[ExI] Economic Calculation Debate
dennislmay at yahoo.com
Thu Oct 6 16:22:41 UTC 2011
Dan Ust wrote:
> GM should have, IMO, been allowed to fail -- not rescued
> with a bailout because of its political connections and the
> political pull of its unions.
Too big to fail is a myth. There were hundreds of small
automobile manufacturers scattered across the United
States at one time - and large numbers of small aircraft
manufacturers as well. A couple years ago I did some
work in a dry storage warehouse in a small town in
Missouri which used to be an aircraft manufacturing
plant. Government intererence in the market prevents
the kind of freedom to manufacture that existed just
a few short generations ago.
From: Dan <dan_ust at yahoo.com>
To: ExI chat list <extropy-chat at lists.extropy.org>
Sent: Thursday, October 6, 2011 10:59 AM
Subject: Re: [ExI] Economic Calculation Debate
On Wednesday, October 5, 2011 5:41 PM BillK pharos at gmail.com wrote:
> On Wed, Oct 5, 2011 at 3:29 PM, Dan wrote:
>> * Note: my claim is not that non-government folks are angels, saints,
>> or geniuses at economic forecasting. They are not perfect or of a
>> different species than those in government. But those in government
>> are no better still and face two additions problems: they have little
>> incentive for success or against failure as, for the most part, they
>> can shift costs to others as a matter of routine, and they face
>> information problems that markets solve ex ante -- even if such
>> solutions are not
> That sounds pretty much like what I wrote.
> There are government failures and there are market failures and it is
> hard to tell which is worse.
Not excactly. Government failures are a bit different from market ones. In essence, too, market failures are not usually ones that can be seen ex ante for the most part. The examples you give below, also, are not strictly market failures. (Just as a conceptual matter, one can't tell what's a negative externality* until one knows who owns what to see how damage is being done or costs inflicted on someone else.) Externalities depend on how property rights are assigned and in extant societies this is done by government and often shifted to allow the kinds of externalities to flourish. For instance, pollution, as a negative externality, tends to happen, it seems to me, because property rights are not clearly defined or not consistently enforced. Were they clearly defined and consistently enforced in the 19th century, factory pollution might have been lessened to the point of being unimportant -- as Rothbard pointed in his examination of just this case.
> Markets (note - not the mythical free markets)
In order to decide what's market caused and government caused (not that these exhaust the field) in any situation, one must be able to conceptual distinguish what would result under fully free market conditions -- even if these never have come about and have at best only been approximated rarely. Of course, one must be very careful here not to paint the picture of a free market that has impossible featues, such as perfect information or instantaneous adjustments to changes. Sadly, much mainstream economic modeling does rely on such impossible idealizations. Austrian economists, however, for the most part, do not rely on this. This is why it's been called the economics of "time and ignorance." (Which is an allusion to _Economics of Time and Ignorance_ by O'Driscoll and Rizzo.)
> routinely ignore
> externalities like pollution, slave labour, etc. and really like
> monopolies and cartels.
To expand on some of these -- but not to deny market failures, just to point out the examples you give are not unambiguous instances of market failure -- as with pollution, the others you mention all have a huge government component. Slave labor, for example, usually requires government enforcement. The US is a good example of this. State and federal enforcement of fugitive slave laws helped to redistribute the costs of monitoring and capturing slaves from slave holders to the tax base. In other words, absent the government enforcing slavery, slave holders would have had to bear the full cost of keeping their slaves -- preventing them from running away and never returning or, worse, returning to get their families and friends out of bondage, would have been a cost the holders would have to bear instead of society at large.
Monopolies and cartels, likewise, are a problem because they are, in the former case, creations of government -- else, how to would be monopolists prevent others from entering into competition with them -- and the latter tend to need government aid to maintain them -- as the temptations to defect are often very strong and the costs of maintaining cartels high. It's notable that the government itself is a monopoly -- usually one in law enforcement, security, and justice -- and also that some of the most effective cartles are those sanctioned by governments or even made up of government run business, such as OPEC.
> Though many market failures are not as obvious
> as big government projects gone wrong. And, of course, many of the
> government failures are contracted out to private companies that
> immediately proceed to rip off the government for as much as they can
> get away with.
In this case, though, the failure is of what? If you removed government from the situation, what or who would the private companies be able to rip off on such a grand scale? (Note: yes, private companies and individuals do lie, cheat, and steal. Their misbehavior, though, tends to be highly circumscribed when they can't couple this with government? Why? If they are limited to either voluntary transactions, then people who get lied to, cheated, and stolen from tend to learn quickly and avoid them. Others, also, can observe this and avoid the liers, cheaters, and thieves. Evenjust private acts of coercion tend to be highly localized. If you want to rob one person, sure, it can be done, but it's extremely hard to rob a nation -- unless you have either government or an army backing you. Even legendary private thieves or cheaters of our time, such as Madoff, tend to be a drop in a bucket compared to government theft and cheater. The same goes for acts of
violence. One person might kill a few dozen, but if you want to bucther millions you need a state to do that.)
Finally, market mechanisms** are the means of coping with economic problems. While they might not be perfect, there's no way around them or outside them. Governments do no possess special information or, as one can see from history, special insight. When governments act, they tend to distory and make much worse an already imperfect situation. The hubris is for central planners and the like to believe they have such information and insights. Add to this, the fact that such planners have little incentive to get it right -- they're gambling not with their wealth and lives but with everyone else's -- should give one pause -- and this should be the case whether one is talking about planning a whole economy or just an industry, a city, or a neighborhood. (And the fact that this all involves coercion should give even more pause. Planners are persuading others to try their plan -- with the option of disagreeing always on the table. Instead, they are forcing
others to do as their plans, however well intentioned, dictate.)
* I leave aside positive externalities for the moment. Cf. Roy Cordato's _Welfare Economics and Externalities in an Open Ended Universe_ for some of the difficulties involved in handling positive externalities.
** Things like the price system. Don't confuse this with actual businesses. Again, recognizing markets work here doesn't mean praising businesses are even being pro-business. In fact, proper functioning of market mechanism often involves firms going under. This likely should've happened with many banks recently and with some airlines and big car companies early in the last decade. GM should have, IMO, been allowed to fail -- not rescued with a bailout because of its political connections and the political pull of its unions.
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