The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

market itself creates the incentives for correction. For instance, the wage differential between the skilled and the moderately skilled has stopped growing, as we noted earlier. The high wages of doctors attract more youngsters to become doctors (supplementing any natural inclination toward medicine). It also creates strong monetary incentives for tech firms to create artificial- intelligence medical diagnostic systems, where ordinary doctors could be replaced by nurse practitioner interviewers with far less training. The competitive market targets those who benefit the most from it since the profits these entities make are most worth disrupting. Therefore, even as the quality and quantity of health care expands significantly, and even as countries grow older and richer, the need for doctors could moderate, normalizing their wages and reducing income inequality. Similarly, the abundance of machine-made or foreign goods, and the fall in local wages, could also prompt a shift in taste toward goods with more human and local content. We already see some of this. The more accurate but cheap quartz or digital watch has been displaced by painstakingly handcrafted and intricate mechanical watches at the high end of the luxury scale. Local farmers markets pop up like mushrooms in rich suburbs or cities in the United States, as customers abandon the supermarket for local produce. Consumer tastes could shift. Jobs that require working with one’s hands rather than with one’s mind or t...

Sometimes markets create incentives for correction