Economics, Politics

Market fundamentalism

A recent trend in progressive thinking is to accuse opponents of “market fundamentalism.” That seems to be a smart rhetorical tactic because a) it rides on the wave of concerns about any kind of fundamentalism, and b) the phrase appeals to people’s reasonableness. After all, if two ways of “organizing society” are available, only a complete fanatic would advocate markets over government in all cases.

A major problem with the phrase market fundamentalism is that it simply assumes that to be reasonable one cannot advocate the most extreme position on an issue. But as many historians can point out, views that would have been considered extreme or fundamentalist hundreds of years ago have become mainstream in contemporary society. Furthermore, with some creativity any position can be phrased to be a middle of the road view. “Surely you agree that shooting political opponents is the moderate policy between not prosecuting them at all and torturing them.” Finally, the pejorative use of fundamentalism can backfire  at progressives. With similar arguments, conservatives can argue that liberals hold fundamentalist views on other issues such as human nature and society (all nurture, no nature).

But perhaps the biggest problem with the accusation of market fundamentalism is that facts or arguments have been made irrelevant in favor of appeals to reasonableness. Does it even matter if there are logical, empirical, or moral arguments to prefer markets over government? One argument to generally prefer markets over government is that for a voter the cost of being irrational is close to zero. Another argument (and observation) is that we should get better results from competition than from monopoly, even if both mechanisms are not perfect. And last, but not least, logical and epistemological arguments favor the presumption of liberty, and thus markets over government.

One effective response to the accusation of market fundamentalism is to ask why the only alternative to government is a free market. For most people who have been accused of market fundamentalism the crucial distinction is not between government and market but between voluntary and coerced acts.

The lure of accusing someone of market fundamentalism is so strong that it does not even seem to matter anymore if someone is a market fundamentalist in order to be called one. As Bryan Caplan notes in his book The Myth of the Rational Voter: Why Democracies Choose Bad Policies, “a standard rhetorical tactic is to equate modest reductions in the role of government with the elimination of government regulation altogether.” If the accusation of market fundamentalism is supposed to have any meaning at all, only a handful of economists or political thinkers could be labeled as true market fundamentalists. But the frequent use of the phrase would suggest that individuals like Murray Rothbard and Anthony de Jasay are dominating public thinking about markets.

But what about “democratic fundamentalism?” In the chapter on market fundamentalism Caplan writes:

A person who said, “All the ills of markets can be cured by more markets” would be lampooned as the worst sort of market fundamentalist. Why the double standard? Because unlike market fundamentalism, democratic fundamentalism is widespread. In polite company, you can make fun of the worshipers of Zeus, but not Christians or Jews. Similarly, it is socially acceptable to make fun of market fundamentalism, but not democratic fundamentalism, because market fundamentalists are scarce, and democratic fundamentalists are all around us.

The Myth of the Rational Voter is a major antidote to such democratic fundamentalism. Although a small minority of people object to democratic politics because all government is coercive and redistributive, the economic verdict that democracy fails because voters not do not face strong incentives to correct bias is likely to be more credible to most people, including economists.