Intro. [Recording date: May 15, 2017.]
Russ Roberts: I have two guests--economists Don Boudreaux of George Mason U. and economist Mike Munger of Duke U. This will be Mike's 32nd appearance on EconTalk and Don's 13th. We know each other pretty well. And I've learned a great deal from both Don and Mike about today's topic--which is emergent order. Now, we talk about emergent order on the program quite a bit, so I thought it would be useful to devote an entire episode just to understanding it as best we can in about an hour. The other motivation for the topic is that I've written a poem. It's called "It's a Wonderful Loaf." I've had the poem animated and created a website around the ideas in the poem. And that poem is about emergent order. The website is wonderfulloaf.org. And at some point in the episode I'll recite the poem. But, please watch the animation and read the annotated version or some of the other materials we've put up at wonderfulloaf.org to help you understand the ideas. And I hope this conversation will be part of those resources.
Russ Roberts: Here's how this is going to work. I'm going to give a lengthy introduction. By lengthy: It's a monologue--it might go 10, 15 minutes--to the idea of emergent order. And then the three of us are going to talk about it. So, it's less of an interview and more of a conversation than we usually do here on EconTalk. So, here we go.
Russ Roberts: So, I want to suggest there are three kinds of things in our lives--there are more than three, but I want to divide them up into three. The first we know very well: It's part of our daily life. If we want to accomplish something we have to have the intention of accomplishing it and then execute the steps needed to make that thing happen. So, if I want to do the dishes--if there's dirty dishes in my sink--I've got to think, 'Oh, I've got to go do the dishes.' And then I've got to have a plan to execute the cleaning of the dishes. That could be combining soap, a sponge, and hot water. It could be loading the dishwasher, adding soap to the dishwasher, and turning it on. And at the end I'm going to get, if all goes well, clean dishes. But I have to do something to make that happen. I have to execute and intend a set of actions that make the dishes clean. They are not going to clean themselves. And that's true for a huge range of stuff in my life. Certainly around my house, such as shoveling snow or raking leaves or arranging my bookshelves--keeping my bookshelves neat. All those things require a plan of some kind, an intention; and then some kind of execution of that plan. Some kind of action on my part. And those things are very nice. And people, of course, do things for me in my life, like that. So, just to take a pleasant example, someone might leave me a loaf of banana bread on my doorstep; and when I get that, I know that someone intended to make that loaf, went to the trouble of doing that, and I should thank them. And, the converse is also true--the negative side. If I find a bag of garbage in my yard, I figure somebody has dumped garbage in my yard, and I should be a little bit upset about it. I could blame them. There's somebody to blame. So, this is a huge part of our life: things that human beings cause; and we understand that they intended them; and they happen. The second part of our life are things that we understand are not caused by human beings. It could rain tomorrow when I have a picnic planned. That's going to be upsetting; but I'm not going to blame anybody. And if it's a beautiful, sunny day, I'm not going to thank any person. I might be grateful to God; I might be grateful to the forces of nature or the earth. But, there's no person involved in making it rain. I understand that. It's a part of my life that sort of goes along on its own. I like to use the example that when the seasons change or the earth goes around the sun, we don't have to lean into the curve for the earth to stay on orbit. It just happens by itself. My blood circulates by itself until I die. My breath comes without my volition or my intention. I don't have to think, 'Ooh, when I wake up tomorrow I better make sure I'm going to breathe, because I could forget.' And, of course, I don't have to remember or forget. It just happens. So, there are these two things in our lives that we know inside out, and we tend to think of them as most of our experience: The things that people do to us, for us; things we do to or for ourselves. Those are things like the dishes. They are things like somebody leaving me a nice loaf of bread or a jar of honey, which somebody kindly did the other day. Those things are very straightforward. We understand them. Then there are the things that we call natural. We understand those, too. Those are things like the seasons changing. Those are things like it raining tomorrow. Those are things like the honeybees that made the honey that my neighbor brought me. So, those are the two extremes. In between, there's something kind of strange. And, this is something that economists have been interested in since Adam Smith and a little bit before--certainly an issue that F. A. Hayek spent a lot of time thinking about--and that goes under the name of emergent order. And these are things that are caused by humans and that appear to have an intention, but actually don't. No one person intended these things to happen. They just sort of happened through the concerted actions of all of us acting together. So, I'll take a couple of examples of those. And then we'll take a look at how this works and what drives it and when it doesn't work, and what's good about it and what's bad about it, and so on.
Russ Roberts: So, the things that are caused by human action but not by human design--which is close to the phrasing of Adam Ferguson, a contemporary of Adam Smith's, another Scot, who was interested in these phenomena--these things are, for example--language. No one is in charge of the English language. So, no one decided that it's okay to use 'google' as a verb. Somebody used it. Somebody picked it up. And it got tossed around. And some people found it useful enough that they repeated it. And other people understood it, and they thought that was useful, too; and they repeated it and used it again. So, the English language--in fact, every language, is emergent. It's not designed. It's not under anyone's control. It may look like it is at times. There may be a committee--in France, deciding what's good French. But that committee cannot stop in France from saying 'le weekend' for Saturday and Sunday, even though the French, formal, official name is 'fin de semaine'--'end of the week'. So, language emerges. Of course, it has lots of imperfections. I like to use the word 'debt'--I think I've used that on a program before. 'Debt' is d-e-b-t; it should be d-e-t. That 'b' is just a waste. It has some informational advantage, in theory. But certainly when you are listening, there is no reason to think of it as d-e-b-t. And you don't pronounce the 'b' in any subtle way. It's just gone. There are lots of parts of English that are archaic. There's lots of parts that it would be useful if they were simpler or different. But, you can't just fix it any way you want. And, in particular, Google doesn't like that people use 'google' as a verb. And I'm told that if you work at Google and use it as a verb in a memo, they get upset at you and they try to get you to fix it. But, the fact is, they can't do anything about it. They can't stop us. And we--the group of us, all of us--the users of English somehow have created 'google' as a verb without any centralized, top-down control. It emerges from the bottom up.
