In his splendid tribute to the late economist Harold Demsetz, Richard Epstein observed that “the genius of Harold Demsetz did not lie in his finding the definitive answer. It lay in his ability to ask the right questions and to spin a powerful theory for others to expand and criticize.”
Chief among the many traits that made Demsetz one of history’s greatest economists was indeed his ability to ask questions that exposed the inconsistencies and dubious assumptions that are often at the core of theories that appear on the surface to be unassailable. And while few can hope to match Demsetz’s genius at performing the task, economists should devote much more time to asking questions of the sort that he asked.
Because the job has been done so well by Epstein, and also by my colleague Pete Boettke, my purpose here isn’t to review Demsetz’s contributions. Instead, I will pay my respects to Demsetz by offering a list — partial, to be sure — of questions that should be asked more frequently.
We rely on competitive markets to supply us with “correct” quantities of goods and services ranging in importance from chewing gum to industrial chemicals, and from pedicures to petroleum. So why do we not rely on competitive markets to supply us with the “correct” quantity of money?
Suppose that a politician today were to propose the creation of a Federal Bakery with a nationwide monopoly power to bake bread, and to be in charge of supplying Americans with what a council of expert bakers determines to be optimal quantities of bread. Such a proposal would rightly be dismissed as kooky. Yet too few people question the asserted need for a central bank with monopoly power to supply money. Too few people ask how a handful of political appointees can possibly divine what is the optimal quantity of money.
History offers not a single instance of a firm, unprotected by government-erected entry barriers, that has used its large size or “dominant” market share to harm consumers. So why do many economists, pundits, and government officials continue to believe that the state must possess the power to regulate, or even to break up, firms simply because some particular firms are today large or “dominant”?
Further, because there is no evidence of consumers ever being harmed when privately owned firms merge with each other horizontally (that is, with rival firms) or vertically (that is, with suppliers or with customers), why do antitrust authorities retain the power to block such mergers?
The U.S. government proves repeatedly that it is fiscally imprudent; year after year it spends far more than it receives in revenue. So why do Americans meekly agree to let this reckless spendthrift regularly confiscate a portion of their pay for the alleged purpose of ensuring that each working American saves enough for his or her retirement? If the government cannot keep its own fiscal house in order, why should we trust it to second-guess and to override the fiscal decisions made by each private household?
No one denies that America is a nation of immigrants, or that immigrants who came to America in the 17th, 18th, 19th, and 20th centuries built a great and prosperous nation. So given that immigration to the U.S. in past centuries was such a boon, why is immigration to the U.S. in the 21st century assumed by so many Americans to be a bust? And if Americans’ fears in the past of new immigrants have always proven to be unwarranted, isn’t it highly likely that such fears today are equally unwarranted?
Speaking of immigrants, the U.S. government goes to great lengths to prevent many of them from working. So how credible are expressions of concern that large numbers of immigrants come to the U.S. in order to live at the expense of American taxpayers through the American welfare state?
We rightly applaud when our neighbor across the street saves his dollars to start a new company in Tempe or Toledo, or to supply resources for improving the operation of a business in Fargo or Fayetteville. So why do we protest — as we do whenever we protest so-called U.S. trade deficits — when our neighbor across the ocean saves her dollars to start a new company in the U.S. or to invest in existing American companies?
We would all look with grateful wonder at a machine called an “amaizer” that turns American-grown corn into goods such as (depending on our particular desires) cars, clothing, and steel. So why do many of us look with ungrateful anxiety at a machine — also one that turns American-grown corn into the likes of cars, clothing, and steel — called a “cargo ship”?
No one says that the competition of firms in South Carolina with firms in Alabama is socially beneficial only if the “winners” of this competition compensate the “losers.” So why do some economists and pundits assert that the competition of firms in, say, South Korea with firms in America is socially beneficial only if the “winners” compensate the “losers”?
And finally these questions: How can any person above the age of six listen to the campaign speeches of politicians and not understand that her intelligence has been deeply insulted? How can such a person, upon hearing a homily delivered by the typical political-office seeker, conclude that politicians can run her life and spend her money better than she can?