Friday, April 28, 2006

Invisible hand job

If you say it; he will come. "It" is the invisible hand, and “he” is Captain Fishsticks. Smartie at The Power Liberal put up a post saying, in essence that the market mechanism has failed us in this energy supply business. So of course Sticks swoops in with a long, really long, comment to the post saying nuh uh! Sticks spouts more libertarian economic theory; Sticks says that government can’t be involved in the energy business, regulating prices or whatever, without “controlling behavior.” Well, duh.

Spot has written before about Adam Smith in A dope slap from the Invisible Hand. Sticks’ thesis is that we should be interfering less in the energy business, not more. Sure, if we want to drive off the cliff by the most direct route.

You see, boys and girls, the market is not good a couple of things. First, it is poor at making a business enterprise pay all of the externalities of its economic activity. Externalities are sometimes called social costs, and include things like pollution, health care expenses (think WalMart), and the like. Now, in Adam Smith’s time, the effort to put externalities back where they were created was called the law of nuisance. In Smith’s 18th century Scotland it worked maybe even okay.

In modern industrial society, personal nuisance law suits are just spitting into the wind. That’s where business regulation comes in. It’s not really the fault of business; a business organization exists to make money, and spreading its social costs as much as possible helps it maximize profit. Where market fundies like Sticks go astray is thinking that externalities don’t exist or that society has no legitimate interest in trying to put them back where they belong.

An excellent example of an externality is second-hand smoke. (Spotty has been itching to talk about Sticks’ anti-smoking ban obsession for a long time.) It is clear that second-hand smoke imposes economic (stinky clothes that have to be tossed or cleaned) and health costs on innocent bystanders. Just like uncontrolled industrial smokestacks. Why should Spot have to pick up part of this cost?

The second thing the market mechanism isn’t very good at is gauging the public interest, particularly when we are talking about thinking strategically. A guy who came along after our Pollyanna Smith was Thomas Malthus. Malthus was much less sanguine. He saw a world of over-population, resource shortage, and misery. Charles Darwin was influenced by Malthus. Malthus advocated big-time regulation of population, since he believed that population growth could always outstrip resources.

We don’t seem to want to regulate population, except when it comes to those pesky Mexicans, but we do need somebody to think a little longer term than the stock market encourages. Considering the public interest does not maximize profits. The market isn’t immoral, just amoral. Drug companies don’t want to make vaccines for an influenza that may never occur; the market won’t do a lot of basic research, and it is not far-sighted enough to deal with Peak Oil or global warming in a way that will save our collective bacon.

It all goes back to Sticks’ social Darwinist hunter gatherism, a socially and morally bankrupt political philosophy.

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