Thursday, March 28, 2019

It is precisely the fact that no one is “in charge” that makes markets so adaptable

From Doing Bad by Doing Good: Why Humanitarian Action Fails by Christopher J. Coyne. Page 70.
Further adding to the sheer complexity of advanced economies is the importance of what economists call complementary goods, goods and services that are consumed together. For example, cars require gasoline, spare parts, repair equipment, and trained mechanics in order to operate. Just as with the construction of a basic toaster, most people living in relatively wealthy societies take the wide array of available complementary goods for granted, but when one considers the level of coordination required for each of these various complementary goods not only to be produced but to be available and waiting when needed by consumers, these goods and services are truly amazing phenomena. Someone, somewhere, has to anticipate the need for these complementary goods and services and make them available to consumers on demand.

In markets, consumers don’t submit a master wish list to a central planner who then allocates resources accordingly. Instead, prices and profit-and-loss accounting guide entrepreneurs in discovering a (new) solution to the economic problem by producing and innovating existing and new goods and services that consumers value. This process is the essence of broader economic progress, because resources are reallocated, on an ongoing basis, to their highest-valued, welfare-maximizing use. It is precisely the fact that no one is “in charge” that makes markets so adaptable. Each individual who possesses unique skills and knowledge is able to engage in experimentation and discovery that benefit not only himself or herself but others as well.

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