Thursday, October 04, 2007

The Tyranny of Bad Economics?

Today I read this article on Slate about a new book by Joel Waldfogel. The book is called The Tyranny of the Market: Why You Can't Always Get What You Want. As far as I can tell from the summary in the article, the book's argument is:

1) Some people have preferences that are uncommon.
2) Markets will not provide goods tailored for these uncommon preferences if the fixed costs are high enough, the preferences are unusual enough, and the potential buyers are not willing to pay a high enough price.
3) Therefore markets fail by not providing these goods.

I'm having a hard time believing that this is a serious book. This is a terrible argument. The fact that markets don't provide every conceivable good is a feature, not a bug. If I have a taste for lime green shoes sewn from human hair and made with organic natural rubber, the fact that such shoes do not exist is not a market failure.

Goods are not free; their production consumes resources. Consuming valuable resources to satisfy a tiny niche of consumers may not always make sense. The linked article talks about Milton Friedman's argument that markets allow people to vote with their wallets, resulting in more diversity than when people vote for government policies. Government policies are one-size-fits-all, whereas markets allow us each to choose for ourselves, within the realm of goods that are profitable to produce. Adam Smith talked about how the "extent of the market" affected the division of labor. That is, he said that if a market is larger, it will start to make sense for workers to specialize more and more. The bigger a market is, the more likely it is that there are enough consumers with tastes like your own, the more likely it is that workers will find it in their interests to specialize to a greater degree--and some of them might specialize in producing the sort of weird products that you want to buy. Then again, they might not.

Waldfogel's objection seems to be that markets don't provide these special goods until there are enough people to justify the costs of producing them. He calls it "Tyranny of the Market". But that's not tyranny. Tyranny would be a good word, however, for what we might call a situation in which a tiny number of people can force everyone else to pay for them to satisfy their unusual preferences.

Disclaimer #1: I'm not saying there's anything wrong with unusual preferences. I'm an economist who likes D&D and progressive rock music. I'm an American approaching middle age while continuing to play soccer. I have weird preferences that are currently not satisfied (I want a Baldur's Gate-type of game for Nintendo DS, for example). I do not feel, however, that anyone owes me these things, and I don't feel as though I'm being wronged when other people find it unprofitable to incur the fixed costs of producing for me.

Disclaimer #2: I haven't read the whole book, so I'm basing this on the summary that Waldfogel wrote for Slate. Perhaps the book makes more sense.