Market economy externalities

[Ovi]

For all those free market supporters, whether from a capitalist or anarchist perspective, how should the issue of negative externalities (http://en.wikipedia.org/wiki/Externalities#Negative) be handled? As far as I can see, it's not handled at all by the market; it's completely the job of the government today to prevent the market from doing too much damage to the environment and to our own health.
(And what's wrong with democratic planning? If I am affected by your actions then I should have a saying.)

And of course, some of these negative externalities eventually lead to a tragedy of the commons (http://en.wikipedia.org/wiki/Tragedy_of_the_commons) situation, where multiple individuals, acting independently, and solely and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone's long-term interest for this to happen. Examples include overfishing and deforestation; in all cases, the market economy only 'intervenes' (by larger prices) when the damage has already been done.

So how exactly would a market economy take into account negative externalities and presumably stop pollution altogether if the majority of the people agreed that it's necessary to do?
If your only argument is: grandma can look up the internet too see if what she bought pollutes or not please don't respond. Boycotting never worked, never will and it's not a substitute for direct democracy.

[Lynx]

Carbon trading is an attempt to introduce a cost mechanism for CO2 emissions. As far as I know, cost/benefit mechanisms are the market solution to externalities.

[Havet]

Carbon trading is an attempt to introduce a cost mechanism for CO2 emissions. As far as I know, cost/benefit mechanisms are the market solution to externalities.

I pretty much agree with Lynx here. I think that the majority of the population will end up demanding certain cost mechanisms (hopefully through democratic vote and based on solid scientific studies) that will force the businesses to internalize some of the costs they usually didn't consider.

[Ovi]

Carbon trading is an attempt to introduce a cost mechanism for CO2 emissions. As far as I know, cost/benefit mechanisms are the market solution to externalities.
But how is carbon trading imposed by a government, whether it's a state or a local council, related to market economy? It's not a market mechanism at all, it's simply an outside regulation. I was not referring to how we can regulate the market but how can the market regulate itself. It looks like it can't.

[Agnapostate]

The advocate of laissez-faire capitalism truly has no satisfactory answer. It would require advocacy of Pigovian taxation, which they consider to be at odds with "free market" principles despite the fact that it minimizes coercion through ensuring that individuals and firms endure social costs. Some have attempted to steer the Coase theorem (http://en.wikipedia.org/wiki/Coase_theorem) in their direction.

[Lynx]

But how is carbon trading imposed by a government, whether it's a state or a local council, related to market economy? It's not a market mechanism at all, it's simply an outside regulation. I was not referring to how we can regulate the market but how can the market regulate itself. It looks like it can't.
The cap part is regulatory, as well as the technical definitions used (AAU, RMU, ERU, CER) but the trading aspect is market-based. Pollution is treated as a commodity.
http://en.wikipedia.org/wiki/Emissions_trading

It's not a panacea.

[RGacky3]

The thing is its a artificial market, pollution is treated as a commodity, but its not one, without the state forcing a cap there is no market, because without that pollution is essencially unlimited, without the state MAKING a market, there will not be one.

But externalities go way beyond just pollution.

[Ovi]

The cap part is regulatory, as well as the technical definitions used (AAU, RMU, ERU, CER) but the trading aspect is market-based. Pollution is treated as a commodity.
http://en.wikipedia.org/wiki/Emissions_trading

It's not a panacea.

The thing is its a artificial market, pollution is treated as a commodity, but its not one, without the state forcing a cap there is no market, because without that pollution is essencially unlimited, without the state MAKING a market, there will not be one.

But externalities go way beyond just pollution.


I agree. So in the end there is no market economy mechanism to handle negative externalities since any solution must be imposed outside of it, just like any regulation. So much with the free market bullshit.

[Lynx]

What are you referring to? Free markets without any regulation at all? This does not exist.

Abstract commodities have to be created.

[Ovi]

What are you referring to? Free markets without any regulation at all? This does not exist.

Abstract commodities have to be created.
I'm referring to mutualists, individualists and anyone else who thinks that a market economy can be efficient, fair and democratic and the only thing preventing it from doing its magic is the government. I say that it's not. If people want to change something yet they don't have the power to do it, then there's an authority that stops them. In this case that authority is the market economy.

