Poker, Haiti, and Insect Parts in Your Food: Who Votes in a Free Market?

In my last post, the concept of an optimum distribution of wealth was introduced with only a hint of the difficulty of defining what should be optimized. Defining the goal is often a major difficulty in making decisions. Once we know what it is that we want to optimize, the mechanics of working out an implementation are reasonably straightforward. Since we are all humans, we tend to gravitate toward easier tasks and so work on details such as how to balance the federal budget while society thrashes about since solving societal problems is difficult and ill-defined. Balancing a budget is much easier (although seemingly impossible for our government as currently constituted) than deciding what is an optimum distribution of wealth and then implementing appropriate measures subject to balancing the budget in the process.

When I taught at the university, I would ask students, “What is the optimum percent of children to be sexually molested in a society?” This is an obviously provocative question meant to draw out the immediate and unthinking response, “None — the optimum number of raped children is none.” Then I would ask them to define a realistic society in which we could absolutely guarantee no molestation (without genetically altering humans or other impractical methods) and then tell me if they want to live in that society. In otherwise boring classes, that introduction could generate energetic discussion. Then I would ask what is the optimum permitted number of insect parts in pepper? That would draw some blank stares. So I would show them the FDA permitted maximum number of insect parts in various commodities. Why not simply say no insect parts permitted?

Poker, Haiti, and Insect Parts in Your Food: Who Votes in a Free Market?All this would lead to a much more boring discussion of partial differential equations and asymptotic approaches to goals. As an instructor, I hated the separation of classroom learning from reality. Forgive me my idiosyncratic behavior in communicating that.

While using hypothetical child molestation to get students’ attention might seem an overreach, I actually got more angry response from asking what is the purpose of a market, and could they give an example of a free market. Reader Bern responded to my last post by favoring a free market response to determining the optimum distribution of wealth. One problem with this is that I have no idea what a free market optimizes, but in some sense that is not important because there is no such thing as a free market in practice, and we probably would not like if it did exist.

For instance, a free market requires a large (essentially infinite) number of both buyers and sellers and instantaneous distribution of all information relative to the transactions. No insider trading here! Maybe wheat sales would be close to this ideal, but for the government regulations. Profits as normally defined are driven to zero in a free market (see above examples for comparison).

Who votes in a free market? Our future descendants do not get a vote on what we contribute to global warming right now. People who are at the sustenance level do not vote on the style of Mercedes that goes to market. Go to Google Earth and look at the island of Hispaniola, which is shared by Haiti and the Dominican Republic. There is an artificial line down the middle with barren hills on the west where Haiti sits, and lush forests on the Dominican Republic’s side of the island in the east. The devastation in the west was due to decisions made by poor people in what approximates a free market. Are the Haitians better off for those decisions?

Finally, there is the problem of playing poker. Poker is simpler to analyze than government or wealth. Analysis shows that under realistic assumptions, the person who starts with the most money wins it all; everyone else loses. Is there a lesson in that?

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  • http://twitter.com/RandySpangler Randy Spangler

    So, then… who gets to play God?

    Maybe the economy should be like NASCAR. You keep letting it get faster and faster, then when it all starts crashing and killing people, you throttle it back a bit. Make better barriers, better helmets, better fire suppression, go a little faster until people start getting maimed, then dial it back.

    Can I be the one with the dial?

    • Sdeforest

      In some sense, you always have been the one.

  • bern

    I suspect I may have been the “bern” mentioned above.

    What, exactly, a “free market” is, I suppose, depends on who is doing the talking. For me, a “free market” does not include fraud or coercion. The only organization capable of preventing fraud and coercion is the government, and that is a very legitimate function of it. So, the government must prevent mislabeling of products, and punish miscreants, It must punish those convicted of theft, fraud, and other market distorting crimes. But it must not decide what products can be sold or bought (provided those products are properly characterized by the seller), or determine the price, or subsidize one product or producer rather than another. In such a regulated but “free” market consumer demand, product availability and ease of production will all determine price and whether more producers will make more of them for the market. When the government decides on the price, subsidy, or whether a product should be manufactured at all, they simply do not have enough information to make such a wide ranging decision. It does not take an infinite buyer and seller population to make a proper market, but a single bureaucrat is certainly insufficient.

    Your example of Haiti as one of a “free market” is wrong, in my estimation. Haiti has been either a repressive dictatorship, or in a state of anarchy. Neither condition allows for a market with minimal  fraud and coercion.

    Finally, you ask “what is the optimum distribution of wealth?” I am sure it is intended as a rhetorical question. In  any event, I am not sure a bureaucrat or 430 should be deciding how 300 million people should be compensated, and how they spend what they get. After all, for the most part, people themselves determine how much wealth they have by the job they choose, and by how much of their income they spend and on what. I have two neighbors in similar jobs. One buys expensive cars, and is deeply in debt, unable to deal with his mortgage. The other has always driven an old Ford, and has savings, as well as a paid off mortgage. So, I don’t know what is optimum, either, but I do know I don’t want anybody with power trying to make those decisions for me.    

    • Sdeforest

      Part of my post is aimed at tempting readers to define a free market.  Search will return several definitions, some different from what I wrote.  Many arguments would be shortened with commonly accepted definitions.  “Free market” is often confused with “free market economy”, which is a different thing.  The Haitian example shows relatively powerless individuals making choices based on the situation in which they find themselves, and those choices in the aggregate are bad for everyone.  “I need wood for charcoal–I will go up the hill and cut some.”  This is in contrast to a small group forcing decisions on many as the dictatorship did (does).  The power to tax is the power to control.  Every tax imposed changes behavior, whether that is the stated purpose or not.  Taxing policies largely determine the distribution of wealth.  Changing the distribution might not be the goal of the implementers, but that is the result.

      “Optimum distribution of wealth” remains rhetorical until it is defined.  That does not stop politicians from arguing about it–in fact, it encourages them.

      I truly appreciate your insightful comments.