Tuesday, May 25, 2010

How Do We Decide When a Good or Service Is Too Dangerous For a Free Market?

There are areas of commerce where markets can be perceived as maintaining a tension with moral values. These areas include but are not limited to: commonly, gambling, prostitution, mind-altering drugs; more centrally in the study of economics, labor arrangements (here and here), and of course health care. We could extend this last category to the laws growing up around the U.S. and elsewhere restricting sale of trans fats or sugary drinks to kids. It's harder to argue (but not impossible) that markets should not be allowed to run their course in things like (for example) clothing. It's surprisingly difficult to think of examples of things that governments have tried to specially insulate from market economics short of 100% centrally planned economies. (In fact if you're worried about the free markets of shoes destroying the world, Douglas Adams anticipated your concern.) What the commonly insulated goods and services have in common is that they're things about which humans have difficulty thinking rationally (short term sensual goods, "vices" - gambling, prostitution, sugary drinks) or no rational basis for their behavior in the first place (avoidance of negatives, like indignity, suffering, and death, i.e. labor arrangements and health care). As a first approximation, the more boring a good or service - i.e., the more that commerce decisions take place entirely in the executive centers of the brain - the fewer problems it will cause on an open market. Shoes are not as dangerous as opiates, or as contentious as indentured servitude.

But humans are not always the rational optimizers we think we are, and it will always be the case that some of us make bad decisions with regards to certain goods or services, and this tendency differs between individuals. Whether it is moral to restrict others from these goods and services is an important question that libertarians wish more people would consider. Case in point: I have given up trying to eat only reasonable, non-health-damaging amounts of chocolate. Is it moral to demand limits, or an outright ban, on chocolate sales for everyone, to protect the weak-willed like myself? Why then for alcohol? Why for prostitution and heroin and gambling? After all, you're mature enough to handle (or just plain avoid) these things, so how can I demand you alter your actions, even though keeping chocolate available absolutely has an impact on my health? So why isn't allowing the poor judgment of some to make the decision for all a classic case of tyranny of the majority?

What's interesting is that as freedoms are extended, the leading narrative-generators in these sorts of debates become less moral and more economic, not to mention more transparently self-serving. That is, at the start of the discussion, we can't make X legal because the world will end, and think about the children! Once X is legal in some polities, it becomes increasingly clear that the world has not ended and the children are fine, so the debate moves to economics. Eventually, no one can remember what the fuss was. Charging interest on loans was considered immoral and an affront to God in European Christianity. How much of that talk have we heard in the Greek crisis so far? Of course, debt can be dangerous, which is exactly what the last few years of economics have shown, but without it, most of us would never own property.

What prompted me to write this post is that, with liberalizing goods (as opposed to de-liberalizing ones like health care in the U.S.) it's during the transition period from world-ending to pure-economics that we hear the funniest arguments. Economic stake-holders want to defend their turf, and their competition is largely held at bay through government-enforced monopolies or oligopolies. At the same time, these stakeholders know that "if you allow more businesses to buy/do X the world will end" is more compelling to a liberal-democratic public than "if you allow more businesses to buy/do X, I'll have more competition", especially if the earlier values that made the good or service a vice persist over time. So a stake holder will pony up to the mic and with a straight face, s/he will tell the public that what s/he does for a living is bad, and there shouldn't be any more allowed. To use two provincial Eastern U.S. examples: "'We have to fight this explosion of gambling all around us,' said Don Marrandino, eastern regional president of Harrah's Entertainment Inc., which has four casinos in Atlantic City." (From "East Coast Casino Market Getting Crowded"; another provincial East Coast issue is the liberalization of alcohol laws in Pennsylvania, allowing sales in supermarkets like most of the U.S. allows, which also gets its share of incoherent moral and economic arguments from, you guessed it, managers of state-run alcohol stores. [Added later: at National Review Reihan Salam analyzes arguments against the spread of online education as being one example of the general phenomenon of traditional producers' inconsistent rhetoric against a shift in production; I would argue the same applies to distribution: "Call it the producer’s lament. Basically, traditional producers — of handicrafts, of pop albums, of community college education — grow accustomed to making a product in a particular way. When cheaper alternatives threaten to put them out of business, we hear a wide array of arguments, many of them conflicting and contradictory (but hey, whatever works!), about why the new mode of production is profoundly dangerous or unjust. Clay Shirky has vividly described how this discourse has played out in the book-selling and publishing industries, as has the always excellent Tim Lee."]
[Added still later - it works in politics too, as in this case where the existing Cherokee Nation is suing Tennessee over its recent recognition of other tribes. Native solidarity, right?]

Of course, there's really no surprise here; people will act in ways that are in their material self-interest, and industry-based rhetoric is no exception. But it's a reminder that capitalists are particularly, as we should expect, materially self-interested - they want wealth, not free markets - and they're willing to use government to that end. Hence we've had admonitions right from the start from the likes of Adam Smith to save capitalism from the capitalists: "The proposal of any new law or regulation of commerce which comes from [businesspeople], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention."

Note the absence of explicit "the world will end" alarmism from the casino manager's rhetoric, because that would require a little bit too much doublethink even for the average news-consumer aiming to reconfirm his or her values. I'm looking forward to seeing the same kinds of self-oblivious contortions from money-lending banks in majority-Islamic countries this century, as well as from marijuana sellers (or local governments benefiting from tax revenues) in parts of the U.S. that are liberalizing marijuana laws: here, here and here.


TGP said...

The free market doesn't work when losses are socialized and profits are privatized.

For the free market to work, we need to remove limitations on liability so that risk assessments are accurate. Would BP have taken a shortcut on its preventative safety if it knew that it would be paying the entire actual cost of a spill?

Michael Caton said...
This comment has been removed by the author.
Michael Caton said...

You are entirely correct. It's the old "If someone owes you a million dollars, they're in trouble. If someone owes you a billion dollars, YOU'RE in trouble." This is why 1) too-big-to-fail needs to become an antitrust break-up criterion. Unfortunately our elected officials, including the nominally more statist ones, seem to be in no mood to pass such regulation, and voters don't seem to be paying enough attention to be demanding it. This is also why 2) consequences of property and commons damage, whether or not brought about by actions taken by an individual or by an individual through a partnership or corporation, should not be so easily escaped. You caused a fire in the hills above Santa Barbara and cost $10M? You just bought yourself a lifetime of garnished wages to pay at least part of the cost. (This is not in fact what happens, but it should.) The same applies, both morally and practically, to industrial negligence.

I frequently try to remind fellow little-L libertarians of Adam Smith's insights in this regard and the fact that states are not the only entities which can cause suffering through involuntary relationships ("inverse state-worship", one writer at Reason called it). Louisiana fishermen right now are in an involuntary relationship with BP. But this effort sometimes feels a little futile.