Welcome Bernard Harcourt, and Host George Grantham (known to FDL as “Knut”).

The Illusion of Free Markets: Punishment and the Myth of Natural Order

Host, George Grantham:

It is a pleasure and an honour to introduce Professor Bernard Harcourt to the Lake for a discussion of The Illusion of Free Markets: Punishment and the Myth of the Natural Order. The book advances several claims that go to the heart of libertarian ideology. For FDL readers probably the most important claim holds that belief in the efficacy of unregulated markets naturally to secure maximum economic and social well-being has as its counterpart the assertion that the role of government is properly confined to the spheres of criminal justice, national defense, and the protection of private property. Harcourt considers it no coincidence (Comrade, as we used to say in my cell), that the nation where free-market ideology is most pervasive has the world’s highest rates of penal incarceration by an order of magnitude, and that the rising incarceration rate since the mid-1970s is synchronous with the ascendance of an exceptionally rabid free-market ideology.

There is a deeper set of intellectual issues at play, however. What exactly do we mean by ’free markets’? In what specific sense are they free? What logical or empirical grounds warrant the belief that market outcomes are ’natural’ in the sense of being consequences of the operations of Natural Law? (Those of you who have done a basic philosophy course will recall that the distinction between Natural Law and man-made law is a distinction between laws making it illegal to jay-walk and a law that prevents you from walking on water). The thing about Natural Law is that it is a fixed point in discourse. If market outcomes are natural we are not permitted to place value judgments on them, just as we are not permitted to place a value judgment on the law of gravity. It follows that government interventions which interfere with the workings of the natural law of markets produce logically inferior outcomes, and should therefore be eschewed.

Harcourt argues that this view of the free market as “natural” in the above sense is categorical confusion, that the distinction between ’free’ and ’regulated’ markets is impermissible because all markets are regulated. To illustrate this point he contrasts the eighteenth-century Parisian grain and bread markets, which were heavily regulated by the state to ensure ‘fairness’ in trade and a modicum of price stability in times of crisis, and the Chicago Board of Trade options market. Both are in fact deeply regulated, with rules determining who can trade, when they can trade, and what they can trade. Yet history has determined that the Paris market was ‘regulated’ and ‘unnatural,’ while we consider the Chicago options market to bean exemplar of a ‘free’ market. Why is this? How did this happen? The book works through an intellectual history that reaches from the writings of the French Physiocrats through Beccaria, Bentham, and the Chicago School of Law and Economics to show that the development of these categories over two centuries has deep roots.

Rather than summarize the book, I will set out a few quotes to provide context for discussion. I begin with a quote from (Judge) Richard Posner to set out the conventional free-market ideology.

“The major function of criminal law in a capitalist society is to prevent people from bypassing the system of voluntary, compensated exchange — the “market” explicit or implicit–in situations where, because transaction costs are low, the market is a more efficient method of allocating resources than forced exchange. … When transaction costs are low, the market is, virtually by definition, the most efficient method of allocating resources. Attempts to bypass the market will therefore be discouraged by a legal system bent on promoting efficiency.” (cited at p. 138)

Now to Harcourt.

“The punitive society we now live in has been made possibly by–not caused by, but made possible by–this belief that there is a categorical difference between the free market, where intervention is inappropriate, and the penal sphere, where it is necessary and legitimate. This way of thinking makes it easier both to resist government intervention in the marketplace, as well as to embrace the criminalization and punishment of any “disorder.” p. 41

“The point is not more or less regulation; the issue is how regulatory mechanisms and regimes distribute wealth. And the categories ‘free’ and ‘regulated’ are simply not useful when evaluating different forms of economic organization and their distributional consequences.” p.48

‘Let me emphasize, it is not just that the categories [of “free” and “constrained” systems of exchange] are not useful. They have been affirmatively detrimental. The logic of neoliberal penality has made possible our contemporary punishment practices by fuelling the belief that the legitimate and competent space for government intervention is the penal sphere. The logic of neoliberal penality has facilitated our punishment practices by weakening any resistance to governmental initiatives in the penal domain….’ p. 52

And a final response to the position set out by Posner

‘The question in the end is not whether to favor “freedom” or “constraint” — in both cases we are both freely and coercively imposing a legal regime with or without options. The question instead is to determine exactly who benefits and by how much, and most importantly, to assess politically and normatively the justice of those distributional outcomes. It is precisely that normative assessment that is prevented by faith in natural order and market efficiency. So long as the distributional consequences are viewed as the natural outcome of a natural order, they become far more normal and necessary. Their assessment becomes practically futile, or at least beside the point. …It is only when we let go of the illusion of natural order that we truly open the door to a full and robust political assessment of those distributional consequences …” p. 194.

Welcome to the Lake, Professor Harcourt. Let’s dive in.

[As a courtesy to our guests, please keep comments to the book.  Please take other conversations to a previous thread. - bev]

141 Responses to “FDL Book Salon Welcomes Bernard Harcourt, The Illusion of Free Markets: Punishment and the Myth of Natural Order”

BevW July 24th, 2011 at 1:56 pm

Bernard, Welcome to the Lake.

George, Thank you for Hosting today’s Book Salon.

Bernard E. Harcourt July 24th, 2011 at 2:02 pm

It’s a pleasure to be at the Lake, Professor Grantham, and a great honor to be chatting with you. I was just rereading your article from the Oxford Economics Papers, which, if I am not mistaken, makes a very similar claim to the one I make in my book, namely that there is no such thing as an entirely unregulated market. Of course, you were writing in the context of the money supply, but the central argument is very much in line with mine. So it’s doubly a pleasure to be here.

Incidentally, please do call me Bernard!

Knut July 24th, 2011 at 2:06 pm

To get the ball rolling, I would like to raise two types of issue raised by your book: one comes out of arguments accepted by mainstream progressive economists like by Delong, Summers, and I believe (perhaps incorrectly) Krugman. The other comes from the mainstream right-wing economists like Bill Niskanen. Here’s the first type: Most mainstream economists argue for government intervention in terms of correcting ‘market imperfections,’ and that unless a particular ‘imperfection’ can be shown not to be self-correcting, government should leave markets to their own devices. This would appear to eliminate any role for government in the redistribution of wealth, including indirect redistributions involving provision of public goods like police protection for the poor or free access to ‘public‘ parks. Why should people who pay minimal tax have access to public goods from which they can be excluded if they don’t pay for them? Isn’t this inefficient?

The second issue is commonly raised by our resident trolls. Market regulations simply protect special interests at the expense of the general interest. You will recall that Milton Friedman claimed (and evidently believed) that the medical profession would be better served by eliminating certification boards, on the grounds that the ‘market’ would correct systematic malfeasance by eliminating inferior practitioners, and that the boards merely created a monopoly at the expense of the general interest. Who are (or what is) that general interest, and how do we know that it is the general interest? Is the market the only legitimate arbitrator of the general interest?

1. Could you say a few words about the operation of the Chicago Board of Trade as a `free` market as a way of showing that no market is unregulated?

2. According to the libertarian creed, interference with markets is unlawful (in the Natural Law sense) and ought to be repressed in the interest of social efficiency. How does this view stand up to the different punishments handed out to minor drug law offenders and major white collar offenders. To take a more pertinent example: does this world view explain why the violation of property rights in the mortgage scandal have gone almost completely unprotected?

Bernard E. Harcourt July 24th, 2011 at 2:09 pm

Let me start with the first set of issues — or rather, even more fundamentally, with the assumptions underlying the first set of issues, because those assumptions are precisely what I am trying to get at in The Illusion of Free Markets. The very notions of market “imperfections” or market “failure” assume that a proper market will be efficient and then focuses our attention on the question of correcting imperfections or inefficiencies. Even those economists who concede that you need government regulation to construct a proper market will argue that there is a way to distinguish between those governmental regulations that are meant to “construct” that market and those that are meant to “correct” the market imperfections. My point is that the two cannot be distinguished. Markets are constructed: There is no difference between the kind of regulations that it takes to construct a market (say, private property enforcement and antitrust regulations) and the kind of regulations needed to “correct” imperfections. Once we see that there is no difference, then it becomes clear that all regulation involves distribution and redistribution.

Let me then explain this, in a moment, by reference to the operation of the Chicago Board of Trade…

dakine01 July 24th, 2011 at 2:09 pm

Good afternoon Bernard and George and welcome to FDL this afternoon.

Bernard, I have not had an opportunity to read your book so forgive me if you do address this there. I am not an economist but due to being one of the long term underemployed, I have been writing about economics based issues a bit over the last year or so at my own little blog.

My question is, is it ever going to be possible to dispel this myth of the “free market” when the proponents keep getting quoted and have their views used as basis for astoundingly bad economic policy, even though we have decades of evidence as to just how wrong they are?

DWBartoo July 24th, 2011 at 2:10 pm

Bernard, welcome to the lake.

