One of the most interesting but neglected of Coase’s ideas is presented in a brief essay on ‘The Market For Goods and the Market For Ideas’, originally published in the American Economic Review in 1974. In this essay, Coase points out the inconsistency of those who cite ‘imperfect’ and ‘asymmetric information’ as constituting a case for government regulation in markets for private goods and services, while remaining steadfast in their support for free speech in the political market for ideas. For its proponents though the ‘free market in ideas’ is plagued with various ‘imperfections’ – such as deception, misrepresentation and downright lying by politicians and pressure groups, coupled with the ignorance of the general public (i.e. voters), over time free speech and the competition it engenders offers the best prospect of ensuring that good ideas prevail over the bad. Attempts to regulate political speech to ensure that only ‘accurate’ and ‘truthful’ information is presented to the public are doomed to fail. Who would decide what is to count as ‘accurate’ and ‘truthful’, and who would ‘guard the guardians’ of public truth should they seek to abuse their authority?The question this raises is, What is the best way of dealing with the inconsistencies that Coase notes? I can't help thinking the answer is to extend the free speech reasoning to the markets for good and services. That is, allow competition in the market for goods and services as well as in the market for ideas. So let us deregulate economic markets so they are as 'free' as the ideas markets. If the government cannot regulate the market for ideas, why do we assume it can regulate markets for goods and services?
If the above argument holds in the market for political ideas, however, then it is equally if not more valid in markets for private goods and services. As Coase notes, ‘It is hard to believe that the general public is in a better position to evaluate competing views on economic and social policy than to choose between different kinds of food’. Although consumer goods markets are plagued by imperfect information, misleading advertising and the existence of fraud, competition remains the best protector of consumer interests. Indeed, competition is likely to be more effective in the market for most goods and services because the costs of failing to be adequately informed are more likely to be concentrated on those who actually make bad choices– thus incentivising the critical scrutiny of advertising claims. In the market for ideas by contrast, failure to be adequately informed has externality characteristics – the decision to vote for a bad idea has consequences not only for the individual concerned but for the wider society at large. By making this point, Coase anticipated the argument made by Brennan and Lomasky (Democracy and Decision, Cambridge University Press, 1993) and more recently by Bryan Caplan (The Myth of the Rational Voter, Princeton University Press, 2007) that democratic politics is afflicted with the problem of ‘rational irrationality’ and that the ‘market for ideas’ is more likely to ‘fail’ than is the market for private goods.
Monday, 21 February 2011
New blog on the block
I have come across an interesting new blog: markpenningtonlondon. Mark Pennington is Reader in Public Policy and Political Economy, Department of Politics and International Relations, Queen Mary, University of London. He opens his blog with a nice posting on Ronald Coase's essay on "The Market For Goods and the Market For Ideas". Pennington writes,