without denying anyone a real choice to how to live their lives.

Marglin argued that, there is a value in "community" (a rather difficult term to grasp for me, i mean, aren't we a community of people with common interest in economics, interacting with each other on the internet?), but still, people obviously should be free to choose whether to live amish-style with a lot of collectivist interaction OR to choose to live a urban lifestyle without the collectivist factor and enjoy the products of the free-market, that obviously has a value, otherwise, if people really enjoyed the hard life of people in the 18-century then we probably would be living in exactly the same conditions...BUT humans chose not to because there is a value on market-interaction and the products from it.

Marglin also argued for the community to have something to say if a factory decided to move production to some other place where it is more profitable, where i live in Norway , we already have a lot of state intervention doing exactly that! but people still choose to move down to the city and search for a better life.
again, great podcast...

May So writes:

Marglin’s thesis that free markets undermine community is a typical manifestation in economics of the community vs. liberal individualism argument made from the communitarian’s perspective. Marglin’s arguments misrepresented the liberal view as selfish, neglecting the ways individuals are socially constituted and the significance of communal relations, shared values and common identity.

The title of his book and his critique assumed a homogenous economic worldview/system of analysis, yet I found his arguments related more specifically to the analytical tools of the mainstream neoclassical model of economics (self-interested individual, utility maximization) and hyper-consumerism (a certain extreme behaviour in free markets). How he causally connects the analytical practices of economics and the breakdown of community (which was also not convincingly argued or proven) was unclear.

Contrary to Marglin, I find much optimism in post-neoclassical methods and models (endogenous growth models, behavioural economics, bounded rationality, emergence, institutional economics, etc.) for the relevance of economics as a lense for analyzing social phenomena. Such methods take into account that individuals are social beings and that their social and institutional contexts (family, community, firms) may not follow free market principles and localize free market behaviour. Examples of economic analysis and principles operating within specific social contexts can be found in the work of people like Dani Rodrik, Karol Boudreaux and Muhammad Yunus, which highlight that free markets do more than produce more goods, but that they create wealth to lift people out of poverty.

Floccina writes:

A democrat friend once told me that he did not want drugs legalized because it might lead to shunning of drug users and thus much stricter, more oppressive enforcement than we have today. I would have liked it if you had touched on this side of things.
BTW I am for legalization of drugs. I do not agree with my democrat friend.
Thanks for the podcast.

Floccina writes:

PS Also some democrats say a similar thing about welfare and SS that they allow people to escape from bad families/communities.

James writes:

Marglin sounded like a classic conservative-in-liberal-clothing. I would make these points against him:

1. What he is calling analytic knowledge can be more generally refered to as explicit knowledge. This type of knowledge is actually fundamental to communities and social life. This is the type of knowledge that is communicable, thus it provides a value to community. Karl Popper and others have made the observation that purely analytic knowledge actually has a very "public" character to it. Newton's laws are owned by everyone, in a sense, they are not "individualistic" as Maglin claims. It is actually experiential, implicit, uncommunicatable knowledge that is anti-social. If we focused more on this type of knowledge, the world would be a much smaller place. One would hardly be able to communicate with people outside one's immediate circle.

2. The biggest argument against Maglin's brand of anti-free-market conservatism to me is the fact that we don't know the full cost of trade barriers. What has the world lost due to isolationism and lack of trade? No one really knows, but the true cost is likely to be extremely large (as in thousands of years of technological stagnation). On the other hand, what are the costs of free-trade? The negative things he talks about. We understand those things, we know what we are paying and most of us gladly pay those costs.

3. Like many anti-market intellectuals, he harps on the idea that people in developed nations are essentially consuming too many "luxuries". That we are far past the point of "necessities". This is an incredibly naive argument that shows a disturbing lack of understanding of economics. There simply are no necessities and no luxuries. Every good has a subjective value and the more subjectively valuable goods the more value. What were considered "luxuries" 50 years ago are "necessities" today. Maglin actually brings up the topic of "necessary" medicines, he should have realized this was a terrible example for his argument. In 1,000 years their may be medicines that extend life hundreds of years. People will no doubt consider these to be necessities, but today we can't even imagine them. Who is going to decide what lifespan is "neccesary"? The whole idea is ridiculous.

