| 0:33 | 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. |
| 2:04 | 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. |
| 6:21 | 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. |
| 8:25 | 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. |
| 18:39 | 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. |
| 22:21 | 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. |
| 28:33 | 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. |
| 31:31 | 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. |
| 40:39 | 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. |
| 47:18 | 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. |
| 51:58 | 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. |
| 57:53 | 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. |
| 1:01:33 | 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. |
| 1:07:57 | 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. |
Why is it that people in large cities like Paris or New York City people sleep peacefully, unworried about whether there will be enough bread or other necessities available for purchase the next morning? No one is in charge--no bread czar. No flour czar. And yet it seems to work remarkably well. Don Boudreaux of George Mason University and Michael Munger of Duke University join EconTalk host Russ Roberts to discuss emergent order and markets. The conversation includes a reading of Roberts's poem, "It's a Wonderful Loaf."
READER COMMENTS
David Zetland
Jun 12 2017 at 10:05am
I’m only 49 min into this podcast (and ahead of the transcript :), but I have three reactions:
(1) Great poem.
(2) I’m glad to see Mandeville mentioned here, and I recommend his Fable of the Bees (the poem; the books are much longer on the same topic) as perhaps the “great ancestor” of Russ’s poem.
(3) I am eager to hear if the three of you talk about the “cost” of all this spontaneous order, i.e., the missteps, deaths, bankruptcy, suffering and mistakes that occur along the way of both natural and social evolution. Yes, we can see “the magic of the rainforest” or “magic of the market” as an end result, at a distance or as a consumer, but we MUST also agree that that result was not perfectly foreseen. Species kill each other; businesses buy each other; consumers must watch for fraud; workers lose their jobs.
Perhaps natural scientists are willing to accept “natural evolution” but not “social evolution” because they are (a) relatively powerless (and late to the game) when it comes to nature but feel that (b) humans can and do make choices over how much “suffering” is acceptable in markets. That’s why they — and MANY others — are not so enamored of markets and emergent order as economists are. (Oh, and it doesn’t help that MOST academic economists have suffered VERY LITTLE from the market “finding an efficient path” — unlike, say, Trump’s voters.)
rhhardin
Jun 12 2017 at 10:56am
It’s great that Mike brought up disagreement over values being the possibility of agreement. The important thing though is that the amount of the disagreement is the increase in the standard of living of the nation when the transaction is made.
That’s what organizes the entire system. It tends towards being better off.
You’d have to add that there’s a rule of common law, no fraud and no force, as Epstein requires. Otherwise everybody just hits the other guy on the head and takes his stuff.
It’s a big mistake to start from supply and demand curves. All the motivation has been quantified away, and it doesn’t teach any insights.
On disagreement see
http://ecomnemonics.blogspot.com/2012/12/wealth-comes-from-disagreement.html
(an old blog of mine; earlier posts are the best. I ran out of insights towards the end.)
Doran
Jun 12 2017 at 2:17pm
I was intrigued when somebody mentioned Von Thünen’s theory on land use. So after looking on this page for a reference and the proper spelling of the man’s name I followed the link provided on this site to Thayer Watkins site on Von Thünen.
Now Thayer Watkins of San Jose State University may be an authority on Von Thünen, but that is a powerfully ugly web page and it provides less information that the Wikipedia page. Perhaps he should stick to content creation by expanding on any aspect of the Wikipedia page and leave the content presentation to the web nerds.
To use a phrase from the kiddies: “I am not saying, just saying”.
Jerm
Jun 12 2017 at 3:23pm
For me, this one was kind of a miss. The viewpoints of all the speakers was too similar, which meant that there was too much agreement on issues where there could have been some interesting conversation. And the portrayal of those with alternate viewpoints was unfair and contained a comical amount of straw.
I think the poem about bread is a great example of this: the speakers pretend that bread is made in a free market, but even this most simple market has massive market distortions on the supply side that we ALL knew wouldn’t be discussed on a podcast like this one. Bread starts with wheat, which becomes flour, which becomes bread. And the wheat is massively subsidized by the government. Ignoring that government intervention and painting the supply side as a free market emergent order is something that I’d expect from any individual on AM talk radio. That none of the three speakers even touched on it on EconTalk is unfortunate. That the discussion of government influence and intervention was about minimum wage and other ideas championed by progressives…that’s just the icing, I guess.
I think that the portrayal of economists who are interested in market failure was unfair. I’ve met a lot of people who study market failure, and they know that markets generally get it right (or at least point in the right direction). All of their research – all of their interest – is based on the difference between a market outcome and the possibility of something better. In this talk, there were multiple time when they were idealized as somehow abhorrent to market outcomes. Who are these economists? Are they real or imaginary?
There’s a lot of good discussion that could be had about emergent order. Is it really a human trait or something natural that trumps our brains? Is it just a matter of perspective, where something that seems emergent to one person may in fact be constructed to another? Is “top-down” imposition part of the path to emergent order? Is everything emergent order (and we’re just imposing our prejudices when we claim otherwise)? Are think tanks (like Hoover or Cato) part of an emergent order or top-down imposition (to touch on one of the questions from a recent EconTalk)?
These types of conversations could happen, but not if the talk is just about pointing out the silliness of imagined foes and their ridiculous perspectives. How many episodes with a focus on emergent order will we need before we get to something unexpected or interesting? Are we ever going to get to there? Maybe not. But if not, then I guess our ideas of emergent order would say that we would never have gotten there anyway.
Russ Roberts
Jun 12 2017 at 5:59pm
Jerm,
Sorry you missed my point. Perhaps you were too eager to find fault in the conversation. Or maybe I didn’t say it clearly.
Of course there isn’t a free market in bread in some idealized sense. Yes, wheat is often subsidized. Yes, there are lots of regulations–some sensible, some awful. Government certainly plays an important role in providing all kinds of infrastructure that lets the market work.
What I was trying to get at in the conversation (and the poem) is that there are self-organizing forces that are not coordinated by anyone. This isn’t obvious to most people. I hope I was clear in saying that you can understand this and still favor all kinds of government regulation. But if you put a low enough ceiling on the price of bread, you are going to stop the forces that lead to a profusion of different kinds of bread. Understanding that those forces usually work without top-down coordination as long as you don’t manipulate the prices is the beginning of the economic way of thinking.