Russ Roberts: So, another example--and this is the example I talk about in my poem--and it comes from a beautiful paragraph from Bastiat that I'll put a link up to: How is it that in a great city--and in a not-so-great city, a smallish, medium-size city--cities of almost all sizes, almost all cities around the world, you don't have to go to bed at night worried that there's going to be bread in the morning? It just happens. Now, it doesn't literally just happen. It's not magic. It's not that no one's in charge of anything. Every baker is working hard to do the best that he or she can. It's not some sort of thing that, like the rain, it just sort of shows up. It's something like the banana bread, but it's not exactly like the banana bread. So, my baker might do a great job, so that in my area of the city there's going to be bread. But, how is it that every baker does a good job? And how is it--more or less, not perfect--but how is it that there is enough flour in the city for all the bread that everybody wants, but there is also enough flour for all the pasta that everyone wants? And enough flour for all the pizza that everyone wants? And enough flour for all the beer and bourbon that everybody wants--which all come from wheat? So, that's the puzzle of how that coordination, that organization, takes place without any centralized control. It's something that we do en masse, we do as a group. The result emerges: No baker says, 'Gee, I hope there's enough bread for everybody.' The baker is just trying to make good bread, stock the baker's shelves, and get a decent price to cover the baker's costs. And yet somehow the cost is enough bread, enough flour, enough pasta, etc. And that phenomenon of where it looks as if someone is in charge of allocating, say, flour, to the whole city, or rye bread--because you might really like rye; you might worry: Well, what if my baker doesn't make enough rye? What if my baker does, but somebody across town doesn't; there's not enough rye for the whole city? No one's worrying about that set of problems. And yet somehow they get solved as if someone were worrying about it. And that is the phenomenon we are talking about. It's emergent. It's not under centralized, top-down control. So, here's the crazy thing. I thank my neighbor for the honey that she brought me. I would thank my neighbor for the loaf of banana bread on my porch or my doorstep. But, who do I thank for the fact that I can go to bed at night and not worry about whether there is going to be enough bread tomorrow for everybody in the city of Washington, or Durham, or San Francisco, New York, Paris, London? Most cities in the world--an exception would be Caracas, Venezuela--and we'll talk about that--there's bread every day. For everybody. Now, that doesn't mean everybody has enough money to get the fanciest kind of bread that they want. There are still people who are hungry. There are still people who don't get enough bread. But, it's available every day, on the shelf, at a price. And it's a pretty good price. It's not extraordinary expensive in most cities in the world. It's driven by the costs of providing it. And how that happens is of course a complex process, we might talk a little about. But the point is: Unlike the honey, or unlike the loaf of bread, and something like the rain, or the sunshine--when things work out really well, who do I thank? Who am I grateful for, for the fact that there's all these different kinds of bread and I don't have to just get, like crummy white bread that we had when I was growing up as a boy? How did that change? Who was in charge of that? And the answer is: Nobody. So, I don't have anyone to thank; I don't have anyone to blame if I wish there were more, even more kinds of bread. It's something like the rain. That is: It is self-organizing, in some dimension. Of course, there is organization within the whole system. A baker has to hire people, has to buy ovens, has to buy yeast, has to hire trucks to deliver the raw materials to make the bread, the flour, and so on. But somehow, that process works without centralized control. Something like the rain. There's a naturalness to it, an organic nature to it. A bottom-up, emergent aspect to it. So, now--that's my introduction to the concept. I'm now going to recite the poem. And then I'm going to invite Don and Mike to respond to the basic, sort of fundamentals. So, Don and Mike, who have read the poem before, while I'm reciting it, you might think about what you might say, either agreeing or disagreeing with what I have to say or some examples you might think might be more helpful. So, here's the poem, titled, again, as "It's a Wonderful Loaf."
See readings and links for text and reading of the poem, "It's a Wonderful Loaf."
So that's the poem. And we've gone through the idea. And I just want to say, before I invite Don and Mike to comment--I want to say two things: that I believe this is the deepest idea in economics. And, I believe that I wouldn't fully understand it if I hadn't spent hours talking to Don and Mike about it. So, thank you, both of you, for those conversations and for joining us today.
Russ Roberts: So, Don, why don't you go first?
Don Boudreaux: Thanks, Russ. Happy to be back. Economics has always seemed poetic to me; and it seems even more poetic now. I agree with you: the notion of spontaneous order is indeed the most profound, single most profound insight of good economics. It remains the insight that is most elusive to the general public. Sadly, it remains an insight that is elusive to a lot of professional economists these days. And I don't say that sarcastically. I say it more in a sense of [?]. The inability--and I think human beings are--we are evolved. Our minds are evolved to seek intention; to see design as precedent to order, conscious design as precedent to order. And to grasp the nature of spontaneous order is difficult. Now, your poem does a nice job helping us to better see that. I see spontaneous order, not surprisingly, pretty much in the same way you see it. Pretty much the same way that Hayek saw it and explained it. Which is not far different from the way that Adam Smith and other great economists have seen it and explained it. I'll just take this opportunity to add one other example to your two. And, you know it's a favorite of mine--and that's: Law. We think of law--most people think of law as something that the state designs and imposes. And in fact, as Hayek himself taught, law is another example of spontaneous order. The rules that we follow in our intercourse with each other are very seldom the result of conscious human design or position. These rules emerge spontaneously in the course of our interactions. And, what governments do is sometimes they enforce these laws. Sometimes they try to override these laws with legislation. We may agree that that attempt to override is beneficial. But, laws themselves emerge, unintended, from--they are the result of human action but not of human design. And the relevance of this is: Because people tend to see--because people do see, or believe they see, the State as the source of all law, it's not surprising that people see without thinking about it the State as the source of order. People just don't think about it very deeply, and so when they go into the supermarket and see this amazing array of high-quality and affordable products, the assumption is that there is some big plan out there that someone is carrying out. And so, we can adjust with State action the way that particular plan is being carried out, without, it is assumed any bad consequences. But, understanding that it's not designed makes the appreciation of each individual action within it a lot deeper. I'm not being very articulate here. I agree exactly with your conveyance of the notion of spontaneous order; and I agree again that it is the most profound insight in all of the social sciences, not just economics.
