Patterns versus Outcomes

Matthew Yglesias was his usually astute self the other day, explaining how concepts of “meritocracy” as the only pattern of social mobility does not really carry its utopian implications in its final analysis. Specifically, Yglesias explains that

[...] the more important thing to keep in mind is that a meritocracy is not necessarily a very admirable place, unless it's also a human society in which people are enjoying a high quality of life (emphasis his)

Yglesias' reminder is important because, at the end, concerns for real welfare outcomes cannot be ameliorated by keeping with a patterned system of social organization, no matter how well or just that pattern may seem designed.

Now, awhile back Ron Paul claimed that

You can't save free markets by socialism I don't know where this idea ever came from. You save free markets by promoting free markets and sound money and balanced budgets.

This understanding that United States' social problems would be rectified if the only the invisible hand of the market was unleashed is, as student of markets, a frustrating oversimplification on a few levels; but more importantly it glibly ignores the long term issues of free market patterns.

Markets produce both winners and losers. This is ideal because we find markets to be the most just way to sort between people who are “worthy” of wealth and power and those who are not. What I mean by this, is that people like Steve Jobs and Mark Zuckerberg produced highly profitable and demanded products that in many ways increase overall social welfare. They have been rewarded for their innovations with large salaries, public profiles and attention among public policy makers. Steve Jobs “deserves” all of the wealth he amassed because he oversaw the profitable production of productivity and welfare increasing consumer electronics.

As an aside, I want to be clear here that am not attempting to equate individual wealth with moral rectitude or human value; nor should the reader take the implication that any of the gentlemen and gentlewomen who profit substantially from their business ventures are pure Horatio Algers'. The profitability of Apple, Facebook, Google, GE, et. al., must be viewed in the context of the public goods that American society provides.

I simply wish to claim that, compared to other possible social ordering options, the one that directly links increasing social welfare in a decentralized way (through products consumers demand) with cash incentives (the profitability of efficiently offering the best product) is in my view the superior choice.

Now, the mechanism that drives these positive outcomes is market competition. As with any competition that produces winners, there are losers as well. The main issue that free-marketers like Ron Paul elide by, is that a system the produces loser who struggle to feed or house themselves, or care for their children's basic medical needs, is particularly savage. If the choice to alleviate such savagery is "socialism," then I should apply for a party card.

My basic point is that we have real concerns for welfare outcomes based in our most innate ability to have a capacity for humanity. The outcomes of markets help use realize the goal of increasing human welfare, but we need to recognize that there are very real aspects of market outcomes that does violence to that goal. To ignore that, is a cowardly attempt to take the good without acknowledging the bad.

This is not an indictment against the free market system; it is simply a plea for greater understanding of it. Furthermore, the argument that markets are an end unto themselves, is one that evidences a basic ignorance how markets work, let alone the logic of the market system itself.