Todd
Jun 12 2017 at 8:53pm
Mr. Roberts,
If you had to pick one book or article to explain the concept of markets, what would it be?
Thank you.
Juan Carlos de Cardenas
Jun 12 2017 at 10:29pm
@David Zetland Many (no I am not going to scream that word)that will reluctantly recognize that they are powerless to change the laws of the physical world think that it is different when it comes to society but it is not. There is a price to pay for ignoring both, sometimes dramatic like when you ignore the law of gravity and jump off a cliff, sometimes less so like when you eat more that what you need or ingest the wrong stuff.
Markets are not perfect, nothing is in this world, they will not satisfy everyone at every time, every dream or unrealistic desire but the problem is that the alternatives are always worse.
If you want to find a way to deal with any shortcomings and adverse effects you first have to recognize that. If you don’t want to get wet you build a shelter, not try to stop the rain with incantations or whine about the unfairness of the weather.
Jerm
Jun 12 2017 at 11:39pm
Russ, I didn’t miss your point. Believe it or not, it’s possible for someone to fully understand the concepts you are describing, yet still find the presentation less than fulfilling.
And also, I would love nothing more than to hear a truly interesting discussion on this podcast. That you would suggest that two of the main reasons I commented like I did was that I either “missed the point” or were “too eager to find fault in the conversation” suggests that you are experiencing a level of cognitive dissonance that I just can’t overcome.
But I’ll try anyway.
If uncoordinated self-organizing forces are unknown to a lot of people, then do you really think it’s in the best interest of your listenership for you guys to riff on a bunch of regulations that are tangential AT MOST to the bread market? And, at the same time, ignore a major source of direct distortion in the market for flour?
Do you genuinely believe that you are giving a fair and honest portrayal of those economists who hold views that you disagree with? Because I wonder sometimes about the cumulative effect of painting (absent) economists with such cartoonish colors.
There’s an AM talk radio show that I listen to in the afternoon. The guys don’t have a good understanding of economics, and they try to make up for it by repeating the same bullet points over and over. Hearing them talk about economic topics (like deflation, let’s say) is cringeworthy, because the more they speak…the more they show that they don’t know understand the world around them.
I don’t think EconTalk ever gets to that level, but there are stretches of lazy talk, where the speakers are just doo-wopping some of the greatest hits from 30 years ago.
A couple of years from now, there will be another Iowa Caucus. And you know who’ll win that? The guy who stands strongly on the side of “free markets”, yet also believes in farm and ethanol subsidies. Sometimes it seems odd that we’ve gotten to such a place, but episodes like this (and comments like yours) do a lot to explain it.
If recent history is any indication, “emergent order” is a topic that we’ll return to in the future. I am eager to hear something fresh and interesting. I just didn’t think that this episode had it.
David Zetland
Jun 13 2017 at 3:22am
I’m going to agree with Jerm and further his point (as I’ve now finished the podcast)
First, I was glad to hear Mike bring up basic income as a first best solution to creative destruction’s impact on the less lucky or hard working.
Second, I think all three speakers spent too little time on the very important distinction between excludable and non excludable goods. The former are best left to markets, the latter to government or collective governance (a topic Professor Cardenas knows very well :). That division is where most of the trouble for markets arises, whether it’s via negative externalities or market power
Third, I’m amazed Don could issue a market fundamentalist claim in the face of climate change, which is widely known as “the largest market failure ever.” (I’ve offered to discuss these topics multiple times with Russ. Perhaps this is another chance as he seems to miss “the issue” w CC.)
Finally… Juan — I’m pretty sure we agree about breaking eggs to make omelettes. My point was that economists here are paying too much attention to the outcome and many others are paying attention only to the broken eggs. It’s a system that deserves respect in proportion to its complexity.
Jeff W
Jun 13 2017 at 8:13am
When the panelists and Russ say markets aren’t perfect or markets aren’t always good, I wonder what they mean. I guess it’s a bit like saying “the weather is bad.” We may not enjoy the weather that day, but the weather isn’t “bad.” The weather can’t be good or evil–it’s a natural phenomenon. Can an instance of emergent order, like markets, be good/bad or perfect/imperfect?
Looking back through the transcripts, I think Russ’s mention of traffic is interesting because it seems to be an example of emergent order that is universally seen as bad/imperfect. But traffic gives me more time to listen to EconTalk before work!
Russ Roberts
Jun 13 2017 at 8:59am
Jerm,
My point is that the subsidy to wheat doesn’t have a very big effect on the availability of bread in New York City or Chicago or Los Angeles or the fact that there is a wide variety of bread readily available in those cities. It does affect the price, though. Absolutely. And of course I’m against subsidizing farmers.
My point is that economists on the left and right should be aware of emergent order. I think most are though I think our desire to improve things can sometimes lead us to ignore unintended consequences in complex systems.
I’m against ethanol subsidies, as I’m sure you know. I don’t understand how “episodes like this” encourage hypocrisy among politicians.
As for being unfair to not-present economists, I did the best I could. Check the transcript. Always happy to have them as guests on EconTalk and let them speak for themselves.
John Alcorn
Jun 13 2017 at 9:15am
@ Todd:
You asked Russ Roberts to recommend a book or article about the concept of markets. If it’s not out of place for me to offer a recommendation, I would like to suggest one book and two short articles:
Prof. Meadowcroft’s book makes the case for (relatively) free markets.
Prof. Sugden’s article draws a distinction between (a) (partial or selective) cooperation through markets and (b) unanimity, and draws the following conclusion:
Prof. Shleifer’s article focusses on the dimension of competition (rather than cooperation) in markets, draws a distinction between competition and greed, and argues that market competition itself—quite apart from greed—can cause the spread of unethical behaviors; for example, employment of children, corruption, and manipulation of corporate earnings.
I believe that these three writings provide a well-rounded introduction to a range of academic perspectives on the concept of markets (and also attendant concepts of regulation and redistribution). Readers then can make up their own minds.
Michael Munger
Jun 13 2017 at 9:17am
Todd, there’s too much for a “single book” to have any one good answer.
But, accepting the constraint, I don’t think there is any one book that is clearly better than Hazlitt’s “Economics in One Lesson,” even after all this time.
Alonzo Fyfe
Jun 13 2017 at 10:11am
Throughout this podcast, you and your guests drew on an analogy between emergent order in biology and emergent order in economics. That analogy goes further than that which was presented in the podcast.
