Shiller’s Irrational Faith in Government RegulationRobert Murphy • Friday November 13, 2015 12:00 PM PDT •
In a recent New York Times piece, economist Robert Shiller built an argument that was a non sequitur resting on two false premises. Specifically, Shiller argued:
(Premise 1:) Economics courses teach students that market outcomes are “Pareto optimal.”
(Premise 2:) In reality, market forces lead to systematic deception and manipulation of the public.
(Conclusion:) Therefore, we shouldn’t have blind reliance on unregulated markets, but instead we need sensible government oversight such as the kind that the FDA provides to the medical arena.
To repeat, Shiller’s conclusion doesn’t follow from his premises, but beyond that, his premises are false. So it’s a rather dubious argument, all around.
In the first place, outside of a few schools with faculty trained in Austrian economics, I think Shiller is quite mistaken when he argues, “Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone.” What percentage of economics professors teaching in the U.S. would endorse such a claim? I’m guessing it’s about 5 percent.
Second, it is not true that market forces leave the public helpless in the face of deception. For example, Shiller says that grocery stores tried “no candy” checkout lanes decades ago but that “these efforts have largely failed.” Thus, Shiller thinks this is a good example of how the profit motive can lead companies to take measures (such as putting candy in checkout lines) that will not make their customers happy, in a certain sense.
Yet I can remember seeing “no candy” lanes in the not too-distant past, and so the efforts must not have failed that much. In any event, with the rise of self-checkout lanes, this is now a moot point. It’s quite easy for parents who are so inclined to avoid pushing their young whiny children past candy bars in even conventional grocery stores. Furthermore, the rise of health food stores has also given more options to parents who want to shop in such an environment. It wasn’t the aim of the people opening such stores to specifically solve the “we know parents will hate us for it but we want to make a buck” problem that Shiller brings up, but they did solve it nonetheless.
Finally and most important, it doesn’t really matter how much we think markets encourage honesty vs. duplicity in some absolute sense. All that matters is whether voluntary processes are more honest than coercive mechanisms imposed from Washington.
Yes, it is true that major companies that fund scientific research have an interest, but by the same token wouldn’t we expect government-funded research to yield outcomes that the political class desires?
And yes, it is true that mass-market commercial campaigns appeal to the baser motives and emotionally manipulate the public. But how does Shiller think political campaigns work, when the public periodically selects the government officials who will then (supposedly) tweak and improve the dishonest, manipulative marketplace?