What do free-market capitalism's advocates say about the importance of education?

Great Debates
21

The free market is not omniscient, nor moral, nor immoral. It’s the absence of impedence. It does a good job because it allows consumers to vote with their dollars. If there is a need for wrenches and you invent one, and the price is fair, it will sell. But I come along an make an industrial-strength wrench that will never break, or an inexpensive wrench for those who will use it lightly and seldomly. This is where the free market excels. Everyone wins. If Joe Blow tries to capture the lower end of the market with a super cheap wrench, but it breaks too easily, he won’t be around long. The free market pushes him into oblivion. So, as the “unseen hand” of the free market works it’s magic products get stronger, smarter, cheaper, etc., giving more people a product that better addresses their specific needs and desires.

So, that is what the free market is and does. Your question, I think, is more along the lines: “Given that there is the force called the free market, should we not seek to have it work in a way that betters our society?” I think few people would argue with that. Of course, they may quibble over what “betters our society”.

To answer your last point, consumers do not have to be “educated” for the free market to work. It will always work based on whatever the knowledge level is. Now it does always behoove individuals to be better educated about their choices, so they are making more informed decisions and getting the most of what they want with as little of what they don’t, including cost, but not exclusively. For those who personally see value in those things that benefit society in the long run, I’d say you would be correct. But then we are into degrees and trade-offs. I might value, say, a car that pollutes the air less, and all things being equal, or near equal, I will buy a car that fulfills that desire. But if the cost of a less-polluting car is ore than normal cars, I have to weigh two competing desires. Actually, a better example might be safety. Everyone values it. And few people would disagree that a big Mercedes is safer than a small, cheap car. But plenty of people by smaller, less safe cars. Heck, sometimes the same people buy both.

I think I’ve moved into rambling mode, so I’ll stop here. I hope that helps some.

22

It actually hasn’t

IdahoMauleMan’s position is that he would eat shit and deal with it if he were defrauded

My position is that information asymmetry and imperfection, as expressed by the example of fraud, is a condition that is assumed-away by alot of economic theory.

In order to assume this away, you would necessarily have to support a system where everyone has 100% information about 100% of things. edit: That would suggest that education is vitally important to economic theory

23

Information asymmetry is a well-known phenomenon. On the other hand, even lacking information, some models demonstrate that the proper outcome is still statistically reached. For example, some models of democracy show that all that is required is that the average person is more likely to choose the correct answer, assuming there is a correct answer, than not (for example, 34% 33% 33% in a three-way choice). (see this pdf)

See also The Market for Lemons - Wikipedia

24

I would also add that information asymmetry is through the roof in markets like EBay where the sellers are nameless, faceless avatars, and the buyers can’t even touch or see the products.

And yet, $10’s of billions of dollars transacts on EBay. And it happened from scratch, since EBay didn’t even exist more than 15 years ago.

Information asymmetry is often a red herring, in my opinion, in discussions of imperfect markets. There are many mechanisms that can be put into place to address and mitigate risk factors to the satisfaction of both participants.

25

Well, I think that’s stretching things a bit, auctions have been long-studied.

26

I meant EBay, not auctions in general.

Where people can literally never meet each other, know the other person’s name, see or touch the products being discussed, or even be within 3000 miles of each other, and transact business.

27

(snipped)

Right. None of which manages externalities helpfully.

A pure free-market theory is good old anarchist unrealistic hope, now with property rights!

28

I think ‘informed’ and ‘educated’ are different things.

People can come to be informed through advertising. They know 20 brands of cell phones, and their internal dialogue may be ‘which one will I get when I have the money?’

Education is a little different. You know, schools and books, apprenticeships and so on. The internal dialogue may be ‘What are my goals for my life? How would buying any of this worthless crap actually help me achieve them?’

Doesn’t answer the op though. I suppose a free-market advocate would prefer whichever turned the biggest profit. Education might just lead to a different sort of market, no more. The government pays for education, capitalists pay for advertising, voila.

29

So, am I to believe from this that those who write about capitalism don’t spend much time dwelling on education?

30

And I would argue that regulations have more unintended consequences than its proponents realize. For example, the regulation bodies for railroads in the late 1800s were captured by large railroad monopolies and used to solve the problem of cartel pricing enforcement. (The problem with cartels is that there is an incentive for each player to defect, but with a helpful regulator setting prices, you can enforce above-market prices.) Lobbying and special-interest wheeling-dealing is not going away, and political failure is arguably a more widespread problem than market failure.

Similarly, the market is better at dealing with risk and asymmetric information than you’d think. Sellers that have more information can often be convinced to give out that information when it helps them get a better price, such as used car dealers agreeing to a mechanic’s inspection. Furthermore there is strong demand for such services as Consumer Reports, a private agency that manages to provide impartial advice despite the theoretical externality problems.