4. If businesses know that a certain community will be able to keep them from closing a plant in the future, they will simply factor this in and be much less likely to build a plant in that community. This will have the effect of decreasing the size and/or health of the community. It is simply a trade off, and to act like one way or another is always better is again a naive position. There are probably many communities that would benefit from having certain plants closed, while others would suffer. Regardless, if you really were going to force businesses to stay open in a community, you would probably have to force them to open in the first place, in which case you would likely end up with a very socialist business environment. On the other hand, if you simply forced a company already in the area to stay open, what's to stop them from de facto closing the plant? They could transfer their best workers, fire the most expensive labor, reduce operating hours, etc. It seems like a slipperly slope to begin controlling business decisions at that level.

Russ Wood writes:

Great job Russ. You truly have great skills as an interviewer.

After listening, I line up on Russ's side. I see plenty of evidence community is not suffering due to markets. If anything, the makeup of the community is simply changed. The folks we interact with, and indeed depend on, may be spread around the globe, but we need them just as much as we did in our days of subsistence living (i.e., buy local).
We learned in a prior podcast from Mike Munger that free market itself limits individualism. Running a business in most industries requires a firm. Outsourcing everything leaves nobody to maintain relationships vital to business growth. The market seems to have figured out all by itself the importance of community.

muirgeo writes:

Great discussion once again. As with most things there are trade offs and living in a bedroom community of San Francisco where most people are commuting early in the morning to late in the evening the lack of community is very sad. Little sense of belonging or dedication to community can be found and certainly no one who could claim themselves indigenous.

This was impressed upon me when we visited the small towns in Northern Italy last summer. Notably in the lobby of the Hotel Rosengarten with its family crest dating to the mid 1500's, the pictures besides it with a huge crowd of generations all from the same family and the impeccably kept masterpiece of a cemetery with those hundred years since past and fresh flowers on their graves.

Phil writes:

Just a some quick thoughts on so-called bedroom communities.

1- If we didn't want to live in them, we wouldn't.

2- Tens of thousands of commuters in the New York suburbs and I presume other cities have formed "communities" on the trains and buses they take to and from work each day. College course have been taught on the Long Island Railroad, seminars held, etc. Not to mention the daily card games, business meetings, and "deals" that somehow happen because people are interacting between work and home.

3- Even in bedroom communities, we often get to know our neighbors on weekends, holidays, etc. Or, through our children's activities -- school, little league, dance classes, scouting, etc.

4- If I live in a bedroom community, I may also work in that community, many poeple do. Or, I may work in a larger urban center, thus forming a larger community with people from other towns, states, regions, countries, and continents. And these interactions make all of us richer.

I don't see how markets interfere with community. Maybe they allow us to simply choose different forms of community which are more suited to our wants, needs, desires, than the communities that Marglin prefers. Luckily, in a free society, we can choose the community we want -- be it a big city, small town, village, or shack in the woods.
If those choices require trade-offs, that's a lot of what economics studies.

Mr. Econotarian writes:

I liked the interview, because Marglin pointed out that "communities" which you are forced to belong to and basically enslaved into remaining in have been wiped away by the global acceptance of free markets.

Community cultures that harken back to the original environment of human evolution including tight family and clan ties, dictatorship of the "big man" of the tribe, sexism, racism and xenophobia _have_ been hurt by the free market and self-interested win-win market exchanges.

And that is a good thing!

It should be added that economists are not simply studying "money and goods" today, there is an evolving science of happiness as well as other behavioral economics studies to help us realize that the real utility function are not all about money.

Our utility functions may value altruistic interaction with family, friends and neighbors. We might not raise people's barns much, but I've helped friends move and enjoy sharing time and presents with family.

But these days in the West if your community wants to do an "honor killing" of you because you have been raped, at least you can escape your community! Not so societies that value community over individual freedom.

Person writes:

Are you kidding? He actually used a scene from "The Witness" as "evidence"? So, let's ignore all facts and figures from what we can perceive of the world and rely upon fantasy? Why does economics get such disrespect? Would someone say to a physicist, "yeah, your discipline is fine and all and does a wonderful job of getting results, but showing the way flesh interacts with flesh on a subatomic level is just too 'cold' and hurts intimacy." Give me a break.

I commend you for letting what's left of the opposing thought to have their voice here, but you do realize that we have to wait a week for each new interview? It really is a lifetime in the grand scheme of things. It's fine that these people have their dogma, but I don't think most people have time for their fallacies and fantasies. Please, please, please, just keep the superstars coming. We don't have much time. Friedman is already dead, and no one's getting any younger.

Thank-you for all of your work, and I loved your calm response to the anecdote about the father shooting the dog. Why not just kill the family, as well? :))

Tim Bugge writes:

Great comments by all.