George, thank you for hosting.

George, might we consider most current “mainstrem” economic thinking to be the rough equivalent of the geographic view of the earth as being flat?

In other words, how may we expand our thought-horizons, that our economic thinking might embace more rounded and human perspectives, consonant with the earth’s capacity to support human life?

DW

Jane Hamsher July 24th, 2011 at 2:11 pm

Thanks so much for being here today Bernard, and thanks to you too Knut.

This is a very interesting observation:

[T]he nation where free-market ideology is most pervasive has the world’s highest rates of penal incarceration by an order of magnitude, and that the rising incarceration rate since the mid-1970s is synchronous with the ascendance of an exceptionally rabid free-market ideology.

It’s my understanding that the prison population began expanding in the 80s because of both the “war on drugs” and the privatization of prisons. I can see how the latter flowed from the mythical virtues of the free market, but the former seems somewhat antithetical to it.

Scarecrow July 24th, 2011 at 2:15 pm

Welcome Profs! To Bernard and Knut, can we get right to the rich relevance of the Book to today’s debates. For example:

in a great chapter on what happened to Coase and transaction costs, you show that while he sorta gave lip service to the need for empirical tests of whether transaction costs were high or low — if low then let the market work; if high consider regulation/interference, etc — he and the Chicago Law and Economics folks slipped easily into claiming, without empirical evidence, that the market result would virtually always be better without govt regulation. It’s more a religious belief, is is not, rather than a sound economic or legal theory? And isn’t that exactly what we’re hearing from the Tea-GOP today — and without much pushback from the Dems?

warp9 July 24th, 2011 at 2:16 pm

Welcome Bernard.

This is an interesting topic of discussion, and it will be enjoyable to see where it goes. . . .

Knut July 24th, 2011 at 2:16 pm
In response to DWBartoo @ 6

There is a growing body of scientific findings in cognitive science suggesting that the rational part of our decision-making — which is the only part that formal economics can handle — is only the tip of the iceberg that holds the neural factors that determine how we act. It is an important tip, but not the only one. These findings are relevant to welfare economics, which holds that what is best can be determined by observing how people act presumably in relation to their preferences, in a logical means-end chain. The cognitive science results do not uniformly support that position. The problem is that there is enough empirical support for the conventional approach to make it almost impossible to dislodge. It is what economists do. On the other hand, what economists do is not necessarily connected with what people do, or what they value.

Knut July 24th, 2011 at 2:18 pm

Bernard,

If you get lost in the flow, just refresh. That will keep you up to date on the comments and questions.

Bernard E. Harcourt July 24th, 2011 at 2:18 pm
In response to Jane Hamsher @ 7

You are indeed right, Jane, that the War on Drugs contributed importantly to mass incarceration. The best evidence seems to suggest that about a fourth to a third of the increase in prison populations can be traced to drug enforcement. You are also right that some of the founders of the Chicago School were opposed to the criminalization of drugs. But the truth is, they never really put drug enforcement and mass incarceration at the top of their agenda, and the larger social forces that have fed the prisons (law-and-order politics, the “failure of rehabilitation,” etc.) were thus allowed to overwhelm the political debate.

Scarecrow July 24th, 2011 at 2:19 pm

Next observation on Coase and the lack of empirical proof, isn’t it clear by now that the facts have disputed the notion that the markets are generally better off when non-regulated? Look at the examples we’ve seen from the last decade alone: WorldCom, Enron, the housing bubble, securities fraud, Lehman, the financial collapse, and on an on. The empirical evidence of market failure is so overwhelming that even Greenspan’s belief in self fixing markets was shaken, though he quickly forgot.

do either of you think there is any threshold of failure that will finally shake the free market zealots out of their religious trance?

masaccio July 24th, 2011 at 2:23 pm

This is just fascinating, and I will certainly read your book, Bernard.

Until the Great Crash, I thought that there was a legitimate sphere for criminal punishment for fraud in securities transactions. Information asymmetries are so great between underwriters and retail customers, and protection of the interests of small investors is so important to a functioning financial system, that it seems fair to jail people for fraud.

The Great Crash shows that the asymmetries are also great between underwriters of real estate mortgage-backed securities and their customers, including pension plans and small banks, among others, even though customers are given the label “sophisticated investors”, and it seems again that it is fair to jail the underwriters who committed fraud.

Neither the Bush Administration nor the Obama administration is willing to hold white collar criminals accountable.

I understand the general thrust of the arguments about criminalization, but do you think that there are proper areas for criminal prosecution?

Knut July 24th, 2011 at 2:23 pm

There is what I think an interesting confirmation of Bernard’s hypothesis in Canada. The Harper Government, which is a clone of the right-wing Republican party, has taken upon itself to expand state expenditures in two directions — national defense, against whom or what is unclear — and prisons. There was an embarrassing report this week showing that crime in Canada has actually declined over the past few years (as it almost always does when an economy is booming). The Conservative Government simply claimed that the statistics were false, although they come from the government bureau charged with collecting them. The other side is a virulent free-market ideology.

DWBartoo July 24th, 2011 at 2:24 pm

Ah, then the dismal science will continue along in rather dismal fashion, for the most part, we may assume?

Have you any thoughts on MMT, Modern Monetary Theory, George, and the impact it might possibly have, over time and with sufficient exposure, on challenging conventional, if plodding, wisdom?

I deeply appreciate your thoughtful reply @10, by the way.

DW

Bernard E. Harcourt July 24th, 2011 at 2:24 pm
In response to dakine01 @ 5

Thanks, dakine01, for your blog writings and your comment. My sense is that the political debate over the past decades has always been cast in terms of “free markets” versus “socialism” – at least, that was the case during the Cold War and there seems to be a clear hangover still today. I’m trying to suggest, really, that both sides of the argument had it wrong, in the sense that they both made mistaken assumptions about the virtues, in one case, of “free” markets and the virtues of government intervention, in the other case. By showing that there is only regulation, and that what we have to do is judge the outcomes of regulation, I am hoping to shed light on a third way of thinking about economic organization. I can only hope that it will have some traction…

Scarecrow July 24th, 2011 at 2:24 pm

Should we look to the lack of criminal prosecution of the banksters as a proof, or an exception to the general thesis? That is, the Greenspan view was that the shadow banking system didn’t need regulation, because the market would sort out the fraudsters and correct itself. It didn’t; it reenforced itself into an entire system TBTF. But almost none of the banksters went to jail, even though the proper role of government in this construct is to put people in jail for stealing.

So there was a clear conflict between these two strands, and the banksters won — that is, free market view trumps the incarceration view.

As a consequence, it’s not a crime any more to violate antitrust laws, monopolies are allowed, price fixing is fine, theft is okay if done by banks through control fraud, and on and on — because all of that occurs in the economic arena that is presumed to be self policing and generally more efficient than whatever regulatory regime the government tries to impose. Is this how to understand what is happening?

joelmael July 24th, 2011 at 2:24 pm

Seems to me a good deal of the problem derives from the slipperyness of the term “market” The word is tossed around and rarely defined. I suppose originally a market was a place, a place where people met to transact exchanges. Now what is a market? The stock market? the labor market? the drug market? There are zillions of individual markets, why would one think the same amount of regulation or no regulate would be appropriate across the board. If one remains consistently vague as to which actual market you refer to, then religious type assertions are difficult to refute. The “freemarketers’ depend on that vagueness.

athena1 July 24th, 2011 at 2:25 pm

Hi, Bernard.
I’m wondering if you have any thoughts on the intersection between the myth of free markets, and the myth of supernatural “natural rights”? (such as the “right to liberty” which mysteriously ceases to exist for slaves. The “natural rights” myth seems to be used by free market zealots to deny people legal rights, like the right to health care.)

Knut July 24th, 2011 at 2:25 pm
In response to masaccio @ 14

Bernard,

Can you pursue this line of thought? Why should some crimes, like possession of small amounts of marijuana or petty theft get the book thrown at them, while crimes against property like the mortgage foreclosure scandal go untouched? Isn’t the latter an example of violation of property rights? Isn’t a violation of ‘natural law’?

BevW July 24th, 2011 at 2:26 pm

Bernard is catching up on the responses – bev

DWBartoo July 24th, 2011 at 2:27 pm

The War on Drugs launched more political careers than you can shake a spliff at, Bernard, and being the first “endless” war, proved to the political class that scapegoating would be happily and easily embraced by the public. As well, the racial overtones of the “war” persist, with horrible consequence, to this very day.

