The solution to market failures is market solutions, carried out by innovators. A reader requests my views on "capitalism," which I set out as answers to his questions and comments.
Kudos for tackling some of these loaded terms. "Capitalism," not to mention "late-stage capitalism," makes me want to quote Inigo in The Princess Bride, "You keep using that word. I do not think it means what you think it means." Entrepreneurial markets or simply free enterprise are much more meaningful and accurate terms.
Why do people talk about the "perverse incentives" of markets but not the perverse incentives of government agencies? How are there "market failures" but no government failures? The one that makes me feel like fingernails on a chalkboard is "living wage," especially as used to justify the terribly destructive minimum wage laws.
I just returned from a special jurisdiction that allows you, as a company, to choose your own set of regulations--or choose the common law. This allows companies incorporated there to serve markets that are better regulated, or at least that they are used to serving or want to serve. // Interestingly, the commenter above lives in a competitor jurisdiction. But the big idea is competition among systems and jurisdictions. Competitive governance yields better outcomes, whether or not one is for or against regulation in general. The future is bright and open-source law is the wave of the future!
I loved this response, and especially your ideas to solve some of the problems with capitalism (like long term incentives for companies! Yes!).
As for the give and take between free market capitalism and government regulated capitalism, it feels very case by case to me. There have been times government regulation/incentives worked very well. And times it didn’t. It seems we’re figuring out in real time where it helps and where it hinders!
A few places where government regulation has helped humanity: limiting Co2, eliminating single use plastics (in some countries), right to repair laws have forced technology to be made so that it can be fixed. Some places where government regulation hasn't helped humanity: zoning laws that prohibit building, banning alcohol, etc....
Dear Elle, we should always ask "Compared to what?" This gets us into a tradeoff mindset. So, have government regulations limiting CO2, taken together, helped humanity on net? That is certainly arguable. For example, if domestic manufacturers find that energy costs are too high due to regulation, then offshore production or refining to China or India, does that help humanity? If so, how? Eliminating single-use plastics means that Southeast Asia dumps 90 percent of the plastic into the oceans anyway, but Americans drink from crappy paper straws, even though we put our plastics in landfills or recycle them (recycling also being a costly, environmentally unfriendly form of regulation). Maybe regulations have helped in some instances, particularly where property rights / torts are difficult to enforce. But most of the time they are a means by which special interests game the system at the expense of smaller competitors and consumers.
Well, but if a country eliminates single use plastics, it forces companies to not use them in their manufacturing processes, thus producing less plastic waste from the get go (even if not all countries have this regulation). It's better to produce less plastic waste from the start, then to have to figure out what to do with the waste on the backend.
There are certainly instances where government regulation has hindered rather than helped. But there are also instances where government regulation has helped rather than hindered. It is not black and white!
Nothing is black and white, and on that we certainly agree. Still, every decision involves tradeoffs. I'm not sure that forcing companies not to use single-use plastics is altogether a good thing. Depending on the region or country, disposal costs (price) helps to determine whether putting something into a landfill versus recycling is the better option. In most areas of the US, landfill space is abundant and the practice is very clean. Still, perhaps price pressure could help an entrepreneur develop a special kind of plastic-eating microbe? A plastic that is otherwise biodegradable? The blanket coercive policy almost always short-circuits the discovery process, and can steamroll over the delicate shoots of possibilitiy. Never mind that we end up with packaging that is more expensive, easier to steal, less convenient, or more prone to spoilage. All of these are things people value about plastic and their values shouldn't count for nothing. This is not to argue that they should be allowed to toss their plastics into the sea. It is merely to say that they should bear full disposal costs and let regional entrepreneurs respond accordingly. That would be an alternative means of regulation we might all be able to get behind.
I am definitely on board with the idea of developing plastic-eating microbes. Or biodegradable plastics. You are right that the problem is not the plastics themselves, but the fact that they are not biodegradable and are being diposed of in such a way that it ends up in our water and food.
But I'm not convinced those developments would be made without some kind of pressure? You are very right that it could go wrong in the wording of that pressure if it somehow stifles those innovations. But, just as an example, the regulations on CO2 don't specify how companies should limit CO2, just that they have to. My husband works in the refractory industry and every manufacturing process (steel, glass, concrete, etc) is now looking at nuclear as a way of doing that (as well as other technologies). The regulation is forcing them to innovate. They wouldn't have done that on their own!
Kudos for tackling some of these loaded terms. "Capitalism," not to mention "late-stage capitalism," makes me want to quote Inigo in The Princess Bride, "You keep using that word. I do not think it means what you think it means." Entrepreneurial markets or simply free enterprise are much more meaningful and accurate terms.
