Saturday, 19 August 2017

Russ Roberts on the emergent order the underpins markets

Russ Roberts (of EconTalk fame, and co-creator of the Hayek vs. Keynes rap battles - see here and here) wrote an excellent article published on NewCo Shift, on how markets work in terms of emergent order. Here's one bit:
The baker takes the on-going relentless availability of flour as a given — a reality that is as reliable as the force of gravity. The baker goes to bed at night unworried that the earth is going to spin out of orbit. And unworried about the availability of flour.
But who is in charge of the supply of flour around the country and the world?
A bunch of farmers around the world decide independently of each other how much wheat to plant. No one is in charge of the total number of acres of wheat which will be planted or harvested this year. No one is in charge of how much of the resulting flour should go to pasta vs. scones vs. whiskey vs. pizza vs. bread. Yet somehow, even when pizza becomes a world-wide craze around the world, there is still sandwich bread.
I also especially liked this bit:
Understanding and appreciating emergent order, and understanding when it works well and when it doesn’t and it does not always work well, is for me, the essence of economics and the deepest idea that we economists can contribute to helping normal human beings understand the world around us.
Economists call the interaction between buyers and sellers of bread a “market,” but our charts of supply and demand, while often very powerful, don’t get at the richness of how we as human beings manage to cooperate without top-down coordination and do it so peacefully.
I encourage you to read the whole article, but if you're time poor there's a poem version on YouTube:

I don't think the poem's nearly as good as the article (you can read the text of the poem here), but this bit is good:
And here’s the crazy thing, if someone really were in charge
To make sure that bread was plentiful, with the power to enlarge
The supply of flour, yeast and of bakers and ovens, too
Would that person with that power have any idea of what to do?
The power of markets is that there is no need for anyone to be in charge of coordinating supply and demand, since prices do all of the work. If the price of some good rises, sellers will want to sell more and buyers will want to buy less, and if the price falls, sellers will want to sell less and buyers will want to buy more. Simple.

Or at least, simple when there are no market failures (of which there are many, ranging from imperfect competition to imperfect information to externalities, and so on)...

[HT: Marginal Revolution]

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