DW

Bernard E. Harcourt July 24th, 2011 at 2:28 pm
In response to Scarecrow @ 8

I was astounded to see those passages in Coase’s 1960 article when I reread them (for the umpteenth time) because he had made such a concerted effort to turn to the empirical… and yet, he did, in those passages, suggest that the empirics were too complicated and that we should avoid government regulation. Is it a faith? Indeed, I think it was. As I show in the concluding chapter, I think that faith survives on both sides of the political debate today…

Knut July 24th, 2011 at 2:29 pm
In response to DWBartoo @ 16

I have to confess that all I know about MMT is what I gather from the blogs. From what I gather it is pretty much what old-fashioned monetary economics was like before it got captured by Robert Lucas and is epigones. I remember having taken a deadly dull graduate course in money from Henry Wallich in which almost all we did was study books and articles on how banks operated and how the system worked. That all went by the boards in the 1970s. Professional economics has gotten more and more abstract, and you can’t get tenure anymore unless you play the game. Brad DeLong has a lament on this. I forget the reference. It just came out on the Berkeley Electronic Press a couple of days ago.

OldFatGuy July 24th, 2011 at 2:31 pm
In response to Scarecrow @ 13

do either of you think there is any threshold of failure that will finally shake the free market zealots out of their religious trance?

Good question, though one may suppose that if they haven’t been shaken yet then they’re likely not going to be.

I would settle for just removing all of them from the reigns of government.

Which is probably just as equally impossible.

Knut July 24th, 2011 at 2:32 pm
In response to DWBartoo @ 23

Coase came out of the LSE Austrian tradition. The Austrians were always weak on empirics, and weak on explaining how markets work as opposed to why they work. The start with an end state and say, it’s got to be true because it’s logical. In response to Athena above, the standard proofs have a lot in common with the ontological proofs of the existence of God.

Bernard E. Harcourt July 24th, 2011 at 2:33 pm
In response to masaccio @ 14

The fact that there have been no prosecutions for the mortgage-backed securities debacle is astounding, given that the quantifiable harm (in terms of lost jobs, health insurance, care, etc.) far outweighs (probably) the aggregate of petty crimes. It reflects, I think, the way in which we focus the notion of security in this country on street crime — which itself is a reflection, I believe, of the way in which our ideas of natural order in economic exchange push policing into the realm of street disorder.

athena1 July 24th, 2011 at 2:33 pm
In response to OldFatGuy @ 26

There’s lots of scientific evidence indicating that when it comes to deeply held beliefs, conflicting evidence just makes people believe all the harder. See: intelligent design.

Bernard E. Harcourt July 24th, 2011 at 2:37 pm
In response to Scarecrow @ 13

I’m not sure there is a threshold, frankly. One would think that the financial collapse of 2008 would have been sufficient. Or the fact that the US nationalized Citibank and Bank of America.

DWBartoo July 24th, 2011 at 2:39 pm

This “playing the game” afflicts all professional disciplines, George, one need only look at the “product” of legal educations to realize that such things as the Constitution and the rule of law are considered “quaint” and the clever attorney, especially in positions such as Yoo, find no difficulty in using the law to destroy the law.

Psychology, which was once my profession, is, now, a willing participant in torture.

Leading to the reason question: “What is the purpose of universities, today. Is it to encourage capacity and original thought or merely to provide “replacements” for a society gone quite amuck … which intends to stay that way?

DW

Binskins July 24th, 2011 at 2:39 pm

Thank you – yes, I think you are right. They start with an a priori assumption and work backwards to prove it, but never step outside the box in their reasoning.

Cynthia Kouril July 24th, 2011 at 2:40 pm

Ah, but we only nationalized the risk of laoss at Citi and B of A, the reward remains in the hands of Masters of the Universe.

Talk about your moral hazard.

Jane Hamsher July 24th, 2011 at 2:40 pm
In response to Scarecrow @ 18

Sounds to me like you’re describing the antithesis — unregulated markets allowed huge capital pools to accumulate that prevented the prosecution and incarceration of the guilty. I think the ICE incarceration and deportation rates are definitely being reinforced and pushed to maximum levels because private prison corporations are spending money to keep them that way, so I can see that connection between high incarceration rates and the “free market” impulse. But overall I’m not sure I understand the thesis that the two are synchronous.

Scarecrow July 24th, 2011 at 2:40 pm

More on the relevance of Coase forgetting about transaction costs: In the debate over health care reform, we had two competing paradigms. (1) Medicare is cheaper than what the private market is providing, and it does at least as good a job, and (2) if we only get everyone into insurance exchange markets, everything will be fine.

But as Krugman et al point out, citing Ken Arrow, the health care and insurance industries are rife with market failures and transaction costs that make it impossible or at least highly unlikely that a market can achieve anything approaching an efficient solution — and the lower costs in government dominated health system in other countries is the proof.

Nevertheless, both the Obama Admin, most of Congress believe that the exchange markets will work just fine, because the market will produce efficient results. Is this another example of this “natural law” assumption about markets trumping all evidence? And doesn’t this explain why the Administration can offer to raise the eligibility age for Medicare from 65 to 67 and still believe that’s okay for those who then get dumped into the exchanges? btw, Ezra Klein thinks this is fine.

Doesn’t your thesis basically say, these people have got it all wrong, because they don’t realize the bait and switch Coase and the Chicago School pulled back in teh 60s and 70s?

Bernard E. Harcourt July 24th, 2011 at 2:40 pm
In response to Scarecrow @ 18

I think that we have to understand all these developments as reflections of the mistaken belief, intentional or unintentional (I’ll get to that), that government is a negative influence in the economic domain. that is what leads, I think, to the resistance to criminalization in the context of the 2008 crisis.

DWBartoo July 24th, 2011 at 2:41 pm

Your response to athena is more superb, I’m glad I had nothing spillable in hand, George.

;~DW

Bernard E. Harcourt July 24th, 2011 at 2:43 pm
In response to joelmael @ 19

BINGO! Yes, the key problem here is that we can even use the term “the market” and think that we know what we are referring to. There is no such thing as “the market” … It does not have an independent existence and it is not one thing. There are very particular and individual markets that have their intricate regulations and distributions. And what we need to do is understand how each one works.

masaccio July 24th, 2011 at 2:44 pm

Do you think it is possible to move in the direction of a politics that frankly discusses the distribution effects of our current system of markets?

It seems that every time someone brings that up, there is a deafening chorus of “class war”.

Knut July 24th, 2011 at 2:44 pm

What is the purpose of universities, today. Is it to encourage capacity and original thought or merely to provide “replacements” for a society gone quite amuck … which intends to stay that way?

This is a little OT. I think the disease mainly affects economics. Econoists are extremely ‘rank’-oriented, more so than other disciplines. There are only about a dozen or ‘top-ranked’ journals for 40 to 50,000 academic economists to publish in. We are talking about 250 to 500 articles a year in name journals. Unless you have friends in high places, it’s a crap shoot. Physics has several hundred top-flight journals. You don’t have to publish in Science to get tenure. That’s not the case in economics. The pressures to conform are intense. It also reinforces belief systems, which is why economists are generally so doctrinaire.

Graduate economics education is like what they do to prospective Jesuit priests. They assume you know nothing when you come in, put you through two years of mathematical hell, and then say, fine, you are ready to contribute to the frontiers of knowledge. The only problem is, you don’t know anything to start with.

DWBartoo July 24th, 2011 at 2:45 pm

Odd, Bernard, that our ideas of “naural order” seem, always, to benefit the astute and clever few.

Yet, I dare say, history is a record of little else?

;~DW

Bernard E. Harcourt July 24th, 2011 at 2:45 pm
In response to athena1 @ 20

There is much in common between the illusion of “free markets” and the idea that there are such things as natural rights. In both cases, as you suggest, we create them, we regulate them, at times we deny them. The focus should always be on how we construct them and how we come to believe that they are natural.

deleteme July 24th, 2011 at 2:47 pm
In response to athena1 @ 29

See Mercier & Sperber’s “Why do humans reason?”

Basically to win arguments (argued to be a function with “adaptive utility”), not to arrive at objective truths or consensual compromise. The root of “confirmation bias,” among other things.

DWBartoo July 24th, 2011 at 2:48 pm

Oh my! I have the feeling, Bernard, that you shall not have kind words for the “unseen hand”.

I’d be curious to know what you might say to Boesky’s assertion that “Greed is good.”?

(Frankly, falling back on “history”, again, I rather imagine that certain classes had hoped to hear such a thing since what we term the Late Middle Ages.)

DW

David Kaib July 24th, 2011 at 2:48 pm

In addition to banishing “the market“ from our discourse, I would add banishing the idea of “intervention.“ Given, as you argue, that any particular market is a product of law, it makes no sense to designate certain government actions as interventions. Many who are critical of neoliberalism still use that terminology.

