Free Markets
Jude Wanniski
January 27, 1997


Letters Editor
The New York Times Book Review
229 West 43 Street
New York, NY 10036

Dear Editor:

The central argument in Robert Kuttner's book Everything for Sale, that free markets often fail, is correct only if one asks "at what?" The purest free market in economics, that which existed prior to civilization, had no economic imperfections, but myriad political imperfections. It operated with optimum efficiency according to the law of the jungle. The political market came into existence as a mechanism to improve upon the law of the jungle. The history of civilization has been a history of the intersection of political markets and economic markets.

Government should be at a minimum when there is minimum need for government, usually in periods of extended peace and prosperity. Government should be at a maximum when there is maximum need for government, in periods of war and depression. Because wars and economic contractions cannot be predicted with very high degrees of certainty, government cannot be downsized below certain minimum levels of national security and social security, via a safety net.

Mr. Kuttner's work is useful in reminding us of the many successes of government. It would be more useful if he would simply recognize there is a law of diminishing returns on tax policy, on spending policy and on regulatory policy. The political marketplace should produce leaders who are able to tell when we are taxing too much, when we are spending too much on national or social security, and when regulation creates more problems than it solves. It is when that marketplace fails us that the economy most often gets into trouble.


Jude Wanniski