Murray's a thoughtful guy. The question is whether the market as a social resource allocation mechanism is about to work a lot less well--carpal tunnel syndrome of the invisible hand.
Consider that, for the most part, since the industrial revolution commodities have been rival, excludible, and transparent.
Rival in that if X is using it, Y can't be. Thus anyone's use of a good imposes a social cost on the rest of us. And the principal of making sure that individuals' incentives are matched to social costs and benefits leads one to think that "charging" people a "price" for using "scarce" resources would be a good thing for a social resource allocation mechanism to do. The market does this. But what would a good social resource allocation mechanism look like when most things of utility have high first-unit costs of production but effectively zero marginal costs? Charging each marginal user a substantial "price" doesn't make any sense any more...
Excludible in that it is easy and simple for someone--the "owner"--to control who gets to use a good. The fact that control over use is easy (although Karl Polanyi would point out the extraordinarily complicated and convoluted process by which it became "easy") means that it is possible to push decisions over resource allocation away from the center and out to the periphery of the economy, where the person-on-the-spot has a good chance of knowing what the best use is. But if goods are no longer excludible with ease, then the decentralized decision making that was one of the market's key advantages is no longer possible.
Transparent in that everyone is buying commodities of known value and characteristics in one-shot transactions--thus minimizing market power. But things of value today seem to be becoming less transparent: Microsoft has enormous market power over me today by virtue of the large stock of documents I have written in Word formats. But as Hal Varian says, "Don't despair Brad. Microsoft still faces fierce competition from its own installed base."
My sense is that Michael and my paper could be made much, much better. And so we are trying to think through these issues to decide what we think, and then to figure out how to make our case convincing...
Brad DeLong
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- "Now 'in the long run' this [way of summarizing the quantity theory of money] is probably true.... But this long run is a misleading guide to current affairs. **In the long run** we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."
--J.M. Keynes -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- J. Bradford De Long; Professor of Economics, U.C. Berkeley; Co-Editor, Journal of Economic Perspectives. Dept. of Economics, U.C. Berkeley, #3880 Berkeley, CA 94720-3880 (510) 643-4027; (925) 283-2709 phones (510) 642-6615; (925) 283-3897 faxes http://econ161.berkeley.edu/ <delong at econ.berkeley.edu>