This is a brief follow-up to a couple of previous posts (here and here) that concern the market evaluation of social productiveness. In particular, it relates to frequent assertions, for example in the debate over the job guarantee, that private markets are better at evaluating social productiveness than alternative (e.g. democratic) mechanisms.
One example of what I am referring to occurs in John Carney’s recent critique of the job guarantee proposal:
The jobs created under the Job Guarantee are specifically not supposed to compete with the private sector, which means that they supply goods and services for which there is not a market demand. The total output of the economy might increase, but much of this output is non-productive—that is, it doesn’t actually improve our lives.
It is claimed that since there is no market demand, much of the activity would not be socially productive (would not “improve our lives”). In other words, there is a suggestion that social productiveness can only be reliably evaluated by private markets.
In an interesting discussion at Mike Norman Economics, I somewhat lowered the tone of the debate by posting the following:
Still waiting for a legitimate theoretical demonstration that private markets are good evaluators of social productiveness. The neoclassicals are the only ones to have made a serious attempt, and they abandoned the effort. The faith-based mantras continue regardless. Blind ideology, pure and simple.
The bluntness of my comment is unfortunate, but I think it is worth clarifying the argument, because there are specific points I have in mind when alleging that “a legitimate theoretical” demonstration is lacking and the argument amounts to “ideology”, even though this was probably not clear to readers of the comment.
When it is simply asserted that private markets do a good job of evaluating social productiveness, I take issue because the composition of demand (i.e. this is micro, not just macro) depends on the way income is distributed. This raises the question, is the distribution of income a good reflection of the spending power (dollar votes) different consumers ought to possess?
If the answer is no, why should we revere the market evaluation of productiveness?
If the answer is yes, what is the logic leading to this conclusion? It cannot be that market incomes reflect productive contribution. That claim is without legitimate theoretical foundation. We know this from the capital debates. Is the answer still yes?
If the answer is rather that it doesn’t matter whether the distribution of income is a good reflection of the spending power different consumers ought to have, what is the rationale for that position? Is it that, for better or worse, what’s done is done (distribution is what it is) and now all we can worry about is ensuring individuals can make their choices using the incomes they happen to possess? Or is it an entirely different rationale? If so, what is it?
The answer never seems to be spelled out by those attributing powers of evaluation to private markets. Until they articulate their position, I think it is accurate to categorize their assertions in favor of private markets as based on nothing but ideology.
Until the position is properly articulated, all the arguments about the government “interfering” with the market allocation of resources are beside the point. If markets are not necessarily a better evaluator of social productiveness, then “so what?” if its outcomes are altered?