A great little vignette from Don Boudreaux about humility and markets.
I remember back in the late 1970s or early 1980s when I first noticed that still water began to be offered for sale in single-sized bottles. I was convinced that this product would fail. “Who would pay for still water in single-sized bottles when still water can be gotten for free out of water fountains and water coolers or at zero marginal cost out of faucets at home?” I reasoned. Whether I reasoned rightly or wrongly, my prediction proved wrong. Reason, you see, is a wonderful and necessary tool, but also one of limited power. My reason could not reveal to me the preferences of millions of other people. My reason could not reveal to me the ambitions and the creativity of entrepreneurs. My reason could not reveal to me the details of an open-ended future in which people are free to spend their money—as consumers, as producers, and as investors—as they wish.
Had I been a government planner in the 1970s or early 1980s—a planner with the finest training, the highest integrity, and a most intense desire to serve my fellow citizens well—I would have counseled against directing society’s scarce resources into the production and distribution of single-sized bottled still water. My reason would have assured me of the prudence and correctness of my decision. And if I were such a government planner whose diktat would have been heeded, no one would ever have learned that my decision stunk.
That markets work better, in all their chaos, than smart, well-intentioned central planners, is in one sense quite counterintuitive.
5 comments on “Markets vs. Central Planners, An On-Going Series”
I support free markets. But why is it immediately obvious that a world with bottled water is superior to a world without bottled water? Simply because consumers were convinced to purchase them?
Free people (billions of people, in fact) wanted something, that thing was provided to them.
I agree with Joe — simply because consumers decide to purchase something doesn’t make it the superior decision.
We often make poor decisions when it comes to markets (see Seth Godin post on Cod fishing)
Every view in the market is eye level. No one is accounting for the 30k foot level.
Further, public goods (think National Parks, Central Park, side walks, etc.) are not likely to be valued by the individual consumer: the tragedy of the commons.
While I certainly believe in markets and I get the point of the anecdote, I believe that our lives would be significantly impoverished without someone – even a decidedly imperfect human – looking at our society and decisions from the 30k foot level.
Great advice for humility in finding product market fit – just replace “government planner” with “Startup CEO”
The efficient market hypothesis may be flawed, but it ain’t as flawed as the efficient planner :p