Friday, April 29, 2016

David Friedman's Answers to the Non-Libertarian FAQ

This is David Friedman's response to the Scott Alexander's non-libertarian FAQ. Both individuals are extremely smart, although Friedman has more experience in the relevant field. Scott Alexander is more of a very intelligent very informed layman.

A few answers I especially liked:
“As far as I know there is no loophole-free way to protect a community against externalities besides government and things that are functionally identical to it.”
Unfortunately, the statement is still true if you drop the last ten words.
The definition of market failure as "individual rationality not leading to group rationality" does not go away when the group in charge is government rather than markets. This is a human problem - that we don't link up like the borg in Star Trek and decide what's best for the collective. Maybe we don't want to be like that, but you have to admit that there are benefits. And there seems to be no way of collecting those benefits among any human institutions
“None of this wealth has trickled down to the poor and none of it ever will, as the past thirty years of economic history have repeatedly and decisively demolished the “trickle-down” concept.”
I believe that, as the term “trickle down” suggests, the theory and the name were invented by people attributing it to their opponents. On the other hand, fairly straightforward economic analysis suggests that increasing the stock of capital will tend to decrease the marginal productivity of capital and increase that of labor, hence will tend to raise wages and lower interest rates.
 I get annoyed at people who use the dismissive term, "trickle down" to describe any particular situation where doing something beneficial for a rich person might have second order positive effects on poor people. It just seems like the ultimate example of zero-sum thinking that economists are always trying to undermine.