Without the effort of any conscious designer, evolution has created biological units of great complexity. It takes in an xylene and delivers it to every cell in the body. It also takes in chemicals – water, carbon, thiamin, riboflavin, calcium – and uses it to construct skills. If the body gets warm, it flips on systems to cool it, and if it gets cold then it flips on systems to warm it. The body can detect photons, sound waves, chemicals in the air, heat and pressure on the skin, direction, and the composition of potential foods.
In fact, it is such a marvel that many people believe that it could not have emerged on its own. They say that an intelligent designer had to have been responsible. It simply could not have emerged in a “bottom-up” system. It required bottom-down effort.
In spite of its marvels, this bottom-up system is not without flaws. It has systems for dealing with illness and injury. We have broken bones and internal injuries, cancer, heart attacks, strokes, genetic defects such as sickle cell anemia and muscular dystrophy, and infections. We have cases where the body’s own immune system overreacts to things (allergies) and even attacks the body itself (lupus). Anybody who believes that this marvelous system of emerging properties is perfect does not understand biology.
In fact, in the case of biology, at least among the more complex systems, every system eventually suffers catastrophic failure. We are mortal – a term that applies to plants and animals alike.
To deal with these failures, we have invented the science (art) of medicine. Medicine is the practice of interfering with this marvelous self-regulatory system of emergent order that is a living being to deal with biological failures.
This recognition of the use of the practice of medicine – of intelligent meddling – is not inconsistent with marveling at the body’s power for self-regulation. One can write poems in awe of the circulatory system and how it provides each cell with the oxygen and food that it needs when it needs it, and yet still recognize the potential dangers of heart attacks, strokes, aneurism, anemia, and carbon monoxide poisoning.
In the realm of economics, you and your guests stressed the idea that it may sometimes be necessary to meddle in economic systems (analogously in the same way that it may be necessary to meddle in biological systems to preserve or restore health). However, this had better be done by somebody who understands how the body works. If we prescribe a drug or some other form of treatment to deal with one problem, if we do not understand how the system works, we could be creating more serious problems down the line. As the saying goes, the cure could be worse than the disease.
On one extreme, there are people who reject all medicine – all outside meddling in the body taking care of itself. This includes people who refuse blood transfusions and those who refuse vaccinations. These are interventions with proven benefits, and ignoring them results in suffering and death. If the life that one is sacrificing is one’s own, there is reason to allow him the freedom to do so. But, when one chooses to ignore medical interventions that could have saved the life or health of another person the results are tragic and, ultimately, just plain wrong.
At the other extreme, we find people peddling interventions that have no merit whatsoever, and that even produce more harm than good. We have fad diets, miracle cures, and snake oil of every shape and variety. There are healing crystals and magnetic bracelets. Homeopathy, acupuncture, and other forms of alternative medicines make the practitioner wealthy and does the patient no good. It may even distract the patient from pursuing options that have been shown to be effective.
So it is in economics, where we have people preaching non-intervention where it could save lives, and interventions that do no good and even harm those who put them into practice, though they potentially provide a great deal of wealth to the people who market them.
As I said, I think that the emergent order of biology and the emergent order of markets – between medicine and economics – provides a better analogy than you or your guests seemed to fully recognize.
Dr Golabki
Jun 13 2017 at 10:11am
Great podcast.
I think there must be a Monty Python sketch in which an economist reads a love poem to markets while two other economists murmur approvingly. Might be a good add to the website if you can find it.
As a PhD Biologist I enjoyed the comparison between biological evolution and markets. In fact I once wrote a paper around the thesis that these were the 2 most important discoveries of modern western thought.
Both ideas are deceptively simple. Both are highly infectious, in the sense that once you understand them you can’t stop seeing them everywhere. And, as Russ said about markets, the truly amazing thing about both is that they work at all. It comes down to iteration.
Iteration is a tremendously powerful thing, even in it’s simplest form it gives us compound interest. In more complex forms it gives us modern economies, natural ecosystems, and of course our very lives.
I was a bit surprised that Biologists were taking so much Munger heat. While I think it’s true that many biologist don’t really understand markets, it’s also true that many economists don’t really understand evolution… and most humans probably don’t understand either particularly well.
Mike Marrs
Jun 13 2017 at 11:15am
In general we the public do not appreciate meta-physics or philosophy and dynamics.
We prefer statics and concrete terms for example who to blame for our current and temporary discomfort.
As a portuguese citizen who has lived most of their life in North America and looking at that society and economy I see the general desire from the public for legal/economic SWAT teams travelling around the country to fix problems that could easily be dealt privately. It sort of reminds me of stories of medieval travelling judges dealing with local grievances.
Walter Clark
Jun 13 2017 at 11:39am
The three of you agree that progressives and others who support the state, recognize that there is some value for emergent order and the invisible hand. And the three of you acknowledge that there is some value to allow a monopoly-on-the-legal-use-of-force.
What you failed to address is whether such accepted overlap allows or limits government to grow. What limits it other than the point when its inefficiency eats up all of the surplus of that economy? Those who advocate for anarchy don’t have to propose a mechanism to limit the state. You do.
Fredrik Ribbing
Jun 13 2017 at 1:48pm
Thanks for a great podcast!
I’ve been listening for years now. I think I started on the episodes on the works of Adam Smith. So I’ve began to notice some circles coming back;) The thing I love the most is that you’re usually really great at questioning central parts in the text being discussed. So that, together with your guests you drill down to the deeper layers of understanding the issues at hand.
But that will also bring me to my question on this episode. Remember the interview you did with Nobel laureate Alvin Roth? Why didn’t you invite him to comment. I’d just love to hear his take on this concept of emerging markets. Seems like his research could cast some fresh light on the outer limits, and circumstances necessary, to get to the much longed for emerging order of markets.
All the best summer wishes!
/Fredrik
John Alcorn
Jun 13 2017 at 2:34pm
Re: Todd’s query for a recommendation of a book about the concept of markets. Prof. Munger (comment above) is abundantly right, “there’s too much for a ‘single book’ to have any one good answer.”
I would like to add to the mix two books and two EconTalk podcasts about two key margins at which markets are contested.
1) Prohibitions of markets in a variety of consensual interactions between adults. Prohibition of a market may occur even when the interaction in a non-market context is socially approved and encouraged, and even when there is acute shortage that cannot be remedied without a market. An example is the supply of kidneys for transplantation. For a variety of perspectives on prohibitions of contested markets, compare the following:
Jason Brennan & Peter M. Jaworski, Markets without Limits: Moral Virtues and Commercial Interests (Routledge, 2015). This is a libertarian perspective.
Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets (Farrar, Straus, & Giroux, 2013). This is a communitarian (and paternalistic) perspective.
Alvin Roth on Matching Markets (EconTalk, July 6, 2015). This is a practical perspective, which substitutes non-market mechanism-design as a partial workaround when markets are prohibited due to repugnance or other objections. Here is a link.
2) Concerns about whether exchange is truly voluntary when one party to the exchange has little or no decent alternative. See the classic EconTalk podcast: Munger on Exchange, Exploitation and Euvoluntary Transactions (EconTalk, June 20, 2011). Here is a link.
Note, by the way, that there is a peculiar wrinkle in the example of a market for kidneys for transplantation. Currently, in many cases, both of the potential parties to a market transaction—the potential seller and the potential buyer (i.e., the patient)—lack decent alternatives to the prohibited market transaction!
Michael Munger
Jun 13 2017 at 2:43pm
Dr. Golabki:
You are absolutely right, on both counts. Mea culpa.
First, if there is not a Monty Python skit as you describe, there should be.
Second, I could only wish that economists have anything like the interest in evolution that matches the ability of biologists at least to conceive of social processes as evolutionary. So many economists think of the process in markets as optimization through active human agency. You are right to call me on the asymmetry.
Thanks for listening!
Eric
Jun 13 2017 at 3:24pm
I’m wondering what is the problem, if any, with recognizing that emergent order in human systems is the result of distributed design?
There seems to be some hesitancy to acknowledge that such systems are designed. As far as I can see, this seem to turn on the false assumption that only a system designed by one person or one central committee is “designed”.
Yet, even if no one person makes all the choices, that doesn’t mean that choice isn’t happening. Choice is distributed.
Even if no one person has all the authority or control, that doesn’t mean there is no authority or control. These are distributed throughout the system.
Likewise, just because no one person does all the designing, that would never mean that design isn’t happening. The design is distributed throughout the system with each chooser making designs and choices within the realm of their own authority and control.
In software there is the idea of a program that runs in one single thread of execution on one computing core, but that is not the only model. To take advantage of computers with many computing cores, execution can be distributed so that it happens concurrently by multiple cores each doing their own calculations. The same is true to a greater degree with human systems.
Example:
It’s true that no one person or committee controls the whole language centrally. Yet, some people did indeed decide it is OK to use ‘google’ as a verb as they did decide to use it in that way. They control their own use of English. The fact that no one person has complete control does not in any way imply that there aren’t many people making many intentional choices every day, the composite whole of which makes up the dynamically changing language. That is distributed design.
The same is even more clearly true for bakers and flour distributors. They have distributed control and authority. They form their distributed designs regarding what products they will offer, the prices they will offer them at, and so on. Later they may change the design of their offerings, prices, etc. as seems best to them in response to changing conditions.
Emergent order in human systems is the result of dynamic distributed design.
Walter Clark
Jun 13 2017 at 6:07pm
I think belief in evolution encourages economic intervention.
If they instead believed in special creation, they wouldn’t have developed so much interest in engineering change in crops to make them pesticide resistant or have some other feature.
It is no wonder they see the economic organism as something to improve upon.
Juan Carlos de Cardenas
Jun 14 2017 at 1:40am
@David Zetland “Finally… Juan — I’m pretty sure we agree about breaking eggs to make omelettes. My point was that economists here are paying too much attention to the outcome and many others are paying attention only to the broken eggs. It’s a system that deserves respect in proportion to its complexity.”
Could it be that the economists and others like me feel the need to emphasize the good, actually really amazing outcomes out of the last 300 hundreds years or so of relatively free markets because so many are obsessed about failures real or imagined, up to the point of wanting to bring down the system that has brought so much of the prosperity that they take for granted?
I agree that we need a more balanced perspective but I find Russ, Munger and Boudreaux pretty balanced, especially if you take into account the need to counteract the really overwhelming drumbeat of the anti-market, statist and the world-is-going-to-end crowd.
Finally, you will come out better without giving the people you engage ironic titles (like professor Cardenas).
davidcmorris
Jun 14 2017 at 3:22am
Great topic and discussion this week Russ. With reference to social emergence, you mentioned, “…unconscious coordination of people’s desires…” (40:39 towards the end). Two American Psychologists that have greatly helped me grasp the concept of social emergence and why people do what they do are: 1) . George Herbert Mead’s – Social behaviorism; and 2) Robert Hogan’s Socio-analytic theory. Worth a quick read on Wikipedia. Every time you quote Adam Smith’s, “…to be loved and be lovely…” from TOMS, it reminds me of Mead and Hogan’s work.
Phil
Jun 14 2017 at 5:21am
I am largely in agreement with Dr Roberts and his guests as far as their libertarian outlook on markets goes, but unlike Alonzo Fyfe, I think the biological analogy falls completely flat.
There is no contradiction or even tension in the (very US-centric) observation that people more inclined towards intervention in markets typically accept Darwinian explanations for biological “order”. The point is what *kind* of equilibrium is sought. Intervention is typically defended on moral (or strategic, nationalistic, etc.) grounds. Nature as well as market outcomes are awesome in their complexity, and most reasonable people don’t dispute that, but there is nothing in the logic of evolution or competition that guarantees outcomes are anything other than efficient in a rather narrow sense. That is what “progressives” attack and just pointing out that nature also organizes spontaneously is not an adequate response to their moral objections to the distributional outcomes of relatively free markets.
David Zetland
Jun 14 2017 at 6:28am
@Juan — My apologies. I thought you were Professor Cardenas [Universidad de los Andes–Econlib Ed.]
As for your comment, I agree that it’s good to “tip the balance” but I think that too much tip can be perceived (and often is) as one-sided or ignorant of the defects. Thus, I think it’s good to include the shortfalls of markets in context.
[edit above added for clarity–Econlib Ed.]
Eric
Jun 14 2017 at 8:33am
p.s. There may be a productive benefits to understanding emergent order in human systems as dynamic distributed design and intentionally evaluating it as such.
In software development, we long ago left the days when any one individual could be expected to completely understand the full design of large software systems in all their details. Yet, just because the design is not monolithic and centrally determined by an individual or a single committee, that doesn’t mean that it is not designed.
