How Markets Work

A while back, I posted a link to the first of my four talks at the 2012 Cato University. Today, I’m posting the second talk, titled “How Markets Work”, with the others to appear eventually.

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Incidentally, I won’t be at the 2013 Cato U, but other stellar speakers will be. This really is an extraordinarily well run event, and I’ve met many fascinating people every time I’ve been there. It’s not too late to register!

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12 Responses to “How Markets Work”

  1. 1 1 Tristan

    @first 6 min

    I would word it this way:

    2. your government spends too much.
    Which of the following might be a path back to fiscal sanity?
    a) Spend less
    b) Increase real GDP growth
    c) Raise taxes

    In the context of the household question, doesn’t this emphasize the parallels better? It also raises the question of whether if you think the government can increase gdp growth by shoring up positive externalities or business confidence or what have you then b) might be a viable strategy.

  2. 2 2 Jack

    Is there a way to view this for those with iPhones who can’t use flash ?

  3. 3 3 AMTbuff

    The immigration discussion in this video is defective. It omits the cost of benefits drawn from the government. That part of the cost of immigrant workers is an externality to the market transaction of hiring these workers.

    Taxpayer-funded benefits can raise the true marginal cost of importing a worker from another country above the seemingly higher cost of a citizen worker. The citizen worker will draw no additional government benefits and may lose government benefits, creating a positive externality for taxpayers.

    In the immigration debate both parties seem to agree that it’s a great idea to hit the taxpayers with externality costs.

  4. 4 4 Daniel

    Steve I still think you’re wrong that taxes are irrelevant to the conversation. While they can’t come close to solving our long term spending problem, they are a mechanism by which we can lower the consumption of the rich in order to allow us to cut back less on programs that arguably help the poor. You’d be right if the government was proposing raising taxes on everyone equally, but it’s not, it is proposing specifically to raise taxes on the higher income brackets.

  5. 5 5 Daniel


    Why do you conveniently skip over a discussion of negative externalities in your discussion about prices. While some of the costs of burning fossil fuels to ship the tomatoes is taken into account not all of them are. Let’s assume that global warming will have devastating consequences. Where is this taken into account in the cost of tomatoes? Maybe you don’t believe in global warming but there are thousands of other examples(coal plants and the negative health consequences of those that live near them). I know you know this but I just find it odd that you would leave it out.

  6. 6 6 Josh

    I haven’t got a chance to view the entire presentation, so maybe you do eventually talk about market failures, but I want to talk about a specific case here. In the Amazon River, there were several species of fish that were over fished almost to the point of exinction and damaged the environment in general. Google it if you’re curious. Would you consider it a market failure that as a species of fish or animal gets closer and closer to exinction due to our over hunting and wanting so much of it that we come close to killing it off… would you consider it a market failure that the price of the fish or animal gets ever higher as it reaches extinction?

  7. 7 7 Josh

    actually…what I just said doesn’t really make sense. Not the first time I guess. You would actually want the price to rise if you cared about a fish going extinct. The problem would be if the price didn’t rise.

  8. 8 8 iceman

    Josh – I believe the easy answer is an economist would call something like overfishing a case of “missing markets” i.e. “tragedy of the commons”, not market failure per se…if nobody owns the resource nobody cares about preserving it. However I believe if we can’t or won’t allow private ownership this can create a need for regulation.

  9. 9 9 iceman

    I also believe Cato is full of libertarians, not “consequentialists”…I struggle to reconcile those two things in much of what is written here

  10. 10 10 RichardR

    Tomatoes shipped from California to New York: some consumers are atypical (perhaps most consumers are atypical and the typical is the average of different atypicals but I digress). The price reflects all the opportunity costs for society as an average and this average includes the level of taxation on CO2. However an atypical consumer might think that petrol prices should be higher (because the tax is too low) and therefore the price of tomatoes shipped from California to New York is too low i.e. the price is wrong!

    Immigration: I don’t think that most people are against immigration for “economic” reasons, or at least the economic reasons in your presentation. People are anti-immigration for cultural reasons. There is an idea that some cultures are better at producing wealth (for example the Protestant work-ethic). If a society which is good at producing wealth (like the US which had a Protestant elite) allows immigration from poorer societies the society will become less good at producing wealth because the people will have a different culture. If Mexicans were as good at producing wealth as Americans they would not emigrate to become wealthier. Therefore letting lots of Mexicans into America will “Mexicanize” parts of America and the more like Mexico America becomes the poorer it will become too. Steve, perhaps you do not like this explanation, but please explain why America is richer than Mexico?

  11. 11 11 Les Cargill

    Don’t lead with the family finance fallacy, please. I stopped the video there. We need serious discussion on this subject.

  12. 12 12 Steve Landsburg

    Les Cargill: Don’t lead with the family finance fallacy, please. I stopped the video there. We need serious discussion on this subject.

    An important part of serious discussion is debunking common fallacies.

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