michael_i_norton's picture
Harold M. Brierley Professor of Business Administration, Director of Research, Harvard Business School; Co-author (with Elizabeth Dunn), Happy Money
Markets Are Bad; Markets Are Good

Markets can have terrible consequences. Take just one example. In an ingenious experiment, researchers showed that people who enter a market where the lives of animals were priced as commodities were more likely to devalue the lives of those animals—treating those lives as nothing more than opportunities for profit.

Markets can have uplifting consequences. Take just one example. In a series of investigations, researchers show that efficient markets have contributed to the development of countless life-saving drugs (albeit sometimes with a little governmental help), bettering the lives of billions.

Yet in popular and scientific discourse, it is uncommon to see markets described as anything except truly evil and fundamentally flawed (left-leaning pundits and scholars), or truly perfect and self-correcting (right-leaning pundits and scholars).

It is time to retire both theories: that markets are good, and that markets are bad.

Taking a step back and remembering what markets are—an aggregation of many individuals—makes it obvious that markets are very unlikely to be good or bad. Replace the word "markets" with another shorthand term for an aggregation of individuals: "groups." We certainly don't view groups as good or bad. Groups are capable of amazing selflessness, generosity, and heroism; they are also capable of selfishness, greed, and cruelty. They are capable of amazing performance (think of Bell Labs); they are also capable of terrible performance (think of the many dysfunctional groups of which you have been a member).

When we think of groups, we think of the conditions under which groups are likely to behave well or behave poorly. We don't often think of them as self-correcting, as always performing well over time, or most importantly, as either inherently good or inherently bad.

Applying the same logic to markets—think of them in this context as "groups writ large"—will assist with the development of a richer and more accurate theory of when and why markets are likely to have terrible or uplifting consequences.