Robert Kuttner Everything for Sale Robert Kuttner is cofounder and coeditor of The American Prospect. I The ideal of a free, self-regulating market is newly triumphant. The historical lessons of market excess, from the Gilded Age to the Great Depression, have all but dropped from the collective memory. Gov- ernment stands impeached and impoverished, along with democratic politics itself. Unfettered markets are deemed both the essence of human liberty, and the most expedient route to prosperity. In the United States, the alternative to laissez- faire has never been socialism. Rather, the interven- tionist party, from Hamilton and Lincoln, through the Progressive era, Franklin Roosevelt and Lyndon From Robert Kuttner, Everything for Sale: The Virtues and Limits of Markets (New York: Knopf, 1998). IS EVERYTHING FOR SALE? Johnson, sponsored what came to be known as a "mixed economy." The idea was that market forces I could do many things well-but not everything. Government intervened to promote development, to temper the market's distributive extremes, to coun- teract its unfortunate tendency to boom-and-bust, to remedy its myopic failure to invest too little in public goods, and to invest too much in processes that harmed the human and natural environment. Since the constitutional founding, however, the lib- ertarian strain in American life has often overwhelmed the impulse toward collective betterment. Today, after two decades of assault by the marketizers, even the normal defenders of the mixed economy are defen- sive and uncertain. The last two Democratic presi- dents have been ambivalent advocates for the mixed economy. Mostly, they offered a more temperate call for the reining in of government and the liberation of the entrepreneur. The current vogue for deregulation began under Jimmy Carter. The insistence on budget balance was embraced by Bill Clinton, whose pledge to "reinvent government" soon became a shared com- mitment merely to reduce government. And much of the economics profession, after an era of embracing the mixed economy, has reverted to a new fundamen- talism cherishing the virtues of markets. America, in short, is in one of its cyclical ro- mances with a utopian view of laissez-faire. Free markets are famous for overshooting. Real-estate bubbles, tulip manias, and stock-market euphorias invariably lead to crowd psychologies and painful mornings-after. The same, evidentially, is true of ideological fashions. So this is a good moment for a sober sorting out. How does the market, whose first principle is one-dollar/ one-vote, properly coexist with a political democracy whose basic rule is "one person/one vote"? When does the market run riot? What are the proper boundaries of market principles? What should not be for sale? II Even in a capitalist economy, the marketplace is only one of several means by which society makes deci- sions, determines worth, allocates resources, main- tains a social fabric, and conducts human relations. 561 Actual capitalist nations display a wide variation in the blend of market and nonmarket. A basically capitalist system is clearly superior to a command economy. But the nations where markets have the freest rein do not invariably enjoy the most reliable prosperity, let alone the most attractive society. In this age of the resurgent market, we are prom- ised that technology, ingenuity, and freedom from the dead hand of government will revive economic efficiency and material progress. Yet, despite the triumph of market principles, market society is no Utopia. Compared with the golden era of the postwar boom and the mixed economy, this is a time of broad economic unease. As society becomes more mar- ketized, it is producing stagnation of living standards for most people, and a fraying of the social fabric that society's best-off are all too able to evade. One thing market society does well is to allow its biggest winners to buy their way out of its pathologies. Even as the market enjoys new prestige, ordinary people are uneasy with many of the results. With greater marketization comes not just opportunity but opportunism; a society that prizes risk also reaps in- security. Taken to an extreme, markets devalue and diminish extra-market values and norms-on which viable capitalism depends. The promise of growth has also run into questions of sustainability. Even mainstream economists wonder about the effect on the natural environment if the third world were to enjoy even half the living standards and the claim on natural systems of the United States and Europe. The standard economic calculus does not know how to measure the costs of depletion of natural systems, since these are not accurately captured in cur- rent prices. And in market logic, by definition, what is not reflected in the price system does not exist. All of this should cast serious doubt on the pre- sumption, so fashionable of late, that the natural form of capitalism is laissez-faire. Beyond a certain point, excessive marketization may not be efficient even for economic life.... III The mixed economy of a generation ago was con- structed on the ruins of depression and war. It produced 562 a quarter-century of unprecedented growth and pros- perity. It allowed a blend of dynamism and stability. of market and political community. When economic growth faltered after 1973, a new, radically classical economics gradually gained influence in the acad- emy and in politics. Resurgent business groups, once cowed by the New Deal-Great Society era, became unabashed crusaders for laissez-faire. The increas- ing marketization of global commerce undermined the institutional capacity of nation-states to manage a mixed economy, and discredited center-left parties. The period of "stagflation" discredited economic management and conferred new prestige on laissez- faire. If further confirmation were needed, the ero- sion and collapse of communism impeached not just state socialism, but European social democracy and American neo-Keynesianism as well. The political counterrevolution that culminated in the 1980 elec- tion of Ronald Reagan enjoyed a rendezvous with an intellectual reversion that had been sweeping the economics profession for at least a decade. Each drew strength from the other. In scholarly economics, theorists such as Milton Friedman, who had been marginal, became central. The concrete study of economic history and economic institutions became archaic. The smartest rising econ- omists used ever more complex mathematics, based on the premise of a "general equilibrium"-a concept that presumed a smoothly self-correcting market and implicitly urged that markets become purer and that more realms of society become markets. Newly self- confident conservative economic theorists colonized other academic disciplines. Market concepts became widespread in law, political science, and economic history. As experts on public policy, these economists became the intellectual champions of privatization, deregulation, and liberation of the global market- place. It all boiled down to one very simple core pre- cept: market is better. I begin with the working hypothesis