Bernard E. Harcourt July 24th, 2011 at 2:49 pm
In response to DWBartoo @ 23

Indeed, the racial dimensions of the war on drugs, as well as of mass incarceration today, are extremely important. Michelle Alexander’s book, The New Jim Crow details many of these issues well. I have no doubt that race has contributed to the push toward mass incarceration, my point in the book is that our default belief in the naturalness of the free market facilitated.

deleteme July 24th, 2011 at 2:50 pm

“Rights” exist to the extent that a social order will recognize and defend them.

dakine01 July 24th, 2011 at 2:50 pm

Thank you. I started writing to try to make sense of why the conventional wisdom of the most quoted economists and economic writing was so far removed from the empirical evidence before our eyes.

Unfortunately, it still doesn’t make much sense so I wind up going the mockery route instead.

Scarecrow July 24th, 2011 at 2:50 pm
In response to Jane Hamsher @ 34

Two faiths: the market is usually fine without intervention; but the government can put thieves in jail. so what happens when market actors, like banksters, are the thieves? My point is, when you find this conflict, and it’s the banksters who steal, the market faith tends to trump the government’s right to put people in jail. You might add, that’s because the banksters’ money controls the people who define what’s a crime.

The private jails are a different case. The private jails are performing a govt function but doing so as market actors. Therefore, they should be free to advocate for making more things crimes — e.g., immigrants, pot, etc — as long as the criminals are not counted as market/economic actors, which must be left to the market to discipline. That’s oversimplifying, but I think this is broadly consistent with what the book suggests. No?

Bernard E. Harcourt July 24th, 2011 at 2:51 pm
In response to OldFatGuy @ 26

One of the most puzzling facts here, of course, is that they all remained in central positions of responsibility under the new administration. There is a fabulous documentary on the topic, but I am blanking on the title!

Knut July 24th, 2011 at 2:52 pm

Bernard,

I wonder if you could give your Chicago Board of Trade example, so that people here have a concrete example of what you are trying to argue. Another possibility is the NYSE rule (confirmed by the courts) that give large investors rights to dump IPO offerings, but prohibit small investors from doing the same thing.

deleteme July 24th, 2011 at 2:54 pm
In response to Scarecrow @ 49

“so what happens when market actors, like banksters, are the thieves? My point is, when you find this conflict, and it’s the banksters who steal, the market faith tends to trump the government’s right to put people in jail. You might add, that’s because the banksters’ money controls the people who define what’s a crime.”
___

Absent effective and rational regulation of markets, you invariably end up with The Rule of Gresham’s Law.

Bernard E. Harcourt July 24th, 2011 at 2:55 pm
In response to Cynthia Kouril @ 33

Well, Cynthia, that’s right! The bailouts tend to assume loss, but do not reap the upside benefit. Why is there not more resistance to that?

joelmael July 24th, 2011 at 2:56 pm

I think one should refuse to debate “markets”. If one insists on the discussion being about a specific thing ‘the market in pork bellies or the market in heart bypass surgery or the market in fissionable material, there is a better chance of each knowing what the other is talking about.

Knut July 24th, 2011 at 2:57 pm
In response to vegasboomer @ 52

Absent effective and rational regulation of markets, you invariably end up with The Rule of Gresham’s Law.

This was pretty much the gist of my article cited by Bernard.

joelmael July 24th, 2011 at 2:57 pm
In response to joelmael @ 54

and what kind of regulation might be appropriate.

Mike Konczal July 24th, 2011 at 2:58 pm

Thanks for doing this Bernard and George. Two quick questions:

1. Befitting an online book salon: a lot of the discussion on how regulation creates marketplaces goes to laws surrounding property rights and labor exchange. As more and more of our activities move online, I’m wondering if you see the net as a potential battleground for the “naturalness” of market activities to be challenged? The area of online property rights, patent abuses and who does labor are very obviously being constructed, with distributional results, in real-time (the criminal charges against Aaron Schwartz for copying files off of JSTOR brought this to mind for me).

2. My pet theory is that the political ideology of mass incarceration was one of the cores that fused the resurgence of the Right over the past 40 years. The social conservatives pointed to the breakdown of the nuclear family, female-headed households and lack of reflected patriarchal structures as a reason to get tough on crime. As Bernard has written well, the neoconservatives took their ideas of the battle between Order and Disorder and fashioned theory of maximal police force (“Wicked people exist” might as well be the neocon foreign policy over the past 10 years too). And libertarians looked to the Keynesian-Fordist Welfare State as the reason why poor communities were victims of the state.

Bernard’s book has really filled in the vacuum for why libertarian market fundamentalism links with our current carceal state, but I’m curious how you compare and contrast this thought process with other conservative thoughts on crime.

dakine01 July 24th, 2011 at 2:58 pm
athena1 July 24th, 2011 at 2:58 pm

Another question for anyone with an answer:

Michael Hudson argues that one of the reasons modern economics is so delusional is because the history of economic thought has been erased from the textbooks in economics. He says the original classical economic concept of “free markets” was (paraphrase) “free from the costs imposed by the rent-seeking landowners, and other costs that inflate prices without adding value to what’s produced.”

Does anyone agree or disagree with him?

Bernard E. Harcourt July 24th, 2011 at 2:59 pm
In response to Jane Hamsher @ 34

Jane, my argument is not that free-market practices themselves have cause mass incarceration. It is not so much that privatization of prisons has increased prison populations. But rather that the idea of “natural order” in the economic sphere has been conjoined at the hip, since its inception, to the need for a strong police state. It is the beliefs about the free market that have facilitated the growth of the prison. Let me explain…

OldFatGuy July 24th, 2011 at 3:00 pm

I’m ONLY posting this so as to let this author, and potential future authors know, that these Book Salons can be helpful in sales. This book really struck my fancy and I just ordered it from Amazon, hard copy.

So at least one sale came directly from this Book Salon.

perris July 24th, 2011 at 3:00 pm

Illusion of Free Markets:

this is one of my favorite topics and points

not only is “the free market” an illusion, it is aslo a marketing concept, it was conceived as propaganda

it can’t exist, it never has existed, it never will exist

when a :ibertarian” claims they want “a fre market” they are lying, they LOVE regulations, what they really do not want are teh regulations that force them into paying their own bills

without regulations there is no such thing as ownership, there is no such thing as ” a sanctity of contract” there are no courts to adjudicate, there are no police to protect, there is nothing from me taking “the free marketeer’s” company, there is nothing even stopping me from killing him to get it

all those things the “free marketeer” reilies on for their property and ownership happen to BE regulations

as a matter of fact, without regulations there can’t even be a monetary system, the very idea of money is a set of regulations

when a “free marketeer” says they don’t want regulations what they really mean is the following;

“I don’t want to pay my bills and I don’t want the government there to make me pay my bills”

masaccio July 24th, 2011 at 3:02 pm

Maybe the problem Bernard’s book and your comment raise might be stated this way: how do you induce a paradigm shift in a tightly controlled environment.

The young scientists at the beginning of the 20th century eagerly adopted the ideas of Einstein and Heisenberg and Bohr and the other giants, but in his old age, Einstein had great difficulty adapting to the implications of quantum theory, even as he continued to make advances in it. It took another generation, Feynman and Dyson and their cohort, to bring it into mainstream thought.

As you explain it, it may be impossible.

Bernard E. Harcourt July 24th, 2011 at 3:03 pm
In response to Jane Hamsher @ 34

To continue, I don’t really think that privatization and cost-minimizing efficiency-maximizing policies are responsible for increasing the prison population. My claim, instead, is that those neoliberal ideas were bornparadoxically linked to an ideal of a strict and severe police state. In the book, I trace the historical link between the two – that is, between, on the one hand, the early liberal and later neoliberal ideals of limited government intervention in economics, with, on the other hand, the notion of the government’s competence and legitimacy in policing and punishing (which extends, of course, to homeland security and the military). I also demonstrate how the illusory nature of the first idea (that there could be spaces that are free of regulation) practically necessitates the second ideal (of police) to sustain it.

My argument, in essence, is that the idea of natural order in economics emerged in the 18th century hand-in-hand with an ideal of punishment despotism, or in other words with the idea that the quasi-exclusive competence of the state was in the penal domain or the area of security; and that this paradoxical juxtaposition is what has facilitated the growth of the penal sphere during historical periods when it comes to dominate the public imagination.

Both of these ideas metamorphose over time, but they have always remained joined at the hip. The 18th century idea that a natural order governed the economic domain evolved into the notion of an invisible hand and of laissez faire, later into the idea of spontaneous order, and ultimately into the theory of efficient markets or, more technically, the notion that “competitive markets” are efficient. By the same token, the idea of punitive despotism (what was called “legal despotism” by the Physiocrats in the 1760s) evolved into the idea of the state as “night watchman,” into the conception of a “panoptic” all-seeing penal apparatus, and ultimately into the theory that the proper function of the criminal law in a capitalist system is to forcefully prevent “market-bypassing.”

