Here's a paper with twenty of them. A useful corrective to economic ignorance.

[Via Lynne Kiesling]

Palmer's paper is useful corrective on most points, even if the objections to markets addressed, being mostly framed as absolutist positions, have a strawman quality in some cases. "Markets only work when [econobabble etc., etc.]" isn't something that anyone educated enough to use the given econobabble terms would likely say. They'd say "Markets work *better* when [etc., etc.]" And then you have a reasonable statement, for some definition of "better".

Where I think Palmer goes seriously astray is on point 4: "Markets Depend on Perfect Information Requiring Government Regulation to Make Information Available". Any reasonable person would say "Good", not "Perfect" (a technical game-theoretic term that doesn't really apply to this issue.) With that correction, I think it's true in many cases.

Nobel Laureate Vernon Smith can hardly be accused of hostility to Libertarianism, but, last I checked, he was running experiments to test policies for damping bubble behavior by requiring more transparency about short positions. The tentative conclusion is that it seems to work -- the more information out there about who has short positions and what kind, the more that bubble behavior is suppressed.

Bubbles are a known case of market failure. They are shockingly easy to produce in the lab, and occur regularly in real economies. Smoothing them out would be nice, if you could pull it off. The best laissez-faire defense so far has been a weak one -- that bubbles eventually work themselves out anyway, and anything you do to try to prevent them just introduces market distortions that are arguably even worse in their overall effects than the bubble itself. Smith's work, if it proves out, suggests otherwise: with just a wee bit more regulatory "coercion", almost all of us would be better off (and those who would "suffer" aren't terribly deserving of the wealth they'd miss out on.) I don't see a natural market solution to this information-gap problem. But I'm willing to admit there might be one, and if there is, so much the better. In any case, it's hard for me to accept the pure laissez-faire argument that in the long run, it doesn't matter. As Keynes pointed out, in the long run, we're all dead.

In general, when it's information about a specific product or service, you can make a plausible case that governments should stay out, though I'd really prefer to have agencies like the FDA around. When it's information in the securities markets, however, I favor government-mandated transparency. Not just as a measure against outright fraud, but simply because it often makes markets do their very admirable thing that much more admirably, by aligning elegant theories about how they work with the gritty realities of imperfect human nature.

Is there too much securities market regulation? At any given time, probably. But having too much government (and the perpetual effort to cut back the overgrowth) is simply the price you pay for having all *necessary* government.

Er...I think you're right, but isn't this a perfectly respectable libertarian perspective? The libertarian is not an anarchist. He merely says government should be restricted to those activities which only a government can do, e.g. national defense and, a ha, the collection and dissemination of objective information that makes markets work well, like EPA mileage figures, whether or not a given doctor has had his license suspended for gross malpractise, and so forth.

A libertarian does not even object to the government using coercion in the pursuit of those goals. (Indeed, you can construct a reasonable libertarian position by saying government should be restricted to those activities which require coercion to succeed, inasmuch as anything people can accomplish via voluntary private association is ipso facto not the proper role of government.)

So why would a libertarian object to the government forcing folks in the securities industry to be more open?

"So why would a libertarian object to the government forcing folks in the securities industry to be more open?"

Well, there are Libertarians and there are Libertarians (and there even ex-Libertarians like me, who view it with fondness still.) Some Libertarians might object that forcing people in the securities industry to be more open is an invasion of their privacy. Why does the government have a right to know what short positions I've taken any more than it has a right to know how many oranges I bought today? Mind your own business!

Then there are others who would invoke the "slippery slope" argument -- that the eventual costs to society of yet more transparency regulation (presumably making us ever more inured to ever more regulation) are greater than the costs to societies of bubbles. To them, it doesn't matter that it works, and presents no obvious danger -- it's the mentality it encourages.

To me, it comes down to moralistic absolutism vs. pragmatism, about markets. Do we have markets because they are better, or because they maximize freedom, the moral value of which is taken as axiomatic? We can usually have both, but we can't *always* have both.

I regard myself as a pragmatist: where markets work, let 'em rip. Where they fail, attempt to balance the benefits of attempts to ameliorate these deficiencies with the costs (to freedom and to tangible well-being).

You can twist yourself into semantic knots trying to find the "force" or "fraud" in cartelization and price-fixing, for example. Well, you won't find it -- unless you buy the *ethical* idea that a reasonable profit is to be had only under some implicit social contract that ostensibly competing firms actually *are* competing, and not colluding, i.e., that every company in a market is *implicitly* advertising itself and its wares as the product of competition on price (in part), and thus guilty of fraud in the sense of false advertising if they collude on price. Well, that's a fundamentally pragmatic judgment, isn't it? Somewhere underpinning any such judgment is a belief that we have competition because competition is, on balance, good for almost everybody else. And it's not even as simple as that -- most monopolies aren't bad, but I still believe that what few there are should be considered targets of some government scrutiny to deter them from going bad. To some Libertarians, even that is not acceptable, however. Eric Raymond didn't like the DoJ going after Microsoft for monopoly behavior, for example.

Well, there are always mindless libertarians, or rather narcissists posing as libertarians. ("Liberty for me! Oh, and some for you, too, I guess.")

The argument about privacy seems silly. First off, a belief in sacred "rights" is itself a statist argument. Of what worth is a right that's not guaranteed? Who can guarantee an individual right against the majority except for an all-powerful state? Phooey.

Secondly, a social expectation (not the same thing as a right) for privacy in transactions between two people (you and the orange vendor) hardly equates to a similar expectation that vendors can lie in public statements about their service without public consequence. That is, the government not prying into how many oranges you bought today is not similar to the government prying into whether the orange seller is advertising his oranges as safe to eat, when actually they contain deadly levels of lead.

If folks fraudulently advertise aspects of their securities, they can't be too surprised if the general public decides they feel like imposing some stiffish penalties for doing so, and setting up an agency to sniff around and see whether anyone is lying.

As I said, the least possible intrusive intervention the government can make to ameliorate the evil effects of false advertising is merely to provide information to people about vendors. This (if it works) is much better than trying to determine what to do about liars. Let the market punish them. But the market does that far more effectively when information about them is cheaply and broadly available. Since this is one of the least obnoxious and most efficient uses of government power there is, I think a true libertarian would welcome it.

I appreciate your distinction between theoretical and practical arguments for free markets, regulation, et cetera. My own attitude is even more empirical: I don't think arguments about whether we should have free markets or not have any more meaning than arguments about whether we should tolerate death and bad luck. We exist in a world of markets which, over a long enough run, are free, because it is impossible, in the long run, to fully control people. (To fully control one determined man takes one other man, full-time, watching him with a gun. And then the watcher needs to be watched himself, and so forth. Hence any system fundamentally contradictory to people's natural impulses must collapse, sooner or later.)

That means, to me, that the interesting arguments are not about whether or not we should accept what is inevitable, but about how we adapt to what is inevitable. It's like facing mortality: arguments about whether or not we're all really going to die are less interesting (because they're futile) than arguments about how we should spend the time until we do.

Similarly, given that we live in a world dominated by markets, how should we conduct ourselves economically? That's the more interesting discussion.