that a capital- ist system is a superior form of economic organiza- tion, but even in a market economy there are realms of human life where markets are imperfect, inap- propriate, or unattainable. Many forms of human motivation cannot be reduced to the market model of man. HONEST WORK There is at the core of the celebration of markets a relentless tautology. If we begin, by assumption, with the premise that nearly everything can be un- derstood as a market and that markets optimize out- comes, then everything else leads back to the same conclusion-marketize! If, in the event, a particular market doesn't optimize, there is only one possible inference: it must be insufficiently marketlike. This epistemological sleight of hand is an astonishing blend that blurs the descriptive with the normative. It is a no-fail system for guaranteeing that theory trumps evidence. Should some human activity not, in fact, behave like an efficient market, it must be the result of some interference that should be removed or a stubborn human refusal to appreciate markets. It cannot possibly be that the theory fails to specify accurately how human behavior works. The thrust of free-market economics for a quarter-century has been a search to narrow the set of special cases where market solutions cannot be found for market failures. Today, the only difference between the utopian ver- sion and the mainstream version is degree. In interpreting political economy, parsimony- Occam's celebrated razor-is the most overrated tool in the scholarly medicine cabinet. The beauty of the market model is its elegant simplicity. A perfect market can be modeled: the analyst can perform neat simulations, using very sophisticated mathematics. But the more complex the departures from a perfect market, the less relevant is the cherished analytic ap- paratus or the Platonic ideal of a pure market. Academic champions of the market concede. often with irritation, that real-world institutions are messy; that labor markets are not like product markets, whose merchandise "clears" based on ad- justments of price; that actual bundles of capital equipment are "lumpy," and not prone to smooth. frictionless equilibration as in the algebra. But as the economist ventures into the institutional thicket. she strays from the norms of her profession. She had better be tenured first. Thus, in part because of the attractiveness of its own core model, academic eco- nomics has lately become a purer version of itself- almost a lobby for the idea that the real economy should strive to emulate the model. The Cambridge economist John Eatwell once remarked, facetiously. + IS EVERYTHING FOR SALE? "If the world is not like the model, so much the worse for the world." ... I am a believer in a balance between market, state, and civil society. I arrive at this belief primar- ily from a reading of economic and political history, which suggests that pure laissez-faire is socially and even economically unsustainable. Although defenders of a mixed economy often argue their case on equity grounds, there is significant evidence that, quite apart from questions of distributive justice, the very stabil- ity of the system requires departures from laissez- faire. My previous books have all treated, in different ways, the intersection of economics, politics, policy, and ideology. They have all dealt with the boundar- ies between state, market, and society. In these ear- lier works, I challenged one of the central claims of the marketizers-that equality necessarily comes at the expense of efficiency. I also examined the cor- rosive influence of international laissez-faire on the project of operating a mixed economy at home. And I explored the practical political difficulty of center-left parties serving their natural constituency in an era of limited budgets and resurgent laissez-faire. Where, really, do markets perform roughly as advertised? Where is the market model a reasonable approximation of human motivation, and where is it misleading? By what criteria are we to know when the market has overstepped its proper bounds? How do different kinds of markets fail to optimize out- comes? What patterns of failure recur? How are we to know when we are in a realm where markets produce rough efficiency and rough justice, versus one where markets produce avoidable calamities? When is the best response to market failure to contrive procedures or outcomes that are more "marketlike"? When does that approach only make things worse? Where is the proper boundary between market and nonmarket? In the search for principles on which to reinvent a mixed economy, one must begin by according great respect to the market. For markets do many things very well.... It is evident that command economies are not viable; that prices are indeed potent signals of what it costs to produce a good or a service and what consumers will pay; that when prices unrea- sonably depart from market discipline they yield too many of the wrong goods or too few of the right 563 ones, and insulate producers from the bracing tonic of competition-leading to stagnation. The trouble is that markets do not reliably yield such results; on the contrary, markets sometimes produce perverse outcomes for fairly prolonged periods. The quest for a viable mixed economy necessar- ily leads back to government and politics, for the democratic state remains the prime counterweight to the market. Marketization, of late, has swamped the polity. The dynamics are cumulative. Government has less popular legitimacy, and fewer resources with which to treat escalating problems. The less government is able to achieve, the more it seems a bad bargain. American liberals and European social democrats often seem unable to offer more than a milder version of the conservative program deregulation, privatization, globalization, fiscal dis- cipline, but at a less zealous extreme. Few have been willing to challenge the premise that nearly every- thing should revert to a market. To rebuild an alternative philosophy of political economy, one must first shake the hegemony of the laissez-faire market. I hope to accomplish this with evidence, not tautology. The last intellectual refuge of the marketizer is the claim that, even if markets sometimes fail, political interferences are likely only to compound those failures. Here, also, we must get down to cases. Governments seek to override markets for a variety of purposes-to stabilize, to promote growth, to limit detrimental side effects, to temper inequalities, to cultivate civic virtues. But govern- ments also operate in a political crucible, and require political consent and fiscal resources. In the search for strategies to temper and tame the market, we need to seek ones that are within the competence of the state, that restore vitality to the enterprise of politics, and nourish rather than overload civil society. QUESTIONS 1. What are some reasons we might be uneasy about the social results of the market? 2. How does Kuttner argue for a balance between market state and civil society? What damage has deregulation done? Is it healthy to celebrate markets? Why or why not?