Markets are great at telling us the price of things, but poor at telling us their value

Now this is an interesting read, if you’ve got some time on your hands, and aren’t looking for anything light. Despite the collapse of markets this year and last, there’s a still a deep-seated bias among people to ask that government work like a business, and to assign costs or incentives to things, then to arrange it so a market develops, which will magically produce the most-efficient result.

Well, maybe. Of course, this assumes that everything is priced correctly: think about greenhouse gas emissions, which are “free” (despite some carbon tax schemes) but come at a cost to the environment that isn’t accounted for in the market.

Market acolytes would tell you just to modify your assigned prices and incentives, and you’ll get a better and more efficient market. The problem isn’t the market, the problem is you.

Michael Sandel makes a convincing point that maybe markets don’t have all the answers after all — even if they’re set up perfectly. He looks at the case of kids being paid to read books:

While some children may be motivated to read books for the love of learning, others may not. So why not use money to add a further incentive? Economic reasoning would suggest that two incentives work better than one, but it could turn out that the monetary incentive undermines the intrinsic one …. The obvious worry is that the payment may habituate children to think of reading books as a way of making money, and so erode or crowd out or corrupt the intrinsic good of reading

That’s not all. He also talks about how market-lovers just can’t see that their way of looking at the world isn’t always the best. And says that some things are better off without having a monetary value assigned to them:

Some of the good things in life are corrupted or degraded if turned into commodities, so to decide when to use markets, it’s not enough to think about efficiency; we have also to decide how to value the goods in question. Health, education, national defence, criminal justice, environmental protection and so on – these are moral and political questions, not merely economic ones.

I’ve linked above to a partial transcript of an original BBC interview, which I am *really* looking forward to listening to, at some point.