The Market Doesn't Care About Your Opinion

Last week, or maybe it was earlier this week, there was a lot of debate about an announcement from Jason Calacanis that he would hire away the top users of social news sites, like Digg.  Whether such a plan would work or not isn't particularly interesting, though it certainly aroused a lot of debate about whether users of these sites should get paid, if their contributions are valuable.  There was almost a moralistic tone to the debates, as if a site that didn't pay its users was exploitative.  This relates to something I've been thinking about lately -- one's opinion about who should do what, or what is right, is completely irrelevant.

Consider some things you commonly hear:

• Teachers aren't paid as much as they should be, because their skills aren't respected.
• Investment bankers and CEOs make too much money.
• The stock market doesn't know how to value our company.
• Fast food shouldn't be so cheap; for that matter, neither should organic foods.
• Drugs should be made more affordable.
• Housing should be more affordable.
• Basketball players make too much money (that one seemed particularly popular in the 90's).

Unfortunately, for those who make these statements, prices aren't generally set on the basis of opinion.  The only person whose opinion might matter is the Treasury Secretary.  We've never been able to figure out what his job is except use the power of jawboning and jibber-jabbering to push the dollar up or down.  Other than that, what we say about prices and wages doesn't matter too much.  If Jason Calacanis makes a good business by hiring the top Diggers, that's great.  If Digg can thrive without paying users, that's great too.  The proof, as they say, is in the pudding.  Write or wrong has nothing to do with it.  Assuming that Diggers aren't being held against their will, it's really not a moral question.

Of course, I want to make it clear that I'm not suggesting that analysis and advice are wrong.  It's perfectly reasonable for an observer to say "movie theaters should cut ticket prices cause they'll fill more seats".  That's a different kind of statement.  And it's also ok, if the issue in question creates significant externalities.  So if you argue that driving should be more expensive so that the driver bears the cost of environmental damage, that's a reasonable stance (though we may disagree on that).

Now, laws on the other hand certainly deserve to be met with rebuke.  For example, the Chicago City Council shouldn't have passed a law requiring Wal-Mart to pay $10/hour with another $3 in benefits.  That's a bad move.

Comments

[wcw]

..and why shouldn't government regulate markets to make them function correctly? I grant, I live in a city with a living wage law (~$9, so about twice the federal number) so I have some firsthand, empirical experience that such is not the tragedy that the religious adherents of unregulated markets tend to posit, but still: what's wrong with Chicago here?

If Wal-Mart doesn't like it, they're free to close all their stores in the city.

The betting money here says they don't. What does that say?

[iceberg]

WCW is a maroon. Governments shouldn't attempt to regulate markets because they cannot. To the extent that they try to, they exaberate the problem on hand, and must seek to correct their earlier correction.

Secondarily, governments shouldn't attempt to "correct" markets, because to say a market has failed is a normative statement, and cannot be proven. In fact, the market is never "right" nor "wrong", as all a market consists of is billions of individuals trading property rights, and who is to say what two or more consenting adults agree to is incorrect?

Last, it's actually a joke to think that government "regulate" a market, becauase only markets can regulate themselves. The "regulation" that the government deems to provide is a poor substitute, and in fact in most times the regulatory bodies are captured by the special interests themselves, in a process known as regulatory capture. That's why our energy and telecommunication sector lags behind the world, and the biggest firms within that field are typically those that were granted monopolies by the same regulatory crew. And to think you call that "regulation".

As for suggesting that Wal-Mart must take their business elsewhere is to say that government has the right to dictate when, where and which private individuals are permitted to exchange goods. They are not "free" to take their business anywhere, as the word free implies that they have an un-interfered choice. Otherwise it is like saying that a person being mugged is "free" to choose his money or his life.

As for empirical observations, they are invalid as far as economic theory is concerned, since it is impossible to control for every variable. Economic theory can only be deduced from a axiomatic, a priori logic. To the extent that your observational data differs from theory, you must either admit that your data is incomplete or simply wrong.

[Fred]

As for empirical observations, they are invalid as far as economic theory is concerned, since it is impossible to control for every variable. Economic theory can only be deduced from a axiomatic, a priori logic. To the extent that your observational data differs from theory, you must either admit that your data is incomplete or simply wrong.

Is that really what mainstream economists think? If the facts don't fit your theory, the facts are wrong? If someone in a scientific discipline ever said that they'd get laughed off campus.