I hope this help to explain the connection betwee the two notions of free markets and mass incarceration.

perris July 24th, 2011 at 3:03 pm

when they decided to market their propaganda known as “the free market” they also had to make the concept seductive

so they tied it into “the libertarian creed”, claiming that restrictions on freedom is bad, (which is mostly true but not completely true) and since restrictions on freedom is bad they tie it in to claim all restrictions are bad.

this is how they convince the uninformed, and an uninformed populace will not realize, they RELY on regulations, they just don’t want the regulations that make them pay their bills

Jane Hamsher July 24th, 2011 at 3:04 pm

the idea of “natural order” in the economic sphere has been conjoined at the hip, since its inception, to the need for a strong police state.

Aha. Yes, that would follow. But why is that?

Knut July 24th, 2011 at 3:04 pm
In response to athena1 @ 59

It has also been erased from the curriculum. I taught history of economic thought to honours students for 15 years. These students were getting an education in formal economics equal to what was being taught in the mid 1960s, with all the maths. They (and I) learned more real economics from reading through Adam Smith, David Ricardo, Karl Marx, Leon Walras, Alfred Marshall and Keynes than they ever got from their other classes. I used to say to them when they told me this, that they actually knew the stuff, but didn’t realize it. We never used textbooks, only the original texts, and I made them write 1000-word essays on specific topics like (explain Ricardo’s theory of profit in 1000 words). Most of them had a hard time at first, because they couldn’t put economics into words. When they finally learned how to do it (I copy-edited every paper for 50 students, 4 times a term), they discovered how to think like an economist. There is no easy way. Nobody wants to put in that kind of effort teaching any more, and if you don’t have tenure, you can’t afford to.

DWBartoo July 24th, 2011 at 3:06 pm

The “hard sciences” are different, I believe, save in the scramble for grants. Other disciplines, the “social sciences” of which economics is a part, are more driven, generally, by cults of personality and political fashion.

I am suggesting that the level of failure, often deliberate, in my view, which we are seeing today, did NOT happen by accident but by the design of neglect and and a long term assualt upon meaningful education.

Institutions of higher education, ever more unattainable and increasingly unaffordable for more and more young people in this nation, too often seem oblivious to the fate of “lower” education, not unlike President Obama’s apprent inability when writing to a young man, who wrote the President about the lack of pencils and papare in his school, to understand that praising this young student for his future, to grasp that it is the present which is being lost.

A flat-earth response to the economic reality of many millions of human beings does the same thing, most brutally.

Until and unless human beings can understand that the allocation of resources, which is the “simple” gist of economics, must and should be premised upon meeting the genuine needs and necessary aspirations of ALL, our future is tenuous at best.

Humankind’s tenure on earth is not assured, and is bounded by natural law in a way that makes human assertions of the natural order, apart from nature, both ludicrous and absurd.

DW

Knut July 24th, 2011 at 3:06 pm
In response to OldFatGuy @ 61

OFG,

Don’t be put off by all the history in this book. Bernard did real work in the Archives Nationales to document how police regulation of markets and other areas of social life worked in 18th-century Paris and Martinique. This is a huge book. We are only touching the surface here at the Lake.

Bernard E. Harcourt July 24th, 2011 at 3:08 pm
In response to Scarecrow @ 35

Not sure, Scarecrow. On health care, it was clearly a political compromise that elimated a single-payer system from the outset. Did that reflect a faith in “free markets” or a political desire to get something passed?

perris July 24th, 2011 at 3:08 pm
In response to athena1 @ 59

Michael Hudson argues that one of the reasons modern economics is so delusional is because the history of economic thought has been erased from the textbooks in economics. He says the original classical economic concept of “free markets” was (paraphrase) “free from the costs imposed by the rent-seeking landowners, and other costs that inflate prices without adding value to what’s produced.”

1

if so then “rent seeking landowners” are part of “the market” and had every right according to their manifesto to charge rent in the first place so if they really wanted to put an end to that then they were trying to regulate out that segment of their bills

that’s the first thing, the second is this;

costs do not raise a products price, a price will sell for the highest amount possible regardless of the cost it takes to produce

if the costs are so high nobody will buy the product then production ends

but when a cost is reduced the price is not reduced, it remains the same so long as demand remains the same, the price will only go down when demand forces a lower price

Adihabbu July 24th, 2011 at 3:09 pm

Pr. Harcourt,

Can you say a little more about the religious zeal associated with the free markets? I can see two problems with debunking such a deeply followed ideology: 1) it is part of the neoliberal ideology which can, arguably, only be unseated by a Harbermas-esque legitimation crisis, 2) a more subtle analysis of market and market-regulation requires complex shades of gray that are hard to motivate to an electorate. As you noted above:

“There are very particular and individual markets that have their intricate regulations and distributions. And what we need to do is understand how each one works.”

Studying and explaining the complexitiy of individual markets to a voting electroate is far more difficult than asking them to believe in a single slogan: free market. This seems particularly difficult whem there is an entrenched class that benefits from and will fight for the free market/neoliberal system.

DWBartoo July 24th, 2011 at 3:10 pm

Superb,enlightening super-comment, Bernard.

DW

Bernard E. Harcourt July 24th, 2011 at 3:10 pm
In response to masaccio @ 39

Right, “class war” is a problem. The early John Edwards, I recall, was pretty good at talking about distributional issues in a frank way without always getting hit with the class war reply, no? It has to be done by the right person in the right way… who and at what times did we see examples of that?

deleteme July 24th, 2011 at 3:11 pm
In response to athena1 @ 59

Well, first, my favorite economist, J.D. Kleinke, jokes that an economist “is someone who observes something that works in practice, and then tries to figure out if it will work in theory.”

Aside from that, I make a moral distinction between “free markets” and “fair markets.” What is the proper moral function of a “market”? Simply an ongoing series of caveat emptor Zero Sum Games? Winner-Take-All, Get Over It?

Consider Ray Dalio:

An agnostic and a self-described “hyperrealist,” he [Dalio] regards it as self-evident that all social systems obey nature’s laws, and that individual participants get rewarded or punished according to how far they operate in harmony with those laws. He views the financial markets as simply another social system, which determines payoffs and punishments in a like manner. “You have to be accurate,” he says. “Otherwise, you are going to pay. Alpha is zero sum. In order to earn more than the market return, you have to take money from somebody else.

How convenient.

To the extent that one argues that markets have no higher purpose, one is arguing for Might Makes Right.

perris July 24th, 2011 at 3:11 pm
In response to perris @ 71

when a cost is reduced the price is not reduced, it remains the same so long as demand remains the same, the price will only go down when demand forces a lower price

ps

it’s a myth and a mis statement to claim price is determined by a factor of supply

this is not true, or better stated, supply does not affect price so much as weather, so much as season, so much as a legion of factors that have nothing to do with supply

for instance, nike’s cost a few dollars to make, there are more available then we can ever buy, yet they are 100 bucks, abundant supply does not lower price

at my tennis club, water is double the amount every where else, they have so much they can never run out yet people will pay the price of double so they charge that price

demand sets price, not cost not supply

to look at my car, when it was discontinued and supply went DOWN the price of my car went DOWN not up

demand sets price, supply has very little to do with demand

Jane Hamsher July 24th, 2011 at 3:12 pm

By the same token, the idea of punitive despotism (what was called “legal despotism” by the Physiocrats in the 1760s) evolved into the idea of the state as “night watchman,” into the conception of a “panoptic” all-seeing penal apparatus, and ultimately into the theory that the proper function of the criminal law in a capitalist system is to forcefully prevent “market-bypassing.”

I think I understand. So something like the Digital Millenium Copyright Act would be a quite literal expression of this — giving private parties the ability to act without need of a court order if someone “bypasses the market” (in the case of DMCA, circumventing an access control, whether or not there is copyright infringement).

Which i suppose is very much tied to the expansion of rents & the rights asserted with regard to private property.

Thanks for your patience, if it seems like I’m in over my head here, it’s because I am.

;)

Scarecrow July 24th, 2011 at 3:13 pm

Wow. File under: graduate courses I wish I’d taken.

Knut July 24th, 2011 at 3:14 pm

Jane,

Let me give you an example, that I am sure Bernard knows, but didn’t mention it in his book. About 25 years ago, I was working through the Physiocrat organ Ephimeredes du Citoyen in the BN in Paris when I cam across an article defending the liberalization (i.e. deregulation) of the French grain trade. The Physiocrats were the first organized group of economists, and actually called themselves Economists (other people called them the “Sect.”

Anyway, the deregulation turned out to be a fiasco, because in times of shortage, no one had any idea what the equilibrium price should be so those with grain hoarded it, and prices went up, validating their decision. According to the Physiocrats, higher prices should have induced holders to release grain onto the market. At the same time, people who needed a continuous supply of grain to stay alive rioted. The author, who was a Physiocrat (probabley Dupont ede Nemours) said, ‘there’s nothing wrong with the theory. It’s the people who have to change!’ I think this captures a big piece of what Bernard is arguing. If Natural Law is fundamentally true, than offenses against it should be prosecuted in the int erest of the common good.

