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Can we move beyond a religious war over free markets?

UPDATE: Did I betray the free market side? see end of this post.

From a review I wrote in yesterday’s NYT Book Review of Matt Ridley’s book The Rational Optimist:

The word “market” tends to set off a religious war. Opponents accuse proponents of blind faith in the Miracle of the Market. The proponents too often seem to confirm this accusation by overpromising and underproving what the market can do. (Opponents are often guilty of equally unthinking belief in the Immaculate Government Intervention.) Each side recites its creeds, giving heart to the faithful but making no converts.

Alas, Matt Ridley’s new book, “The Rational Optimist,” which argues for markets as the dominant source of human progress, is such a case. … he shows a surprisingly casual attitude toward logic and evidence, which is likely to cause the antimarket side to see him as rigging the contest. It’s an example of a phenomenon many economists have noted: natural scientists have remarkably low standards for reasoned argument when they discuss social science, as compared with the rigor they bring to their home fields

….

Nor does Ridley grapple with why so many people doubt market-based progress. His entertaining account of how such pessimism is always in fashion — whether the subject is overpopulation, genetic engineering, Y2K or global warming (he thinks we’ll all end up living on a slightly hotter but richer planet) — also predicts that today’s pessimists will ignore his message. Ridley is tone-deaf to the 20th-century traumas that were huge setbacks for the gospel of progress. “Despite the wars,” he writes, “in the half-century to 1950, the longevity, wealth and health of Europeans improved faster than ever before” — a true statement that surely misses the point.

Ridley also fails to really address inequality and uncertainty. The free market may produce cornucopia, doubters concede. But it also gave Richard Fuld of Lehman Brothers $60,000 a day (in 2007, the year before the company went bankrupt) while one billion other people survived on a dollar a day. In his discussion of global warming, Ridley argues that we’ve avoided all previous doomsday predictions. But our resourcefulness, or our luck, could run out sooner or later.

A case for individual freedom and market exchange would have to convince doubters that alternatives would create even more inequality and uncertainty, or something worse. Such a case could argue that some of those 20th-century traumas were caused by a backlash against both the “free” and the “market,” and that central planning tends to create even more rigid inequality between political “ins” and “outs” while lacking the creativity needed to cope with future threats. But the case must move from “maybe” to logic and evidence. Alas, this book does not get there.

So read “The Rational Optimist” for its fascinating history of trade and innovation. But also ponder whether the debate over markets can move forward while it remains a purely religious war. Those willing to confront honestly all the doubts about the “free market” might then actually be persuasive in arguing that it is the worst system humans have ever tried — except for all the others.

UPDATE: some have expressed puzzlement and dismay that I was critical of a book when I am in agreement with the conclusions of the book: enthusiasm for free trade, free markets, the creativity of individuals to fuel optimistic hopes that we will keep solving our problems and getting better off.  Did I betray my own allies, the free market side?

There are two models of book reviewing: (1) just be positive about a book when you are on the same side of the conclusions, (2) analyze the argument that led to the conclusions, and be positive or negative based on whether it’s a good argument. My model was obviously (2).

It doesn’t do the free market side any favors if all of its advocates are willing to overlook sloppy logic and evidence and just follow clan-like loyalties based on the final conclusions. We will only move beyond the “religious war” if both the anti-market and pro-market sides are rigorously honest about the strengths and weaknesses of their own arguments.

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7 Comments

  1. terence wrote:

    Thanks Bill, for a thoughtful and interesting review.

    If anyone’s interested George Monbiot has a strongly critical review of the same book in the Guardian, highlighting some of Ridley’s errors and pointing out why Mr Ridley is probably not the best person on Earth to be championing the virtues of unregulated markets at present: http://www.monbiot.com/archives/2010/06/01/the-man-who-wants-to-northern-rock-the-planet/

    Posted June 14, 2010 at 1:11 am | Permalink
  2. gappy wrote:

    I thought it was a good review, thoughtful, respectful, and inviting the reader to think for herself. A small step in moving the debate away from the partisanship of market fundamentalists/denialists, in favor a more balanced assessment.

    Posted June 14, 2010 at 12:49 pm | Permalink
  3. Professor Easterly’s review complains that Ridley’s argument on the importance of exchange and free markets doesn’t explain everything about the human situation. Well, of course it doesn’t, because life is complex (which is actually part of Ridley’s argument). But that complexity doesn’t justify the review’s frankly cavalier treatment of what Ridley does have to say about one truly crucial aspect of the human story – and it’s something we really need to hear just now.

    Professor Easterly seems to pine for a different book than Ridley’s, one that bravely takes on the entirety of the pessimist catechism (and explains its seductiveness). In fact, there is just such a book: mine, The Case for Rational Optimism, published by Transaction at Rutgers University (2009). It addresses not only such topics as war, the environment, the economy, technology, etc., but also the philosophical and psychological aspects of optimism versus pessimism (thereby meeting some of the criticisms in Prof. Easterly’s review of Ridley’s book). See http://www.fsrcoin.com/k.htm
    It is a pity Prof. Easterly did not take note of this highly relevant prior publication in his review.

    Posted June 14, 2010 at 7:47 pm | Permalink
  4. Robert Tulip wrote:

    The political divide over markets is not a religious war but a class war. To oversimplify, proponents of free markets support political parties grounded in capitalist firms, while opponents of free markets support parties based in labour movements. The general tendency is to form ideological blocs around these antagonistic core constituencies.

    Free markets deliver higher growth, but as Hayek argued in The Constitution of Liberty, effective markets need a strong state to guarantee the rule of law. This essential liberal caveat was ignored by the ‘class war’ push to deregulate finance industries that caused the global financial crisis. The association of credit and freedom among market dogmatists, together with the incentive of getting rich quick and the class war context of group-think, produced a blindness towards the proper regulatory role of governments. So the problem is not freedom, but failure to regulate freedom effectively.

    And why is inequality such a bad thing? China is far better off now with its rampant inequality than in the days of the iron rice bowl when everyone starved equally (except the party elite). Allowing free and unequal accumulation of wealth is the only way to generate growth and reduce poverty.

    From Easterly’s review, Ridley displays a blind optimism regarding climate change. Yes, free markets are likely to be the only way that we will work out how to regulate the global climate, but no, sceptics and deniers do not make a useful contribution to the debate. They suggest we should be like a frog in a pot, waiting until we boil before we think about jumping out. When markets have failed it is too late.

    Posted June 15, 2010 at 1:59 am | Permalink
  5. Paul Walker wrote:

    Terence. Ridley’s reply to Monbiot is Monbiot’s errors

    Posted June 15, 2010 at 8:11 pm | Permalink
  6. John wrote:

    Nice review. It does a world of good when someone so involved such debates as you are can step back and point out how thinking engagement can harden into faith over time.

    Freakonomics blog posted a Q&A with the author. http://freakonomics.blogs.nytimes.com/2010/06/15/matt-ridley-the-rational-optimist-answers-your-questions/

    Posted June 15, 2010 at 9:56 pm | Permalink
  7. terence wrote:

    Thanks Paul,

    Mobiot replies to Ridley’s reply at the following: http://www.monbiot.com/archives/2010/06/19/ridleyed-with-errors/

    Posted June 20, 2010 at 10:48 pm | Permalink

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  2. By RadarLake » The free-market holy war on June 14, 2010 at 2:11 pm

    [...] has a bit more on a blog post at his web page that says, in crystal clear words, what I think about this issue and every other issue that invokes [...]

  3. [...] William Easterly trashes Matt Ridley. Easterly offers this defense. It doesn't do the free market side any favors if all of its advocates are willing to overlook [...]

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