A Simple Proof Not All Markets Work Well

Twenty five years ago, I interned at the Cato Institute and met Jerry Taylor.  Now he runs the Niskanen Center.  Here‘s what Jerry says about the movement we’ve both inhabited for decades:

Libertarians love to preach the virtues of markets. Yet in the “marketplace of ideas,” their bundled product has been regularly and thoroughly rejected for over a century. Until libertarians acknowledge that market verdict and re-think either what they’re selling, how they’re selling it, or both, they will remain on the margins of American political life.

Perhaps Jerry’s only being poetic, but I see a deep truth within: However you cut it, all markets don’t work well.  Consider these three premises:

1. All markets work well.
2. If the market for ideas works well, truth will largely win out.
3. The market for ideas strongly rejects the view that “All markets work well.”

It’s easy – and appropriate – to throw this argument in the face of the dogmatic libertarian.  “All markets work well?  Then how come the market rejects your ideas?”  But the thoughtful libertarian should reject dogma in favor of some combination of the following:

1′. Most markets work well, but the market for ideas doesn’t.  Why not?  Because ideas have massive externalities.  The market for pollution works poorly because strangers bear almost all the cost of your pollution. The market for ideas, similarly, works poorly because strangers bear almost all the cost of your irrationality.  This is the heart of my argument in The Myth of the Rational Voter.

2′. Truth doesn’t largely win out in a well-functioning market for ideas, because consumers primarily seek not truth, but comfort and entertainment.  Look at the market for religion.  No matter what your religious views, it’s hard to claim truth prevails, because even the generously-defined market leader has less than half the market.  The same goes for political ideas.

Like Jerry, I reject dogmatic libertarianism.  And I’m all for better marketing of libertarian ideas.  But no matter how true libertarianism is, we shouldn’t expect it to be popular.  Why not?  Because it tells people an ocean of things they deeply resent.  Better marketing can soften the blow, but can’t turn it into a pat on the head.  While this is no excuse for having a bad attitude, few markets are more perverse than the market for ideas.  Treating its verdict as a test of truth is a terrible mistake.

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