Russ Roberts: Mike?
Michael Munger: Well, [?] step back. The idea of spontaneous order is a little bit controversial in economics, but I think it should be a sub-branch of something we might call 'emergence.' And, the idea of emergence in philosophy is that an emergent property or substance arises out of some more fundamental entities, and yet they are novel or irreducible with respect to them. And, that means that usually you don't understand the emergent property very well. We can look at the underlying parts and think that we do. And the mistake is to think we could start with the parts and end up with the result. Now, there's all sorts of examples. And, in fact, I think future historians will talk about the Summer of 2015 as Russ Roberts' Prairie Period. There were 10 different podcasts during the Summer of 2015--I actually went back and counted--that mention the property, the idea, of prairies. And perhaps Joyce Kilmer in reincarnation will write a poem that says, 'I think that I could never carry/A thing as lovely as a prairie.' But, prairies are emergent phenomena. We understand--you could look at and measure in great detail all of the parts of it. You couldn't possibly build on. Now, if you ask a biologist about that, they would say, 'of course that's true. We all understand that.' If you ask a biologist about William Paley's watchmaker analogy, which in 1802 he said was a proof of the existence of God: You are walking along and you see a watch--obviously there's a watchmaker. There's this complexity. The only way that could possibly happen is it's designed.' Biologists would then say, 'No, no. We understand that there are these processes by which we get emergent phenomena that have none of the properties of the underlying parts. So, life is a property, an emergent property, of chemistry. Consciousness is an emergent property of the electro-chemical activities of the brain. But it's not reducible to those things. So, the question, then, is: Why is it that are those people who are most likely to dismiss any creationist account of biology, reject the--they want to carry out the watchmaker analogy when it comes to social processes? Because, when they see markets, they want design. And it actually tends to be inversely correlated. It's the people who are most sure that there's no such thing as a watchmaker in nature who want one in social processes. So, I think the most interesting origin of this was in an Arab thinker, whose name was Ibn Khaldun. And, in the 14th century he published a book, a book of writings, a scroll, called Muqaddimah--the Prolegomenon. And I recommend it to readers, because it's a shockingly modern view of what I think later thinkers--Hayek in particular but I think a number of others--identified as the role of something called markets. Now, the name 'markets' is sort of like calling life the results of these chemical processes that we don't understand. And Hayek is pretty clear about that. We really don't understand--most of us don't understand very well--how it is that markets are able to coordinate all of the different activities at once and disagreements that people have, and reconcile those into some kind of order. But, that's the thing that that emergent property gives us. There's also Mandeville, in the early 18th century, who wrote about private vices and public benefits--how these things can reconcile themselves. So, I think the nice thing about the poem is that it builds on, in deceptively simple ways, something that is very, very difficult to explain. And so the drawback may be that its apparent simplicity masks the underlying complexity of the claim.
Russ Roberts: Yeah. I think that's a constant challenge we have as economists. And I'm going to push that a little further. Which is that, one of the critiques you could make of that poem is that it's too simplistic--not about the process but about the outcome. Like, it's so cheerful: 'There's bread everywhere! Everything's great! And everything happens on its own.' One of the things people complain about when they've read it is, 'Oh, don't you need government--you think you don't need any government.' But of course you do need government. Or, government is very useful--in creating the rules of the game, in creating courts, in creating police. And possibly some forms of regulation, which we'll talk about in a minute. But I want to make it clear that when I say, 'No one's in charge,' I don't mean no one's in charge at the bakery. Of course someone's in charge at the bakery. And I don't mean no one's in charge at City Hall. They have certain things they are trying to do. What I want people to marvel at--and that's Hayek's word, in "The Use of Knowledge in Society" when he talks about emergent order there and how prices coordinate economic activity--the marvel to me is that it works at all. That's the phenomena we want to be in awe of. That's the phenomena we want to try to understand: How is it possible that there's bread every day, all around a city, of different kinds, in roughly the kinds that we want? That's the challenge. It's not: It works magically. It's not total magic. But there's an enormous magical component that we don't understand or appreciate. The other thing I want to add is: It's not always great. There's a lot of emergent order--we've talked about this many times on the program but it's important to emphasize it here--there's a lot of emergent order that's not good. Traffic is emergent. Every day in the city where I live most of the year, which is Washington, D.C., around 7 a.m., maybe a little earlier, till about 9 a.m., everybody drives slowly on the 495 (I-495, Interstate 495). They are going about 20, like they got a memo that said, 'Go slowly.' No person wants to go slowly. The combined results of everyone trying to go fast, and too many of them at one time, results in people going very slowly. That's an imperfect example of emergent order; and it repeats itself around 4 o'clock in the afternoon. No one wants that to happen. No one intends it to happen. If you asked, 'Well, who's driving slowly?' The driver's got her hands on the wheel, her foot on the pedal, on the accelerator; and yet somehow we're all going 20 mph. And that's our actions. It's not the result of any person's design; and in fact we all want something else. Yet that's what we get. That's a bad outcome. There are other outcomes we talked--Mike, you and I did an episode on racism and slavery, and racist attitudes and general attitudes like racism--things that we now look on with disdain and negativity. Those were considered totally fine; and those attitudes, like the laws that Don was talking about, those emerge. Many of the laws that emerge from our daily interactions, the norms of our civilized life are glorious: Be grateful to people who are kind to you. Don't be nice to cruel people; try to stay away from them. Smile when you greet someone. Take off your hat--if you lived in 1920--when you entered a room. Those are things that no one designed, that emerge; that are mostly good laws. But there are bad ones, too. It's not--this phenomenon of emergence, of bottom-up complexity and orderliness is not always good; and it doesn't mean that therefore everything works great no matter what. It doesn't mean anarchy. And I would say the same thing for the most famous metaphor in economics, which is the invisible hand. As we've talked about here before, Adam Smith used the phrase 'invisible hand' once in the Wealth of Nations and once in The Theory of Moral Sentiments, and neither time does it mean what we use it to mean today. Which is a process that works on its own and has a pretty good outcome. Smith is interested in that, very much: he writes about that a lot. He doesn't call it the invisible hand. It's come to be called the invisible hand. And I think it becomes a straw man for people who want to intervene in markets, who say, 'Oh, you economists, some of you think that the invisible hand solves everything.' Well, it doesn't solve everything. It doesn't solve lots of things. And there's a case to be made for regulation in lots of areas, pollution being one of them that I would mention, although there may be other ways of solving it other than certain kinds of regulation that we have. But certainly the invisible hand isn't going to solve pollution magically the way it solves, effectively, the way it solves the problem of how we are going to get enough bread in the city tomorrow. So, that's not--it's not perfect. The invisible hand doesn't solve everything. What's amazing is that it solves anything. And I think it does; and I think we don't appreciate it; we don't understand it; and that partly is due to the fact that, as Don points out, this sort of natural idea that we have to control stuff.
