The Limits of Free Markets, Both Economic and Intellectual

Today's blog originally appeared in Counterpunch on March 13, 2018.


Both in economics and speech, the market is a powerful metaphor.  Free economic markets are
efficient, and produce the greatest good for the greatest number of people by the fair interplay of sellers and buyers.  The marketplace of ideas is supposed to produce truth, and maximize free inquiry of ideas through the competition or rival ideas.  Both marketplaces are supposed to support contrasting forms of individual freedom.  Except the truth is that neither work in practice compared to theory, fixing their externalities and preventing one from corrupting the other  is challenge and task of contemporary western politics.

The market is a metaphor of modern western politics.  Belief in the efficiency of economic free markets dates at least to Adam Smith’s 1776 The Wealth of Nations.  For some economists, free markets maximize individual freedom producing both what is called Pareto efficiency (no one can be made better off without someone being made worse off) and Kaldor-Hicks efficiency (overall greatest net wealth for a society).  Government regulation interferes with economic markets, damaging both individual freedom and both forms of efficiency.  Market fundamentalism in the guise of contemporary Republican or neo-liberal politics, ascribes to this belief.

Yet there are limits to this economic market fundamentalism.  The same Adam Smith who wrote The Wealth of Nations also penned The Theory of Moral Sentiments and argued how economic markets are circumscribed by ethical values and virtues.  The Wealth of Nations in book five recognizes an important role for the government investing in infrastructure.  Later on, other economists have described unregulated markets as producing externalities such as pollution or monopolies.  Others see externalities to include the mal-distributions of wealth and income in the world or racial and gender discrimination.  Economic markets are also  plagued by problems such as free riders or collective goods.  These problems necessitate government action.  Even Milton Friedman recognized the need of the government to enforce the rules of the marketplace against force and fraud so that it would work properly.

The point is markets are not architectonic.  Markets are not inherently self-regulating or natural.  Karl Polany’s 1944 The Great Transformation made this point.  It took enormous state power to construct and maintain market capitalism. The logic of both capitalism and human nature is often against free markets, wanting to produce collusion, monopolies, or engage in rent-seeking behavior or political action to favor oneself.  Pure self-interest left on its own, as Nobel Prize economist Kenneth Arrow pointed out, cannot be aggregated to produce collective goods for a society.

The marketplace of ideas is also powerful.  John Milton writing in his 1644 Areopagitica argued against censorship and suppression of religious views in the belief that the competition among religious sects would reveal the truth.  John Stuart Mill’s 1859 On Liberty similarly believed that the free play of ideas would yield the truth if there was a “chance of fair play to all sides of the truth.”  And in American constitutional law, it was Supreme Court Justice Oliver Wendell Holmes, Jr. who in his 1919 Abrams v. United States dissent first introduced the market metaphor to the First Amendment when he contended that “the best test of truth is the power of thought to get itself accepted in the competition of the market.”  Since that decision, the hall mark of free speech jurisprudence is the belief that the marketplace of ideas will produce truth and inform the public.  Competition among rival ideas will filter truth from falsehood.

Yet if economic markets are flawed, so is the marketplace of ideas and they too may not be architectonic.  Beyond the fact that some are questioning whether truth even exists, what we learn from recent surveys is that faith in  free speech is waning.  Not a day does not go by that some group argues for restrictions on racist, sexist, or offensive speech or how the press should be regulated.  And a recent study by MIT professors points to something that many have suspected for some time–falsity or fake news  spreads more rapidly than truth on-line.  Because of the natural  tendency for people to be attracted to novelty, falsity is retweeted or posted more than truth.  The enduring power of myths such as vaccines cause autism is proof of this.  For a democracy to exist, its members must have the ability to express their views and search for truth.  Yet if the marketplace of ideas is not  working, democracy is in peril.

The problem then is that the marketplace of ideas too is producing externalities that must be addressed, but doing so without compromising the right and ability of individuals to think for themselves and access the information they need to do so.   How to regulate the marketplace of ideas to address externalities without censorship is a dilemma.   But this marketplace is also plagued or affected by the economic marketplace, allowing rich and powerful actors to use the resources they have acquired in there to adversely affect the marketplace of ideas.   The challenge is how both to preserve the marketplace of ideas from destroying itself while at the same time preventing the economic marketplace from destroying itself and corrupting the marketplace of ideas.

Guilt, Truth, and Politics in the Age of Hyper-Democracy

Sexual harassment and assault are wrong.  But it is not so clear that the court of public opinion is

the best way to adjudicate the truthfulness of any allegations or statements about public figures and officials  in era where alternative facts seem to be facts of life.   The problem here is that there is a fundamental confusion among  the concepts of the marketplace of ideas, the court of public opinion, real courts, and how all of them operate in a hyper-democracy that the United States has become.
Determining what is truth or true is never easy.  But in law and democratic politics there are rival notions of finding the truth.
In US law the adversarial process and courts are the mechanisms at arriving at truth.  Questions of guilt or innocence in criminal law or culpable or not in civil law are determined in a structured setting where there are formal procedures that determine what is admissible evidence, factors to consider when determining the credibility or witnesses, and there are procedures put into place that seek to guard against bias.  The adversarial process is not perfect, but it does usually provide a structured reliable path that determines the truth of a matter.
Democracies are messy.  At their best truth is determined through the marketplace of ideas as described by philosopher John Stuart Mill where competing ideas challenge one another in a process that allows for truth to emerge.  The marketplace of ideas presupposes truth exits, that there are ways to find it, and that rules can guide its discovery.  Truth is not necessarily what 50% plus one of the population thinks. Yet the marketplace of ideas does not always work, instead degenerating to simply where majority rule decides what is true via the court of public opinion.
There is a long line of political thinkers, historians, and scholars ranging from James Madison, Alexis deTocqueville, James Bryce, and even to Elizabeth Noelle-Neumann who worried that in America the powers of public opinion would produce a tyranny of the majority.  Passions aflamed, majorities might rush to judgment and suppress the rights or others.  When it works well, public opinion and majority rule are great ways to determine who should be the next president of the United States, or for the public  to adjudicate rival claims made by candidates to decide which they prefer, but it is not clear that either are good mechanisms to decide guilt, culpability, or truth.
In most cases there is a big different between whether someone is legally guilty or liable for an act versus whether someone is fit to serve in office.  This is the difference between law and politics. Law is about real courts, politics is about the court of public opinion.  But when the two are merged–as in case of determining whether allegations against Senate candidate Roy Moore or Senator Al Franken are true and how they address their fitness to serve in office–then the rules are  unclear.  What standards of proof do we need to decide if the accusers are telling the truth and are credible and how do their stories overall fit into defining whether Moore or Franken should be senators is not clear.
And the problem is now exacerbated in our hyper-democracy.  Here accusations are flung  out immediately into the social media without any serious vetting in a world where it is all about being first to report, maximize hits or likes, or generate audience and profits..   Accusations, rumors, and innuendo can be shot immediately through Facebook and Twitter, distorted by partisan politics, confirmation biases, and cognitive dissonance.  Accusation is enough to render someone guilty, liable, and unfit for office.  Image the Salem witch hunts and the McCarthy communist accusations in a social media era and that is what has emerged.  It is tyranny of the majority, the pressures of uncontrolled public opinion operating through an unconstrained court of public opinion judging individuals in ways that make it impossible for them to prove their innocence.
The court of public opinion in a hyper-democracy is not suited either to determine legal or real truth as real courts or the marketplace of ideas can.  In the court of public opinion there are no rules, no definitions of truth, no standards of conduct that provide clarity.  What we are left with  are rival ideologies and pronouncements of opinion masking as truth.