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Gabriel

The irony on this post is an inch thick!

OK... so the people who are "arguing [from] a position of ignorance" are those who hold an explicit welfare theory, who make their theory as transparent as possible, by clearly starting their assumptions and obtaining results in a formal, structured fashion, and who subject their restrictions and explicit forecasts to statistic theoretic empirical testing.

Stupid me for thinking that the "position of ignorance" is held by those who shy away from supporting their claims by either formalizing them (although they will hand wave plenty about logic) or quantifying them. It certainly qualifies as obscurantism...

Lastly, your argument is essentially an ad hominem: you want to judge these people's intentions and alleged subterfuge (of hiding behind economic theory) rather than take on their arguments (and not a convenient straw man).

It seems to me that you (plural) believe that under no circumstance will a 100% private economy underperform. That is, assuming that I can force an explicit performance criteria for economies out of you.

If your theory, in a nutshell, is that everything what the private sector does (within the bounds of private property, let's say) is beyond criticism and whatever government does is "distortionary" then I think you could program a computer to generate these posts and save some time.

P.S. I just love the part about markets being "democratic"... that might me, if one's vote has the weight of one's wealth.

Gabriel

Sorry about the previous comment. It's too much, in several ways.

Your post really pushed my buttons.

aje

No worries - I appreciate you taking the time to respond.

Firstly it's important to realise that this is a three-way debate, between non-economists, neoclassicists, and Austrians. This post is an attempt to rile the non-economists that selectively use parts of neoclassical theory as hooks for their preferences. It wasn't written as a critique of neoclassical theory, and as you know there's a sizable and established literature on the topic.

OK... so the people who are "arguing [from] a position of ignorance" are those who hold an explicit welfare theory, who make their theory as transparent as possible, by clearly starting their assumptions and obtaining results in a formal, structured fashion, and who subject their restrictions and explicit forecasts to statistic theoretic empirical testing.

As I say, the vast majority of those contributing to the supermarket debate do *not* have an explicit welfare theory, transparent theory, etc etc. I am deliberately focusing on those who might use Akerlof's lemons model as an example of asymmetric information that leads to market failure, without being aware of his "counteracting institutions".

I don't believe that I'm actually claiming higher scientific grounding, because this is purely a debate about intellectual honesty. When I say "What annoys me is those who use argument 1 to cover for argument 2, when that stems from snobbery." It should be clear that I'm not attempting to deal with the merits of argument 1, but merely have a whinge about the way these debates are constructed. That might sound ironic but regardless of how convinced you are about the Austrian theory of market process, I've made it pretty explicit that this is the framework I utilise.

I reject that these forms of obscurantism are equivalent. It's one thing to subscribe to a philosophical system that sits outside the prevailing methodological orthodoxy, it's another thing to not have an underlying theoretical framework.

I'm not trying to demonstrate why Kirzner beats Becker, I'm simply chiding people who implicitly use Becker without even being aware of Kirzner.

It seems to me that you (plural) believe that under no circumstance will a 100% private economy underperform. That is, assuming that I can force an explicit performance criteria for economies out of you.

If by explicit you mean measurable then no, you won't be able to force that out of me. I do think that Freedom Indices have interesting advantages over things like GDP, but to have a formal model to compare those against? I'm yet to be convinced.

If your theory, in a nutshell, is that everything what the private sector does (within the bounds of private property, let's say) is beyond criticism and whatever government does is "distortionary" then I think you could program a computer to generate these posts and save some time.

Nonsense - Austrians have always been interested in comparative systems, in the real world. Public Choice theory isn't an attempt to say government are always less efficient than markets, it's about comparing market failure with government failure. True, many Austrians explicitly reject the idea of sub-optimal market performance, but that's only using a somewhat foreign notion of "optimality". The point is that private sector waste (i) isn't born by all participants; (ii) is likely to be weeded out through the competitive market process. Private companies are not beyond criticism but I maintain that there's a fundamental distinction between Sky (I voluntarily pay £40 a month) and the BBC (If I don't pay I go to jail, regardless of whether I view it). But by definition every government intervention into a free market *will* be distortionary.

I understand and respect rationale for this based on an explicit welfare function, and we can potentially engage in a scientific debate (albeit from different premises). But what if someone is arguing that WalMart shouldn't be given planning permission, purely because it clashes with their aesthetic tastes? That's the focus of this post.