Russ Roberts: I'm going to stop there again for a minute. Don, you want to react to anything I've just said or anything Mike just said?
Don Boudreaux: Yeah, I want to say something in response to something you just said, and in response to something Mike said. Obviously, I by and large agree. But I'm going to correct you on one small point Russ. It does mean anarchy in the true sense of the term. Anarchy means 'no archon'--no overall planner. And so, to the extent that spontaneous order works, the bread example featured in "It's a Wonderful Loaf"--there is no archon overseeing the entire process of producing bread. So, in a very literal sense, that is anarchy; but it's not lawlessness.
Russ Roberts: It's not anarchy the way that people use the term today.
Don Boudreaux: Right--it's not, ironically--the spontaneous evolution that the term 'anarchy' has come to mean something different from its original meaning. But, Mike is wise to point out--and I've wondered about it, too, as have a lot of people--that it's interesting that: There's a huge overlap between the people who are most eager to accept Darwinian explanations of the natural world--and I am one of those people, by the way--but who also reject a spontaneous order explanation of human society. And I'm not one of those people. I accept a spontaneous order.
Russ Roberts: Don, I'm sorry for interrupting. I have to push back on you there; and I'll let you continue. But, I don't think that's fair to them in a certain sense. I take the point in general, but I'm going to defend them because we don't have one of those folks on this program. We're kind of similar philosophy here. I think they would say, 'We understand emergent order. We understand the invisible hand. We understand markets. They just don't work so well. And we have to fix them. We have to do things. We have to add regulations. We can't rely on markets to produce, say, high-enough quality bread. So we need safety regulations; we need government inspectors. We need people to make sure that people don't adulterate the bread and put in filler that's unhealthy.' So, they would argue: The invisible hand does it's own thing. It's pretty good, but it's dangerous because it needs to be--you have to keep an eye on it. You have to put some top-down regulation on top of it. So, I think a lot of the people who you and I disagree with in social processes, they consider themselves, I think they would call themselves "pretty free market," but not as much as we are because they don't think it's as rosy and cheery as we do.
Don Boudreaux: Fair enough. I take what Mike--I'm going put words in Mike's mouth--but let's put it this way: The wonder that a lot of progressives have about the order of the natural world--they don't bring to the social world. We--we, three, in this podcast; those of us of our general economic views--we marvel not only at the natural world, but also at the economy. And I don't believe that most progressives--to use a shorthand term--marvel as we do at the incredible complexity of the unplanned social order. Which is the point of, is one of the points, I take it, of your "It's a Wonderful Loaf"--to instill that wonder.
Russ Roberts: So, let me just react to that, and then let's let Mike have a word.
Don Boudreaux: Well, I haven't gotten to my main point.
Russ Roberts: Oh, go ahead.
Don Boudreaux: The difference--in the social world, we can indeed see people, individuals making choices about prices and product quality. And it's too easy to go from that--every price, in fact--prices are not set literally by supply and demand curves. Prices are set by sellers setting a price; buyers choosing to buy or not. And it's that human--it's that conflict of human decision-making that allows people to say, 'Yes--the economy is the result of human design.' And what good economists understand is, while human beings are indeed at each of the levels setting prices, setting product qualities, determining whether to increase output or not, determining what to buy, what not to buy--the overall result is not designed and could not possibly be designed, as you point out in the poem. Whereas in the natural world, most people understand that there isn't a conscious mind designing the thumb of the panda or the crane of the neck of a giraffe. It just does happen. And so there's this confusion that people get when they actually see human beings. I remember years ago someone sent me a clip of Bill O'Reilly complaining about the prices of gasoline. And he wanted to know: 'Who sets the price of gasoline? Government should talk to that person.' It was kind of really bizarre: the guy thought that there's someone who sets the price of gasoline. And I think that's a fairly common view that those of us who understand economics have a hard time understanding, because we understand it to be ludicrous. But a lot of people fall into that way of seeing prices not as emergent but as set, by someone.
Russ Roberts: Yeah. Mike?
Michael Munger: I think the difficulty that you rightly point out, where it's not as I said that people don't understand, that they would not accept the additional step, is because--suppose I were to talk about the emergent property of crystals. So, I melt, I dissolve a bunch of alum into hot water and then I put a string in it; I put a seed crystal on it; and these crystals form. And it's a self-organizing system. But, we understand how that happens. And the little alum molecules, they don't care about what shape they are in. They just form into these crystals. And they get pretty big. And, the molecules themselves don't have the shape of the crystals--we end up with something that's emergent in the sense that it can't be reduced to that shape; but it produces something that's marvelous and beautiful. But, the alum crystals don't care. The problem with explaining markets is you have to make an additional step. And I think it's the way that economics is taught that misleads many people who might otherwise be persuaded. The way economics is taught is to start with equilibrium. Which means that all of the plans and purposes of individuals, which initially diverge, have now somehow magically been reconciled. And economics ought to start--and to be fair, Austrian economics does start--at a different place. All these people start out with different plans and purposes. Some institution must now intervene. It's not like alum crystals. Some institution must now intervene in order to reconcile all these plans and purposes. And we have several choices; but we lump them into market processes and command processes. Market processes use the price mechanism to reconcile all these disagreements. And there's a fundamental insight: if you and I disagree about the value of something, we can probably agree on a price. So, all prices that are agree on probably result from a disagreement about value: you must value it more than I if we can agree on that price. Once you have that insight--that prices reconcile disagreement--you now have a direction of adjustment. So, Bastiat's observation about the stomach, which is in Paris, and the grain being produced far away, he actually says, 'Well, we could all go out there with our carts and pick up the grain. That would be ridiculous. Really, our only two choices are: The state can do this, or, middlemen can do it.' We can call them entrepreneurs or it can be something as simple as middlemen; it's that not-passive, very dynamic part of the process that standard economics misses, and that only Austrian economics can provide the insight to. But if you go too far in that direction of subjectivity, you don't get a direction of adjustment towards equilibrium. And I think that's the big controversy that we face--is, the dynamic process that has prices and the profit signal, lead us toward a particular direction where all these plans and purposes that initially diverge are somehow reconciled. That's the fundamental additional insight that your poem expresses so nicely.
