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Goodreads helps you keep track of books you want to read. Want to Read saving…. Want to Read Currently Reading Read. Other editions. Enlarge cover. Error rating book. Refresh and try again. Open Preview See a Problem? Details if other :. Thanks for telling us about the problem. Return to Book Page. From the wild swings of the stock market to the online auctions of eBay to the unexpected twists of the world's post-Communist economies, markets have suddenly become quite visible.
We now have occasion to ask, "What makes these institutions work? How important are they? How can we improve them? Eschewing ideology, he shows us that markets are neither magical nor immoral. Rather, they are powerful if imperfect tools, the best we've found for improving our living standards. Get A Copy. Paperback , pages. Published November 17th by W. Norton Company first published More Details Original Title. Other Editions 4. Friend Reviews.
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Lists with This Book. Community Reviews. Showing Average rating 3. Rating details. More filters. Sort order. Jun 20, Kafka rated it really liked it Shelves: econ , shelf. Don't let my critique fool you: it is a very well-supported book in the parts that it is strong he analyzes hundreds of engaging examples. My academic "shit-talking" is due to the fact that this paper was for school, where "critical thinking" is encouraged. In fact, I think it was the book with the strongest case yet for markets and efficiency.
I wish that McMillan were still alive today. Anyways, read on. Abstract: Establishing how markets are inexorable, McMillan argues that they need to be well-designed in order to promote efficiency and maximum social good. The five elements required for markets to run smoothly are: 1 free flow of information, 2 property rights protection, 3 trust and enforcement of promises, 4 controlling for externalities to third parties, and 5 competition.
Markets arise and adapt as needed from the bottom-up — and innovations by participants are their drivers — but often need the the government's help to reach their full potential. Markets need support from a set of rules, customs, and institutions that set up mechanisms ensuring full benefits are delivered Market participants' need decision-making autonomy to voluntarily exchange according to their preferences — and competition fosters this autonomy, by restricting disproportionate distribution of market power between participants 6.
But choices by themselves do not ensure competition, because people need to be able to compare their choices Search costs weaken competition, e. Consumer Reports. Thus, the internet age has facilitated trade for both sides e.
Trust and confidence that contracts and property rights will be protected is established through private and public sectors. Thus, market participants can substitute or complement the legal system or lack thereof by developing their own self-enforcing mechanisms 61, China agricultural reform , but the law is often needed for transactions that require large upfront investments and for economic growth.
Finally, externalities like pollution or resource depletion need to be collectively-enforced, regulated top-down through appropriately-set taxes or quotas, or through privatization Marshall Islands fisheries, Even better, quotas can be made tradable to achieve efficient allocation of caps, and alleviate government micromanaging burden Markets generate value through trade, i.
Thus, markets are resilient and can even form in refugee camps, prisons, and under Communist regimes The decentralization of markets are the source of its dynamism 7 , as participants use local knowledge and make adaptations and innovations through trial and error to optimize efficiency.
Innovating economic organization can be as productive as technological innovations The internet revolution is an obvious: limited-liability corporations , outsourcing , and the NYSE 22 are but a few other examples. Markets and government have an uneasy relationship. Patents and intellectual property rights are an example of imperfect solutions maintained by the government at cost to users.
Cost-benefit can be weighed to achieve optimum e. Big Pharma v. Top-down price-setting without the use of market forces, e. Communism does not work because central planners lack the omniscience of the massive amounts of information from the ground needed to manage every aspect of the economy.
However, market-supporting institutions are necessary for markets to be workable. NZ already had them — however, their state price controls caused distortions that required shock therapy, despite the societal pain.
Poor countries need to foster markets and minimize inequality to achieve growth, but fail to do so because their markets, even if existent, are underperforming.
Further, in both cases, corruption can inhibit growth through lack of investor confidence Russia — although self-restrained and strategic corruption, can sometimes help growth e.
Suharto's Indonesia, McMillan maintains that market design does not control what happens in the market, but it shapes and supports the process of transacting 9 , and that well-designed markets have to protected from both anti-market and free-market ideologues epilogue Ch.
