Sat, 21 Oct 2006

Efficient Allocation Of Resources

People who are not familiar with the operation of free markets object to the statement "the market allows for efficient allocation of resources". They look at their own life, or their friends' lives, and see all sorts of inefficiency. Efficient is relative, though. It should really go: "free markets provide the most efficient allocation of resources". The difficulty is that the problem is ineffably hard.

Ever tried to pack suitcases into a trunk? Now imagine 300,000,000 trunks and several times as many suitcases, where the drivers are moving the trunks around and the suitcases are changing size. The difficulty of the problem is beyond the imagination, much less any solution to it. The best solution is not going to be found in standardizing suitcases or stopping the drivers from moving. The best solution is to allow the drivers to choose the suitcases that best fit their trunks.

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