Russ Roberts: Yeah; I want to use that. I want to talk a little bit about order. In fact, let me backtrack a little and talk about the phrase 'emergent order.' And then eventually I hope we can get back to Don's point about how hard it is--sometimes--people see the idea that there isn't somebody who sets the prices, because I really think that helps me see something I hadn't seen before. And I want to add that, one of the most extraordinary things--and Don, you and I talk about this all the time--you can read and think about emergent order for years, and you still--there are still things you don't fully appreciate or understand about it. It's a really deep and rich idea. But, I want to mention that the phrase itself, 'emergent order,' I prefer that to the phrase 'spontaneous order,' which is also used to describe this. It's the one Hayek uses more often--I think. And I want to defend 'emergent order,' and then I want to argue that even that is not a very good phrase, either. And, I don't like 'spontaneous,' because the word 'spontaneous' in English has something about what's going on--it just sort of happens. What's bad about it is 'spontaneous' also means sort of sudden, and out of the blue. So, your spontaneous combustion. And that's like, 'Whoa. All of a sudden something that's stable, all of a sudden just explodes into flames.' And I think that's a very misleading way to think about the process of the myriad of people who are making their individual plans that lead to the result that we're talking about. The second thing is that the word 'order,' I think gets over-emphasized in some sense, and it causes us not to sufficiently appreciate another aspect. So, 'order' means things that have patterns in them. So, if I watch fish swimming in the ocean in a school, it's orderly. It looks like they are being choreographed. But, of course, we know there's no choreographer. There's no fish that's leading the pack. Even a flock of geese, which looks like there's a leader at the front of the V, that goose is not deciding where the flock goes. Which is nuts: it's an amazing thing. But the order we are talking about is more than just patterns. It's not just that, 'Oh, between 7 and 9 in the morning there's a lot of traffic.' It's not just that, 'Well, there's bread on the shelves.' The real thing that's going on that's the deepest part to me is that--and this is the key to the emergent part--is that there are forces that are in motion to respond to change. So, the example--start with the animal kingdom, a bird example--if a hawk flies into the territory of a bunch of birds, they might turn into a flock and scare the hawk away. No one gets a text. The birds don't get little texts on their little cell phones saying, 'Hawk around. Everybody kind of band together and let's fly around and scare the hawk away.' So there's no choreography of that. And it's more than just that the birds sort of fly in patterns. They fly in patterns to achieve something. And similarly, if there's a shortage of flour--if there's a bad wheat crop one year and there isn't enough flour to serve all the demanders of the products that flour uses in the coming year, someone's got to adjudicate that dispute. And what's remarkable--and I'll put up to the supply-and-demand version of this I try to do; it's an attempt to take the [?] society and bring it into a supply-and-demand framework--but the amazing thing is how the prices--and the language of English doesn't work very well here--but the prices use the information that people have about the alternatives that they might want to face or have to face in a world of a shortage of flour relative to the year before. So, some people are going to have to deal with less flour; some people are going to have to use substitutes. Some people are going to look for new ways to create the products they've already had that don't use flour. Thousands of things are going to be set into motion to make people's lives pretty good, even though there's not as much flour as there used to be. And we're not going to have a war over it. The pizza lovers aren't going to march on city hall. They are not going to lobby. And, they are not going to go beat up the people who are using up all the flour for rye bread, saying, 'No, we deserve it.' It's just sort of remarkably peaceful, strife[?]-free, conflict-free, that the world's constantly changing. It's constantly changing the amount of flour available and wheat available and how much people want gluten-free stuff versus other kinds of stuff. Or they want whole wheat all of a sudden; they don't want white. All these changes--how does that get coordinate? And so, that's the order that's really profound. It's not just patterns. It's what I would call the unconscious coordination of people's desires, that I think, Don, you alluded to. Maybe it was Mike. That's what's really extraordinary. And that's really hard to notice. And I think the phrase 'emergent order' doesn't begin to capture that complexity. That's why we use things like 'the invisible hand' in other ways that try to convey that marvel. And even so, I think we fall short. Mike, you want to comment?
Michael Munger: Well, I prefer 'self-organizing system' to 'emergent order.' And the reason is that order is certainly interesting, but the system of division of labor is very difficult to organize. And, just allowing markets gives you a differentiated order that you might not expect. So, in the early 19th century the German political economist von Thünen talked about the way that cities are self-organized. I think it's a very deep insight. There's been a lot of work on it since. But he said cities are going to be surrounded by a ring of cattle farms [?] because they need a lot of land; and you can transport them because they can walk. And right next to the city, you are going to have the little, very expensive vegetables like tomatoes and things that are hard to transport. The way that the city is going to be organized by neighborhoods--all of that happens in a self-organizing way. Nobody has to have a meeting about it. Now, we use zoning. And sometimes, perhaps, there may be a justification for zoning. But it's not true that a city left to itself will just be this hodgepodge of different things. It's a self-organizing system. So, I want to propose that as yet a third alternative.