Bernard E. Harcourt July 24th, 2011 at 3:14 pm

George, the role of knowledge production, or of what we sometimes call the sociology of knowledge, is fascinating and important, I agree. The way in which Chicago economics was produced is a rich story. No accidents, right? There were funding sources that brought Hayek to Chicago and helped fund a law and economics program, still today, the former Olin Foundation provided a wealth of resources for a certain kind of economic thought. The birth of ideas is tied to relations of power.

Jane Hamsher July 24th, 2011 at 3:15 pm

Having followed the health care debate pretty closely, I believe the construction of the exchanges was very much a reflection of Obama’s fundamental beliefs. The fact that he is seeking to voucherize 65 & 66 year-old Medicare recipients right now (essentially the Ryan plan) by raising the Medicare eligibility age is I think a first step in that direction for the entire system.

DWBartoo July 24th, 2011 at 3:17 pm

Smith’s “Vile Maxim” seems no longer to be taught, and reading Marx, in America is certainly discouraged.

Original texts!!

What a fascinating and worthwhile class that must have been, George.

DW

Bernard E. Harcourt July 24th, 2011 at 3:18 pm
In response to David Kaib @ 45

Interesting… so I argue in the book that we need to get rid of the term “regulation” as a term opposed to “free markets,” perhaps that is what you mean? Intervention, I take it, is simply “action,” as in “government action.” Would that work or have I missed it?

perris July 24th, 2011 at 3:19 pm
In response to Jane Hamsher @ 81

I believe obama demonstrated with his tarp that he is a top down or “trickle down” economist, every program begins at the top with him instead of from the bottom

believing the top creates jobs down bottom is the same thing as believing the rain creates the ocean

jobs create the wealth not the other way around, yet obama does it the other way around all the time

Knut July 24th, 2011 at 3:19 pm
In response to Scarecrow @ 78

Sad to say, it was for undergrads (though a lot of grads sat in). No space for such nonsense in the grad faculty.

Bernard E. Harcourt July 24th, 2011 at 3:20 pm
In response to vegasboomer @ 47

That’s right, or correct, I should say. In that sense, they are constructed, in the same way that we construct markets through regulation.

masaccio July 24th, 2011 at 3:20 pm
In response to Scarecrow @ 78

I had a class like this in 1967 at Notre Dame; I can see the professor in my mind, but I can’t remember his name. He was delightful, and the readings were fascinating.

David Kaib July 24th, 2011 at 3:20 pm
In response to Jane Hamsher @ 81

James Galbraith argued (for example, in The Surrender of Economic Policy) that most Democrats adopted economic ideas that assumed the fundamental naturalness and inevitability of the market. I think this clearly apples to Obama and most of the other key players.

perris July 24th, 2011 at 3:22 pm

I would like the term regulation changed too, but to something that is hard to market against.

something like “safeguard”, I would also like the safeguard represented, for instance the epa would be “safeguard against factories pouring cancer into the air”…verbose but you get my point

David Kaib July 24th, 2011 at 3:22 pm

That is precisely it. Intervention to me implies the naturalness of the market that is being intervened in, whereas action, to my ear, does not.

deleteme July 24th, 2011 at 3:22 pm

Thank you.

Knut July 24th, 2011 at 3:23 pm
In response to DWBartoo @ 82

They are on the honour system not to look at any secondary work, and I didn’t lecture on the works until the papers were in.

Bernard E. Harcourt July 24th, 2011 at 3:24 pm

Sure, George, that might be helpful. The case that I look at in most depth in the CBOT context is the regulation of late trades — what happens when brokers trade after the hour. There is an intense regulatory mechanism that polices those types of violations, including these MCCs, as they are called, Modified Closing Calls, at which the brokers coordinate and fix the price of a good to close out their books. The point, of course, is that there are complex mechanisms, including fixed pricing, that are used within the very heart of the “free market.” The CBOT is regulated through and through by internal committees and outside by the CFTC and the US Attorney’s Offices… Suprisingly, the CBOT would never have existed had it not been for the state criminalization of bucket shops throughout the Chicago area.

athena1 July 24th, 2011 at 3:25 pm

Speaking of all of that, do you think America is about to experience “shock therapy”? It really seems like that’s what’s happening in response to the debt ceiling “crisis.”

Bernard E. Harcourt July 24th, 2011 at 3:25 pm
In response to joelmael @ 54

I agree entirely!

Scarecrow July 24th, 2011 at 3:26 pm

Ah, but it would have been a graduate level class for a poli sci student.

DWBartoo July 24th, 2011 at 3:27 pm
In response to perris @ 84

How IS wealth actually produced, perris?

I recall a professor of economics who suggested that wealth is created, only through the discovery of “rescources” and what people do with them, a process termed, “work”.

One looks at the financially “astute” and notes that they produce nothing, they build nothing, they merely cleverly, and with much calculation, sipon off as much money, which this professor termed a “reflection of wealth and NOT wealth, itself”.

No doubt, that was so very many decades ago, that it is, now, regarded as “quaint”.

DW

DW

perris July 24th, 2011 at 3:30 pm
In response to DWBartoo @ 97

How IS wealth actually produced, perris?

labor produces product, product eventually produces profit, profit wealth

of course when a country doles out resources (like land or dollars) then wealth is created from whole cloth

however if we are talking about organics, then wealth comes from the product that labor produces, it starts at the bottom

wish I could stay for more, reading this thread is an excellent education, will have to be back later to catch up

Scarecrow July 24th, 2011 at 3:31 pm

Remedies? How do we get the conversation about appropriate government roles and markets sorted out, to move us in a better direction? And how is that defined? Suggestions from our author and host?

Bernard E. Harcourt July 24th, 2011 at 3:33 pm
In response to Mike Konczal @ 57

Thanks, Mike, for bringing the illusion of order back in! Indeed, ‘wicked people exist’… that was a famous quote by James Q. Wilson, and a real rallying cry to law-and-order conservatism. How does it all come together? This way I think: disorder, race, insecurity has been a central theme that has solidified conservative movements since the Civil Rights Movement, and they have helped give rise to the War on Drugs, truth-in-sentencing, and other policies that have fed the prisons. Free market ideas facilitated that movement by making us think that the only legitimate role for the state is in policing. I think you can see how the two were united in the following statement by President Ronald Reagan, in this stump speech from 1983:

“[T]his is precisely what we’re trying to do to the bloated Federal Government today: remove it from interfering in areas where it doesn’t belong, but at the same time strengthen its ability to perform its constitutional and legitimate functions…. In the area of public order and law enforcement, for example, we’re reversing a dangerous trend of the last decade. While crime was steadily increasing, the Federal commitment in terms of personnel was steadily shrinking…”

The logic should be jarring – the logic that a bloated, incompetent government should expand into the one area (coercion and imprisonment) that carries such great risk of excess. And yet it was made as natural as natural order from the inception of liberal economic thought.

This paradoxical set of beliefs about the proper role of government has facilitated prison expansion by naturalizing the state’s police function and undermining our resistance to punitive excess.

Thanks, Mike, that’s how ‘wicked people exist’ comes back into the picture!

Bernard E. Harcourt July 24th, 2011 at 3:34 pm
In response to dakine01 @ 58

Yes!!! What a documentary! It shows perfectly how the same insiders simply continued to dominate economic political discourse since 2008. Thanks!

DWBartoo July 24th, 2011 at 3:35 pm

You had excellent students and they a most wise teacher.

Such experience, leads students to developing orginal thought and grounds them in a perspective of basic understanding.

George, it is an honor to encounter a educator of your clear merit who has made obvious contributions to the furtherance of genuinely useful broad-based education, and I thank you for the opportunity.

DW

Bernard E. Harcourt July 24th, 2011 at 3:37 pm
In response to athena1 @ 59

Well, Athena, that’s an excellent point, because there is much debate over how one should read the early liberal economists, such as Adam Smith himself. There are many, especially Emma Rothschild and Sen, who think that Smith used the term “hidden hand” in a very different way. So by erasing the history, it becomes far easier to entrench one’s political economic position.

deleteme July 24th, 2011 at 3:38 pm

I bought that DVD. Love it. Confirms the Great Unwashed views I’d written about here and here.

I’m a big fan of William K. Black too.

Knut July 24th, 2011 at 3:39 pm
In response to Scarecrow @ 99

The devil’s in the details. You can’t argue the boundary from first principles, especially when, as Bernard points out, there is no boundary. To me at least, the first step is intellectual. You have to show the self-contradictory status of the natural law approach to evaluating economic outcomes. There is a lot of theory embedded in that approach, but when you decorticate it, you will find that it rests on a couple of highly questionable assumptions. (1) markets clear more or less continuously, so that market prices are accurate signals of scarcity and value; (2) that individual preferences are not subject to feedbacks from the economy; (3) that the the only legitimate valuation of economic states must be based on assumed preferences of individuals. There is no definition of good that stands outside individual preferences. (4) Individual preferences are accurately revealed by individual actions.