The interview - Loved it, though it was heavy with "agreement". I trust you (Russ) to determine THAT balance.

Though it may not have been an "economics" question per se, I wish you would have pressed him to clarify HIS definition of community. Since his whole "argument(s?)" stemmed from HIS definition, it would have been nice to be able to address it. At no point in the interview did I understand his vision enough to consider it directly. Instead, and perhaps this was the best that could be achieved diplomatically, the conversation seemed to skirt around the edges.

I'm VERY interested to understand HOW these people (communitarian, collectivist, etc.) think, and see the world. I was raised in their world, "educated" by, and lived with them till I was thirty. Eventually I was driven out of that "community" because I could never find someone willing to go to "then what?"(Sowell). And in this interview Mr. Marglin DOES THE EXACT SAME THING!!

Russ - "How might we structure the scrutiny to make sure it doesn't fall prey to special interests?"

Marglin - "No good answer, but maybe the book will stimulate conversation and real answers."

What... as opposed the total absence of conversation on this issue and the FAKE answers this absence magically provides?

Seriously, there's something going on in this guy's head that I need to understand.

I want to know why someone in his position believes what he believes. Is there any book asking this question????

Tim Bugge writes:

... anna nutter ting!

How is the community's "interest" served by forcing a plant to stay open (or over-staffed) when it otherwise wouldn't be. Short term sure. Long term NO! And what about the opportunity costs to the WORLD COMMUNITY over time?

Jon R. writes:

Russ - your deft touch as an interviewer is quite something to behold.

Loved the part where Russ lamented that the dog in Marglin's story was only shot, rather than being dragged behind the car... reminded me of my own thoughts on reading Sinclair's "The Jungle."

I confess I haven't read his book, but from the interview, it wasn't clear that Marglin understands his own position. ...the Amish are great, but I'm not saying I want to be part of that community...the old time Jewish community that wouldn't let a man leave was great, but I want to be clear, I'm not advocating that. Well, what then? If we are to go so far as to subject inidividual choice is to the whim of "the community", surely there are standards and rules by which the community can decide? Surely there are great big reasons that "the community" must rule?

I'm left somewhat curious how he came to these ideas. Did it start with frustration with a utility function and end at communism?

I found this look at an alternative viewpoint quite insightful. Thanks for another great podcast!

Lolo writes:

haha, free will, does it exist...
Has the market shaped our rationality and preferences of the transanctions that we make on the market...and is that alternative better than being shaped by our neighbours in a tight community...
Or does the market just reflect the human nature.
Because when humans runs to the virtual world and start communitites, inevitable there is a market.

If rational decisions leads to equilibrium why does markets fail...
Is it really the government that makes market fail by meddling or is it the government that has to intervene because the market fails...

Person writes:

Oh, and can Libertarians please stop identifying with Republicans? There isn't a single thing that they can identify with each other. Republicans do not support Free Trade. They do not support any civil liberties. I can't think of a single concept that Libertarians believe that Republicans also believe. Has anyone here tried to have a conversation with a hard-core Republican? Can anyone recount the times they've been called an anarchist?

At least Democrats pay lip-service to civil liberties. If Libertarians were smart, they'd vote the optimal configuration that has statistically shown to decrease spending: divided gov't. A Democrat president (Republican congress) seems to be able to cut spending at higher rate than the reverse. To me, this is the only rational political position for a Libertarian until this country can move towards proportional voting. Until then, Libertarians are left in the cold, and should vote accordingly.

Scott M. Anderson writes:

I feel at risk making comments to this podcast in that I am not very schooled in the topic at hand and so will make comments from my limited experience. A couple of thoughts:

(1) Is versus ought - Stephen Marglin is stating is position in terms of the way he thinks the world should work; according to his values. The sum of the way everyone thinks the world should work is the way it is. Its difficult to define where the boundry of the circle of we should be drawn technically because its a matter of individual value.

(2) Markets are neccessarily community oriented because even at a great arms length markets require people to interact and provide opinion. I think the circle of we is really an agreement of how a transaction takes place. Is it with a commodity echange with annonymous buyers and sellers, is it a negotiated settlement between two or more parties, is it a gift within a family or close community? The point is that individuals decide how to transact based on what is best for the situation and given their values.

A decorator works closely with a client and designs based on the clients preferences. The materials bought may be a bilateral negotiated contract with a material manufacturer who may buy materials at an arms length in a market with many buyers and sellers as inputs into the designed piece.