31

That’s an extremely narrow definition of utility. Free marketeers have utility functions that are far broader than profit, which tends to be a short term measure.

Things like national security, competitiveness (which is longer-term, more sustainable measure of profit) and even their own altruistic or intangible motives, like the type of environment they want for their children.

The nature of free markets is not necessarily to maximize profit. It’s to maximize each person’s personal utility (or surplus).

32

Yes, regulations can have unintended consequences, just like poorly utilized traffic signals can exacerbate traffic jams.

Consumer Reports is a nice source of information to supplement existing protections, but it doesn’t follow that it alone or similar services promulgated by private interests could provide effective protections. After all, investors believed Moody’s and Standard & Poor’s provided a transparent and trustworthy rating system. How’d that turn out?

33

Poorly.

But of course the government cemented an oligopoly in place by mandating that only S&P, Moody’s and Fitch were allowed to provide ratings to Freddie and Fannie obligations, even though a lot of other sources (like Gimme Credit, and Jim Grant) were sounding the alarm, far earlier.

Of course, those other sources weren’t allowed to be hired to rate those obligations, because the government barred them from doing so.

How do you think ‘effective protections’ could be put in place, other than a buyer assessing the data himself/herself, weighing the risks, and deciding accordingly? By handing that decision over to a government official?

34

I’m not the expert on the subject, but: free marketers are focused on maximizing each person’s utility? Have they switched saints, from Adam Smith to John Stuart Mill?

Honest, I thought free marketers didn’t- couldn’t- have values at all (or if they do, it is because some other theory is creeping in). The market is supposed to be the only determinant of value, and it’s measured in dollars. Am I mistaken?

35

Not mistaken, just trying to read too much into the theory. Your remark about ‘switching saints’ is indicative of your confusion. Most people do not treat economic theories like they treat religion (thank god).

People in favour of free markets tend to like the way that for many goods and services (cakes, wrenches, haircuts) the free market almost magically ensures an unlimited supply of good quality items at a very good cost. You’ll note that this does maximise uitility in a general sense. Compare and contrast with a soviet centrally-planned economy, which was very poor at producing any of these things at any price in sensible quantities.

It goes wrong when you get dogmatic on higher value items. What’s good for haircuts isn’t necessarily good for early years education or healthcare. Or even for cars and houses.

But the test is always the same. Not, is the free market perfect, but is the free market better than the alternatives? Including alternatives which include elements of free markets.

36

I believe you are mistaken. In fact, I’m sure of it.

Claiming that free marketeers don’t have values is often a strawman thrown up by statists (including many on this Board) to confuse the issue and/or justify their own actions by claiming The Moral High Ground.

To wit,

Those free marketeers over there are only concerned about money. They are concerned about profits over people. Therefore, they are evil.

I, on the other hand, have good, just and pure motives. I want to help people. I have The Moral High Ground. Therefore, I am entitled to your money as well as the authority to decide what to do with it.

Money, insomuch as it is a unit of account and can be used to trade for tangible goods and/or services, is often a decent proxy for value. But there are often many other, intangible variables that drive the benefits side of the equation for value. Quality. Comfort. Ease. Happiness.

Value = Benefits - Cost

A free marketeer believes that Value will be maximized in a free market, not just profits.

37

A Capitalist thinks you should not waste money educating the masses. You need to educate enough people to fuel the system. Any more would be a waste of money. If everyone graduated college, a degree would be cheap and meaningless. We have to educate just enough to fill the work place with enough left over so workers would not have any power.

38

Amazingly, I completely agree with every sentence in this paragraph. Except for the last one. Because you couldn’t resist the temptation to dive into people’s intent, morality and good/evil.

If you don’t mind, I’ll snip it out, and replace ‘Capitalist’ with free marketeer. At least for the moment.

** A free marketeer thinks you should not waste money educating the masses. You need to educate enough people to fuel the system. Any more would be a waste of money. If everyone graduated college, a degree would be cheap and meaningless. **

There.

I actually think the above statement is a good thing. Do you think it’s a bad thing? Maybe we’ve hit on something here.

39

The point is the government tries to sell you that education will save you in our rapidly changing economy. That is only true in cases. the majority will be competing with people educated in India and China. They will work for much less. therefore your education guarantees nothing.
Our public school system has been allowed to decay. We don’t need it anymore.
If you feel any nationalism, then moving jobs away for greater profits does have a negative connotation. If you believe corporations owe nothing to the countries that spawned them and gave them tons of tax breaks and the ability to control markets, then you can be content as American jobs chase the lowest possible wages around the globe.

40

I’m a fairly hard-core free-marketer but I disagree with this statement. This seems to me to indicate that degrees are zero-sum; i.e. a degree is important only in that it makes the recipient more educated than her competition. IMO a degree has intrinsic value. A market where all actors have degrees is better than a market where a smaller percentage of actors have degrees.