[Lynx]

I'm referring to mutualists, individualists and anyone else who thinks that a market economy can be efficient, fair and democratic and the only thing preventing it from doing its magic is the government. I say that it's not. If people want to change something yet they don't have the power to do it, then there's an authority that stops them. In this case that authority is the market economy.
By my understanding free markets operate best when the participants have equal spending power, thereby maximizing the velocity of exchange and minimizing profit. Mutualists do not view the government as an obstacle to free markets, certainly not in the way anarcho-capitalists do.
Privatizing the entire economy would require standards and regulations. There's no escaping that requirement. Decentralization would result in many more instances of standards and regulations, just as we have today.

[Ovi]

By my understanding free markets operate best when the participants have equal spending power, thereby maximizing the velocity of exchange and minimizing profit. Mutualists do not view the government as an obstacle to free markets, certainly not in the way anarcho-capitalists do.

There are mutualists on this forum (aka hayenmill :lol:) whose entire criticism of the current system revolves around the state granting privileges to certain corporations.


Privatizing the entire economy would require standards and regulations. There's no escaping that requirement. Decentralization would result in many more instances of standards and regulations, just as we have today.
Mutualism is not about privatization, but I agree that we should have more saying than the market allows us.

[Lumpen Bourgeois]

As I understand it, most free-market advocates doubt that there are very many negative externalities to begin with. Check out the website (http://www.junkscience.com/) of the libertarian, Steven Milloy, for example. Global warming, social costs of industrial pollution, carcinogenic pesticides, risks associated with cigarette smoking etc. are all myths concocted by environmental groups in collaboration with government and are therefore all cases of "junk science". The logical corollary of Steven Milloy's world-view is that the only credible and objective science is that which is conducted by industry or scientists funded by industry, such as himself. (That is, if you consider Milloy to be a scientist.)

Any negative externalities left over are either so negligible that it really doesn't warrant government regulation or acceptable given that the positive externalities of industrial activity supposedly outweigh them.

Either that or a free market court system of some sort will manage the rest.

Refer to the Mises, Cato, or Independent institute for more informatiion. But that's the "free market approach" to negative externalities in a nutshell.

[Lynx]

There are mutualists on this forum (aka hayenmill ) whose entire criticism of the current system revolves around the state granting privileges to certain corporations.
Are you being cruel? Mutualists are opposed to current property relations, are they not?

Mutualism is not about privatization, but I agree that we should have more saying than the market allows us.
What is anarcho-capitalism about?
We have more say by being on an equal footing with everyone else. Something which cannot happen until productive property is democratized.

Refer to the Mises, Cato, or Independent institute for more informatiion. But that's the "free market approach" to negative externalities in a nutshell.
Well, emissions trading is what is being proposed to address the situation. If it isn't the position of liberatrians, Miseans or Catoists, then it remains the position of the guardians of the status quo.

Denying there are externalities is another matter.

[Agnapostate]

I'm referring to mutualists, individualists and anyone else who thinks that a market economy can be efficient, fair and democratic and the only thing preventing it from doing its magic is the government. I say that it's not.

I'd presumed that you spoke of "free markets" as advocated by proponents of "laissez-faire" capitalism. Market socialism is far more immune to the effects of negative externalities and other forms of market failure than capitalism is (though not as immune as planned socialism, I'd say), but there are stronger criticisms of market socialism to advance. The strongest (in my opinion) is that market socialism effectively generates a re-created labor market through the nature of its division of labor, as expressed in Weiss's A Comparison of Economic Democracy and Participatory Economics (http://www.hartford-hwp.com/archives/25/133.html).


A major issue raised by Albert and Hahnel regarding division of labor is their claim that markets inherently produce class division. Albert says that even if everyone started out with a [balanced job complex] in a market economy, class divisions would arise. Without taking the argument that far, it is evident that in a market system with uneven distribution of empowering work, such as Economic Democracy, some workers will be more able than others to capture the benefits of economic gain. For example, if one worker designs cars and another builds them, the designer will use his cognitive skills more frequently than the builder. In the long term, the designer will become more adept at conceptual work than the builder, giving the former greater bargaining power in a firm over the distribution of income. A conceptual worker who is not satisfied with his income can threaten to work for a company that will pay him more. The effect is a class division between conceptual and manual laborers, and ultimately managers and workers, and a de facto labor market for conceptual workers.

