Pierre Lemieux pointed out a crucial way in which Wall Street Journal reporter James Mackintosh biased the result with this statement: “Sure, it is true that free markets are the best way to run an economy that is fully competitive, has no unpriced side effects, or ‘externalities,’ such as carbon emissions, and where contracts cover every eventuality.” Pierre pointed out that when you have free markets, no one is “running” the economy.
When I went to read Mackintosh’s original news story, “What I Learned About ‘Woke’ Capital and Milton Friedman at the University of Chicago,” June 9, 2023, I found some other major misconceptions on Mackintosh’s part.
Start with this sentence in his first paragraph: “I expected to be surrounded by anti-ESG, pro-capitalist supporters of the status quo in American finance.” Which is it? Did he expect to be surrounded by anti-ESG, pro-capitalists or did he expect to be surrounded by supporters of the status quo? It can’t be both. In case Mackintosh hasn’t noticed, with the myriad regulations we have now, the status quo is now far from capitalist.
Here’s Mackintosh’s other big error that is as egregious as the one Pierre highlights: “Sure, free markets work—but only when a bunch of vital assumptions hold.” That’s false. Free markets work if a bunch of assumptions hold. They also work well even when many of those assumptions don’t hold. We don’t, for example, need “perfect competition” to have healthy competition among firms.
Moreover, as Jon Murphy pointed out in the comments on Pierre’s post, we should ask “work compared to what?” Did Mackintosh look at how well Amtrak is run, how government-built housing works, or how carefully the feds and the California state government handed out unemployment benefits in 2020, to name just three? And I was left wondering whether the economists whose classes he sat in on ever raised that issue. When he was at the University of Chicago, economist Harold Demsetz pointed out in a famous 1969 article that many economists use the “Nirvana approach.” They compare actual markets with ideal government programs run by all-knowing bureaucrats with benevolent motives rather than comparing actual markets with actual government. I’m hoping this was Mackintosh’s failure to understand what the U of Chicago economists were teaching and not the economists’ failure to teach.
I’ll end with this stunner: Mackintosh writes, “It takes time for academic work to filter into politics; Friedman’s pro-business radicalism had to wait a decade for Ronald Reagan as the 1970s saw government regulation of evermore areas of the economy.”
First, Milton Friedman was not pro-business. He was pro-market, a distinction that Mackintosh seems unaware of. Second, while it’s true that from about 1970 to 1978, government regulation did cover ever more areas of the economy, from worker safety (OSHA) to environmental regulation (the EPA) to oil prices (price controls) to fuel economy (CAFE), the last year of the 1970s and first year of the 1980s—before Ronald Reagan took office—saw massive deregulation: of airlines, trucking, and railroads. That was under Jimmy Carter, not Ronald Reagan. I hope this is just Mackintosh winging it by assuming history rather than checking it.
