This comment from Matthew Parris is very revealing:
I was telling my colleague Danny Finkelstein about my new theory that the free market doesn't work properly when the real customers are those who commission a product rather than those who use it. It is, for example, businesses, not the householder, that choose the courier service that makes you stay in all day in case it calls...“Ah,” said Danny, “this conundrum is well known to economists. They call it the Principal-Agent Problem. There are whole chapters in textbooks about it.”
I felt as proud as Molière's Bourgeois Gentleman, enchanted to discover from an expert that quite spontaneously he had been speaking something called “prose” all his life.
Now, recall Matthew's career. From 1976 to 79 he working in the Conservative Research Department, and was then an MP for seven years. So he spent 10 years in a party that was supposedly espousing free market ideas, and yet he never had a conversation, or overheard one, about one of the basic issues in market economics.
How can this be? We can ignore the possibility that Matthew's stupid; his writings show him to be one of the smartest men in the dead tree industry. So, could it be instead that his Tory colleagues were just never really interested in market economics, and only talked about "free markets" as an ideological cover for what was really just class hatred and union bashing?
This has nothing much to do with the main point of your post, but ... I'm not sure Finkelstein was right to call that a principal-agent problem.
Suppose DFS was to change its delivery service to time deliveries to within, say, the hour. Presumably the loss of flexibility would result in a large increase in the cost - perhaps DFS has correctly decided that customers would object and buy their furniture from elsewhere.
Is that a principal agent problem? It's not as if the principal (customer) would face any particular problem choosing to buy from a retailer that offers an on the hour delivery contract.
Posted by: Luis Enrique | December 20, 2007 at 02:15 PM
A leftie accusing the Tories of 'class hatred' seems just a tad hypocritical! ;)
Posted by: Zorro | December 20, 2007 at 04:43 PM
Well, duh. These _are_ politicians we're talking about...
Posted by: Mike Woodhouse | December 20, 2007 at 04:52 PM
Not entirely implausible. It's not as though the principal-agent problem was a huge ideological issue in the political conversation of the 1970s and 1980s, in the way that, say, privatisation or Stock Exchange deregulation was.
It's the equivalent of acting surprised when you hear that Joe Smith, a Labour MP since 1997, has never even heard of the Warrior IFV - despite being a member of a party that has deployed troops to five different countries. Yes, the Warrior is an important part of the British Army - but it's not a politically important part.
Posted by: ajay | December 20, 2007 at 04:55 PM
The answer to the question is of course 'yes'. Tory MPs by and large have never had a clue about market economics and what 'free markets' really means - it just suited them to bang on high-mindedly about it whilst they and their friends in the City trousered the profits of privatisation.
Posted by: rockinred | December 20, 2007 at 05:52 PM
The Principal-Agent problem is pretty small beer compared to the Stalin-Kulak problem, which is probably at the root of the Right's worries.
Posted by: dearieme | December 20, 2007 at 10:12 PM
zorro, you've been playing "the left are the real class haters" so long that you've forgotten it's just a Tory "I know you are but what am I?"
Class hatred is why rich people send children to work in coal mines. When the left take children out of coal mines and into school, paid for by progressive taxes, Tories call that "class hatred".
Posted by: derek | December 21, 2007 at 09:51 AM
"Class hatred is why rich people send children to work in coal mines."
Rich people don't send children to work in coal miines, poor people do. The rich exploit their poverty and allow their children to work in their mines, but that has nothing to do with class hatred and everything to do with money.
Posted by: John M | December 21, 2007 at 10:11 AM
This is simply Parris rhetoric.
The Tory leadership of the time - if not the foot soldiers - knew all about Hayek, Friedman and so on...
Posted by: chrisc | December 21, 2007 at 10:25 AM
All right, John, "class hatred is why rich people promote and support policies the logical result of which is a working class so poor and powerless that sending their children to work in mines is an attractive choice".
Less snappy, I admit.
Posted by: ajay | December 21, 2007 at 11:47 AM
...choose the courier service that makes you stay in all day in case it calls...
Don't, don't! I've just ahd such a situation and still they didn't come, wasting three mornings this way. Aaaaagh!
Posted by: jameshigham | December 21, 2007 at 12:44 PM
The economics of information was taught to undergraduate economists from the 1980s onwards. Matthew P studied law in the 1970s.
There is no reason why anyone would come across principal-agent problems in real life, because they don't tell you anything more than common sense.I doubt that anyone at the Treasury wastes any time on it.
Once again, you seem to be confusing the spouting of the appropriate buzzword with actual thinking.
It is surely obvious to anyone that Matthew Parris is considerably brighter than Danny Finkelstein.
Posted by: james c | December 21, 2007 at 01:02 PM
I think ajay is right. This just isn't politically important. Someone who doesn't know about the principle-agent problem is likely to make a hash of detailed policy formation but can still support free-market politics in principle.
This comment from Derek: "Class hatred is why rich people send children to work in coal mines" has a tragic comedy to it. Is he accusing Thatcherites of being too keen on people working in coal mines?
Sorry this comment is late, the last one got thrown into the spam-bin.
Posted by: Matthew Sinclair | December 21, 2007 at 01:35 PM
Vast numbers of people in and associated with (i.e. feeding off) the public sector do the Parris thing: not bothering to understand the area that they are interfering (sorry, working) in, and for various reasons. But if you have a boss who is like that, there is no point in you doing the thinking - you might as well just go and get another job. Run a country with a boss who is like that, and guess what happens.
Posted by: dreamingspire | December 22, 2007 at 04:27 PM
If rich people really are able to send the poor down coal mines, they’re not doing a very good job of it. All the poor people I know of are adept to maximising their income through benefits. Don’t forget, it’s the “poor” who are sitting at home watching daytime TV secure in the knowledge that their incapacity benefit will carry on rolling in, while eastern Europeans do the jobs they can’t be bothered to do.
Posted by: Trofim | December 22, 2007 at 08:45 PM
I don´t know about the tories, but the unions are the ones that really know about class hatred. After all, it is their job, isn´t it?
Posted by: ortega | December 23, 2007 at 06:57 PM
"All the poor people I know of are adept to maximising their income through benefits."
They’re not doing a very good job of it if they're poor. What was that about class hatred, again?
Posted by: Jim | December 24, 2007 at 12:02 AM
Who did all these jobs that East Europeans do but that Brits won't do before the East Europeans done them?
Posted by: Richard | December 24, 2007 at 01:41 PM
I dont understand quite frankly where you are trying to go with this. Please comment or clue me in on exactly what you mean when you say free market.
http://www.prbuzz.com/lets-relax-and-cruise-to-cash-together-13787.html
Posted by: Ricky Hickman | December 25, 2007 at 06:47 AM
The original point is that our political elite is unashamed to be ignorant about economics (also science, incidentally). By contrast, I suspect that Matthew Parris would be shocked if we had a cabinet minister that couldn't outline the plot of King Lear, say, or explain what the Magna Carta was.
In any case, I would have thought that the principal agent problem would have been relevant to the question of compulsory contracting for local councils, a big issue in the '80s.
Posted by: Minute | December 31, 2007 at 09:58 AM
I saw the headline and thought this was about Paris Hilton. (Didn't notice the spelling!) But yes those delivery services are awful. There really is a business opportunity for people running local depots for receiving this stuff. Where is the market failure here?
Posted by: reason | January 03, 2008 at 04:04 PM