Thursday, February 2, 2017

a brief essay on markets, competition, and the role of government in protecting liberty

In conversation with a conservative-minded friend, I realized that he was operating under a pretty fundamental misunderstanding of my beliefs about markets and the role of government. It also occurred to me that probably a similar misunderstanding extends among many conservative minded-folks regarding many liberal-minded folks. So, in an effort to clarify, and maybe build a bridge, I offer the following:

I absolutely believe in free markets. I believe in competition. In principle, I support the risk/reward dynamic inherent in capitalist commercial entrepreneurism. I believe really awesome things happen when folks employ their creativity and ambition and start businesses and build things and innovate to satisfy needs and wants we have and sometimes didn't know we had. I am in love with creativity. I admire productive innovation and ambition tremendously.

However... I also believe in rational checks to the free-ness of markets. Because individual interests must be held in check less their execution infringe on the liberties of others.

I am a civil libertarian.

To illustrate my point, I think pollution offers a poignant example.

Imagine a firm. Maybe this firm makes paper products. Paper products are good. I believe in paper. I buy and use paper. I think there should be firms that make paper.

But a byproduct of paper manufacturing can be a lot of nasty gluppity-glup. For simplicity's sake, let's imagine two options for disposing of the gluppity-glup. The first option is just to pour it in the river. Easy. Convenient. Economical. And absolutely profit maximizing. Good for shareholders. Good for customers (who get cheaper paper products). The second option involves investing in costly controls which reduce the toxicity of the gluppity-glup, and flipping the bill for the transportation of it to some location where it can be disposed of in a way that minimizes its impact on the natural environment and other human beings, which probably also involves paying someone else to take it and further process it. That's costly. And will undoubtedly have the effect of decreasing shareholder value, increasing the price of paper products, or both.

Unchecked by regulation, the firm has little incentive not to dump their waste in the river. (I say "little." There likely will be some push back from folks downstream, and maybe they get some bad press and stuff, but these incentives, ultimately, have proven not to be sufficient to induce firms from dumping their gluppity-glub...or engaging in all kinds of other social ills in the name of profit maximization.) But what's wrong with polluting the river? Well, in doing so, the firm has pushed off the cost of producing paper onto others. Economists call this an externality--meaning that the firm has externalized, or pushed off some of the costs of production onto others, without the consent, will, or even necessarily the knowledge that they have been thus burdened. The farmer downstream who relies on pure water to feed her crops. The fishermen who rely on the river to extract a living by harvesting healthy fish. On the recreationalist, who swims in the river. And so on.

Of course, the consequences of polluting the stream go far beyond that. The interconnectedness of all things is a central tenet of biology (if not all the sciences). Screw up the river, and you screw up all sorts of stuff, including the animals you know best and maybe care about most--those that wear clothes and walk around on two legs.

It's not clear to me what people mean when they talk of big government versus small government. I think that means different things to different people. But if by "big government" people are referring to the world of regulations that they perceive as a hindrance to business or whatever else, I challenge those folks to think of regulation not as restricting liberty, but protecting it.

One man's liberty ends at the next man's nose, as the expression goes. Regulation exists to protect your nose from my elbow, so to speak.

One way to think of any regulation is as a response to someone, somewhere, having been an asshole. Someone (or a group of someones) was unable to check their self-interest through personal morality and, in its execution, imposed a significant cost to the liberty of another. Thus, government must step in. Acting to protect individual liberty. Creating stronger incentives for individuals and organizations to act in the public good than existed previously.

Now, of course, there will be inefficiencies and redundancies. Sometimes (often?) well-meaning regulation has unintended and even disproportionately harmful consequences. It is absolutely rational to review, critique, and challenge the logic of specific regulations. And when errors can be shown, we should correct them.

But... To argue against regulation on principle is to argue against the role of government in protecting individual liberty. And I believe protecting individual liberty is. the. primary. responsibility of government in the first place.

1 comment:

mrsmith said...

A basic and beautiful summary of the fundamentals. I think our citizenry needs far more of this - I am learning more and more the number of people that don't understand these fundamentals. (For example, this week I learned that some people believe refugee is another word for illegal immigrant; I also learned that other people believe that the "vetting" refugees, immigrants, or visitors receive before entering the country is basically a TSA airport screening.)