P.S. I just love the part about markets being "democratic"... that might me, if one's vote has the weight of one's wealth.

Depends on how you're defining democracy.

Jim

"government intervention is a greater source of distortion than any natural state of affairs."

What does 'natural state of affairs' mean here?

"But what if someone is arguing that WalMart shouldn't be given planning permission, purely because it clashes with their aesthetic tastes? That's the focus of this post."

I know you're arguing against the concept, but I'm not aware of anyone who has argued that, and it would be a shame if your critique was misinterpreted as applying to actually existing arguments against WalMart planning applications.

Quinn

I’m not really sure who you’re arguing against here, AJE, but I think we can all agree that snobbery is wrong. I am proud to say that some of my best friends shop at Asda, and they can well look after themselves. If anyone is being exploited it is those poor Waitrose shoppers, paying over the odds for bog standard goods no better than Morrison’s own-brand stuff. They’re the ones I feel sorry for.

But what makes you think that looking at a 2x1 photo of some nondescript, anonymous looking wasteland means that you have a better idea about what that land should be used for than the bureaucrats who live there and are presumably answerable to the residents there abouts? If one glance at the picture makes it obvious that the lack of a WalMart there is harming ordinary people then you have a rare talent you simply must not waste.

aje

Firstly, thanks for taking the time to leave comments and I apologise for not getting back to you sooner.

Jim: What does 'natural state of affairs' mean here?

Sorry, I used 'nature' to mean 'base' as opposed to 'as found in nature'. Bad writing. See below

Jim: I know you're arguing against the concept, but I'm not aware of anyone who has argued that, and it would be a shame if your critique was misinterpreted as applying to actually existing arguments against WalMart planning applications

Quinn: I’m not really sure who you’re arguing against here, AJE

Perhaps I'm being paranoid to claim that economic arguments are being used as a convenient cover for aesthetic tastes, but I can clarify in two ways. Firstly, it is clear that the campaign against the likes of Tesco is being funded and populated by people who are *not* independent economists. It is relatively easy for us all to agree that the likes of "Tescopoly" are interest groups with a direct financial interest in using political channels to change the rules of the game in their favour.

But there's also a significant number of people who lend their support to these groups, despite not having a financial interest. I *do* know people who want greater regulation in the groceries market because they hate large supermarkets for purely aesthetic reasons (e.g. they just don't like the shopping experience). And I don't feel I need to secretly record them to be able to make my point. But I'm also referring to those who's preferences might be for broader issues. For example, in the list of "third-party" submissions to the Competition Commission I notice that:

- Retail Enterprise Network wants the regulator to also look at "quality" of groceries providers
- The nef says "In previous inquiries the extra value that small, independent and genuinely local shops provide in terms of economic benefit, environmental distinctiveness and the social glue that holds communities together has not been assessed."

Perhaps I should have used "normative" instead of "aesthetic", but my basic point, I feel, is valid.

The other thing is that I think people underestimate the importance of public debate on this issue. If you support regulatory intervention I feel the burden is on you to justify that (i.e the 'natural state of affairs' is a free market, and interventions need to be justified. Most people seem to accept this position now, as opposed to advocating socialism for all goods other than those that economists can demonstrate are better produced by the private sector. Maybe I'm being too optimistic...).

But *if* you accept that the burden of proof should be on the regulator, I do challenge the average consumer to stand up against the anti-supermarket lobby and say "not in my name".

I'm one of the few people to write an independent, technical report for the groceries investigation and am yet to see convincing technical arguments in favour of regulation. On a number of occasions I'll be discussing this issue with friends/family members and as soon as I start challenging the economic theory they will resort to normative statements.

Finally, I'll remind readers that I view blogging akin to a chat in the pub.

Quinn: what makes you think that looking at a 2x1 photo of some nondescript, anonymous looking wasteland means that you have a better idea about what that land should be used for than the bureaucrats who live there and are presumably answerable to the residents there abouts?

Unlike a bureaucrat, I would never claim to "know" how a resource should be allocated. I think we should be allowed to use an open market to decide - and whether Wal-Mart can turn the land into the highest value use, or whether it's Starbucks, or a nature reserve, or a playing field for local children -- the fact that is is *wasteland* tells us that the current situation is a farce.