Russ Roberts: The only thing I want to add to that--and Don, I want to let you comment--is that there's something, and we've talked about this before and it's important to mention now: There are feedback loops. When you say it's a 'self-organizing system,' there's something that holds it together. It's not a person. It's not a committee. It's not a central planner. It's the incentives of profit and loss and prices that hold the bread market together. It's the incentives of profit and loss and prices that cause, say, the tomato market in 1800 to be relatively close to the city--the tomato fields--but today they don't have to be, because transportation changed. So, the incentives changed, the feedback loops changed. And that allows that land to be used for something different. And that dynamism is just extraordinary. And that to me is what the study of economics is really about. Along with, what happens when you try to steer it. And what are some of the unintended consequences. And is that worth it: It might be in some cases, not in others. But that to me is the essence of economics--is, seeing those connections in that self-organizing process. Don?
Don Boudreaux: Hayek says, somewhere--and I can't recall just where. This is not an exact quotation, but it's a brilliant insight, I think. He says that: In order to understand why things might--or sometimes do--go wrong, we first have to understand why they work. What is it that makes them work? If we don't fully appreciate this marvel of the self-organized, or emergent order based market, all the talk about market failure and what government can do to correct it is just off base. Because the failure--whatever market failures we talk about--are in reference to the market as it actually works in reality. And so--I get--I'm increasingly distressed at the almost pedestrian way in which modern economists think they understand the way markets work. They don't get the important point that Mike brought up a moment ago about the market as a process. They start with everything being in equilibrium. They assume perfect knowledge: They say, 'Well, look, in reality people don't have perfect knowledge, therefore the market must fail; so we have to rush in to correct it.' But what we have to understand, of course, is: How is it that the market works as well as it does--given that there is no archon? Given that people don't have perfect knowledge? Given that people start off with all these divergent and often inconsistent plans? And yet, what we see, by and large--that you point out, Russ, not perfectly--by and large we see an amazing, an amount of peaceful and productive cooperation among people. Globally. We have billions of people today peacefully cooperating with each other. They are not aware of it in any conscious sense. But it's just an amazing fact that we should marvel at, and that we don't. And--well, I just want to emphasize the importance of understanding the marvelousness of this system of peaceful global cooperation. Made possible by the institution of private property in a market economy.
Russ Roberts: Mike? You want to comment?
Michael Munger: I have nothing to disagree with, there. I tend to be fascinated with cities. And I would want to recommend to your listeners a couple of works by Jane Jacobs, but in particularly, The Death and Life of Great American Cities, who talks about the dynamism that you brought up. And specifically talks about how attempts at planning--well-meaning attempts at planning, like your sort of scary guy that's standing up there with the chess board--
Russ Roberts: In the video version--
Michael Munger: Yeah, in the video version, which I hope the listeners take a look at, the video version of the poem. That planner is the--the criticism that he makes of planning is so effective and interesting. You know, I think people with experience with cities--you need some analogy. The market seems so abstract. We just go halfway and say, 'Cities are self-organizing systems.' And, let's recognize that it's the prices that give signals about how we should not only organize, but change, update, the way that we've organized the structure of the city. And there's no--there's no 'we.' It's the individuals acting alone which improves the city. Not the planner.
Russ Roberts: So I'm going to push back against both of you, and let you defend your views. So, I'm going to play interventionist here. So, we are talking about how great markets are. Let's think about the market for labor. So, the market for labor has this extraordinary property, which is--we alluded to it earlier--which is the division of labor. There is this incredible sorting of people into various specialties. And of course our lives today are much more specialized, in the labor force, than we were, say, 200 or 100 or even 50 years ago. So, that's an amazing thing. And no one's in charge of it. I used the example in a speech I gave that's up on the WonderfulLoaf.org website of sushi. There's sushi all over America. If any town bigger than 50,000 people, there's a sushi restaurant. But who decided that? And who decided how many sushi chefs there are? And who decided how many sous chefs there are in that sushi restaurant? And how many people there are who do other tasks--maybe make the rice? And all of that, all those decisions--how many employees the baker has--those are all made by individuals, doing the best they can; looking at market signals of prices and wages and trying to figure out if they can still cover their costs if they add a new person or if they hire a specialist. And that's just an extraordinary thing that happens. So, that's our view. That's our romance. And Don, as you said, I think there's a lot of--I really liked what you said earlier about how, you know, what makes us different is that we see the romance in the process that it works at all. The other side--the glass is half empty. We're--we see it as half full. They see it as half empty. We look at government, we see it as half empty. They see it as half full. They see it--it works pretty well. So, I think there's a certain perspective or lens that we have, based on our ideology or philosophy or what works and what doesn't work that tends to color our views of these kinds of processes--whether it's the political process or the market process. But, I'm looking at wages in the labor market, and it does this incredible thing of sorting people and encouraging people to invest in, say, medical school, or economics, or whatever it is. At the same time, there's a bunch of people, they're not doing so well. They come out into the labor force; the best they can do is the minimum wage job. And it weren't for the minimum wage, they'd be making even less. So, the other side--the people who aren't like us, who don't love the invisible hand or the market process or emergent order, or the self-organizing system, say, 'Well, yeah, it works pretty well; but there are a lot of people that it really doesn't serve And those folks, they can't afford good bread. They can't afford lots of things. They can't afford a nice car. Or enough clothing, sometimes. Certainly around the world that's true. And, we have to do something to help them. So, we can't just rely on this invisible hand, uncoordinated, unconscious cooperation, because for a lot of folks, it leads to misery and despair. And so, you want to rave about how amazing it is that the market works at all? And I see some hungry people who can barely afford any bread. And I want to help them. So, I have to tamper with that market. I have to put in a minimum wage. I have to put in safety regulations, because otherwise they are going to be exploited by--in that self-organizing system--by entrepreneurs who want to profit at their expense, take advantage of them, cut corners.' Etc., etc. So that's the--I think the unromantic side. I just want to say, for the record: I think all those things are true. I think there are a lot of entrepreneurs who want to cut corners. So, I'll come back and give my answer maybe in a little bit. But let's hear from you, Don and Mike. Don, go first.