None of these assumptions can be independently established from facts. They are tools for thinking about economic phenomena. They work some of the time, which is better than not working at all, but not so good as working all of the time or even most of the time. That is why people say they ‘believe’ in markets. I don’t have to ‘believe’ in the universal law of gravitation.

DWBartoo July 24th, 2011 at 3:42 pm

This erasure of history in economics, Bernard, may well be equalled by the the “Official History of the United States” which I consider Cass Sunstein simply foaming at the mouth to compile and “distribute”, especially the part about not criminalizing “policy differences” … in the “looking forward” sense.

DW

Bernard E. Harcourt July 24th, 2011 at 3:44 pm
In response to perris @ 62

Perris, you are entirely right when you write that “without regulations there is no such thing as ownership.” Robert Hale had marvelous writings precisely on that in the 1920′s, but many seem to have forgotten his points. Where I might quibble is with the ulterior motives… I would not phrase it as “paying their bills,” although perhaps we have the same things in mind. I would say that those who tend to argue most for free markets benefit vastly in terms of the ultimate distribution of resources; but that is not always the case. There are many less-advantaged Americans who have bought into the idea of “freedom” associated with the free markets and the American dream that aren’t really getting their bills paid. Steven Lukes has an interesting paper called “In Defense of False Consciousness” that addresses some of these folks (he tends to portray them as Tea-partiers”); I wrote a comment on his fascinating essay here:
http://ssrn.com/abstract=1865962

johnlilburne July 24th, 2011 at 3:45 pm

It is also true that Smith–as a student of conjectural history–understood the differences between the fiction of “natural liberty” and any really existing exchange and production system. Part of the reason that the older writers have fallen out of fashion today is that modern economists do not want to know how economies actually work and what sorts of trade-offs are involved. They want to insist that they already know how economies work and how people act because they think their models are reality.

Knut July 24th, 2011 at 3:45 pm
In response to Mike Konczal @ 57

On the wicked people theme. I think that one of the things that opened the door were the urban riots between 1965 and 1969. They happened in a lot of places, and I remember the flames in New Haven after MLK was murdered. As it was mostly black people who were rioting and burning, the right had what George Bush called the Trifecta. They could blame the war on poverty and the natural criminals all at once. That few years is crucial to our history.

deleteme July 24th, 2011 at 3:45 pm

Adam Smith was foremost a Moral Philosopher, recall:

Section 1: On the sense of propriety

“Howsoever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility.”

The Theory of Moral Sentiments.

Bernard E. Harcourt July 24th, 2011 at 3:47 pm
In response to Jane Hamsher @ 66

There are historical (as in contextual) political and psychological reasons for that paradoxical association of freedom in economic exchange and a strong police state (or what the 18th century Physiocrats called “legal despotism”); however, I ultimately think that it is because it is impossible to create order without force. In other words, there needs to be coercion for there to be perceived orderliness. Do you see what I mean?

Knut July 24th, 2011 at 3:47 pm
In response to johnlilburne @ 108

Exactly.

ReubenjonathanMiller July 24th, 2011 at 3:48 pm

Hi Bernard and FDLers! This is my first time visiting the site. Great discussion so far.

Bernard, you wrote… “these ideas metamorphose over time, … the idea of punitive despotism (what was called “legal despotism” by the Physiocrats in the 1760s) evolved into the idea of the state as “night watchman,” into the conception of a “panoptic” all-seeing penal apparatus, and ultimately into the theory that the proper function of the criminal law in a capitalist system is to forcefully prevent “market-bypassing.”

This, of course, is part of the contradiction of neoliberal penality. Indeed, the criminal sphere renders social mobility impossible, and felons to a state of permanent market bypass. But this re-regulation of the urban poor is managed by a different set of actors in the U.S. Not the government, per se, but by non profit, community based, public-private collaborators, and in many cases, exclusively private, faith based actors (churches, fly by night non profits that don’t have the capacity to acquire govt. funding, etc.) operating in the very communities inmates are arrested from and return to.

I wondered if you thought much about the post prison side of things and the ways that these poverty management strategies and the “free market” interact. What role does the felony conviction, and the orgs. deployed to mitigate the wreckage of mass incarceration play in legitimating the myth?

DWBartoo July 24th, 2011 at 3:49 pm

George and Bernard, this has been an exceptionally fine book salon, educational, enlightening, humorous and pithy.

I hope that you both, together or alone might join us again whenever you might be moved to stir up the synapse and shake up the complacency of comfortable thought.

A thouroughly enjoyable experience you have provided me, today.

I imagine all who attended will readily agree.

Thank you both, very much.

And thank you, Bev.

DW

Bernard E. Harcourt July 24th, 2011 at 3:50 pm
In response to perris @ 65

Indeed, Perris, the appeal of liberty is a powerful force — especially when it is tied to the notion of orderliness. As David Harvey suggests in Neoliberalism: A Brief History, “Concepts of dignity and individual freedom are powerful and appealing in their own right. Such ideals empowered the dissident movements in eastern Europe and the Soviet Union before the end of the Cold War as well as the students in Tiananmen Square.”

DWBartoo July 24th, 2011 at 3:51 pm
In response to johnlilburne @ 108

Superb comment. Absolute truth, johnlilburne.

DW

Knut July 24th, 2011 at 3:52 pm
In response to vegasboomer @ 110

Smith was trying to construct a social system that did not require a divinely legitimated hierarchy of the kind that, say, Dr. Johnson espoused. The history of these ideas has to be set against the scholastic system that they were fighting against. Smith tried to find a naturalistic basis for social order. His ideas of what we would call ‘empathy’ are a starting point. He actually uses the metaphor of the invisible hand in this context. He constructs models, but he starts with facts. Today’s economic elpistemology does it exactly the reverse.

Scarecrow July 24th, 2011 at 3:53 pm
In response to DWBartoo @ 114

And so say we all. Much thanks to our esteemed guests.

Bernard E. Harcourt July 24th, 2011 at 3:53 pm
In response to Adihabbu @ 72

Hi Adi! It is true that a single slogan, “free markets”, is extremely powerful. But I should think that we could come up with an equally pithy and powerful slogan to reflect the ideas that we share. I often feel that “naming” is one of the most important tasks of intellectuals (at which I am extremely bad). May I impose on you, Adi, to come up with the right term?

Knut July 24th, 2011 at 3:54 pm
In response to DWBartoo @ 114

Thank you DW. I always learn from your comments. I hope to recede back to anonymity after this salon.

BevW July 24th, 2011 at 3:54 pm

As we come to the end of this Book Salon,

Bernard, Thank you for spending the afternoon with is discussion your new book and free markets.

George, Thank you very much for Hosting this great Book Salon.

Everyone if you would like more information:

Bernard’s website and book

George’s website and here at FDL.

Next week
Amanda Little / Power Trip: The Story of America’s Love Affair with Energy
Hosted by Miles Grant

Jeremy Ben-Ami / A New Voice for Israel: Fighting for the Survival of the Jewish Nation
Hosted by Phil Munger

Just quick reminder:
Membership drive! Are you an FDL member? If not, please join and help keep FDL delivering kick ass activism and independent journalism. You can join HERE.

Thanks all,
Have a great week and stay cool.

warp9 July 24th, 2011 at 3:55 pm
In response to perris @ 71

but when a cost is reduced the price is not reduced, it remains the same so long as demand remains the same, the price will only go down when demand forces a lower price

There is actually a pretty good example of this sort of thing here. . . .

http://news.yahoo.com/flyers-may-not-see-savings-expired-taxes-185327278.html

Some airline customers won’t see savings this weekend even though several federal taxes on tickets have expired.

US Airways and American Airlines raised fares to offset the tax savings.

That means instead of passing along the savings from expired taxes, the carriers are pocketing the money while customers pay the same amount as before.

Knut July 24th, 2011 at 3:56 pm

Thank you all for your comments and the vigorous discussion. This is what makes FDL so great. Thanks, Jane.

masaccio July 24th, 2011 at 3:56 pm

Thanks for joining us. I am looking forward to reading this book.

Knut July 24th, 2011 at 3:57 pm

And thank you, Bernard, for agreeing to participate. See you at the ‘Barometre’ in Paris!

Bernard E. Harcourt July 24th, 2011 at 3:58 pm
In response to BevW @ 121

Thank you George, Bev, and FDL readers! This has been a fabulous discussion, and I have learned a lot. I promised my son to take him to the movies for a 7 CST screening, but will check back in later tonight to catch a few threads that I did not have the opportunity to respond to. Thanks and talk to you later, Bernard.

DWBartoo July 24th, 2011 at 3:58 pm

So coercion, not shared principle is the basis of civil society?

