great book review on political rhetoric of "free market"

Law professor James Kwak just published a fantastic review in the Washington Monthly of Steven K. Vogel's new book Marketcraft: How Governments Make Markets Work. I mean "fantastic review" in both senses of the phrase: Kwak has nothing but praise for Vogel's book, and his essay itself is an insightful piece of writing that touches on two of my favorite subjects—the inanity of conservative paeans to the "free market" and the frustratingly tepid nature of Democratic economic policy—at the same time. I myself have read and written about both of these matters a good deal, but I had never seen them tied together in such a compelling fashion. I'd highly recommend the review itself. I have not read the book it is actually about, but—based on the review—I'm sure it is fantastic as well.

Vogel is a political scientist who specializes in the political economy of Japan. He has apparently also done some work on the developing and post-communist world, as he cites these perspectives on the nature of "free markets" in contrast to those of the developed regions. Societies that are working hard to construct these institutions, he argues, are well aware of the role that government plays in establishing them. "In those contexts," writes Kwak summarizing Vogel, "it’s clear that the establishment of a market economy depends on the active construction of supporting institutions." No one in the developing world, the latter argues, would imagine that removing government support and regulation from the market would be a tool of liberation or efficiency.

At least as far back as Adam Smith, supporters of the market have argued that it arises from the uncoordinated actions of individuals motivated only by "the certain propensity in human nature...to truck, barter and exchange one thing for another." Under this interpretation, human beings are naturally inclined to produce and to trade; if one merely lets them be, then everyone will benefit from the efficiencies of the market. "The elegant juxtaposition of the words free and market evokes many of the presumptions challenged in this book,” writes Vogel. These powerful but implicit assumptions are “that markets are natural, that markets arise spontaneously, that markets inherently constitute an arena of freedom, and that government action necessarily constrains this freedom.”

Of course no one advances these ideas more strongly than American conservatives. And Vogel's argument adds yet another perspective on why they are wrong about this. (I made a very similar argument from the perspective of American history in my own book.) Yet Vogel takes this a step further in arguing that progressives suffer from this frame as well. The vehicle of this suffering is the concept of "market failure." Democratic politicians frequently argue that government intervention is necessary in this or that case because the market has failed, usually due to some oddity in the nature of the product at hand. (Air quality, for example, is a public good that, by definition, the market cannot allocate property. On the other hand, the market may be working just fine in failing to provide food or housing to the poor. But society is unwilling to live with those consequences, so we alter the markets for those goods.) Arguing that government should take action only when markets have failed, however, is implicitly treating those conditions as though they are special cases. This premise, in turn, underscores the assumption that markets distribute goods, in the majority of cases, exactly as we would want them to do. At the bottom of this chain of inferences is the notion that markets are what we generally want and government is what we reluctantly have to turn to, out of necessity, from time to time.

In 1968, John Kenneth Galbraith made a parallel observation about the history of economics. In the eighteenth century, he argued, social observers saw government flailing in its attempts to deliver its primary good—social order—while markets distributed such things as food and shelter with much greater efficiency. Because they generalized from their local state of affairs, such products as "alcohol, comic books and mouth wash [sic]" have come to "bask under the superior reputation of the market" while "schools, judges, patrolmen, and municipal swimming pools lie under the evil reputation of bad kings." Vogel argues that Democrats have internalized this pro-market thinking in order to avoid being tarred with broad brush of "big government." As Kwak summarizes Vogel's argument:

The conservative strategy was to shout, “The market is rational and the government is dumb.” Democrats, afraid of being tarred as government-loving (and hence dumb) liberals, responded with “me, too.” Only, as well-educated technocrats like to do, we added a few qualifiers: markets are usually rational, and the government is usually dumb, but sometimes markets make mistakes, so in those cases (only) the government should intervene to restore the outcome that the market should have produced.

In his review, Kwak argues that this framework is both bad politics—correcting market failures isn't really that inspiring—and bad policy, as it "rules out policies that could directly address the problems that ordinary families face." Progressives are not always interested in restoring the state of affairs that a perfectly functioning market would have brought about. Sometimes they want to challenge the market itself. Kwak rightfully points out that it is inequality and not market failure that causes many of the problems that Democrats (should) want to address. But saying nothing more than "our markets are better than their markets" ultimately sends the message that "when it comes to housing, health care, education, and retirement, you’re on your own." There's nothing particularly progressive about that.

Government has greater and more important functions than correcting for market failures. Read the review, buy the book.