What has happened instead is that it has become necessary to learn how to modularize the design of large software systems. If you don’t want a fragile and chaotic mess prone to disaster and collapse, you have to find ways of letting many designers each do their own designing work and yet fit the pieces together into an effective and maintainable collaborative whole.
Defining the interfaces between modules becomes important. If you understand the interface to someone else’s module, you can use it as a “black box”. You don’t need to know what is inside to use it and get the benefits of what someone else has designed.
I much appreciated the emphasis in the episode on the importance of prices. In the market, prices are a profoundly important aspect of the interface between economic modules of design.
You don’t need to know the baker’s designs (e.g. who the baker hired, how they acquired ingredients, the procedures they adopted for baking, etc.). The baker doesn’t need to know your designs (e.g. how you provide the world service in exchange for the money you have). You walk into the bakery, see the products and prices, and make decisions about what you will or won’t buy.
I believe understanding emergent order in human systems as dynamic distributed design could even lead to new insights and discoveries about how design is modularized in the market, with prices being one vital aspect of the interface between design modules.
One could reflect, for example, on other aspects of the interfaces and how design modularization supports (or hinders) effective localized design and effective interaction and cooperation between the modules of design.
Russ Roberts
Jun 14 2017 at 11:43am
Todd,
These resources at the website for Wonderful Loaf are intended to be a primer on emergent order and how markets work. The last entry in the section of articles and books to read is my book, The Price of Everything, which I wrote to explain emergent order, particularly the order we call markets and their impact on our daily lives and our standard of living.
Andrew Wagner
Jun 14 2017 at 3:13pm
I have a hard time understanding the difference between government and any other “emergent” or “market” force. I can organize my thoughts into a few larger points which then leads me to a big question at the end:
1. Governments are themselves emergent
By the way “emergent” or “self-organizing” phenomenons are described in this podcast, government is itself emergent. Yes, founders of various countries sat down to try to design governments but they simply designed frameworks for governments to emerge from. Our governments are always evolving.
2. Governments are not all-powerful
At the same time, governments (even dictatorships) do not have absolute power. They cannot decide murder is illegal and utterly stop it from happening. Governments also cannot decide that there should be a minimum wage and utterly stop lower paid labor from happening. It always comes down to the distributed decisions of everyone in the society.
3. Government is just another market force
To me, markets are inevitable and government is itself part of the market. Government “intervention” and regulation only occurs as a response to the market. When enough of our society begins to believe that pollution from corporations is becoming a problem, we organize ourselves to create regulations (as one possible solution). If enough of us believe something like a pollution tax would be more effective, we will change the laws. All governmental changes are possible; Sometimes they happen through peaceful and democratic mechanisms but in other circumstances they happen through revolutions; both of these means are ultimately driven by market forces.
4. There is no such thing as “top-down design”
So based on the fact that government is not all-powerful and that they emerge from market forces, the discussion of “top-down design” v.s. “emergent design” is a false one. The only truly “top-down design” would be from an all-knowing and all-powerful god. Everything else is “emergent”. All that is being discussed is what tools we should use to push markets in a particular direction based on society’s will.
My big question
What exactly are we distinguishing government from? What is fundamentally different about government that requires we always center our conversation between what our governments do and what other forces do? Would it not be beneficial to take a step back and reorganize in our minds and our discussions the way we categorize society’s market driving tools? Would that not help us to disrupt our current political ideology (big government is good or bad) and get down to discussing real solutions without the baggage?
tom h
Jun 14 2017 at 5:19pm
It seems that at least 66.67% of you were readily agreeing that “some are harmed” by free trade. Both are reasonable uses of the language: “Hikers were harmed by the unexpected blizzard”, “Workers were harmed by the factory closure”. But the language is leading you astray. It is leading you to think that, in the economic situation, a lack of benefit is a harm. It’s not. It’s just a lack of benefit.
In other news, both host and guest of this recent “VOICES” podcast episode say very nice things about RR and Econtalk: http://www.voicescast.com/bob-murphy/
John Alcorn
Jun 14 2017 at 10:04pm
@ Andrew Wagner,
The beginning of an answer is that modern government, whatever its origins, is an institution for collective decision-making, through mechanisms such as majority rule. Market prices, in the standard case, remain emergent phenomena.
See Michael Munger on Choosing in Groups (EconTalk Podcast, February 23, 2015). Here is a link.
J Johnston
Jun 15 2017 at 8:58am
Another good perspective on emergent order: stigmergy.
See Francis Heylighen’s Stigmergy as a Universal Coordination Mechanism: components, varieties and applications
Greg G
Jun 15 2017 at 11:06am
Market prices DO have an awesome ability to efficiently harness the decentralized productive power and knowledge in an economy through a process that IS emergent.
And this fact IS much under appreciated by the general public.
It does not follow from that that the best way to communicate this fact to the general public is to put so much emphasis on the fact that the process is emergent. There was a tone of frustration in both the podcast and the comments that, I think, makes this obvious. As the participants acknowledge, emergent processes are all around us and they are not always beneficial.
Your goal would be better served by putting more emphasis on the many cases when price controls have had harmful economic effects. More emphasis on the things that are particular to this emergent process and less on what it has in common with all emergent processes.
Even though I agree that the importance of market prices is much under appreciated by the general public, I am skeptical about the claim made here that the economics profession in general lacks this understanding. If you want to make that claim you should back it up with names and quotes rather than letting it hang as an unsupported assertion.
Daniel
Jun 15 2017 at 11:24am
I got this newsletter today and thought it apropos: Why Parisian Bakers Can’t Always Go On Vacation
I enjoy listening to EconTalk for perspective—particularly when Munger is on. But, for what it’s worth, I’m with Jerm on this one. I felt like the conversation featured too much agreement and while Russ did attempt to steelman counter arguments here and there, his efforts were not adequate to challenge the consensus view of the three of you in any meaningful way.
At the core, is that you guys seemed to ignore just how managed the market is at levels deeper than the surface. This episode seemed like a crystalline example how the libertarian view of the world has blinders on. I mean, you laughed off the very idea that some shady cabal sets oil prices as if OPEC isn’t a thing. And as for bread, before all those terrible farm subsidies were created, there actually were frequent food shortages. (Not that I want to defend the current state of farm subsidy affairs.) How well would the market for bread work without roads to get supplies, goods, and customers to each other? How do people become master bakers? Surely having an education helps. And on and on. We see constantly that the market is less than great at providing many of the most fundamental components of what enables the market to thrive. Society is surely much better because of markets, no argument, it’s great for lots of stuff. But the invisible hand is merely necessary but not sufficient for creating a functional society. This episode in particular seemed oblivious to this fact.