Why do people talk about the "perverse incentives" of markets but not the perverse incentives of government agencies? How are there "market failures" but no government failures? The one that makes me feel like fingernails on a chalkboard is "living wage," especially as used to justify the terribly destructive minimum wage laws.
Very good point! There are definitely market failures, but also government failures too!
I just returned from a special jurisdiction that allows you, as a company, to choose your own set of regulations--or choose the common law. This allows companies incorporated there to serve markets that are better regulated, or at least that they are used to serving or want to serve. // Interestingly, the commenter above lives in a competitor jurisdiction. But the big idea is competition among systems and jurisdictions. Competitive governance yields better outcomes, whether or not one is for or against regulation in general. The future is bright and open-source law is the wave of the future!
Very fascinating!
Is there somewhere I can learn more about these special jurisdictions? Or rather, the companies that exist within them?
Absolutely!: You can start with prospera.hn or perhaps read this article by Scott Alexander. https://www.astralcodexten.com/p/prospectus-on-prospera (Note there are other ZEDES, such as Morazon worth exploring. https://chartercitiesinstitute.org/ciudad-morazan/
Wow, that ACX article is incredible. Thank you for sharing!
Amazing. Thank you so much!
I loved this response, and especially your ideas to solve some of the problems with capitalism (like long term incentives for companies! Yes!).
As for the give and take between free market capitalism and government regulated capitalism, it feels very case by case to me. There have been times government regulation/incentives worked very well. And times it didn’t. It seems we’re figuring out in real time where it helps and where it hinders!
Where has gov regulation "helped" the free market?
A few places where government regulation has helped humanity: limiting Co2, eliminating single use plastics (in some countries), right to repair laws have forced technology to be made so that it can be fixed. Some places where government regulation hasn't helped humanity: zoning laws that prohibit building, banning alcohol, etc....
Dear Elle, we should always ask "Compared to what?" This gets us into a tradeoff mindset. So, have government regulations limiting CO2, taken together, helped humanity on net? That is certainly arguable. For example, if domestic manufacturers find that energy costs are too high due to regulation, then offshore production or refining to China or India, does that help humanity? If so, how? Eliminating single-use plastics means that Southeast Asia dumps 90 percent of the plastic into the oceans anyway, but Americans drink from crappy paper straws, even though we put our plastics in landfills or recycle them (recycling also being a costly, environmentally unfriendly form of regulation). Maybe regulations have helped in some instances, particularly where property rights / torts are difficult to enforce. But most of the time they are a means by which special interests game the system at the expense of smaller competitors and consumers.
Well, but if a country eliminates single use plastics, it forces companies to not use them in their manufacturing processes, thus producing less plastic waste from the get go (even if not all countries have this regulation). It's better to produce less plastic waste from the start, then to have to figure out what to do with the waste on the backend.
There are certainly instances where government regulation has hindered rather than helped. But there are also instances where government regulation has helped rather than hindered. It is not black and white!
Nothing is black and white, and on that we certainly agree. Still, every decision involves tradeoffs. I'm not sure that forcing companies not to use single-use plastics is altogether a good thing. Depending on the region or country, disposal costs (price) helps to determine whether putting something into a landfill versus recycling is the better option. In most areas of the US, landfill space is abundant and the practice is very clean. Still, perhaps price pressure could help an entrepreneur develop a special kind of plastic-eating microbe? A plastic that is otherwise biodegradable? The blanket coercive policy almost always short-circuits the discovery process, and can steamroll over the delicate shoots of possibilitiy. Never mind that we end up with packaging that is more expensive, easier to steal, less convenient, or more prone to spoilage. All of these are things people value about plastic and their values shouldn't count for nothing. This is not to argue that they should be allowed to toss their plastics into the sea. It is merely to say that they should bear full disposal costs and let regional entrepreneurs respond accordingly. That would be an alternative means of regulation we might all be able to get behind.
I am definitely on board with the idea of developing plastic-eating microbes. Or biodegradable plastics. You are right that the problem is not the plastics themselves, but the fact that they are not biodegradable and are being diposed of in such a way that it ends up in our water and food.
But I'm not convinced those developments would be made without some kind of pressure? You are very right that it could go wrong in the wording of that pressure if it somehow stifles those innovations. But, just as an example, the regulations on CO2 don't specify how companies should limit CO2, just that they have to. My husband works in the refractory industry and every manufacturing process (steel, glass, concrete, etc) is now looking at nuclear as a way of doing that (as well as other technologies). The regulation is forcing them to innovate. They wouldn't have done that on their own!