Jim

If your argument is that some of those taking part in these disputes are partisan interest groups not comprised of independent economists, fine. But that doesn't make all of their arguments wrong, and it doesn't make your views right or representative of the subset of economists who have seriously examined land use.

"e.g. they just don't like the shopping experience"

We need to be careful here not to exclude valid considerations of design which do affect others and create a potential role for government. Some people (me included) dislike the shopping experience of some supermarkets because they're surrounded by vast car-parks that are unfriendly to pedestrians and make surrounding roads congested and unsafe. It's not enough to say "So don't shop there" because there are significant impacts on land owners (and users) nearby. So I think that's a reasonable thing for a planning authority to take a view on, even if the internal appearance of supermarkets isn't.

"the 'natural state of affairs' is a free market"

I'm finding it hard picturing a free market in urban land when you define 'free' in terms of absence of government. How can a market in which every land owner is a monopolist (because each plot of land is unique), in which the existing distribution of resources in large part reflects historic conquest and theft, which is inherently riddled with a vast range of externalities and spillovers unamenable to Coasean bargaining, and in which much of the value of land is effectively created by government intervention (eg infrastructure planning and investment) ever be 'free'? You talk about a free market as if you know what it would be like, but if you define it as the absence of government you can't possibly know what it would be like (apart from 'completely different from what we have today') since today's markets have largely co-evolved with government, and land is perhaps the pre-eminent example. I'm certainly not claiming the way land use markets are regulated is perfect but I'm far from persuaded we should throw it all out.

aje

But that doesn't make all of their arguments wrong, and it doesn't make your views right or representative of the subset of economists who have seriously examined land use.

Quite true, but I notice that you're specifically referring to land use whilst the groceries investigation was focused on competition.

I'm glad that you believe we should deem the paymaster as being irrelevant to the merits of the argument (presumably it wouldn't matter to you whether Tesco paid me to write the report I sent to the CC??), but a quick scroll through the other "third-party" submissions demonstrates a clear absence of technical argument. For example the Diocese of Exeter argue that "it is widely acknowledged...that while supermarkets might be running highly profitable businesses, the cost to farmers, growers, small food and drink businesses, local shops and high streets has grown irreversibly." There is no economic argument, it's simply a cry for protection.

Have a look at the submission from Gazette Bookshop: "My main concern is the effect of the growth of supermarkets on small to middle-sized market towns, and particularly on small independent shops. As the owner of one I know we can't compete with supermarkets because they can sell goods cheaper than we can buy them. In the long term I don't see how the small shop (grocery or otherwise) will be able to compete, which will mean less variety of choice for the consumer as everything will be reduced to a homogenised similarity." Now that at least makes a scientific claim - that supermarkets leads to product homogeneity - but I'd like to see it supported with some evidence. For one thing, it's a normative statement to say that diversity is 'better' than homogeneity. (Do you favour diversity when it comes to medical products?) Secondly, studies have shown that creative destruction leads to diversity (e.g. Tyler Cowen, or the Long Tail). Clearly, "D. Johnstone" is threatened by superior competitors and seeks political assistance to win back.

Some people (me included) dislike the shopping experience of some supermarkets because they're surrounded by vast car-parks that are unfriendly to pedestrians and make surrounding roads congested and unsafe

These are value-laden statements, so I'm instantly suspicious that you're seeking to use economic terminology to dress up your preferences. To what extent is the emergence of out of town shopping centers a consequence of local planning decisions that pedestrianised high streets thus making them less accessible? Is congestion a bad thing, or a sign that (i) the destination is popular; (ii) there's been a failure in road building to deal with it. There's a number of ways to solve the congestion problem without simply destroying the source of wealth.

But I actually think you're demonstrating my point here. You have a distaste for the alteration to transport that supermarkets entail. Many people have a taste for it. We'd need an ethicist to determine who's "right" and who's "wrong". But by throwing about terms such as "externalities" that do not prove your point you appeal to people's economic ignorance (or demonstrate your own).

The existence of externalities does not undermine free markets. Externalities are life. A market economy (i.e. exchangeable property rights) is just one way to cope with them. Another is to leave things as a commons. Another is to grant ownership based on race or family history. This ties us into your final point, and I've written a separate post.

Quinn

Unlike a bureaucrat, I would never claim to "know" how a resource should be allocated.

