On the margins

This is a repost of an article I wrote in 2010 that was originally published in The Free Press. I saw that a friend of mine had linked to it on the “Occupy Wall St” Facebook page and cringed. Upon reread, though, it’s not that bad; so I thought “why not make a blog post out of it?”

Often times when one listens to or reads the arguments of those who make it their job to “overthrow the capitalist system,” one will come across the notion that many of the ills of the status quo (which is invariably labeled as “capitalism”) are due in large part to certain institutions which, it is insinuated, are inherent to a capitalist system. Usually such insinuations are peculiar, as, more often than not, the exact opposite is true. The International Monetary Fund (IMF) and the World Bank are two institutions which often take the brunt of the “anti-capitalist” storm, but do they really deserve such treatment?

The IMF and the World Bank are both known for their practice of lending to the cash-strapped governments of developing countries. Both the IMF and the World Bank often use their lending power as leverage in order to encourage participating governments to embrace reforms recommended by the institutions. Such recommendations tend to call for the privatization of government services. This is where those who tend to call themselves “anti-capitalists” point when they say that these institutions are “capitalist.” Just calling for privatization, however, does not necessarily constitute a “capitalist” or “free market” position. A market can only be considered “free” when there is an absence of forceful coercion perpetrated against the individual, and all transactions are conducted in a free and voluntary manner. Many of the privatization efforts called for by these institutions are directly counter to the notion of a market free from coercion; many of the efforts simply call for governments to hand over monopoly control of certain services (water, power, communications, etc.) to large multi-national corporations.

A policy of allowing only one company or group to legally perform a service must necessarily rest on coercion, which runs against free market capitalism. The problem arises when governments enforce monopolies of private industry and shut down entrepreneurs for unauthorized competition with the government-contracted multi-national corporation. One example of this might be when an entrepreneur digs a well and begins pumping and selling water to his fellow villagers for less than the price that the government-contracted multi-national corporation is charging, and as a result the government steps in and stops the entrepreneur’s business activity in order to preserve the corporation’s monopoly. Another example would be when a clever individual begins collecting rainwater in a number of large steel drums that he owns and then begins to sell or otherwise distribute, and the government steps in to preserve the monopoly of the privately contracted corporation which provides the same service. It is not difficult to see how these are not true capitalist or free market situations. Such situations are essentially fascist (or national corporatist) situations, wherein the country is essentially run for and by a few key corporations with control over the state monopoly of the use of force.

In opposition to the above situation is the common view espoused by many libertarians and classical liberals, in which a minarchic state (minimum government) wields objective law-based monopoly over the use of force (police power), without special privilege given to any entity or group. In the most extreme view of capitalism, Rothbardian anarcho-capitalistism, there should exist no entity with such a monopoly on the use of force. After understanding this, it does not logically follow that systems which call for special privilege for none or the absence of any and all coercive interference at all, should be associated with political economies like those seen in the developing countries effected by the policies of the World Bank or the IMF.

The supposition that such institutions are a natural and inherent feature of capitalism is totally refuted by the fact that they were created by states through treaties, and would cease to exist without state funding; they were not and could not have been organic market occurrences. Simply, such institutions are the products of ideas embraced by proponents of state intervention in the global economy. In fact, the creation of government funded development banks, and the centralization and control of credit in state hands, happens to be the fifth of the ten point program of communism given in Karl Marx’s and Friedrich Engels’ infamous work, The Communist Manifesto. It almost seems laughable that anyone could even think to call such a policy “capitalist,” but, indeed, many do so without reservation.

I posted a link on my Facebook profile to an op-ed entitled “When being ‘green’ means subsidies for the rich, harm for the poor” written by Ian Murray and David Bier of the Competitive Enterprise Institute, published a few weeks ago in the Washington Examiner. It’s a good piece, you should check it out.

The article contains some criticism for the Obama administration’s handling of the Keystone XL pipeline. This didn’t sit well with a friend of mine from high school, and he decided to make a comment telling me that I should not “support” the Keystone XL pipeline, and said that he lamented the fact that “sustainable” living hurts the poor, “especially” when our dependence on fossil fuels “hurts us in so many ways.”

Now, to be clear, I do not “support” a pipeline, I oppose intervention in the marketplace. I couldn’t care less about what the government is trying to stop (unless they are doing their supposedly basic duty of preventing and adjudicating acts of aggression between and among individuals), I just don’t think they have the knowledge necessary to know what it is that “should” be done in the marketplace, and even if they did (which I would imagine is highly improbable due to reality of the knowledge problem) I don’t think there exists within any state apparatus the kind of incentive structure that would allow for the information to be used in an appropriate manner (see: Public Choice theory).

Anyway, on the Facebook post itself, I took the opportunity to rant on “sustainability,” and I figured an edited version of that rant could constitute a blog post of its own:

Sustainability only makes sense if resources are being used in an intersubjectively valuable way, i.e., if there are proper rationing and feedback mechanisms at work that can accurately reflect the inherently distributed knowledge of supply and demand, e.g., prices, profits, and losses. There is no better method of rationing known to man than the price system, as no other method has within it the incentives structure to aggregate up every market participant’s preferences in a fast, easily understood, and accurate way.

In other words, something is only “sustainable” if the value that comes from it is greater than the value that goes into it, otherwise you’re throwing good/valuable resources after bad/less valuable ones, and you get a net destruction of limited resources. Since value is subjective, the only way we can find out how much everyone values something is by basically asking them “what is this worth, to you?” And in order for that question to receive honest answers, we must have some way of incentivizing honesty. The best way to do that is to insure that the person we are asking has some “skin in the game,” e.g., a price.

If we were to try to gauge how people value things by surveys (or by voting) people would have the incentive to understate their value of the good or product.

If the government were taking a poll on how we should price peanut butter (or how we should subsidize or tax it, this would be the same thing as manipulating the price directly), and you have a big family and buy a lot of peanut butter, then you have an incentive to say that it isn’t worth that much to you, so that the effective price might end up being lower through some kind of law.

Then if a price ceiling is put on peanut butter (because presumably people would understate its value to them), there would be a shortage of peanut butter, because people would buy more of it than they did previously because the cost to them for doing so would be much lower.

It works the same way the other way around. If the government puts in a price floor, there will be an overabundance of that product for which the floor was created, and that will be a waste of resources that could have gone to other, more valuable uses.

The same principle applies to all goods, not just peanut butter. It applies to subsidizing solar technology or penalizing oil and natural gas production and exploration. You’ll get more solar technology than is actually beneficial (therefore destroying resources that could have been more intersubjectively useful to humanity elsewhere) and you’ll have less oil/natural gas than you otherwise would have, which will cause a loss in productivity, which will in-turn lower our resource-efficiency (when we are more productive, we use less time and fewer resources, and conversely, we use more when we’re less productive).

So, the term “sustainability,” at least the way it is used in the political arena, doesn’t really make much sense when you think about it and apply the real world’s universal physical constraints (scarce resources, unlimited wants).

-Patrick