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Jason Soon picks me up

July 27th, 2002

Jason Soon picks me up on my excessively broad conclusions regarding the end of free-market reforms, noting that there’s a big distinction between financial markets and real world economies.
I’ll begin by conceding that when I said “it will be a great many years before anybody can use a phrase like “market discipline” with a straight face.”, I should really have said “financial market discipline”. (BTW, what’s the blogging etiquette on making ex post corrections in cases like this?). As Jason says, the bubble and bust of the last five years or so have discredited financial markets, not markets in general. There are no direct implications for issues like education vouchers.
That said, there are still plenty of implications. Among the policies discredited by the exposure of endemic crony capitalism on Wall Street are:
Financial deregulation (obviously)
Privatisation (particularly in the case of firms that remain as regulated monopolies, the case for privatisation rests primarily on the idea that financial markets exert beneficial discipline)
Support for income inequality, based on the idea that market outcomes reflect inherent merit, or, alternatively are necessary to the achievement of efficient outcomes.
Social security/superannuation reform
More generally, there is what might be called ‘free market triumphalism’. This is evident, for example, in the editorial pages of the Oz. No serious argument is ever made in favour of particular free-market policies. Instead, the assumption is that, if it’s the free-market policy, it must be right.
As a supporter of a mixed economy, I believe that some things are best dealt with by markets and others are not. I’m happy to argue about, say, educational vouchers, on the merits.
What I was reacting to is what I call the “argument from fashion”, which suggests that government intervention was all very well thirty or forty years ago, but is now out of step with the times. (The opposite argument was made in favour of government intervention for much of the 20th century, and was equally invalid).

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