Nonlin_org
Jun 15 2017 at 11:31am
Leave it to experts to mess up a simple thing. Eric got the right idea with the “dynamic distributed design” – read above.
Of course the market economy is designed by all of us and of course it works because each of us designs our little piece. As soon as you want to design a bigger piece, you run into dis-economies of scale – i.e. government and big government.
There’s no magic “emergent” anything about the economy and it is not perfect as documented by the bullwhip effect.
Woodah
Jun 15 2017 at 2:00pm
I’m puzzled by the idea that cities are great examples of emergent order. Without top-down, command-and-control regulations and enforcement, cities look a lot like Lagos, Nigeria.
https://www.theguardian.com/world/2010/apr/04/documentary-film-welcome-to-lagos-nigeria
Historically, cities have been pretty horrible places to live. And I mean recently. Public infrastructure, public sewage systems, building codes, and zoning laws have made cities in developed countries immeasurably more pleasant in past 100 years.
Let’s not ignore the benefits that have come from top-down kings and tzars redesigning cities after major disasters such as fires and wars.
My guess is that economists of an Austrian bent will say something like, “Well, if people continue to move to Lagos, it must be better than the alternative!” This is a Panglossian libertarianism that makes my stomach churn. Sure, Lagos may be better than subsistence farming in the Nigerian countryside, but does that mean that it’s the best of all possible outcomes and we should not try to improve it with design? If we don’t want to insert ourselves in Nigerian affairs, should we at least take it as an object lesson in what can go wrong when a megacity has no effective municipal government?
Eric
Jun 15 2017 at 2:24pm
p.p.s. If we understand emergent order as dynamic distributed design, then we might consider the connections between the market and the discovered principles of effective modular design, such as encapsulation, internal cohesion within modules, and loose coupling between modules.
Example: Encapsulation
Protected property rights give one some measure of encapsulated control and responsibility over certain resources. Just as a lack of encapsulation in software can lead to a tangled mess, lack of property rights can lead to problems such as the tragedy of the commons.
Encapsulation also promotes the freedom to innovate, i.e. the freedom to make changes within the scope of your module of authority and control. Economist Adam Thierer uses the term “permissionless innovation” to describe the freedom to innovate that has promoted the development of the internet. (See Jared Meyer’s recent PragerU video, Why You Love Capitalism)
Without stating when it is warranted or not, government regulation can be understood in some contexts as violating encapsulation when it dictates what must or must not happen “under the hood” in an enterprise.
Example: Loose Coupling
When modules are loosely coupled you don’t have tight dependencies on particular partner modules that require elaborate mutual connections. Loose coupling allows easily moving modules around to be used elsewhere or to replace depending on one module with using a different one instead.
In the market, loose coupling is related to competitive markets where there is freedom of entry for businesses and freedom to easily make different choices by consumers.
Consider the challenge of getting covered by a different health insurance plan, given that this is typically determined by who is your employer. Those choices are bound together. Contrast that with deciding to buy a different car. Imagine if your choice of employer also determined your choice of car and what that would do to competition for the auto industry.
Aad
Jun 16 2017 at 1:46am
I’m with Jerm regarding his opinion about this episode. This seemed like three men talking about a girl they love. No criticism whatsoever, or just a tiny bit, in a form of imagined criticism from imaginary criticasters.
I’m from the Netherlands, and here things are a interaction of emergence and top-down planning. I’m not saying everything is perfect here, but the welfare state does seem to do a good job for most of us, as is the case in the Scandinavian countries.
Of course, I’m generalizing about the Netherlands, but this episode could have been a bit more interesting if other people could have made a case for the interaction between emergence and top down planning.
That said, I did enjoy the episode, poem, and website. Great resource.
John Alcorn
Jun 16 2017 at 7:29am
@ Woodah,
Re: Cities.
For a systematic analysis along the lines of your comment, and an application to the development of New York City, see Robert C. Ellickson (Yale Law School), “A Hayekian Case Against Anarcho-Capitalism: Of Street Grids, Lighthouses, and Aid to the Destitute” (Yale Law & Economics Research Paper No. 569; February 2, 2017). Here is a link.
Compare the discussion among David Friedman (Santa Clara Law), James C. Scott (Yale U.), and Robert C. Ellickson at the Symposium, “Two Visions of Anarchy” (Trinity College, Connecticut; November 14, 2016). This Symposium includes discussion of Prof. Ellickson’s analysis of street grids created by government in NYC. Here is a link.
GirlFriday
Jun 16 2017 at 11:51am
[Comment removed. Please consult our comment policies and check your email for explanation.–Econlib Ed.]
Marilyne Tolle
Jun 16 2017 at 1:52pm
I recommend this (rather long) article, which places the concept of “emergence” in the philosophical tradition.
Seth
Jun 16 2017 at 4:04pm
@Andrew Wagner
“What is fundamentally different about government that requires we always center our conversation between what our governments do and what other forces do?”
Government has a different feedback loops than the market.
Feedback in markets is conveyed by prices. Feedback in government is conveyed by votes.
The differences in the two ways feedback is conveyed are vast.
Thomas Sowell laid out some of the key differences in Chapter 1 of his book, “Applied Economics”:
” Politics and the markets are both ways of getting people to respond to other people’s desires. Consumers deciding which goods to spend their money on have often been analogized to voters deciding which candidates to elect to public office. However the two processes are profoundly different. Not only do individuals invest very different amounts of time and thought in making economic vs. political decisions, those are inherently different in themselves. Voters decide whether to vote for one candidate or another but they decide how much of what kinds of food, clothing, shelter, etc. to purchase. In short, political decisions tend to be categorical, while economic decisions tend to be incremental.
Incremental decisions can be more fine-tuned than deciding which candidate’s whole package of principles and practices comes closest to meeting your own desires. Incremental decision-making also means that not every increment of even very desirable things is likewise necessarily desirable, given that there are other things that the money could be spent on after having acquired a given amount of a particular good or service. For example, although it might be worthwhile spending considerable money to live in a nice home, buying a second home in the country may or may not be worth spending money that could be used for sending a child to college or for recreational travel overseas. One consequence of incremental decision-making is that increments of many desirable things remain unpurchased because they are almost–but not quite–worth the sacrifices required to get them.”
