I går publiserte vi her David Friedmans svar til min kommentar til hans foredrag på Liberalistenes landsmøte. Nedenfor er mitt svar til professor Friedman. (Jeg vil takke Per Arne Karlsen og Martin Johansen for innspill til dette svaret.)
Let me first thank professor Friedman for taking the time and effort to reply to my article (or to Christoffer´s English-language version of it, a version I have not seen).
However, my intended audience was not professor Friedman, it was his audience. My article was not called «A critique of David Friedman´s view of market failure», it was «David Friedman and the so-called «market failure»». My article, then, was not primarily a critique of professor Friedman´s lecture, it was a supplement.
Leftist economists, that is, most economists, claim that the free market leads to so called market failures, and therefore, they claim, government intervention is needed in order to prevent these failures. When it was announced that professor Friedman was to address the free marketeers in Liberalistene on the subject of market failure, I guess most people expected him to explain that the claim of the leftist economists is wrong and that market failure is a myth, a point a large number of free market economists have made (I gave references to some of this literature in my article).
However, this was not professor Friedman´s intention. He used a different definition of market failure than the common one; as he said in his reply to me: «“market failure” is not about markets».
Professor Friedman´s main point was that sometimes individual rationality does not lead to what he calls «group rationality» – i.e. even if all individuals act rationally, the result may not be optimal when regarded for the group as a whole, that is from a perspective that no single individual is able to have. (I wrote in my article that Friedman said in his lecture that government failure is a much larger problem than «market failure», so I will not go into that here.)
Professor Friedman says: «A number of Martinson’s criticisms seem to miss that point.»
Well, I was trying to explain how a free market would deal with the examples professor Friedman raised – a point that I thought the audience might be interested in, but that professor Friedman did not address.
Professor Friedman says: «Alternatively, he [Martinsen] may agree that market failure in my sense exists but be claiming that it never results in the outcome of a free market being worse than what would happen with … [a] wise and benevolent government regulation …». Of course I agree with this.
Professor Friedman also says «market failure was not limited to markets». In my view, then, it is confusing to then use the term «market failure».
Another quote from his reply: «Martinson never explains how the rule of first in time, first in right will prevent a situation where a firm finds it in its interest to produce air pollution even though the cost imposed is larger than the cost of preventing the pollution…».
If a firm emits a level of pollution that might be harmful to people nearby if there were someone there, and there is no one there, it has thereby «mixed its labor» with nature, and established a property right to emit this level of pollution. People who enter this area can then not complain about the pollution since the firm has established a right to emit this amount of pollution: the firm (or its pollution) was there first. However, a firm cannot start to emit harmful pollution in an area where there already are some people; in this case, the people were there first and have the right not to be exposed to harmful pollution.
Quote: «Martinson suggests control of air pollution by marketable quotas. Who does he suggest should set the level of those quotas and assign them to individual firms if not a government regulator?»
The government legitimately protects property rights, and this is not a regulation. A regulation is a government restriction on an individual´s free use of his property. As for the level of pollution, when someone can show that pollution from firm X harms him or his property, he can go to the government and demand that the pollution (that is above the non-harmful level) be stopped, and that firm X pay damages. Sometimes the government must define property rights in cases such as these, but again, this is not a regulation.
Professor Friedman ends his reply with following: «The final part of Martinson’s critique is about reasons he is in favor of freedom, none of which are relevant to the point of my talk»
They were relevant to what I wanted to tell my readers.
When professor Friedman said that sometimes there are market failures (even if «“market failure” is not about markets»), and when he talked about «group rationality», a phenomenon that only exist in the fantasies of the collectivists and not anywhere in reality, he unfortunately supplied arguments to our opponents, people who are opposed to individual freedom and free markets. The main aim of my very short article was to explain that it is wrong to claim that there are «failures» in free markets, and that to use «group rationality» as a standard for what is the best outcome, is wrong and harmful.
Let me finish with this question, which I did not get the chance to ask professor Friedman after the lecture: does professor Friedman support initiation of force by the government against the citizens in order to bring the total sum of the actions of the citizens closer to what would be the results if «group rationality» were the standard?
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Mitt svar over ble avsluttet med et spørsmål. Professor Friedman var så vennlig å svare på dette spørsmålet:
[Quote from VM:] «Let me finish with this question, which I did not get the chance to ask professor Friedman after the lecture: does professor Friedman support initiation of force by the government against the citizens in order to bring the total sum of the actions of the citizens closer to what would be the results if «group rationality» were the standard?»
No. But my argument for not supporting it is that it doesn’t work–a government with the authority to act that way will make things worse more often than it makes them better.
So far as your concern that group rationality is not a meaningful concept, I deliberately chose examples where the result of individuals acting rationally was that everyone was worse off, thus avoiding the issue of adding up gains and losses.