Wherein I ramble on about markets and regulations
If I could persuade everyone in America to read a single paragraph, it would be the second ‘graph in Dean Baker’s new piece in the Boston Review: “Free Market Myth.”
Here it is:
In general, political debates over regulation have been wrongly cast as disputes over the extent of regulation, with conservatives assumed to prefer less regulation, while liberals prefer more. In fact conservatives do not necessarily desire less regulation, nor do liberals necessarily desire more. Conservatives support regulatory structures that cause income to flow upward, while liberals support regulatory structures that promote equality. “Less” regulation does not imply greater inequality, nor is the reverse true.
As Baker points out, this kind of framing puts conservatives at a huge advantage. Americans are suspicious of the vicissitudes of capitalism, but they’re even more skeptical about the competence of government. If you can claim you’re arguing for “less government intrusion,” you’ve got a big head start.
Even more irksome to me is the extent to which progressives and environmentalists cede this framing to conservatives — indeed, help reinforce it! I can’t count how many times I’ve heard people on this site and elsewhere railing against the “free market” and how it’s brought the world to the brink of ruin. Argh. The problem not some inherent moral valence of markets — no such thing — but the actual practices of actual people who structure markets to benefit those with power at the expense of those without (and those yet unborn). There are no unstructured (“free”) markets.
The very term “free market” embeds the myth of a Platonic market free of government involvement. (It’s a species of the “noble savage” myth — the noble market.) But there is not and could be no such thing. Markets are human institutions created by human decisions and maintained by collectively agreed-upon frameworks.
It is possible to talk about well-designed markets, with low barriers to entry, internalized costs, transparency, and open competition. History shows such markets (or the closest approximations we’ve come up with) are excellent mechanisms to advance the social goals of widespread comfort, prosperity, and technological innovation.
Of course barriers to entry are never fully eliminated; costs are never fully internalized; information is never fully available. But we can move closer to or farther away from such an ideal. In my opinion (and RFK Jr.’s, and others’), to the extent we get closer to well-designed markets we get markets that are more environment-friendly. In other words, markets that truly incorporate all costs and share full information almost by definition shape themselves around sustainability.
The problem is, the way the contemporary debate goes, any regulation is framed as moving away from the ideal and any measure that removes constraints on business is framed as moving toward it. But it ain’t so.
Pulling back to carbon, this is relevant to the debate over whether to address climate change via “market mechanisms” or “command and control regulations.” What’s the best way to achieve the social benefit of a livable climate? You can put price signals upstream and wait/hope for them to propagate throughout the economy. And/or you can simply require that industry achieves social benefits directly by meeting performance standards. Both are interventions to reshape markets; both are attempts to incorporate information about long-term, incremental externalities. Just because one relies on pricing doesn’t mean it’s magically more markety. It’s just different way of shaping markets, and it should be judged by its efficacy, not by whether it hues to some mythical market ideal.