Seth
Jun 16 2017 at 4:12pm
@ Eric
Hayek has a phrase for your dynamic distributed plans. He called the “plans of the many.”
Russ also put that phrase in the 2nd Keynes vs. Hayek rap battle:
“I don’t wanna do nothing, there’s plenty to do!
The question I ponder is: Who plans for whom?
Do I plan for myself, or leave it to you?
I want plans by the many, not by the few“
John Alcorn
Jun 16 2017 at 7:34pm
@ Greg G,
Re: Your comment:
Do any of the podcast speakers (Russ Roberts, Michael Munger, and Don Boudreaux) make such a broad claim? At one point, Prof. Boudreaux expresses frustration at the “pedestrian” way in which “standard economics” studies abstract equilibrium, rather than market process. Almost all of the discussion, I think, takes a more measured view, and highlights (a) a broad contrast between public opinion and the intellectual tradition of economics about the value of spontaneous order through markets and (b) disagreements among modern economists about the proper or optimal scope of spontaneous order and market prices.
However that may be, one can readily adduce names and quotes of reputable economists who criticize spontaneous order and market prices.
For example, see Mark Thoma, “Economics is Changing,” Economist’s View (February 2, 2016). Here is a link.
See also the mixed picture in the data in Daniel Klein’s surveys of economists at Econ Journal Watch. (At the EJW website, use keyword search: survey of economists.)
Eric
Jun 16 2017 at 8:28pm
@Seth
Thanks for pointing out that F. A. Hayek had a way of referring to dynamic distributed design as “plans of the many” and the rap lyric “plans by the many, not by the few”! I thought the two rap videos were great, but hadn’t remembered that particular lyric was there.
I’m definitely on the side of Hayek on this one, not only for reasons of economic efficiency and effectiveness, but also for moral considerations in terms of liberty and (as the lyric says)
“The question … Who plans for whom?”
BTW, the effective modular design principle of the internal cohesion within modules may also have applications to the market. For a start, that causes me to I think of companies that run into troubles by trying to dabble in too many unrelated undertakings as contrasted with turn around efforts that sell off distractions (especially outside areas of strength) and attempt to align the company around a coherent focus of products and services.
Undoubtedly there are other potential opportunities for cross pollination between design in the markets and effective principles of distributed design needed by the largest software systems.
Mike Riddiford
Jun 17 2017 at 2:54am
Enjoyed the talk, and was very struck by Russ’s statement on the importance of emergent order as an idea – clearly I can profit by thinking more about this.
A nitpick – I find the analogy with evolution, and some of the associated rhetoric about markets as ‘marvels’ and ‘wonders’) overdone. The key idea in evolution is fitness for purpose, not beauty or any other aesthetic value (not all ‘wonder’ and ‘marvellous’)Russ’ s point that emergent phenomenon are not necessarily desirable is very relevant.
Greg G
Jun 17 2017 at 7:32am
John Alcorn,
>—“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. ”
That was the very first thing Don had to say in the discussion. Note the last sentence of the quote.
The poem that was the focus of this podcast was all about the way that market prices act as an efficient way to match the supply of bread to the demand for bread through a a process of emergent spontaneous order. There are vanishingly few professional economists who would disagree with that claim.
Nothing in the Mark Thoma essay you linked to indicates he would disagree with that claim. The Thoma essay was about issues of fairness, not issues of spontaneous order. Markets are not immoral but they are amoral. They simply don’t address questions of morality. I’m sure there will be other podcasts that do address that.
John Alcorn
Jun 17 2017 at 9:11am
Greg G,
Prof. Boudreaux said that spontaneous order is an insight that “is elusive to a lot of professional economists,” not that “the economics profession in general lacks this understanding.” Your paraphrase is not accurate.
A lot of economists criticize spontaneous order, not only on criteria of fairness, but also on criteria of efficiency. In fact, Mark Thoma’s blogpost is a good example of both types of criticism (or, at least, pointed questioning). Prof. Thoma questions the putative efficiency of inequality and of financial markets:
Although Prof. Roberts’ poem, It’s a Wonderful Loaf, provides the starting point, the podcast is a wide-ranging discussion of the nature and scope of spontaneous order, markets, and prices.
Although I did not contend or imply that Prof. Thoma’s blogpost questions the efficiency of bread markets in particular, one can readily adduce names and quotes of reputable economists who criticize free markets in agriculture on efficiency criteria; for example, environmental externalities. See, for example, the survey by E. C. Pasour, Jr., “Agricultural Economists and the State,” Econ Journal Watch Vol. 1, No. 1 (April 2004) pp. 106-133. Here is a link.
Greg G
Jun 17 2017 at 2:58pm
John Alcorn,
I guess we disagree about whether or not recognizing the existence and significance of spontaneous order requires that its results never be criticized.
I think it is entirely possible that too much economic inequality can inhibit economic growth. I rarely hear anyone claim inequality is solely the result of unfettered market forces and I didn’t read Thoma as claiming that. He said that it is an open question if too much inequality is a drag on growth and that it’s a good thing it’s an open question. None of that is a denial of spontaneous order and in any event spontaneous order does not always guarantee positive results.
Ron
Jun 18 2017 at 2:08pm
As a small business owner who used to own a manufacturing business and also has done every job in a restaurant, I found this talk to be utterly laughable. Why is there enough bread every day? Because we business owners know pretty well what our market expects, and unless we make a mistake in our forecasts, at the end of the day there will be plenty of bread left over. We use what we can the next day, but if we can’t use it, It’s more cost effective to waste a bunch of basic ingredients and raw materials than it is to lose a sale or generate loss of confidence or ill will in your customers. This goes all the way up the chain to the farmer, and it’s why governments will pay farmers to NOT grow sometimes. Otherwise overproduction causes prices to collapse, sending farmers out of business and the next lean year results in famine — not enough bread. It’s managed pretty well from the top down these days. Remember the dust bowl.
So, self-interested managers with government intervention and a lot of waste, somewhat in equilibrium, most of the time but not always. That’s the answer to why there is enough bread. Naturally, the larger the system, the more organizational structure is needed and the more potential for waste there is. And the more mysterious it will all seem to those who are not in the trenches actually moving the stuff around.
