Kling and Schulz made some pretty bold unfounded assumptions here, but I like the gist of the article. Government is imperfect and so are markets. Then they start to apologize for markets and make government into the bad guy. In reality government is only as good as the institutions and policies in place.
Besides my personal distaste for the writing and logic employed (in my opinion analogies, especially sports analogies, are the lowest form of logical proof) there are serious biases and holes in the argument.
- The false dichotomy of markets vs. gov. Government policy doesn't have to replace the market. Policy is often best when it recognizes risks and minimizes them like Glass-Steagall did by separating investment banks from commercial banks.
-Markets often don't "sort out this messy process quickly." Kling and Schulz also never define "messy process" so it's difficult to determine precisely what they mean.
- I agree that top down planning may do more harm than good, but that's an awfully weak premise. Anybody should be able to name examples of both (Stalin's agricultural central planning vs. practically the entire American biomedical research complex)
- Defining rent seeking is often subjective. I think it's akin to defining special interest groups. It's only a special interest group if it's not your interest.
-The jury is still out on whether government housing subsidies were the cause (they probably at least contributed) to the financial crisis, but as Krugman has noted commercial properties tracked residential but had no access to cheap government loans.
-Again it's not clear what Kling and Schulz mean by "this process" (the second time the phrase is used towards the end of the article), but I assume they are trying to describe subsequent busts to the boom of a bubble. If that is the case then they are treading on thin ice. There is not enough supporting evidence the build a complete case for any thesis about the effects of the response to the crisis.
-Comparing market prices corrections to policy corrections is comparing apples to oranges.
- I'm not sure why the authors conclude that the goal of an economic system is the shortest turnaround time between recognizing imbalances in the market and correcting them. Last time I checked, that was called a panic, and sharp turns in preferences cause great pain to those living at the margin of their means.
-What evidence is there that "political failure is less tolerable than market failure"
-Market actors may be just as likely as public representatives to claim innocence of or double down on their failures.
-Finally, what evidence is there that markets learn from their failures? I suppose the jury is still out on this one too, but I'd make the case that markets refuse to learn from their failures. Sure, they recover from the most recent one, but learn for the future? Markets are notoriously short sighted.
Sorry to get so nitty-gritty, but these op-ed pieces don't really advance the discussion of the issue at hand. A more helpful approach would be for Kling and Schulz to focus on a particular market failure and demonstrate why they believe the public is best served by allowing the market to resolve the failure or arguing the contrapositive.
I should have mentioned that this oped, I believe, was written as a very brief abstract of Kling and Schulz's new book, "From Poverty to Prosperity". I have yet to read it but it is getting rave reviews and I'm sure goes into the detail you are seeking.
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Kling and Schulz made some pretty bold unfounded assumptions here, but I like the gist of the article. Government is imperfect and so are markets. Then they start to apologize for markets and make government into the bad guy. In reality government is only as good as the institutions and policies in place.
ReplyDeleteBesides my personal distaste for the writing and logic employed (in my opinion analogies, especially sports analogies, are the lowest form of logical proof) there are serious biases and holes in the argument.
- The false dichotomy of markets vs. gov. Government policy doesn't have to replace the market. Policy is often best when it recognizes risks and minimizes them like Glass-Steagall did by separating investment banks from commercial banks.
-Markets often don't "sort out this messy process quickly." Kling and Schulz also never define "messy process" so it's difficult to determine precisely what they mean.
- I agree that top down planning may do more harm than good, but that's an awfully weak premise. Anybody should be able to name examples of both (Stalin's agricultural central planning vs. practically the entire American biomedical research complex)
- Defining rent seeking is often subjective. I think it's akin to defining special interest groups. It's only a special interest group if it's not your interest.
-The jury is still out on whether government housing subsidies were the cause (they probably at least contributed) to the financial crisis, but as Krugman has noted commercial properties tracked residential but had no access to cheap government loans.
-Again it's not clear what Kling and Schulz mean by "this process" (the second time the phrase is used towards the end of the article), but I assume they are trying to describe subsequent busts to the boom of a bubble. If that is the case then they are treading on thin ice. There is not enough supporting evidence the build a complete case for any thesis about the effects of the response to the crisis.
-Comparing market prices corrections to policy corrections is comparing apples to oranges.
- I'm not sure why the authors conclude that the goal of an economic system is the shortest turnaround time between recognizing imbalances in the market and correcting them. Last time I checked, that was called a panic, and sharp turns in preferences cause great pain to those living at the margin of their means.
-What evidence is there that "political failure is less tolerable than market failure"
-Market actors may be just as likely as public representatives to claim innocence of or double down on their failures.
-Finally, what evidence is there that markets learn from their failures? I suppose the jury is still out on this one too, but I'd make the case that markets refuse to learn from their failures. Sure, they recover from the most recent one, but learn for the future? Markets are notoriously short sighted.
Sorry to get so nitty-gritty, but these op-ed pieces don't really advance the discussion of the issue at hand. A more helpful approach would be for Kling and Schulz to focus on a particular market failure and demonstrate why they believe the public is best served by allowing the market to resolve the failure or arguing the contrapositive.
I should have mentioned that this oped, I believe, was written as a very brief abstract of Kling and Schulz's new book, "From Poverty to Prosperity". I have yet to read it but it is getting rave reviews and I'm sure goes into the detail you are seeking.
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