Don Boudreaux: So, you're right. Obviously. As you say often--and by the way, those of us who are influenced by the understand from the very beginning that markets aren't perfect. The people who you refer to, I would have more confidence in their judgment if in their policy prescriptions they gave evidence that they actually understand how markets work. It's one thing to point out that markets aren't perfect in some idealized sense. It is another thing to write or speak about markets in evidence of failure to understand. The people who proposed minimum wages, I submit, don't understand how markets work. It's not that they are saying markets don't work perfectly. That's true. They are giving evidence--they don't understand the logic of the market, because there would be other ways, better ways, for the state to help these people want to help. So, I think a lot of the people, while the language is often couched in market failure terms, I think a lot of this language reveals that these people actually don't really understand--they certainly don't understand the way the market works in the way that we understand the market.
Russ Roberts: Well, they don't agree with us. They think that the negatives--I mean, one way to think about this is the role of unintended consequences. I think, if you think enough about emergent order, whether it's in the natural world, or the physical world, the economic world, you start worrying about the fact that some of the things you do to help make things better don't always do so. And I use the analogy of the volume on the stereo--I write about this in my book, The Price of Everything I think--if you come home from work and the music is really loud in the house and you realize your teenage son has turned up the stereo too loud with a bunch of music you don't like. And so you go find the volume and you turn it down. In a lot of these things there's no volume knob. So, we want to--I think a lot of people want to turn up the volume on the wages, turn up the amount, the level of wages. And when they do so, it's not like turning up the volume of a stereo system. It has negative consequences that are not so obvious. The people who are in favor of that would argue that those consequences are small: we used to worry about them; we don't need to any more. I disagree with that. You do, too, Don, I know. But I think that would be their defense.
Russ Roberts: Mike, what do you want to say?
Michael Munger: Well, my answer--let me keep it very brief--is almost a caricature of my own position. I would concede that the dynamism and nimble changes that we see in markets are a benefit to many--and perhaps most--people, but not to everyone. And economists often make a mistake, I think, by saying, 'Free trade benefits everyone.' Free trade particularly in a system that now does not have free trade harms a lot of people. A movement to a more free trade system is going to harm a lot of people. A movement to a system that doesn't have the kind of regulations that have now been capitalized in all of the prices that we think of, that we use as signals. That will harm a lot of people. So, as you know, and we've talked about this, my solution to get rid of minimum wage laws, to get rid of a lot of restrictions on prices, would be to say, 'You know, it's true: a lot of people are harmed by the nimbleness of the market. Let's have a Basic Income.' which means that a benchmark underlying how bad off people can be is going to satisfy a lot of these objections without manipulating the price mechanism. The big problem that we have is using prices as information. So, the advantage to me of Basic Income is that it allows the price system to work.
Russ Roberts: Don, I know you have a lot to say about that. I don't know how much you want to share with us now, but you are free to go ahead.
Don Boudreaux: I think the subject of a basic income is too big for the time we have.
Russ Roberts: Agreed. But, do you want to say anything about free trade harming people?
Don Boudreaux: Well--I think the language is bad. I understand what Mike means by that. But, in fact, if it's true that free trade harms people, then really what we're saying is that competition change harms people. It's not just trade across political borders that winds up harming people. It's all sorts of--any kind of economic change. But I want to get back to an earlier point that was raised in our earlier large discussion. And it has to do with this notion of emergent order and the market process. And that is, a really deep understanding of economics reveals that so-called market failures, market imperfections, themselves are often useful in creating market improvements. Joseph Schumpeter was very good on this. If you examine an economy at any period of time, you can find all sorts of imperfections in it. But, because entrepreneurs, business people--consumers, even--on the spot notice these imperfections and have a chance to adjust to them, those imperfections are very much what give rise very much the actions that bring the market to--that are coordination. And so, the imperfections themselves are, at any moment in time, in an important way, part of the market process. And those imperfections are, in this larger, higher-level sense, not imperfections at all. They are just part of the reality that fuels and guides the market process. And so, we have--I think we have to be really careful with the market failure language. It's too easy to abuse and to be mislead by it.
Russ Roberts: That would be another subject, for a different episode as well. But it's certainly relevant for what we are talking about here.
Russ Roberts: I want to close with another defense of interventionism and try to think about some ways we might talk about when emergent order or self-organizing systems--when they work well and when they don't. And that's the following. I say in the poem, "The key to the process is prices and the freedom to shop where you want." And, what I'm trying to say--and then I say, "Competition among all the bakers, makes sure that they rise before dawn / To make sure that the bread's near perfection." Etc. And again, I hedge it: I say, 'near perfection.' It's not perfect, because obviously things go wrong all the time. Obviously a bakery can have a great reputation and abuse its customers by relying on that, and slowly degrade quality. Sometimes they do run out of stuff. It's not perfect. The question is: Is it better than the alternative? That would be one question. Then the question would be, 'For whom?' What I want to emphasize here is that there's a lot of regulation in the system and a lot of intervention that doesn't change the fundamentals of the market process. And this gets a little bit at what Mike was driving at. So, you put a tax on bread, there's still going to be lots of bread on the shelves. You can subsidize bread and there's still going to be lots of bread--maybe too much, but there's going to be a lot of bread. You can regulate the quality. You can have, say, 50 inspections. You may argue that they are not necessary; that reputation, brand name would protect consumers. You might have some antitrust regulation to make sure there's enough competition. And that's not going to harm anything unless it's done badly. And sometimes it is. But, there's a lot of regulation that doesn't ruin the fundamental processes we are talking about. The one thing that does ruin it, is a price control. It seems to me. And I'm interested in your response. So, in Venezuela, as I mentioned earlier, that's one of the places where there's nothing on the shelves. Literally. Tragically, people are starving to death, because there's not enough food. And one of the reasons there's not enough food is that the government tried to control the price of food, and the profitability of food. And it didn't work out the way they had hoped. That's a disaster. Literally, a human, a horrible human disaster. So, I want to defend regulation; I think you can be in favor of the invisible hand and still favor some kinds of regulation. You can certainly favor some kinds of antitrust if it actually works, and Don, you'll give us a different perspective on that. But a lot of people, when they hear my poem think, 'But if you don't have government intervention, you are going to have conglomerates and too much monopoly; and then they can exploit consumers.' And that happens. And it can be very bad. My counterpoint is, 'Fine. You can intervene in all kinds of ways. You can put in some regulations about quality if you want. You can put in some safety regulations for the works.' You are going to have impacts that are not what you intended, but you are not going to change the fundamental availability of bread of different kinds, if you stick to that. And you should know about that process when you design those regulations. As, Don, I think you pointed out earlier. Because if you don't understand, you are going to have more of those unintended consequences than you think. So, my view is: Whether you are an interventionist, relatively interventionist, or relatively non-interventionist as we are, you still have to understand how the process works. And you still have to have some appreciation of how markets coordinate information and how prices work. Because if you are not careful, you are going to mess up. And I think the best argument--I don't with you, Mike--but the best argument you can make for a Guaranteed Basic Income is: Much better to do that than to try to say put a wage floor on, or a minimum wage of some kind, or tampering with those price signals. But that--I think the fundamental idea that markets work pretty well even with various kinds of interventions is really important. And there are certain kinds that are much worse than others. Mike, you want to react to that? And then I'll let Don go.