Russ, how about interviewing more real-world business people and fewer academics? I used to love this podcast, but it seems to have lost something in the past year or two. I’d love to get a more significant podcast back. There are so few really good ones out there.
S. Steele
Jun 19 2017 at 1:01pm
This was a great podcast with some terrific insight by Russ and both guests. Russ’ poem should be taught in high schools. It does a great job of explaining a concept that is difficult for some people to fully conceptualize, despite the fact that they see it in their everyday lives. Overall, it is good to hear well articulated arguments in favor of markets, when so many people take government created distortions to markets as “market failures”. Overall a great tutorial (although Michael’s continued belief that the guaranteed basic income is a good thing is still tough to understand) for anyone who is interest in understanding why free markets are the best way to go.
Russ Roberts
Jun 19 2017 at 3:00pm
Ron,
I agree with half of your main point–businesses will oversupply bread to make sure they don’t run out and displease customers. I don’t think that’s why we have farm subsidies, though–that is explained by the political power of the farm lobby.
I don’t think the subsidies are the reason there’s plenty of bread. Or why there’s plenty of whole wheat bread.
But of course, owners of bakeries are constantly trying to figure out what to make, how to make it (the mix of machines and people) and what to charge for it.
There are all kinds of “mistakes” across the economic system. Styles of clothing get remaindered because they don’t catch on and day-old bread is discounted or given to the poor. But that’s because the world is complicated and ever-changing.
Bogwood
Jun 22 2017 at 12:10pm
A mafia informant was testifying at a congressional hearing:”To tell the truth senator we weren’t all that organized”. My image of self-organizing is a physical structure, a hurricane. I am deeply grateful for the benefits of the American lifestyle but suspect it is enabled mostly by the energy gradient engendered by fossil fuels. The rapid dissipation of this energy has left damage in its wake,damage not yet priced. As one business person noted, it is the extreme energy surplus that allows waste at every level, keeps business running.
Others have mentioned that prices have trouble with the environmental contributions, resources and energy sinks. As the economy is a wholly-owned subsidiary of the ecosystem, let’s move economics under Ecology academically. More emphasis on energy flows and interrelated networks. EO Wilson might be less enthusiastic about markets, would make a good interview.
Gregory McIsaac
Jun 23 2017 at 9:49pm
“There’s magic without wizards if you just know how to find it.”
I suggest editing this line to “…magic with many wizards…” because I find the notion of distributed design more compelling than emergent order in the case of cities and bread systems.
I have been avoiding carbs and bakeries of late, but in the past, when I discovered new and preferable breads and bakeries, there often was one or more wizards (innovators) behind it who discovered, developed or delivered products that had not been previously available.
I agree that bread is widely available in cities in developed countries even though there is not a centrally planed bread distribution system, and that prices are probably the most important part of the success of the system. I also agree that many types of emergent order are not widely recognized, and should be more widely recognized.
From the discussion, it seemed that the poem was intended to to make a larger point about emergent order, but for me, the narrow focus on bread undermined larger generalization. The focus on bread was helpful to focus attention on an important item that is too often taken for granted. But to effectively call attention to the point of emergent order, I think more examples are needed. The focus on bread and prices is one example that highlights the value of free markets, but obscures other examples that are also taken for granted, such as language (mentioned in discussion) and water (not mentioned). Consider water supply in cities, which is also basic and often taken for granted, but is often managed in the public domain. Even though they are usually in the public domain as public utilities, each city water system is unique. Is that not an example of emergent order? And where these public water systems successfully provide abundant, high quality water, at a price that is low enough to take for granted, how do they do so without an apparent competitive free market?
Greg McIsaac
Notmynameatall
Jun 28 2017 at 3:57pm
Russ,
The argument for emergent order is like the argument for swimming as an emergent skill in your local community pool. Sure, the country had to be carved out of a wilderness (or taken by force), then the state declared, then region cleared and tamed, then the roads built, then the neighborhood formed and run by a local constabulary, then the pool planned, then constructed, then fenced, then cards issued, then a schedule posted, then staff retained and opening day logistics worked out…then the neighbors arrive…and should one fall into the pool, EMERGENT SWIMMING!!!!
All of that PLANNED order was necessary to allow EMERGENT order to occur. But Austrian economists draw their line in the concrete and say “You see how emergent order did this?” (sweeping gesture indicating the pool and lush environs). Of course not everything can or should be planned. Of course planned and emergent order coexist side by side…roads are planned, places of business emerge around them. But to claim that somehow all this miracle EMERGED is simply inaccurate. Classic example of claiming par with a nine stroke handicap.
All this EMERGING could not have, well, emerged without a fair bit of planning. You and your guests claim YOU KNOW where the planning ended and the emerging began…and are ready to make policy based on your convictions. I am not so sure there is a line between the two orders…and I am positive you do not know where it is.
Noneemac
Jun 29 2017 at 8:52pm
I’m grateful to Woodah and Aad for articulating some of the objections I had during the podcast.
In particular, during the Jane Jacobs “city planning is bad” segment, I kept wondering where in the world you’ll find an affordable, effective *privately financed and run* public transportation system that, in its glorious efficiency and reach, creates all kinds of positive externalities.
And that got me to thinking about “free-market-über-alles” attempts to do away with Essential Air Service,” which would serve no one well.
Comments?
Opher Donchin
Jul 3 2017 at 4:55pm
I want to agree with a number of criticisms of this episode. As Jerm said originally, the points of view were too similar to allow interesting discussion. In addition, it was grating to hear nameless economists caricatured and criticized with only a small effort by Russ to give the criticisms a truly fair hearing. Along these lines, I also felt like the guests spent a lot of time acting superior to these unnamed economists and interventionists who “don’t understand.”
I agree with many of the other criticisms that have been raised about the specific ideas discussed, but I think that having a more diverse panel would have allowed these criticisms to be raised in the discussion itself. The episodes in which Russ talks to like minded economists are often the weakest of the EconTalk episodes.
Charles
Jul 11 2017 at 4:45pm
I couldn’t help but picture this poem being turned into a children’s book. Maybe it’s because I’ve got a two year old… I think with good illustrations this could be a great book to make the idea of emergent order understandable. I’ve been listening for around 8 years and this is my first comment. Thanks for all the great work Russ.
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