Two excellent examples today of liberals defending markets… not that that is unusual or anything, but both are exceptionally good and I wanted to highlight them, but there’s no other topic under which I could simultaneously blog these two items.

First is Brad DeLong putting a lower limit on the value of markets over command and control:

How much does the use of markets as a decentralized social planning mechanism for economic life matter? How much richer are we because we live in a market economy rather than in a command-and-control bureaucratic economy?

We are fortunate–if that is the word–to be able to answer this question because the twentieth century provided us with a natural experiment in the form of High Stalinist central planning…

In 1989, the Iron Curtain came down, and we could see what a difference it made as we could examine levels of material well-being on both sides of the Curtain. This is as close to a perfect natural experiment as anyone could wish: the Iron Curtain’s location was determined by where Stalin’s and Mao’s and Giap’s armies marched–which is as exogenous to other determinants of economic well-being as anyone could wish.

Here are the results:

Material Well-Being in 1991: Matched Countries on Both Sides of the Iron Curtain

The Iron Curtain

Eschewing markets robs you of between 80% and 90% of your potential economic productivity.

Now you can argue that the difference in human well-being is less than this gap in material wealth. Cuba, after all, has a high life expectancy and a low level of inequality.

Or you can argue that the difference in human well-being is much, much greater than this gap in material wealth…  Put me down on the much, much greater side of the argument.

Brad displays this picture to illustrate where the difference in human well-being comes from that is much, much greater than the material wealth gap.

Next is Paul Krugman, who defends public transportation and illustrates the hypocrasy of almost everyone you know who says that public transportation should pay for itself:

The usual suspects on the comment board are, inevitably, arguing that rail transit should pay for itself. The obvious response is that road transit doesn’t; why should only public transit have to self-finance, when private vehicles generally drive on free roads built and maintained out of taxes?…

Now, Econ 101 says that the first-best answer to these externalities is to make people pay these social costs; if we did, New Jersey Transit could charge much higher fares! But since that isn’t going to happen — at best, we may someday get a modest congestion charge — we’re into second-best territory.

And rail transit takes people off the roads, thereby yielding a large benefit that doesn’t show in NJT’s books.

This certainly doesn’t mean that all or any public transportation passes cost benefit, but it does mean that you don’t need public transportation to actually take in money or beak even in an accounting sense for it to have a positive net present value. Keep this in mind the next time your ranting uncle tells you otherwise: markets are awesome, let’s have one for roads.

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