Markets in Everything?

The Limits of Economics

Russ Roberts makes the keen observation that most of us do not run our families according to free market principles.

We don’t love “winners” more than “losers”—or if we do, we ought not admit it. We don’t allow the the first born to take advantage of the younger born. Parents don’t consciously run their families like VC funds, thinking, well, if this kid “returns 100x” and this kid “goes to zero,” it’s fine. In fact, there’s even evidence that parents typically give more energy, attention, and love to children that struggle than those that are self-sufficient. This tendency potentially chafes against the cold rationalism of “profit-maximization.”

Even Adam Smith, who celebrated exchange based in mutual self-interest, appreciated that there is more to life than being an economic actor.

Nassim Taleb has a motto that one should be a libertarian towards strangers and a socialist towards one’s family members (and a liberal with one’s friends). Different levels of trust and connection warrant different levels of obligation.

Throughout his work, Francis Fukuyama describes the human tendency to seek pride, glory, and recognition even when it conflicts with economic self-interest. People will take a pay cut, as it were, just for the right “title.” Thymos is a stubborn attachment. In his way, Fukuyama concludes that the notion of the free market doesn’t price in our non-economic motivations. Price may be where supply meets demand, but it’s only part of the story.

Economists are big on describing life in terms of “trade-offs.” But, to get meta, Fukuyama and Smith describe a world in which certain bonds are seemingly non-negotiable. They operate according to different laws.

The counter-argument to this line of reasoning is the phrase “markets in everything,” which often appears on Tyler Cowen’s blog Marginal Revolution. Cowen recently linked to this piece in Buzzfeed as an example.

But for every 100 people willing to sell their prayerful metadata there’s another person willing to light himself on fire for “freedom.” Are mass protests—where people lose time and money and risk suffering violence and arrest—best understood through the lens of the market? Hegel and Girard better explain street protests than do Hayek and Friedman.

The difficulty in analysis, as in life, is that often the categories are blurred. We find the economic element and the non-economic or thymotic element co-mingled. It is tempting to want to resolve the conflict by making one the master. Utilitarians reduce everything to economics, broadly speaking. Hegelians reducing everything to recognition, broadly speaking. But it is also possible that the conflict can’t be reduced, and that each person must come to her own compromise. If so, we should be pluralistic about what economics can explain or recommend.

Politics and philosophy would require us to consider what trade-offs we face when rendering something a private vs. a common good, what trade-offs we face when relating to the world through the framework of efficient markets vs. the framework of thymotic attachments. One framework, for example, gets us to endorse Sabbath as a break that helps us be more productive during the rest of the week. The other enables us to experience it as “a taste of the World to Come.” Behavioristically, there may be little difference between these formulations. Experientially, there is a world of difference between them.