A parent rushes to the aid of a child with a scraped knee and provides a bandaid as a gift out of love.

The assembly of these interactions is made freely and not dictated by any few in government.

I think I hear Stephen Marglin hoping for more community in his life as the way it ought to be. I have no problem with that.

Economists may be culpable of not, through theory, explaining better how free exchange enables one to have an easier time and more time to assemble a rich social life but in practice there are many examples of how markets and products bring people together - think of the slow food movement, farmers markets, networking events, social networking software, econlib etc.

Tim Bugge writes:

Yes, the tendency to identify oneself with some group is universal. I think the main purpose of this instinct is to improve one's chances of surviving. Today we might replace "surviving" with "thriving" but the purpose is still the same. I doubt anyone instinctually identifies with a group based on some altruistic notion that he intends to benefit the group. He may say and believe as much but when the group begins to threaten him he will become VERY aware of it.

Is Mr. Marglin proposing that government (coercive force) be definitively used to limit the individual's choices regarding when to leave a group? Wouldn't that then increase the difficulty of moving into groups?

Why is he so VAGUE? He, like most communitarian/collectivists , uses the word balance as if "balance" were a virtue unto itself. They say we should "balance" the needs of the individual against the needs of the group, as if that would bring about the best good for all. I think what they are really hoping for is an end to all the uncertainty that dynamic change provides. What they want is stagNATION.

Danny Kao writes:

Russ, you showed astonishing restraint in attacking Marglin's thesis. You're a better man than me, as I had delicious visions of wrapping my hands around his neck. A community is something where one has no choice in joining but costs a lot to leave? Well sign me up! Let me have more of it! What about the great value of being left the hell alone?

Also, while having more goods is no guarantee of happiness, I'm pretty sure poverty sucks. Being constantly hungry can't be all that much fun, even when one has lots of company (how many people try to sneak into North Korea each year?). Or having a high risk of dying during childbirth. Or burying several of one's children who die from disease and malnutrition. How fortunate we are that we are wealthy enough to indulge knuckleheaded ideas like those of Professor Marglin's.

Isaac Crawford writes:

If the author thinks that "community" is being killed in the bad old capitalist countries, he should move to someplace that puts it first. Maybe he should join me here in Yemen so he can see first hand what the tyranny of "community" can lead to. Arranged marriages, intractable racism, jobs given out on the basis of bloodlines, the virtual imprisonment of women (can't have them go wandering around, that might upset the community), tribal conflicts, etc. What job you get, what religion you follow, what spouse you get, the amount of education you get, and even the hobbies you can have are determined largely by the "community" you belong to. Not surprisingly, there is an amazing amount of poverty and frustrated individuals here.

A community can indeed have benefits, but only if every person is free to join and leave as they see fit. That also goes for financial transactions. The author revealed himself for what he really is when he opined about how wonderful the Amish have it and then quickly asserted that he didn't want to be Amish. In other words, he wants all of the benefits without any of the costs. Capitalism, the market economy, tends to reduce the costs of individuals pursuing what makes them happy. If there has been losses from the depletion of "community," it is because it is what people wanted.

Isaac Crawford
Blogging in Yemen
www.isaharr.com

Schepp writes:

Being a contrarian and democratic leaning, I found Russ not restraining but truly trying to understand his guest and his guest try to understand Russ. Their comments of agreement seemed to be true but they did not seem to shy away from expressing their views.

And a question for Russ and Mike Munger. If a department store is efficient and the reason we know it is efficient is because it exists. Why then would the level of government we now have not be efficient because it exists. Is community, government, capitalism in competition to provide value? This is not to say there is not a market gap or an arbatrage opportunity, but don't we have to acknowlege the balance?

John writes:

Doesn't Hayek cover the subject of altruism in multiple ways? Using recollection only, it seems to me he makes thinking beyond oneself always a significant part of any economic calculation.

And don't Miseans cover that base as well with the concept of subjective value?

Isn't the first community a family, and who is better suited to make the comparative judgement of stay or go than the family itself? Thank God that African sub-tribe 50-70,000 years ago decided to take a hard right into the Middle East with, apparently, minimal community cost considerations.

The notion that the owner of a factory would have to go to some judge or jury with proof that the community cost has been considered in his decision to shut down operations, even in theory, argues that private property is not private property. And that recalls Hayek's criticism of John Stuart Mill that any rule of distribution is a rule for production. A vague definition of community, combined with a subjective value system, combined with "original sin" creates disincentives, massive impediments, to produce the original factory.

