In a recent interview with Prof. Eric Maskin, a Nobel laureate in Economics
asserted that “The market is no God – it cannot solve every problem.”
was lamenting the inability of markets to stem or reverse inequality (usually
temporary) that economic growth, especially through globalization, sometimes
Prof. Maskin could have gone even further and claim that markets
do not have the ability to reduce inequality nor to define and purposefully
solve any problem.
Markets are abstract constructs depicting the exchange
of goods and services. Yet they are too often mistakenly treated as if they were
living entities that can identify problems and resolve them, even such very
complex problem such as inequality (however defined).
Markets are also
often blamed for human failings, as when greedy behavior which Capitalism has
allegedly incited is blamed for the recent financial crises, though they were
really caused by a government-created bubble. It is like blaming motor cars for
The market’s chief virtue is that in a competitive
environment it promotes a spirit of enterprise and the most efficient use of
resources. Unintentionally, the immense wealth created has transformed human
life by liberating most Europeans from disabling poverty.
creation of freedom has had immense consequences. It has widened the scope and
variety of human existence in unimaginable ways. It was probably this
unintentional result of market activity that prompted Adam Smith to shrewdly
assign it to “the invisible hand.”
This was the logical blunder committed
by those who attribute to markets a sense of being and of purpose, or the
intention and ability to resolve problems. This has caused so many social
scientists and philosophers to fall into the trap that Alfred North Whitehead
described as “the fallacy of misplaced concreteness,” namely the mistaken
inclination to treat abstractions as living entities capable, among other
attributes, of volition (“the nation wants,” or “the public demands”) and of
defining problems and solving them.
This caused great confusion in these
“sciences” and encouraged, among scholars and students, an unrealistic
infatuation with Utopian ideals that end up disappointing everyone and
Prof. Maskin also claimed that “most policy makers
embrace a religious-like belief that the market can and should solve every
As a result, they neglect steps that he believes governments
can take to secure greater equality.
However, anyone acquainted with the
policy community will find it hard to agree with Prof. Maskin.
policy mavens do not profess anything remotely resembling the blind faith in
markets Prof. Maskin attributes to them; certainly not politicians who benefit
immensely from increased government intervention.
sometimes do pay lip service to the efficacy of markets, but they immediately
proceed to list all the putative market failures that require government (namely
its experts’) intervention to set them right; as if government ever exhibited a
capability to correct any “market failure” (usually generated by government
intervention in the first place). Still a lot of academic sinecures are
generated by this conviction.
Most policy wonks and their media followers
think that government intervention is necessary to solve most problems,
especially the invented “problems” of inequality; when in fact there is very
strong evidence, especially in Israel, that government intervention, namely
political favoritism, is arguably the greatest source of
Prof. Maskin correctly deplores the existence in Israel of
two distinct economies, one for the rich and another for the poor. But this does
not deter market detractors from regularly inventing more “market failures,” and
from calling on governments, arguably the greatest “market failure” ever devised
by man, to mend them.
This is especially galling in Israel, a country
disastrously replete with monopolies, whose economy is entirely dominated by
politicians, tycoons and bureaucrats, as was amply documented in the 2010 Bank
of Israel study of concentration in the Israeli economy.
of government intervention in the economy is an entrenched Israeli tradition. It
became sacrosanct among our economists and bureaucrats ever since Prof. Don
Patinkin mesmerized his students in 1950 with Paul Samuelson’s dangerous conceit
that government could fine-tune an economy.
Consider what this policy
disposition has done to Israel, a country with arguably the best human capital
in the world, that has enjoyed over $300 billion in foreign investment, yet
could not provide its capable workers with decent wages because of the dominance
of the economy by government-sponsored monopolies and a huge public sector, both
with low productivity.
This sad reality makes Prof. Maskin’s decision to
hail the virtues of government intervention and its putative capacity to correct
market failures in Israel, so odd. Israel could best serve as a tragic example
of the evils of massive government (namely political) intervention in the
economy, even when practiced by our best and our brightest, and full of good
intentions to achieve “equality.”
Now to the thorniest question of all:
What causes economic inequality and what can be done to overcome it, if
anything? In Federalist Paper No. 10 Madison observed that: “The diversity in
the faculties of men, from which the rights of property originate, is not less
an insuperable obstacle to a uniformity of interests. The protection of these
faculties is the first object of Government.
From the protection of
different and unequal faculties of acquiring property, the possession of
different degrees and kinds of property immediately results; and from the
influence of these on the sentiments and views of the respective proprietors
ensues a division of the society into different interests and
Unlike those who treat inequality as an unmitigated disaster
(which it is when it is not caused by people’s “unequal faculties of acquiring
property,” but by the exploitation of political power), Madison considers
inequality a spur to creativity. He sees this as so essential to the progress of
mankind that he insists that “the first object of government...”
protect it. Imagine, inequality must be protected! Unfortunately, it is mostly
the grossly underrated emotion of envy (that caused the first murder in the
Bible) that makes most people obsess with equality (Nature, less we forget,
incessantly creates variety, namely accentuates inequality among all its
The worthy goal of assuring equality before the law is
confused with an attempt to impose some ill defined “equality” or at least
“equality of opportunity” – another dubious proposition – on
Instead of devoting themselves to increasing plenty – which,
evenly distributed or not, has contributed immeasurably to human freedom and
happiness (and still does to this day in China and India, though with almost
total disregard to equality) – people get bogged down in sophistical scholastic
exercises, trying to define equality by positing a “veil of ignorance” that is
supposed to somehow instruct us (by learning from ignorance?) what “objective”
These equality-obsessed thinkers ignore the simple truth
(often misnamed, as Shakespeare put it, “simplicity") that it was the spread of
the market economy that liberated much (though not all, of course) of humanity
from the worst form of slavery: The slavery of want that has plagued humanity
throughout its history, and is still keeping great parts of it in misery and
Governments have on the whole just hindered this process.
Israel, alas, is a prime example.
The writer is an Israeli publicist and
political activist. He is the founder and director of the Israel Center for
Social and Economic Progress (ICSEP).