The clash of two systems

The video linked to in this post of New Jersey Governor Christie sparring with Diane Sawyer is a good illustration of what Arnold Kling writes about in this Econlog blog post, Two Systems.

Christie speaks from a perspective of System A where status is obtained by market acceptance, it’s retained by competing and enforced by choice (by market participants).

Sawyer defends from the perspective of System B, where status is obtained from credentials, it’s retained by tenure and enforced by authority figures.

I believe the primary source of the clash that occurs between these two systems comes from the differences in preference between the market participants and authority figures.

In this example, Christie and Sawyer discuss teachers.

Authority figures in education — such as teacher union leaders and their cronies in education administration and government — believe that college degrees (credentials) and tenure are the important factors in determining which teachers to hire and retain.

The market participants — parents of school age children — however do not give these preferences much consideration.  Rather they tend to rely on the reputations of schools and teachers and their own experiences with those teachers (e.g. do my kids appear to be progressing or not?).

The underlying and incorrect assumption made by authority figures is that they know better than the market participants and they seek to override their preferences.

I’ve seen authority figures in private organizations suffer from this same underlying and incorrect assumption with disastrous results.

One thing authority figures that produce good market results get right is that don’t let their own personal preferences override those of the markets they’re serving.  In fact, they build their organizations around meeting the preferences of the market participants.

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