The United States today communally burdens manufacturing operations with fixed costs so great as to render the decision to manufacture here a formality. Perhaps we should consider the community costs of weakening States' Rights?

It's tough to argue with a utopian who won't define his terms. Check that--who doesn't want to get bogged down in particulars.

David Zetland writes:

I am only halfway through the podcast but had to stop and see the comments. Excellent comments!

I wanted to add my own example -- not anecdote -- about the impact of "community." In the water business, their is the notion of "third party impacts", i.e., the impact on the community when farmers sell water out of the area, lowering their production. The fall in production thereby harms the third parties in the community, and this is why it should not be allowed. (As one general manager said -- "what about the bonds to pay for the children's schools") The result of such a concept having real political power is that many water trades are blocked, leaving water in ag when it should be in urban areas. Besides the massive inefficiency that results from shortages in urban areas (urban water is worth 20x the ag value), there is the problem of unsustainable farming -- the farmers are required to "use" the water and they grow low-value crops. And so on...

If Marglin's sentiments were extended to businesses, you can be sure that the water problem would be like epsilon next to a mountain -- and we would all suffer from helpful community fascists.

Brad Hutchings writes:

Russ, as I listened to this podcast, it sounded to me like you were schooling Professor Maglin for an hour. And then in the last 5 minutes, it hit me why you might have done this podcast, if not explicitly, then perhaps subconsciously. The purpose was not to swat Maglin around with questions like "so exactly who is going to evaluate the community interest?" (to paraphrase) or, as another commenter pointed out "why not drag the dog behind the car?".

The purpose I infer from this is in redefining the core tools of mainstream economics. I think you both agree that supply curves, demand curves, law of one price, and the like don't capture what's really going on. You take the Hayekian view that they don't capture the information hidden away in specific pigeonholes. He takes the view that they don't measure strength of community. Models that would satisfy both of you are less calculus and more network theory. For him, let the nodes represent individuals and the links represent connections that bind us, both economic and emotionally/spiritually. You can look at the connectedness of the network to evaluate the general "health" of our relations.

What's really interesting about this discussion is that it offers to extend the tools of the Austrian school, which is decidedly libertarian in political leanings and proscriptions, to other schools of thought which may be more liberal (in the modern sense) or communitarian. It's as if Russ is suggesting that methodology is the thing we ought to be sorting out first, then we deal with the politics. Maglin's suggested political groups seem a little screwy, but he's a potential fellow traveller in how he gets where he is. I think Maglin would be just as opposed to centralization as we are, as it would undermine community quite a bit, demonstrable by the networks of relationships it fails to create!

P.S. Back in the day, I actually read the draft of NAFTA when approval was being debated. It is hundreds and hundreds of pages of repeating boilerplate. It's length is more a failure of communication of law than it is a contradiction of the principles of free trade.

Unit writes:

Brad,

you're right: there is overlap when Marglin complains that state interventions hurt communities and curb the self-reliance of civil society. What irks me is that he equates this kind of "state tyranny" to the so-called "market tyranny". Doing this is over-simplistic and obfuscates the true essence of markets and governments. Ironically, markets are the true societal phenomena, while governments should perhaps be treated as special firms with special rules. The functioning of governments is similar to that of corporations: a hierarchical structure, command-and-control, direct goal-oriented actions, etc...It's a giant corporation that can rewrite laws on its behalf. Markets are healthy when many firms compete for people's attention, including perhaps the government. So if Professor Marglin is concerned about communities, he should be pushing for "more market", not less.

Ramiro writes:

Without a doubt one of the most profound "Econtalks". The argument behind the tension between the individual and the community reverberates through out society.

From personal experience, rather than theory, this drift has always fascinated me.

In my last year of College I was tresuerer of my fraternity; myself along with other officers, all business and economics students, took to make the fraternity into a market system. A pay to play model. Logically derived from "efficiency allocations".

Members didn't have to clean the house, they didn't have to cater events, wash dishes, cut the grass, etc. ; they just paid dues and the rest was contracted. The result was laziness, lack of motivation, loss in membership numbers, and poor cohesion among members. Point being: one of the essential services of a group is to make people feel involved.

In the field, we need to be able to recognize environments for appropriate tools of analysis/policy.

