Saturday, January 05, 2013

John Stossel: Usually Brilliant; This Time Wrong

John Stossel Micro 04- Invisible hand steak example by Joe Calhoun HERE 
John Stossel illustrates how a series of people are coordinated by the market system in order to get beef from Iowa to New York City. This includes a propane truck, a packaging plant, workers to cut the beef, people who make knives and work coats, etc. He interviews economist Walter Williams, who explains how self-interest is the driving factor that gets the beef to New York. If the system relied on love and human kindness, he doubts New Yorkers would have any beef. This illustrates the concept explained by Adam Smith in 1776 known as the invisible hand.” (ABC News).
John Stossel is a regular contributor to market economics.  He is literate and often persuasive.  I agree with much of what he writes.  However, I wish he would stick to explaining how markets work by price signals, from which entrepreneurs anticipate how they should arrange their affairs to take advantage of events (or avoid them where it may harm them).
Bringing in Adam Smith’s use of the IH metaphor is a distraction.  He never referred to the ‘invisible hand of the market’.  There is no such entity.  His use of the metaphor referred to the insecurity some, but not all merchants, felt about foreign trade (hence, they avoided foreign trade and invested in “domestic industry”.
Stossel should stick to Hayek, and leave Adam Smith out of it if he insists on repeating a myth started by Paul Samuelson (1948), which even he noted the IH “had caused more harm than good”.


Blogger michael webster said...

I like Stossel when he commenting on the effect of regulations, he is sharp.

But, he is missing the point which you keep making:

"Markets involve transactions between two or more independent parties, who also happen to be dependent on each other, to serve their own interests, but they can only do this by addressing the other party’s interests, not their own."

Many people don't know the part after the "but , they can ..."

People in sales of course get this, but economic minded commentators get it wrong - attributing the creation of the market to greed or self-interest, rather the coordination of self-interested parties.

2:28 pm  

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