The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [89]
There is also another important reason markets have become worse at reflecting values, which is again related to the structural, technical changes taking place in the leading economies. The nature of these changes means the extent of what economists call “market failures” has greatly increased. Many more of the things we want to buy, the services and goods shaping economic growth toward the weightless, have the features of “public goods.” The outcomes of delivering them solely through private transactions in markets can diverge from those which would ensure the greatest possible social welfare.
One conclusion, which might seem to chime with the spirit of the times, would be to increase the scope of government activity. But government failure is just as extensive as market failure, and for similar reasons, as set out in chapter 8. Conventionally, market failure is presented as a rationale for government intervention in the economy; and conversely, many economists see government failure—as so clearly demonstrated by the communist countries but elsewhere too—as the justification for using markets to organize the economy. This “states versus markets” perspective is bogus, however. Debates about the scope of government intervention on close inspection turn out to be about the nature of government intervention.6 Markets and governments are likely to fail in similar ways because the “failures” stem from inherent problems such as information asymmetries and spillovers between individual decisions. These make it hard for any institution, whether market or state or some other structure, to bring about an ideal outcome.
The deep changes in the structure of the economy have made current institutional and governance failures—in both markets and government—acute. The figures on the loss of trust in almost all institutions, described earlier, show that this is widely sensed. In contemplating how to respond to the challenges of Enough, we need to think about the whole array of economic institutions—markets, governments, firms, and households. Contrary to the way they are often discussed, they do not occupy mutually exclusive spheres of activity, but rather overlap with each other. What’s more, each type of institution has shortcomings, and often in the same circumstances.
This discussion in the next three chapters will set the stage for the final section of the book, where I turn to the question of what processes and institutional frameworks might improve on the structures which have begun to fail us so badly. First, then, measurement.
WHAT SHOULD WE BE MEASURING?
Could there be anything less glamorous than statistics? Yet dull as questions of measurement might seem, how we measure things has a profound effect on the impact we have on the world. When we step outside the realm of things we can immediately perceive with our own senses, measurement is all we have to shape our knowledge and beliefs. The physicist Lord Kelvin put it like this in a famous comment: “When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge of it is of a meager and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced it to the stage of science.” Science writer Steven Johnson notes that an improvement in the accuracy of measurement often leads to “a fundamental shift in the perception of the world.”7
The emphasis on the importance of measurement can be overdone, especially if it leads to an underemphasis on the need for analysis and thinking as well. Some things can be important without being measurable, but the insistence in our modern scientific societies on being able to quantify everything sometimes makes us place too little weight on unmeasurable entities. Nevertheless, as we saw in earlier chapters of this book,