Aaron writes:

A few comments:

I live in Taiwan in a townhouse that has two neighbors adjoining, one a Chinese medicine store and the other a private residence. My wife remarked that she found the store owners to be far more polite and courteous than the private residence's.

Anecdote, yes, but again, its in the interest of the business owner to be nice or they will lose their customers, and this translates to them being nicer to their neighbors - either they are naturally more nice, or need us to be helpful about the occasional parking issue, etc. Either way, I'd say that it helps my community. The people in the private residence ignore us and even sweep garbage onto our driveway. Thanks!

Secondly, for Mr. Marglin to complain about luxuries and then to mention that he has a barn full of horse is risible. Horses are an obvious hyper-luxury in this day and age.

DrtaxSacto writes:

Marglin's arguments seemed a lot like the ones offered by Robert Putnam in Bowling Alone. Putnam's ideas were ultimately wrong. Ultimately markets create community. Think a bit about the communities of the internet - which can be impersonal but can also develop new kinds of associations across geography. Or even think about the communities created through products. When I travel overseas with my Macbook Air, I get comments and many times immediate recognition- connections. The same goes for the community of Guiness lovers who are in the 1759 society. Again, the market has created the community. I am also not sure if I agree with his interpretation of Hayek - the importance of the Knowledge of Time and Place is that individual knowledge can (and does) work together - specialized knowledge is not useful except in a social context.

DrtaxSacto writes:

Marglin's arguments seemed a lot like the ones offered by Robert Putnam in Bowling Alone. Putnam's ideas were ultimately wrong. Ultimately markets create community. Think a bit about the communities of the internet - which can be impersonal but can also develop new kinds of associations across geography. Or even think about the communities created through products. When I travel overseas with my Macbook Air, I get comments and many times immediate recognition- connections. The same goes for the community of Guiness lovers who are in the 1759 society. Again, the market has created the community. I am also not sure if I agree with his interpretation of Hayek - the importance of the Knowledge of Time and Place is that individual knowledge can (and does) work together - specialized knowledge is not useful except in a social context.

David Johnson writes:

I'm still stuck at his title. Is he saying that the problem of lack of community is caused by economists observing the world? If so, then ignorance is truly bliss! I expect for his next book that he will blame oncologists for existance of cancer.

Nasikabatrachus writes:

I thought the theme of Marglin's arguments were more than a bit ironic, given the content of his book.

He claims that economists have a "sterile" way of looking at the world--which I don't necessarily dispute, though I don't have enough direct information to agree or disagree with any confidence--but he is fundamentally no different from almost every other economist in that he thinks that it is the place of government to use coercion to create the best of all possible worlds. His identified goals are simply different: some say "limit people's ability to choose for the sake of growth and efficiency", but he says "limit people's ability to choose for the sake of community".

Both are equally sterile, and both rely on the hideous, bloody hand of government violence to enforce.

jayesh writes:

I commend you for your restrain in not attacking when Marglin completely failed to answer any of the more crucial questions, like how do we know what we have lost was a good thing?

All arguments of liberty are obvious to most people, more community decision necessarily means more totalitarianism. I have, however one specific point to make. The most crucial question was "who will rule the community?" what Marglin said was he hadn't a faintest idea, & then offered 'local government'

In 80's there was a huge movement in India towards a dream of Gandhi, Local Rule. More power, & resources, were placed at the disposal of village "panchayats' (elected council). The result after two decades has been enlightening. In village after village, the local strongmen have taken the control of panchayats, & the gangs too weak to affect district or state level politics have found they can easily intimidate a few hundred to secure the power of the panchayat, & once elected, have cemented themselves so much so that a large proportion of panchayt elections today are unopposed! A smaller community is much more likely to favor bullies than a large one, & therefore while Indian democracy works at macro level, it has been eroded at he village level.

Brennan writes:

Still thinking about this, but can't the interest of the community be expressed in terms of public goods and positive and negative externalities? In the example of the 13th century villager who wanted to move but was ordered by the rabbi to first find a replacement so the village could continue to have sufficient adult men to say prayers, wasn't the "legal" system merely requiring citizens to internalize some of the public costs of their actions (in this case, by finding a replacement). Based on the simple description in the podcast, the villagers could be viewed as entering into a contract to stay put that provided benefits to all (having sufficient men to say prayers), and a breach of that contract required an efficient remedy (find a replacement rather than stay put forever). If that is a valid way of looking at it, what is the community interest other than this negative externality (that in this case was not an externality at all because it was internalized by the social contract enforcement via the rabbi's order).

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