I don't know if many or most market socialists would even find that objectionable.

[Ovi]

Are you being cruel? Mutualists are opposed to current property relations, are they not?

That's not the point.


What is anarcho-capitalism about?
We have more say by being on an equal footing with everyone else. Something which cannot happen until productive property is democratized.

I propose economic democracy, not market economy.


Well, emissions trading is what is being proposed to address the situation. If it isn't the position of liberatrians, Miseans or Catoists, then it remains the position of the guardians of the status quo.

Denying there are externalities is another matter.
As it was already said, emission trading is not a market economy construct, but a regulation imposed by a government.

[Lynx]

As it was already said, emission trading is not a market economy construct, but a regulation imposed by a government.
No, this regulation was done to create a commodity, which is subject to market mechanisms. Other approaches such as penalties or taxation are considered 'non-market based' and were rejected.

[Ovi]

No, this regulation was done to create a commodity, which is subject to market mechanisms. Other approaches such as penalties or taxation are considered 'non-market based' and were rejected.
How can a market impose emission trading? It can't. There needs to be another authority to impose it.

[Lynx]

How can a market impose emission trading? It can't. There needs to be another authority to impose it.
If emissions trading were profitable, it wouldn't have to be imposed.

[Ovi]

If emissions trading were profitable, it wouldn't have to be imposed.
A company buying the right to pollute does it because it's forced to. Otherwise it would just take it. Is there anything worth discussing here?

[Lynx]

A company buying the right to pollute does it because it's forced to. Otherwise it would just take it. Is there anything worth discussing here?
Cap and trade is supposedly more flexible and efficient than the alternative of taxes, penalties or what have you. (Libertarians propose reforming tort laws to scare polluters into more responsible conduct)
Your question was answered - can you think of other ways to eliminate externalities?

[Ovi]

Cap and trade is supposedly more flexible and efficient than the alternative of taxes, penalties or what have you. (Libertarians propose reforming tort laws to scare polluters into more responsible conduct)

No it wasn't. Whether or not cap and trade is better than taxing it's irrelevant, none would exist without being imposed on the market. A completely free market envisioned by agorists would probably dispense itself of this.


Your question was answered - can you think of other ways to eliminate externalities?

Yes, abolish the market.

[Havet]

Yes, abolish the market.

Or establish solid property boundaries so as to settle disputes more rationally


Nobel Prize-winner Ronald Coase further undermined interventionist welfare analysis with the publication of his paper, "The Problem of Social Cost," in 1960. Coase demonstrated that as long as property rights are clearly defined and transaction costs are low, the individuals involved in these situations can always negotiate a solution that internalizes any externality.


Consider the case of river pollution from the foozle factory. If the people downriver from the factory have a property right in the river, the factory will have to negotiate with them in order to legally discharge waste through their property. We can't say what solution the participants might arrive at-the factory might shut down, the people downriver might be paid to move, or the factory might install pollution control devices or simply compensate those affected for suffering the pollution. What we can say is that, within a system of voluntary exchange, each party has demonstrated that it prefers the solution arrived at to the situation that existed before their negotiations.


Social pressure also plays a role in handling potential externalities. If I don't paint my house, my neighbors will start to grouse. I may not get invited to the next block party. Hayek contends that those who value liberty should prefer social pressure against "deviant" behavior to outright bans. ("Deviant," in this case, meaning simply behavior of which many people disapprove but which does not violate their right to life or property.) If I highly value having a house painted mauve, I can ignore my neighbors' mocking glances and jeers. But if the government regulates house colors, I'm stuck.

[IcarusAngel]

The Chicago school of Economics is a fringe economics department that received nobel prizes due to their influence on the committee. Half of the nobel prizes they received had little to due with their own economics, and Hayek wanted a dictatorship of the financial elite in charge of society.

A property rights solution is a government solution since the government is in charge of protecting property. Furthermore, that analysis ignores the fact that the company could own the river, and the land, thus it would pollute both and since it was producing cheaply it would be nearly impossible for other people to compete with the company, but it would keep making money since people have to have energy (or whatever the company was producing).