Michael Munger: Yes, I think regulation is sometimes motivated by a concern for asymmetric bargaining power and sometimes out of paternalism. So, if I'm a worker, if I'm unable to secure the level of safety and pay, and the mix of safety and pay that I want, it must be because there's asymmetric bargaining power. I'm not sure that's true. Over time, the big increases in safety, shorter work week, and higher wages were driven by increased productivity of labor. Not by government regulation. But, then there's also the paternalism problem: We think workers are going to take too much in pay and not enough in safety. And so we prevent them from negotiating the contract that we want. The reason that I favor something like Basic Income is that, that would be exactly the argument that you made: the state should just get out of the business of decided what mix of safety, work hours, and pay the workers want; and they'll find their own optimum.
Russ Roberts: Don?
Don Boudreaux: I agree completely that the worst thing you can do to a market--or to a society--is price controls. The market can take a lot of beating, with high taxes, inefficient regulations, and keep performing reasonably well. You might not even notice in any grand sense the costs. But, controlling prices is a calamity. And Venezuela is only the most recent of a long line of historical examples of that. So, I agree completely that markets set prices--with some conditions for freedom to enter and exit an industry. But markets set prices. If you have to put your finger on one key, it's: Markets set prices. That is the key to the success of the whole system. And while reasonable people can, and do, disagree over the proper role, the proper extent of taxation [?], I don't think anyone who knows any economics at all can disagree about the importance of allowing prices and wages to move in response to market forces and not be controlled by state dictates.
Russ Roberts: I'm just going to close with an example of these kind of regulations and make clear what I'm talking about. So, I think a lot of people, going back to Don's point about--to me some of this is about imagination. Economics helps you imagine things that you don't notice or see, and helps you understand how they actually work. So, I think a lot of people would argue that if you don't have some kind of regulation, say, on safety or products, then producers are going to cut corners; look for cost savings; and produce dangerous products. And so one way to avoid that is to have inspections, and to have certain regulations about how products are made. And that's what I would call the top-down solution. The bottom-up solution--the emergent solution--is that we allow brand names to emerge. We allow firms to try to create a reputation for themselves for creating safety. And we allow for third parties to come in. Like, Consumer Reports, or Underwriters Laboratories, to certify that this product has been tested: it's safe. And we understand that's imperfect. We understand that Underwriters Laboratory might take a bribe some day. We understand that they might let us down. We understand that they might make a mistake. We understand that it's very expensive to test certain things; and maybe they won't do it thoroughly enough. So, we get all that. It's imperfect. We also understand that the government's imperfect. They take bribes, too. They don't have, maybe, the motivation, and the checks and balances and the feedback loops that private reputation and brand name have. So, it's flawed, also. So, the way I tend to look at it--and we'll close with this, and I'll let each of you comment--I'm apologizing that I took more than my share of this conversation, so I appreciate your playing so nicely and letting me talk about this idea more than I maybe should. But, when I look at those two choices between the government top-down regulation and the bottom-up emergence of brand name, reputation, trust--certain cultural things that encourage people to not produce certain unsafe products: They both have flaws. So, in some dimension it's an empirical question: which one is best? And we might have a different answer in certain settings, certain markets, as to what works better in some than others. We might say, 'Well, I really don't like the idea of concentrated power in the government's hands, so I'm almost always going to rely on the marketplace.' But, just to make a plea to the listeners and readers and viewers of my poem: You can be really different than I am on these philosophical issues. You can argue that markets don't work that well. You can argue that, 'Yeah, I'm not so sure that brand name is going to be sufficient.' Maybe we want some kind of safety inspection of, say, agriculture, or the food in the grocery. And I think: That's fine. Just make sure you understand what's going on in the background that you are intervening with, and might disrupt. And if you understand and still think it's worth it, then I'm eager to hear your case. Don, you go first; then Mike, you comment and close us out.
Don Boudreaux: Yeah; I would dispute anyone who says, 'Markets really don't work all that well.' As you point out--and as lots of economic history points out--markets work incredibly well. Saying markets don't work well is different from saying markets are imperfect. Of course they are not perfect. But, we must never lose sight of the fact that markets aren't just so-so. Markets do, objectively speaking, work extraordinarily well, when prices are allowed to move up and down. And the remaining imperfections--you are right, we can dispute how we, if we should and how best to address them. But the remaining imperfections are a very tiny fraction of the overall picture. The big picture, a point, should be how well and remarkably how well in fact markets work.
Russ Roberts: Mike?
Michael Munger: I'm a thorough-going directionalist rather than a destinationalist. A directionalist is someone who is concerned at the particular margin that we are regulating now. So, I think a lot of economists get hung on the fact: 'Well, you know, we could get rid of the Food and Drug Administration.' Well, almost no one favors getting rid of the Food and Drug Administration, because they are worried about asymmetric information about drugs and the fact that it could be very dangerous. That's not where we are regulating right now. Where we are regulating right now is that California just passed an amazing law that said: Independent book stores basically cannot sell signed copies of books because they can't be sure that those signatures are real. Give me a break! If the margin we are regulating is at that level, we have a long way to go before we would have to face the difficult questions of whether can brand names handle drugs. Surely brand names can handle signed copies of books.