Radical Markets: A book review by Bob Morris

Radical Markets: Uprooting Capitalism and Democracy for a Just Society
Eric A. Posner and E. Glen Weyl
Princeton University Press (April 2018)

How and why, in order to “open up our social possibilities, we must open our minds to radical redesigns.”

Opinions are divided — often sharply divided — between the Right and the Left about the nature and extent of markets’ impact on socioeconomic issues such income inequality, immigration anxiety, and extreme ideology. I agree with Eric A. Posner and E. Glen Weyl that “markets are, and for the medium term will remain, the best way of arranging a society. But while our society is supposed to be organized by competitive markets, we contend the most important markets are monopolized or entirely missing, and that by creating true competitive, open and free markets, we can dramatically reduce inequality, increase prosperity, and heal the ideological and social rifts tearing our society apart.”

Posner and Weyl agree with Albert Einstein that it is insanity to do the same thing the same way over and over again and again and expect different results. Some who read this book with agree with their assertions, if not embrace them; others will not. Fair enough.

That said, no one can deny that the world has become more volatile, more uncertain, more complex, and more  ambiguous than it was when Adam Smith introduced radical ideas in his class work, An Inquiry into the Nature and Causes of the Wealth of Nations (in 1776): “First, he dug deeply into the roots of economic organization and proposed theories that remain influential today. Second, he attacked the prevailing ideas and institutions of his day and presented a series of daring propositions and reforms.”

More recently, Posner and Weyl suggest, Friedrich Hayek, Mllton Friedman, and George Stigler developed in greater depth “an idealized notion based on private property.” And they also cite Henry George, another economist who also shares Smith’s radical spirit and whose ideas “helped launch the Progressive era and who may have been the most widely read economist of all time, but whose vision was lost in the Left-Right battles of the Cold War. George was more concerned about inequality than were the conservative followers of Smith, and he recognized that private property could stand in the way of truly free markets. To remedy the problem, he prposed a tax scheme that would create a system of common ownership for land.”

William Spencer Vickery and his work are perhaps of greatest interest and value to Posner and Weyl. It was his paper that was the first to study “the power of auctions to solve major social problems,helped found afield of economics called ‘mechanism design,’ and earned him the Nobel Prize in1996.

“Vickery’s ideas have transformed economic theory and had an impact on policy. Governments around the world use auctions based on Vickery’s ideas to sell licenses to use radio spectrum…When Vickery won the Nobel Prize, he reportedly hoped to use the award as a ‘bully pulpit’ to bring George’s transformative ideas and the radical potential of mechanism design to a broader audience.”

These are among the giants upon whose broad shoulders Posner and Weyl proudly stand.

In an article published by FORTUNE magazine earlier this year, Shawn Tully explains why Warren Buffett’s analysis of the market in 1999  remains true today: “Buffett explains that at any point in time, two variables are most influential in predicting future returns: The level of interest rates, and the ratio of corporate profits to national income. For Buffett, those are the fundamentals, the twin pistons that power stocks. If rates are extremely low, and profits extremely high, at the start of any period, it’s likely that returns over the next decade or more will most likely be poor. Since those are precisely today’s conditions, investors should pay close attention to Buffett’s analysis.” I am curious to know what he would have to say about uprooting capitalism and democracy to have a more just society.

If I understand Posner and Weyl correctly (and I may not), they are advocates of a Radical Market because it is one “that creates far greater equality, and is both more pervasive and free than present markets and yet one that  creates far greater cooperation than present markets. The name ‘Radical’ refers to a nineteenth century movement that viewed markets as emancipatory force, a spirit we want to recapture.”

Although they agree with the Right that markets must be” expanded, strengthened and purified,” they perceive a fatal flaw in the Right: “it has been timid and unimaginative in its vision of the social changes necessary to make markets flourish.”

They agree with the Left that existing social arrangements generate unfair inequality and undermine collective action. “But the Left’s flaw has been its reliance on the discretionary power of government bureaucratic elites to fix social ills.”

What Eric Posner and Glen Weyl envision are “institutional arrangements that allow fundamental principles of market allocation — free exchange disciplined by competition and open to all comers — to play out fully. An auction is the quintessential Radical Market.”

Read this book and then decide for yourself whether or not — for at least a few generations — Radical  Markets will remain “the best method of large-scale organization.”


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