That is no solution to the problem at all, and is a big government solution anyway.

[Lumpen Bourgeois]

How could I forget about that Coase Theorem? Free marketeers tend to invoke it every time the problem of externalities is dredged up. What they usually fail to mention is that Coase only proposed that his solution would work under conditions of zero to low transaction costs. In other words, unless a "free market" could fulfill this prerequisite, then Coase's proposal of "well-defined property rights" falls short in rectifying negative externalities.

Here are two direct quotes from Coase himself:


The argument has proceeded up to this point on the assumption . . . that there were no costs involved in carrying out market transactions. This is, of course, a very unrealistic assumption

and here


...while consideration of what would happen in a world of zero transaction costs can give us valuable insights, these insights are, in my view, without value except as steps on the way to the analysis of the real world of positive transaction costs. We do not do well to devote ourselves to a detailed study of the world of zero transaction costs, like augers divining the future by the minute inspection of the entrails of a goose.

Source (http://www.questia.com/googleScholar.qst;jsessionid=L0pBMgnZLZqQwDv2TTGLh rlc7hsDqBppQTtYZ6spnZY80xpzvyJH!323863511!12024405 08?docId=5000204926)

[Agnapostate]

The Chicago school of Economics is a fringe economics department that received nobel prizes due to their influence on the committee. Half of the nobel prizes they received had little to due with their own economics, and Hayek wanted a dictatorship of the financial elite in charge of society.

Are you sure you're not referring to the Austrian school, which was Hayek's home, rather than the Chicago school? The Austrian school is rather fringe and marginal and is a heterodox school, but the Chicago school's advocacy of neoclassical economics renders them quite mainstream.

[Lynx]

No it wasn't. Whether or not cap and trade is better than taxing it's irrelevant, none would exist without being imposed on the market. A completely free market envisioned by agorists would probably dispense itself of this.
A market based solution is seen as more efficient than a big government solution. This is in accordance with mainstream ideology. Agorists would propose something else, so what? They're not in power.

Yes, abolish the market.
Immaterial. The negative effects of any activity must be quantified before it can be addressed.

[IcarusAngel]

Are you sure you're not referring to the Austrian school, which was Hayek's home, rather than the Chicago school? The Austrian school is rather fringe and marginal and is a heterodox school, but the Chicago school's advocacy of neoclassical economics renders them quite mainstream.

hayenmill was mixing and matching his sources as usual.

And the Chicago school is not "mainstream" and they different with modern economists in many areas.
http://www.huppi.com/kangaroo/L-chimain.htm

Their nobel prizes were due to their influence on the committee. No field has received as many nobel prizes for now discredited work as economics.

[IcarusAngel]

IMHO they all miss the central point: The Coase "theorem" is complete and utter nonsense. Coase gave some examples on how externality properties can sometimes be reduced via private bargains. Stigler made a "theorem" out of it. But it is simply wrong. One cannot talk about an efficient level of externalities independently of distributional questions, unless preferences are more or less (http://repositories.cdlib.org/ucsbecon/bergstrom/1983B/) quasilinear. And even if they are, preferences are private and there is no bargaining protocol that leads to efficiency (http://yetanothersheep.blogspot.com/2006/12/anti-coase-theorem.html) then.

So the distributional part and the bargaining part is wrong. I think that´s pretty much everything that is in there. Have I missed something?

http://yetanothersheep.blogspot.com/2008/04/coase-theorem-still-dead.html

[Agnapostate]

And the Chicago school is not "mainstream" and they different with modern economists in many areas.
http://www.huppi.com/kangaroo/L-chimain.htm

There's nothing there to find major disagreement with, but it's simply not true that the Chicago school is not mainstream. Their status as the foremost neoclassical advocates place them firmly in the mainstream, with the neoclassical synthesis placing them and the Keynesians (with their thought dominating the freshwater and saltwater schools in the university system, respectively), in the orthodox position.

[Havet]

hayenmill was mixing and matching his sources as usual.

Fuck you, ignorant scum. I didn't mix anything. Its you who can't tell the difference between Chicago School of Economics and Austrian School of Economics.


Their nobel prizes were due to their influence on the committee.

Can you PROVE this? I thought so. Stop making empty statements, you are hurting your credibility even more.

