From: pmetzger@snark.shearson.com (Perry E. Metzger)
Subject: Chris Holt shoots himself in the foot
Organization: Partnership for an America Free Drug
Date: Thu, 21 Jan 1993 20:07:37 GMT

Chris.Holt@newcastle.ac.uk (Chris Holt) writes:
>The free market is fine when it is easy to determine the quality of
>a product (so the costs of that determination can be neglected), and
>when there are enough suppliers and buyers that competition is
>genuine, and the process of approaching the equilibrium point is
>swift (and may be neglected).  It is much less useful as a model
>when there is a significant time delay between the given transaction
>and the determination of quality (e.g. in education, the effect
>of a given teacher may not be apparent for up to 5 years), because
>the feedback loop between product quality and reward is so
>attenuated.

Ah, finally. Chris has at last made a concrete assertion.

Too bad the world shows he's wrong. Any parent in the US for practical
purposes can tell you what a state run school is like versus the
private schools, and the private schools actually spend far less per
student. It seems that in your "classic case of market failure", your
hodgepodge theory doesn't stand up to the acid test, which is the real
world. So much for libertarians being the folks who come up with pie
in the sky models that break down when confronted with reality -- it
is Mr. Holt and his fellow socialists who produce the models that
break down in the real world.

We can see that there are a huge number of products for which the
feedback time is far larger than that for education that work fine in
the free market. As an example, take insurance companies, which are,
by the way, often among the longest lived organizations on the planet.
There are a number of insurance companies out there that are centuries
old. Also take the case of making loans -- the time between making a
loan to a person and getting all your money back can be fourty years,
and yet the market manages to allocate loans and interest rates for
them with astonishing precision. The loan and insurance cases are far
far worse than the education case as once you've committed your money
it is hard to back out of the transaction, whereas in education you
can pull your children from a given private school at any time and
send them to another.

We can also take the case of durable goods. Durable goods such as cars
or industrial equipment are purchased extremely long terms -- usually
years, but sometimes far longer. Somehow, however, the market seems to
allocate durable goods extremely well, too. Once purchased, you cannot
unpurchase a durable good, so you are again in far worse a situation
than in the education market.

The market itself provides very good ways of dealing with these cases,
of course. Mr. Holt claims that there are information transfer
problems, feedback loop failures, etc, but when we test this against
reality it doesn't seem to occur. One wonders where the data that Mr.
Holt bases his failure models for the market comes from, especially
when he selects such laughable examples.

--
Perry Metzger		pmetzger@shearson.com
--
Laissez faire, laissez passer. Le monde va de lui meme.