Can Capitalism Save Lives? | Econ Chronicles

Release Date
May 19, 2014


Free Markets and Capitalism

Thousands of people die in the US every year because there’s a shortage of willing kidney donors. Some people are saved by the generosity of friends and family, but many more suffer because no willing & compatible donors come forward. As in most countries, it is illegal to compensate donors in the US for donating a kidney. Prof. Caplan argues that we should allow a market: if donors could be paid to donate a kidney through a reputable hospital, they could earn money and save a life in the process. Such a system would encourage many more donors, and save many more lives. But most people are uncomfortable with the idea that individuals or companies would make money by solving that kind of problem. They equate making a profit with selfish intentions, and bad results. Economics professor Bryan Caplan calls this “anti-market bias.”  He argues that most people (and voters) are prone to this bias, leading to harmful policies. Another example Caplan gives is air pollution. While most economists think that markets could help curb pollution, most regular people reject the idea. Perhaps this is partly because for many problems we face, it is difficult to imagine how markets and profit could help us find a solution. Caplan argues that this makes allowing markets even more important: they incentivize people to find new & creative ways of solving problems, many of which we never could have predicted in advance.

1) Check-out Bryan Caplan explain other biases (and other topics as well) here!
2) Evolutionary Psychology and the Antimarket Bias (article) Toban Wiebe examines the possible origins of what Prof. Caplan calls the anti-market bias
3) Repugnance as a Constraint on Markets (essay) Alvin Roth argues that the opposition of third parties to mutually beneficial transactions — what economists call repugnance — stems from concerns about dignity, coercion, and slippery slopes
4) In Defense of Pollution Markets (article) Robert Stavins claims that arguing against markets for their perceived failures extends to the market for tradable pollution permits, despite the evidence of the system’s benefits
5) The Anticapitalist Mentality (book) Resentment by intellectuals and workers alike lies behind what Ludwig von Mises calls the anti-capitalistic mentality

Can Capitalism Save Lives? | Econ Chronicles
Bryan Caplan:
There are now over 300,000 Americans on dialysis. Every year, about 60,000 die. Kidney transplants are hard to get, but hundreds of millions of Americans have a kidney to spare. The numbers are heavily in our favor. The tragedy goes on year after year. Almost nobody wants to do surgery to help a total stranger for free. And selling your kidney is illegal.
Voters, and the politicians they elect, have banned the trading of cash for kidneys.  Why? Because they underrate the social benefits of markets. They suffer from what I call “anti-market bias.” People who have never studied economics often equate greedy intentions with bad results.
Economists share a standard objection to this bias. Thanks to competition, the surest way to get rich is to make your customers happy. As the eighteenth-century economist Adam Smith put it, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own self-interest.”
Think about reviews on websites like Yelp. If you give your customers good value, they’ll come back and tell others to do the same. If you rip your customers off, they go elsewhere next time — and tell others to do the same. When customers are free to choose, firms can’t put profits before people.  If they do, they lose their people — and their profits.
Economists’ appreciation for markets leads us to unconventional solutions to all sorts of problems. Take the kidney shortage. Most people would shrug that there are no more kidneys available. But that’s false. If just one person in a thousand donated a kidney, everyone on dialysis could get one.
There’s just one problem. Asking someone to give you a kidney is a huge favor, the kind of favor that only people who know and love you will agree to do. Love already saves a lot of lives, but it’s clearly not enough. So why not legalize a market for human kidneys, where people who desperately need kidneys could buy one from a willing donor?
Regardless of their politics, almost no one who isn’t an economist sees merit to this idea, and almost everyone who is an economist does. Some worry that low-income people would be first in line to sell. But what’s wrong with making poor people rich, and sick people well?
This doesn’t mean that economists always favor unregulated markets. Unlike a typical voter, though, economists rarely complain because business is making money by solving a problem. Economists complain when business isn’t making money by solving a problem.
When a market visibly isn’t working, economists try to figure out ways to jump start markets. In many cases, slightly different government policies would do the trick.
Take air pollution. Many economists turn to government because they can’t figure out how a person could make money by cleaning the air. But that doesn’t mean you can’t have market.
Liberal economist Alan Blinder promotes tradable pollution permits to cut the cost of reducing pollution. Instead of telling firms how to cut emissions, government could cap their total emissions, then let firms with spare pollution permits sell them to other firms that are over their quota. Blinder says this would reduce the cost of cleanup by at least 50 percent. When firms can sell their spare permits, they have a strong incentive to find cheaper ways to clean the air.
If markets can slash the cost of cleanup, why do voters resist the idea? Blinder blames anti-market bias. The public seems to recoil in horror at the idea of selling the right to pollute, as if even a small emission of a pollutant were immoral. There’s always going to be some pollution. As Blinder says, to think otherwise, is not to think.
When you can’t imagine a way for business to make money solving a problem, it’s tempting to conclude that no one will ever think of a way for business to make money solving a problem. Even economists, who pride themselves in their appreciation of markets, make this mistake.
If you went back in time to 1985 and described the Internet, most economists would have rolled their eyes — millions of free websites providing everything from directions to histories of Germany. It’ll never happen. Most economists would have been wrong, not because they had too much faith in markets, but because they had too little faith in human imagination.