Do bureaucrats claim to “know”? Some, perhaps, but not all. You yourself describe the politicians as wrangling over what should be done with the land, which suggests that they don’t “know”, but are having to balance conflicting views on the matter. I could show you a similar picture of some wasteland near where my parents live that Tesco want to build a store on but have been prevented by the council; perhaps you could say it is obvious that a Tesco would be preferable to a derelict site, and I wouldn’t necessarily disagree, but you wouldn’t find much support in the village itself where there has been a vocal “Say No To Tesco” campaign, and perhaps the bureaucrats were simply responding to public opinion and their electors.

I think we should be allowed to use an open market to decide - and whether Wal-Mart can turn the land into the highest value use, or whether it's Starbucks, or a nature reserve, or a playing field for local children.

So are you now saying that it is not simple or obvious that Wal-Mart's absence from that patch of land is harming ordinary people? Indeed, while a Wal-Mart may be preferable to leaving the land as wasteland, it is quite possible that another use may be far preferable, and that is what the politicians must deliberate on. Presumably by saying you want the open-market to decide you feel it should be purely a decision between the buyer and seller of the land; but that mutually beneficial contract between those two parties could have negative effects (externalities?) on the surrounding residents, in resulting congestion, or in affecting the existing local shops and amenities, and it seems quite right to me that they are also consulted and their views taken into account. If it is just a case of land being sold to the highest bidder then that is bound to favour the largest companies with the deepest pockets such as Wal-Mart who could buy up the land to keep it as wasteland in order to prevent a competitor from making use of it, and then the farce of the land remaining derelict would continue for as long as Wal-Mart saw fit.

Finally, having re-read my previous comment I apologise for the sarcastic tone; I had been dealing with a particularly odious commenter who had been leaving nasty messages on my YouTube videos and who warranted a withering response, and I was still in that frame of mind when I read your piece. Doesn’t excuse, but does explain.

Jim

"I notice that you're specifically referring to land use whilst the groceries investigation was focused on competition"

Land use is crucial here because it affects competition and many of the externalities you're trying to dismiss as 'subjective'. That's the point.

I'm not as obsessed as you by the minutiae of what the Bishop said to the competition commission, so I'll stick to the theory. You say:

"These are value-laden statements, so I'm instantly suspicious that you're seeking to use economic terminology to dress up your preferences."

See, this just looks like an attempt to dismiss the importance of inconvenient facts because they imply a role for government you find unpalatable - talk about a 'value-laden' argument! I don't agree that things like the level of air pollution or fatalities from traffic accidents are 'value-laden' in the sense of 'subjective, just a matter of taste' which you're trying to apply. They are real enough, after all. You seem to apply this 'value-laden' label to anything the market transaction doesn't take into account, but that's just tautologous (not to mention naively panglossian - hurray, the market already fixes everything worth caring about!) and really brings us back to my point about the many externalities of land use being a valid consideration for government because the market doesn't resolve them.

"But by throwing about terms such as "externalities" that do not prove your point you appeal to people's economic ignorance (or demonstrate your own)."

Well I'm really sorry for not agreeing to throw out the economics of environmental externalities just because the implications make you uncomfortable.

"Externalities are life. A market economy (i.e. exchangeable property rights) is just one way to cope with them. Another is to leave things as a commons. Another is to grant ownership based on race or family history."

Sorry, this just sounds like hand-waving and faith-based assertion. Can we have some specifics please? How exactly will a market economy, 'the commons' or, er, 'ownership based on race or family history' resolve the externalities (congestion, accidents, pollution, upper limits to density) associated with car traffic?

Jim

As an addendum to my comment above, I'd appreciate it if you could clarify for me your position on externalities: where and how do you draw the line between those which are 'value-laden' (and therefore to be ignored, if I understand you correctly) and those which are somehow 'real' enough that government should take them into account?

aje

Your question warrants a separate post, but for now I'll ask a question that underpins my take on externalities: what form of externality is my odour?

I don't think i'm being Panglossian, but I am basing my views on a number of key premises that would appear to be tautological. But that's economics.

Jim

"what form of externality is my odour?"

It might not be an externality at all, since if you inflict a bad smell on other people you tend to experience immediate costs in terms of social interaction. It's not really anything like (say) driving, which can impose significant but not immediately 'visible' costs on large numbers of people you never see for a long time after the act.

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