Subject: Re: In defense of the market
From: Ian Lance Taylor <>
Date: 12 May 2000 10:33:28 -0700

   From: Russell Nelson <>
   Date: Tue,  9 May 2000 15:10:50 -0400 (EDT)

   Bill White writes:
    > I guess the thing I find most vexing about the corporatist gospel is the
    > sense of inevitability we are constantly told of.  We are supposed to believe
    > that the Law of the Efficient Market is as natural, inescapable and unique
    > as Newton's laws of motion.  I just don't buy it myself.  It seems like
    > it's a human, social construction.  We could construct it another way.

   Sure.  But it would be less efficient, and there would be less wealth
   to go around.  If there were less wealth, who do you think would keep
   more of it?

I'm not quite sure which answer you are expecting to your rhetorical
question, but I think the true answer is, it depends.

In a country like Sweden, with very high tax rates, the market is less
efficient, and there is arguably less wealth, and money is more evenly
distributed across the population than it is in the U.S.  That is, the
gap between the wealthiest citizens and the poorest is smaller.  It's
smaller on both sides, in fact; the poor in Sweden are richer than the
poor in the U.S., and the rich in Sweden are poorer than the rich in
the U.S.

In a country like Venezuela, the market is dominated by insiders and
is less efficient, and there is arguably less wealth, and money is
less evenly distributed than in the U.S.

It's plausible that an efficient market, regulated to prevent the
development of monopoly control, creates the most wealth.  What's not
clear is whether that is what society should optimize for.

Your bin-packing analogy is even more complex than you describe,
because part of what people want in their bins is determined by their
observation of what other people have (I know you understand this).  I
think the efficient market tends to optimize first order effects--
filling everybody's bins.  It doesn't do nearly so well at second
order effects--in which filling the bin of person A increases the size
of the bin of person B.  Of course, the market will then try to fill
person B's bin, but perhaps it would have been still more efficient,
in some global sense, to not completely fill either bin.  The second
order effects can not be neglected.

And there are of course considerations beyond bin-packing, like very
long-term resource management, which the efficient market is not
particularly good at.  I personally think people tend to severely
discount the value of resources to future generations and thus to
seriously underprice irreplaceable resources.  Future generations are
notoriously short on present day cash, and few people are willing to
wait a hundred years to get paid.