If you refer to the rule of law, then I readily agree.

If you refer to an “enlightened” and arbitrary depotism, then I do not.

It is said, Bernard, among certain “scholars” that so long as a “complex” society has a hierarchy, it cannot be said to have collapsed … yet our society is daily less civil and egually less adherent to the rule of law … as this discussion has so often reminded … this society could well collapse into destructive demagogery and worse.

DW

BevW July 24th, 2011 at 4:01 pm

Bernard said thank you to everyone and he will return later to answer more questions – bev

warp9 July 24th, 2011 at 4:01 pm
In response to perris @ 98

however if we are talking about organics, then wealth comes from the product that labor produces, it starts at the bottom

At the bottom?

Are we talking about the farmer, or the farmer’s plants and animals? How far down does the analysis go?

DWBartoo July 24th, 2011 at 4:02 pm

Please do not fade away.

Though I do understand.

A genuine pleasure, George.

DW

DWBartoo July 24th, 2011 at 4:05 pm
In response to warp9 @ 129

Right “down” to planet earth.

For most of humankind’s existence, land-based resources, primarily, afforded humanity its existence.

From dust to dust.

DW

athena1 July 24th, 2011 at 4:07 pm

Thanks Bernard!

If you come back later, could you explain what you meant here by “intentional”?

“I think that we have to understand all these developments as reflections of the mistaken belief, intentional or unintentional (I’ll get to that), that government is a negative influence in the economic domain. that is what leads, I think, to the resistance to criminalization in the context of the 2008 crisis”

Also deeply curious about if you think the US is going to experience economic shock therapy.

DWBartoo July 24th, 2011 at 4:37 pm

I’ll second athena’s question @132, Bernard.

(And fully appreciate those things which fathers do, with and for their children …)

;~DW

papau July 24th, 2011 at 7:26 pm

Economics as descriptive, as social science, works for me, as does economic models that attempt to capture human behavior via feedback assumptions and relationships amongst all the variables. Economics as a law that is predictive, as in a hard science, never seems to work more than “some of the time in some areas”. Indeed those regulations being discussed will change models (and “laws”) as they are added and as they are dropped.

It was interesting, and a vocabulary challenge, following social science journal speak, and indeed many times it resulted in pithy statements that were clearer than the thought could be expressed in “non-jargon” mode.

The teaching described, which I applaud, to an honors class is exactly how economics, and everything else, were taught at MIT in the late 50′s and early 60′s to those that were lucky enough to have mentors – and I believe that is still true today. But it takes mentors that will commit time, and back then, and today I am told, less than half the class at MIT gets that kind of mentoring – the rest must drink from the fire hose with no guidance, and sink or swim. I would be interested in the eventual success in life of the two groups – but I would prefer there was just the mentored group.

As to the topic at hand, change requires public understanding and/or desire for change. As large numbers of the public ever understanding seems unlikely, how do we get that desire going – how do we package a response to the “free market” product so we can outsell it?

As to the “faith” put down of some economists, I’ve found that hard science has the same faith reasoning running in the background (even among “atheists” :-)). There are many religions. Whatever floats your boat works for me in just about all areas, but for public policy being guided by intellectual thought, I prefer that which works well to advance the public good of the common man. Adam Smith’s “invisible hand” concept, even if religious, does not harm the public good, and if religious, perhaps adds to need, for some of us, to treat the “least amongst us” well in our economic system decisions.

And while more regulation makes sense to me, I failed to get guidance on what regulation in what market is needed – obviously too much to ask for in an afternoon chat, but I hope your book, which I will read, gives some rules of thumb in this area.

All in all one of the best Salons at FDL – you left me with much to think about – and with looking forward to reading your book.

Bernard E. Harcourt July 24th, 2011 at 8:28 pm

Back from a remarkably beautiful film at the Chicago French Film Festival, The Hedgehog by Mona Achache (based on the book The Elegance of the Hedgehog), which I recommend to everyone! Let me catch up with a few loose ends…

Bernard E. Harcourt July 24th, 2011 at 8:49 pm

Welcome to the salon, Reuben, thanks for joining us. You ask an excellent and difficult question: what to make of all the well-intentioned non-profits, church organizations, and community groups that are trying to pick up the pieces of this carceral disaster and that, in the process, lend some legitimacy to the myth of free markets? As you know, Robert Fairbanks at the University of Chicago is wrestling with that difficult issue as well. My take is that these myths and illusions (here of free markets) are extremely productive, but their productivity is not limited to those who truly benefit the most from the distributional outcomes — to the top echelons of society. Lots of us, in effect, “take advantage” of these beliefs — we are all, in some sense, implicated. The very notion of free markets has symbolic ripple effects that feed notions of entrepreneurialism, street-smarts, hussling, and self-help… and those clusters of ideas lead many of us to want to find ways to resolve problems ourselves (and make a buck while we are at it). And vice versa, of course: ideas of independence and “freedom” empower the notion of free markets. These practices will, then, be productive and generate organizations, exchanges, and even some small profits — tiny, of course, in relation to the real profits that can be derived when we fool people into thinking that the market simply rewards merit and that market distributions are natural. So instead of grappling with the complex regulations that produce social outcomes, many of us focus on saving a life here or there, and keeping the lights on in the process. But in the process, as you suggest, we may have served to legitimate the illusion itself.

Bernard E. Harcourt July 24th, 2011 at 9:08 pm
In response to athena1 @ 132

Thanks Athena and DWBartoo for not letting that one go unnoticed! How intentional is it? That’s something that I ask myself all the time. How can anyone believe in the stability of an unregulated space? Or, for those who recognize the regulatory framework, how can they focus on the manufactured freedom and not on the regulatory framework itself? What I derive from economic theories of efficient markets is not that markets are efficient, but that it takes an enormous amount of regulatory intervention to even make a market possible. How can one focus on the wheat pit and not on all the administrative apparatus needed to make those exchanges possible? There are times, I confess, when I feel that it has to be intentional — that someone is laughing in their study at having pulled the wool over the eyes of so many people. But intentions are notoriously difficult to impute, fairly. And so we fall back on ideas of “faith” — beliefs that are not factually based. Or we talk in terms of “ideologies” — sets of beliefs that shape our understanding of the world. As I was noting, Steven Lukes has an elegant essay defending the notion of “false consciousness,” which I both admire but contest in a recent paper. Rather than focusing on intentions, in the end, I think it is wiser to explore how people have come to hold these illusory beliefs and how those beliefs distribute resources in our complex relations of power.

Bernard E. Harcourt July 24th, 2011 at 9:22 pm
In response to papau @ 134

A final thought in response to papau (thanks for joining us!). Perhaps not entirely a response, but an echo. You ask the right question, and Adi was broaching the topic earlier as well. “How do we package a response to the “free market” product so we can outsell it?” I’ll end tonight on that note. Substantively, it has to be, I believe, by demonstrating that the category itself is empty. That the entire free market intervention was a mistaken introduction of a political concept into an area, economics, that is inevitably organized, administered, regulated. That there simply is no such thing. Substantively, the response is not to propose an alternative theory, but to show that the idea of the free market is an illusion. Beyond that, though, finding the right way to package that response, I’m afraid that someone with a finer sense of rhetoric and persuasion is going to have to pitch in!

Good night Lake! Bev tells me that the forum will be open till tomorrow, Monday, at 5 EST, so I will check in again during the day! I’ve enjoyed the book salon greatly. Thank you again, sincerely, George, Bev, Jane, and everyone at FDL.

hwoodvnear July 25th, 2011 at 10:28 am

Rifkin has written recently (The Empathic Civilization, 2009) about “mirror neurons” and our physical processing of “empathic feelings;” And, that there is now evidence that we are “evolution changing evolution,” i.e. the latest generation is showing 30% percent or so less empathic ability–tied to a physical loss in processing capability– than the “boomer’ gen.

hwoodvnear July 25th, 2011 at 10:48 am

“The book advances several claims that go to the heart of libertarian ideology.”

Haven’t read the book nor all of the posts yet but so far, what has been discussed has missed some vitals as to the “heart of the libertarian ideology.” Two are evolution and humane scale:

Scale: Modern institutions have grown past human scale; No longer understandable; No longer controllable… Community is where its at; Where free and informed exchange can occur in whatever form.

Evolution: Economic theory is reductionist and static; Human environmental and social interaction creates meaning and this “meaning” as do all social interactions evolve in context… Hence much confusion in definition by culture and historical frame i.e., libertarian is not neoconservative nor neoliberal by “current definition

hwoodvnear July 25th, 2011 at 11:00 am

Might not another social science perspective work here as well, say, “formal vs. informal?” E.g., there’s the formal flow chart and then there’s the way things really work… or there’s the fundamentalist interpretation and then there’s the spirit of the thing…? Has econometric theory gone there?

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