29 Mar Markets Are Far More Subtle and Efficient Than Most Intellectuals Realize
In my most-recent column for AIER I explain that, contrary to the claims of Oren Cass and many other free-market skeptics, the competitive market process does not fail to take account of the value that workers attach to job stability. A slice:
The fact that nearly all workers today refuse to take pay cuts to retain their current jobs is a sign, not of market failure, but of the fact that workers generally believe that their other options are superior to working at lower pay in their current jobs. These other options include, of course, other jobs. But they also include retirement, living off of one’s family and friends, or living off of private charity or public assistance. The more attractive are these other options, the less attractive will workers find the option of keeping their current jobs at lower wages.
None of the above is to suggest that it’s not unpleasant to discover that fellow citizens have lowered the value that they attach to your current productive activities. Nor is it to suggest that adjusting to this discovery is easy. But it is to say that the market does indeed take account of the value to workers of their existing jobs. The very fact that most workers refuse to take pay cuts in order to keep their existing jobs reveals that these workers in fact do not value those jobs highly enough to keep them.
If government imposes tariffs to discourage Sarah and other consumers from buying imports, the result might be that textile workers in Dalton keep their jobs without having to take pay cuts. But notice the reason. The tariffs effectively compel Sarah and other consumers to subsidize jobs in Dalton textile mills. The textile workers themselves don’t value these jobs highly enough to keep them at their true market value, so protectionism is used to compel consumers to pay those workers to remain in jobs that those workers would otherwise quit.
Far from correcting a market failure, tariffs generate outcomes that mimic market failure. In this example, tariffs subsidize textile mill workers to remain in jobs not only that are not sufficiently productive to justify, but that the workers themselves would abandon if they had to bear the full cost of staying in those jobs.
Nothing is easier than for intellectuals to express displeasure with the observed manner in which individuals make trade-offs, and then to assert that this manner of making trade-offs implies a market failure. But assertions are not analyses. When analyzed carefully through the lens of economics, the need for producers to adjust to changes in consumer tastes and opportunities is seen to be, not evidence of markets failing, but of markets successfully taking into account as fully as possible the costs and benefits of alternative uses of scarce resources, including labor.
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