Economists, free-marketeers, and law and econ types are often accused of invoking this phrase as a knee-jerk reaction to regulations of all shapes and sizes. The position is sometimes attacked as overly simplistic, based upon an unjustified faith in markets, or just plain lazy. On this score, Don Boudreaux (Cafe Hayek, GMU) has a must-read post on what it means to favor the market solutions to government solutions to various public policy problems. While you really should go read the whole thing, here are a few highlights:
“Saying ‘Let the market handle it’ is to reject a one-size-fits-all, centralized rule of experts. It is to endorse an unfathomably complex arrangement for dealing with the issue at hand. Recommending the market over government intervention is to recognize that neither he who recommends the market nor anyone else possesses sufficient information and knowledge to determine, or even to foresee, what particular methods are best for dealing with the problem.
To recommend the market, in fact, is to recommend letting millions of creative people, each with different perspectives and different bits of knowledge and insights, each voluntarily contribute his own ideas and efforts toward dealing with the problem. It is to recommend not a single solution but, instead, a decentralized process that calls forth many competing experiments and, then, discovers the solutions that work best under the circumstances . . . .
While declaring ‘Let the government handle it’ comes across as a solution, it’s no such thing. Instead, it is merely a sign of a simple and baseless faith — a simple and baseless faith that people invested with power will not abuse it; that political appointees possess or will find better answers than will millions of people pursuing solutions in their own ways, and staking their own resources and reputations on their efforts; that only those ‘solutions’ that are spelled out in statutes and regulations and that have officials paid to implement them are true solutions.”
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In a meeting yesterday with a former chair of the CBO and chief economist for the CEA argued in favor of allowing the markets to address all manner of health issues–but specifically recommended pulling chronic health care out of the health insurance system, because it isn’t insurable. He didn’t specify any specific means of dealing with care, but seemed to favor policies that would encourage pre-payment, either through a gov’t-based or private-based system (again, he didn’t say this, it was just the impression given). I thought it was an interesting perspective.
He also told an interesting anecdote about discussion over the power of markets within Medicare and the reason for lower than expect premiums, etc in the Part D benefit being related to market competition.
Though the markets are probably well suited in ordinary circumstances to find the best way forward, it is perhaps less for reasons given above – the millions of experts and not looking for the best solution to the problem of the economy, they are looking for the best solution to their professional problem. Of course Adam Smith presciently found a huge overlap between the effects of the latter on the former.