Political Lies and Market Truth

The cracks between the paving stones
Look like rivers of flowing veins
Strange people who know me
Peeping from behind every window pane
--The Who

Prof Galles discusses fundamental differences between politics and markets with respect to truth. In a specialized society where people must trade with each other to obtain the full complement of resources needed to survive and prosper, conditions of interdependence develop. To gain an edge, some people will be tempted to lie in order to advance their interests.

Hampered markets foster lying. Government interference in voluntary exchange obscures truths that would have been revealed had people been free to engage in trade. For example, price floors and ceilings lie about scarcity, deceiving people about true opportunity costs and distorting terms of exchange. Taxes, tariffs, and regulations raise prices above what true scarcity would dictate. Subsidies do the opposite, artificially lowering price and encouraging overuse of scarce resources.

In unhampered markets, truth rules. Prices reveal how people truly value one good versus another. Honesty enhances reputation and encourages repeat business. Reputation effects reduce transaction costs as trust replaces need for expensive detailed contractual contingencies.

Politically hampered markets, those enacted by force, hinder search for truth. Unhampered markets based on peaceful cooperation reveal truths otherwise unknown.