McMillan makes a very strong case for a market economy, as long as it is well-designed. Some additional macroeconomic perspectives on net social benefit may also have strengthened the book. Cutthroat pricing can hardly be good for competition, as it may cause markets to fall into the trap of Gresham's law There can be externalities that aren't always so easily regulatable as his treatment on cap-and-trade may make it seem e.
Or it can mean production of lower quality goods — freer information is not a guarantee of quality, as can be apparent by comparing many American products with say, Japanese or German electronics, auto, home appliances, etc — Demming was a guru in Japan but unfortunately ignored when he came home to the U.
It can also mean skimping on labor costs i. There was scant mention of worker rights in his entire treatise. This book seems to almost assume that everyone is an entrepreneur, or at least that efficient entrepreneurs or market participants should win most if not all of the time. In fact, there is ample validation of markets helping poor people throughout the book e. The only moment he comes close, is in discussion of compulsory licensing for patented AIDS drugs in low-income countries , but even then, this is only the result of finding justification through cost-benefit analysis, in the strict financial sense.
Also, his authoritative grasp of microeconomic issues overshadows his perspective on macroeconomics, as evidenced for example by his extremely-superficial treatment of all that is needed to end poverty in developing countries, or further considerations on how so many social investments can indeed, if designed well, lead to economic growth later in many indirect ways.
It seems that Keynesian perspectives may be rather foreign to microeconomists' rationales, providing for an incomplete picture on the limits of well-designed markets' abilities to maximize growth and net social benefit. Sometimes it also takes well-designed fiscal policies. For example, information flow may cause students or workers to get training in less-marketable disciplines, but a well-functioning market by itself is very far from solving unemployment.
But perhaps these are all macroeconomic issues, and political courage required balancing macroeconomic expertise. This ahistorical account of markets had a little bit of a misnomer for the second half of its title, and may be better called, Reinventing the Bazaar: In Defense of Well-Designed Markets.
Hence, the title of this reaction. Feb 23, Laurent Franckx rated it really liked it. This book was recommended on Twitter by Diane Coyle, who has herself written some excellent books bringing economics to a general audience. This book can be seen as a non-technical introduction to micro-economics: the economic analysis of individual markets. When non-economists want to dismiss an economic approach to a specific problem, they often say that "economists have a blind faith in markets".
To economists, this always sounded as a very strange claim. After all, take any intermediate textb This book was recommended on Twitter by Diane Coyle, who has herself written some excellent books bringing economics to a general audience. After all, take any intermediate textbook in microeconomics, and you will find that a very significant part is dedicated to the analysis of "market failures" and what policy should do about it. Maybe one reason why people think that economist "believe" in market, is that, in economics, the analysis of policy instrument also often considers the possibility of "government failure", which may be annoying to people who, well, "believe" in government intervention.
The great merit of McMillan is that he succeeds in perfectly summarizing how most independent economists "really" think about markets: as powerful mechanism for decentralized decision making, that provide strong incentives for people to exploit local and specialized knowledge.
However, McMillan also points out there are also numerous reasons why markets can "fail": when efficiency increases with scale, monopoly may be the natural outcome; sometimes people don't bear all the costs of their economic activity themselves think of pollution , sometimes there is a strong information asymmetry between buyer and seller, allowing one market party to cheat on the other.
McMillan shows how market can unravel when the correct side conditions are not in place, and that those side conditions are often set by
REINVENTING THE BAZAAR
Clear, insightful, and nondogmatic, this book gives us a new appreciation for one of our most ubiquitous institutions. From the wild swings of the stock market to the online auctions of eBay to the unexpected twists of the world's post-Communist economies, markets have suddenly become quite visible. We now have occasion to ask, "What makes these institutions work? How important are they? How can we improve them?
Reinventing the Bazaar: A Natural History of Markets
Seven million roses. Three million tulips and three million chrysanthemums. Welcome to the Dutch village of Aalsameer, the world's largest flower market. Aalsameer is the first stop on a breathless tour of world markets led by McMillan, an economist at Stanford University. At its best, his book reads like a travel guide to some of the more exotic centers of commercial exchange: the rice-futures market in Osaka, the "frog markets" of Hanoi, camel trading in India. Unfortunately, it is rarely at its best.
Book Report : REINVENTING THE BAZAAR:The Natural History of Markets.