Brak Reinventing the Bazaar: A Natural History of Markets by John McMillan The agents are acting in their own self-interest in jhn scenario in which their interests conflict with those of their clients. Two cheers are enough. No trivia or quizzes yet. The author combines elements of ethnography with economic analysis.

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My academic "shit-talking" is due to the fact that this paper was for school, where "critical thinking" is encouraged. In fact, I think it was the book with the strongest case yet for markets and efficiency. I wish that McMillan were still alive today.

Anyways, read on. Abstract: Establishing how markets are inexorable, McMillan argues that they need to be well-designed in order to promote efficiency and maximum social good. The five elements required for markets to run smoothly are: 1 free flow of information, 2 property rights protection, 3 trust and enforcement of promises, 4 controlling for externalities to third parties, and 5 competition.

Markets need support from a set of rules, customs, and institutions that set up mechanisms ensuring full benefits are delivered But choices by themselves do not ensure competition, because people need to be able to compare their choices Search costs weaken competition, e. Consumer Reports. Thus, the internet age has facilitated trade for both sides e. Trust and confidence that contracts and property rights will be protected is established through private and public sectors.

Thus, market participants can substitute or complement the legal system or lack thereof by developing their own self-enforcing mechanisms 61, China agricultural reform , but the law is often needed for transactions that require large upfront investments and for economic growth. Finally, externalities like pollution or resource depletion need to be collectively-enforced, regulated top-down through appropriately-set taxes or quotas, or through privatization Marshall Islands fisheries, Even better, quotas can be made tradable to achieve efficient allocation of caps, and alleviate government micromanaging burden Markets generate value through trade, i.

Thus, markets are resilient and can even form in refugee camps, prisons, and under Communist regimes The decentralization of markets are the source of its dynamism 7 , as participants use local knowledge and make adaptations and innovations through trial and error to optimize efficiency. Innovating economic organization can be as productive as technological innovations The internet revolution is an obvious: limited-liability corporations , outsourcing , and the NYSE 22 are but a few other examples.

Markets and government have an uneasy relationship. Patents and intellectual property rights are an example of imperfect solutions maintained by the government at cost to users.

Cost-benefit can be weighed to achieve optimum e. Big Pharma v. Top-down price-setting without the use of market forces, e. Communism does not work because central planners lack the omniscience of the massive amounts of information from the ground needed to manage every aspect of the economy.

However, market-supporting institutions are necessary for markets to be workable. NZ already had them — however, their state price controls caused distortions that required shock therapy, despite the societal pain. Poor countries need to foster markets and minimize inequality to achieve growth, but fail to do so because their markets, even if existent, are underperforming.

Further, in both cases, corruption can inhibit growth through lack of investor confidence Russia — although self-restrained and strategic corruption, can sometimes help growth e. McMillan maintains that market design does not control what happens in the market, but it shapes and supports the process of transacting 9 , and that well-designed markets have to protected from both anti-market and free-market ideologues epilogue Ch. McMillan makes a very strong case for a market economy, as long as it is well-designed.

Some additional macroeconomic perspectives on net social benefit may also have strengthened the book. Or it can mean production of lower quality goods — freer information is not a guarantee of quality, as can be apparent by comparing many American products with say, Japanese or German electronics, auto, home appliances, etc — Demming was a guru in Japan but unfortunately ignored when he came home to the U.

It can also mean skimping on labor costs i. There was scant mention of worker rights in his entire treatise. This book seems to almost assume that everyone is an entrepreneur, or at least that efficient entrepreneurs or market participants should win most if not all of the time. In fact, there is ample validation of markets helping poor people throughout the book e. The only moment he comes close, is in discussion of compulsory licensing for patented AIDS drugs in low-income countries , but even then, this is only the result of finding justification through cost-benefit analysis, in the strict financial sense.

Also, his authoritative grasp of microeconomic issues overshadows his perspective on macroeconomics, as evidenced for example by his extremely-superficial treatment of all that is needed to end poverty in developing countries, or further considerations on how so many social investments can indeed, if designed well, lead to economic growth later in many indirect ways.

Sometimes it also takes well-designed fiscal policies. For example, information flow may cause students or workers to get training in less-marketable disciplines, but a well-functioning market by itself is very far from solving unemployment.

But perhaps these are all macroeconomic issues, and political courage required balancing macroeconomic expertise. This ahistorical account of markets had a little bit of a misnomer for the second half of its title, and may be better called, Reinventing the Bazaar: In Defense of Well-Designed Markets. Hence, the title of this reaction. This book can be seen as a non-technical introduction to micro-economics: the economic analysis of individual markets.

When non-economists want to dismiss an economic approach to a specific problem, they often say that "economists have a blind faith in markets". To economists, this always sounded as a very strange claim. After all, take any intermediate This book was recommended on Twitter by Diane Coyle, who has herself written some excellent books bringing economics to a general audience.

After all, take any intermediate textbook in microeconomics, and you will find that a very significant part is dedicated to the analysis of "market failures" and what policy should do about it. Maybe one reason why people think that economist "believe" in market, is that, in economics, the analysis of policy instrument also often considers the possibility of "government failure", which may be annoying to people who, well, "believe" in government intervention.

The great merit of McMillan is that he succeeds in perfectly summarizing how most independent economists "really" think about markets: as powerful mechanism for decentralized decision making, that provide strong incentives for people to exploit local and specialized knowledge. McMillan shows how market can unravel when the correct side conditions are not in place, and that those side conditions are often set by The central thesis in the book is thus that markets can only function when government function as well.

The question is not a "market versus government" dichotomy, but about ensuring that governments set the right context for the markets to function well. McMillan uses numerous examples for a wide range of context to illustrate that this is not a trivial question, and that what works or works not is often very context specific. I would highly recommend this book to any non-economist with a serious interest in understanding how economists really think about markets, or to economists who are interested in finding more real-world illustrations of the issues they discuss in their academic papers.

The book is not very recent first published in In the meanwhile, there has been an increased effort from great economists with real scientific credentials rather than celebrity economists to write for a general audience. But this book remains rather unique in its scope and balance.


Reinventing the Bazaar: A Natural History of Markets





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