[Skooma Addict]

The Chicago school of Economics is a fringe economics department that received nobel prizes due to their influence on the committee. Half of the nobel prizes they received had little to due with their own economics, and Hayek wanted a dictatorship of the financial elite in charge of society.

Are you implying that Hayek was a member of the Chicago School? The Chicago School really also isn't "fringe," even though the School definitely is not what it used to be.

[Ovi]

A market based solution is seen as more efficient than a big government solution. This is in accordance with mainstream ideology. Agorists would propose something else, so what? They're not in power.

But it's not a market solution. Abolish the government and let the market control every aspect of the economy and your 'market solution' will go to dust.


Immaterial. The negative effects of any activity must be quantified before it can be addressed.
We all know that pollution exists and that it affects us all. If we all would have a saying in how things are run we could choose to abolish it. A market can't do that because it's contrary to democratic power.

And the Coase solution it's so dumb it's not even worth discussing it. Not everything is private property, air it's not private, the ocean it's not private. Polluting the air would affects everyone on this planet and overfishing or dumping waste in the ocean affects every other fisherman. The only way to prevent them is to make property collective and subjected to direct democratic control.

[Lynx]

But it's not a market solution. Abolish the government and let the market control every aspect of the economy and your 'market solution' will go to dust.
I'm skeptical of unregulated markets, but it has never been tried, so I can't dismiss it completely.

We all know that pollution exists and that it affects us all. If we all would have a saying in how things are run we could choose to abolish it. A market can't do that because it's contrary to democratic power.
We do have a say, belatedly, after much struggle. Capitalists do not like regulation, it hurts profits. But when society demands cleaner air, or higher environmental standards, business has no choice but to play according to the new rules.

And the Coase solution it's so dumb it's not even worth discussing it. Not everything is private property, air it's not private, the ocean it's not private. Polluting the air would affects everyone on this planet and overfishing or dumping waste in the ocean affects every other fisherman. The only way to prevent them is to make property collective and subjected to direct democratic control.
I agree. I don't see how individual property/property rights owners would be able to see the "big picture". They would have to be regulated, without exception. Perhaps they would make for more efficient managers, but if that is the case, no need to have them as owners.

[Agnapostate]

There is a market socialist take (http://www.politicalforum.com/2073948-post94.html) on the Coase Theorem that I've seen suggested by a poster on another forum.


The Coase Theorem, for the unwary, suggests that externalities are simply about imperfect property rights. Indeed, given the possibility of bargaining between the winner and losers of some activity, the assignment of property rights can actually be superior to the tax solution. However, the theorem is actually about advertising the importance of transaction costs. Imperfect property rights will be the norm, ensuring that the capitalist market- where profiteering is the objective- will thrive off of coercive relations

Even if incorrect, it's amusing to see that he knows more than the anti-socialists regardless.

[IcarusAngel]

Are you implying that Hayek was a member of the Chicago School? The Chicago School really also isn't "fringe," even though the School definitely is not what it used to be.

Actually hayek was influential to the Chicago school and many Chicago school economists were large fans of his work:
http://en.wikipedia.org/wiki/Chicago_school_of_economics#Friedrich_von_Hayek

However, I was responding to hayenmill's sources: one of hayek, the other of a (clearly discredited) theory.

Furthermore, this obsession of "school" of thought shows your anti-scientific beliefs. Either something is true or it isn't; it doesn't matter what "school" it's coming from, be it the Chicago school, or the Misean school. Truths are established by evidence, mathematical and logical reasoning, and so on.

The very fact that so many necessary conditions are up for debate in economics, and the approach that some people take, show that the field is more akin to a religious institution, rather than a field of study.

Anyway, haynemill (who also is ignorant of political theory and of calculus) found something on the internet and used it as a source, as something proven, when in fact it's highly questionable.

[Havet]

However, I was responding to hayenmill's sources: one of hayek, the other of a (clearly discredited) theory.

Anyway, haynemill (who also is ignorant of political theory and of calculus) found something on the internet and used it as a source, as something proven, when in fact it's highly questionable.

My source never mentioned any school of Hayek, it only slightly mentioned his name in the example of the Coase Theorem. I don't understand what pleasure you take from inventing things.