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Ernest Partridge
Chapter Eleven
The Market: Invaluable Servant, Ruthless Master
[Much more to be added here, at the beginning of the chapter]
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Market Failure: The Back of the Invisible Hand
The concept of "the invisible hand," cherished by
self-designated "conservatives," has its origin in Adam Smith’s
Wealth of Nations.
[The individual] neither intends to promote
the public interest, nor knows how much he is promoting
it... [H]e intends only his own security; and by directing
that industry in such a manner as its produce may be of the
greatest value, he intends only his own gain, and he is in
this, as in many other cases, led by an invisible hand to
promote an end which was no part of his intention.
An unyielding faith in the infallible
beneficence of "the invisible hand," leads to "market
absolutism" – the doctrine that whatever government
attempts, privatization and the free-market can do better.
What market absolutists (unlike Smith) fail to notice, is that
not all workings of "the invisible hand" are beneficial. Some
unintended consequences of market activity are harmful -- "the
back of the invisible hand." Economists call these "market
failures."
One cannot enroll in an Introduction to Economics class, without
encountering the concept of “market failure” – the
acknowledgment that a totally unconstrained and unregulated free
market can, at times, have socially undesirable consequences (as
I will exemplify below). It is one of the most obvious and
incontrovertible facts of economics. Almost all of us are aware
of market failures, whether or not we have ever studied
economics.
Some students of Econ. 101 choose to major in Economics, and a
few of these earn doctorates in the field. Those scholars who go
on to work for The Heritage Foundation, The American Enterprise
Institute, The Cato Institute, and other such "conservative
think-tanks" somehow manage to completely forget about “market
failures.” The free unregulated market, they tell us, always
brings about the socially optimum result. Some examples (with my
italics):
-
"In the free market, the individual would
have to produce a good that the other person desired in
order to receive a good in return. Adam Smith's "invisible
hand" of the market guides all participants in society
to
promote the best wishes of everyone else by pursuing his
own wants and desires.” (Jacob Halbrooks1).
-
“[T]he free market allows more people to
satisfy more of their desires, and ultimately to enjoy a higher
standard of living than any other social system...
We need
simply to remember to let the market process work in its
apparent magic and not let the government clumsily intervene in
it so deeply that it grinds to a halt." (David Boaz2)
-
"A free market [co-ordinates] the activity of
millions of people, each seeking his own interest, in such a way as
to make everyone better off... Economic order can emerge as the
unintended consequence of the actions of many people, each seeking
his own interest." (Milton and Rose Friedman3).
Accordingly, governments should never interfere with
markets. Furthermore, governments should not own property, which is better
managed by private individuals. So argues the libertarian, Robert J. Smith:
“The problems of environmental degradation, pollution, overexploitation of
natural resources, and depletion of wildlife all derive from their
being treated as common property resources. Whenever we find an
approach to the extension of private property rights in these areas, we find
superior results."4
(My italics).
In short: let the free market decide. The mysterious “invisible hand” of the
free market will “promote the best wishes of everyone..,” (Halbrooks),
“[allow] more people to satisfy more of their desires” (Boas), and “make
everyone better off” (Freidman).
Practical experience tells us otherwise:
-
The unconstrained chemical industry promoted pesticides
and caused extensive damage to the ecosystem, until the public and then
the government, aroused by Rachel Carson’s book, “Silent Spring,” put a
stop to it.
-
Similarly, the chemical industry strenuously resisted
demands that it cease the manufacture and distribution of chloro-fluorocarbons
(CFCs), when atmospheric scientists discovered that the CFCs were eroding
the stratospheric ozone, which protects the earth’s inhabitants from
ultra-violet radiation. Once again, the federal government, joined by the
governments of other industrialized nations, enforced a ban on CFCs.
-
Scientific warnings about global climate change (“global
warming”) were countered by “junk science” sponsored by the energy industry.
Now, at last, as the fact of climate change becomes undeniable and widely
acknowledged, the same industry is promulgating the “line” that climate change
may not be all that bad, and might even be beneficial. Clearly, mankind can not
count on private enterprise to solve this grave crisis. Only international
agreement among the industrial nations will suffice. Meanwhile, the Bush
administration, on behalf of its “sponsors” the energy industry, is resisting
international action.
-
Reduced labor costs yield increased profits and increased
dividends to the stockholders of the corporation. Thus, if workers abroad accept
wages that are a fraction of the wages demanded in the United States, then the
"responsible" policy of the corporation executives is to re-locate jobs abroad.
"Outsourcing." The consequences to the displace workers, and eventually
to the national economy, is devastating. But strictly speaking, that is not the
concern of the corporation. Not, that is, unless the government intervenes with
tariffs, tax incentives, regulations, and laws.
-
Finally, the tobacco industry, whose corporate responsibility to
its stockholders is to maximize profits, successfully marketed its products to
the point where half of the US population were smokers. As a result, almost a
half million Americans die prematurely each year – more than the total US
casualties in World War II. Today, only a fifth of adult Americans are smokers.
No thanks to the industry. Once again, government intervention, vigorously and
persistently opposed by the tobacco industry, has curtailed marketing and has
publicized the health hazards of smoking, saving the health and lives of
millions.
We are all quite familiar with these “market failures,” and many
more. It is obvious that, in numerous undeniable cases the unregulated free
market fails to “make everyone better off,” as Milton Friedman would have us
believe. So why, if market failures are so compellingly obvious, should we even
bother to mention them? The answer is that our present government is dominated
by individuals who behave as if they don’t recognize these malevolent
consequences of free markets. So one after another, regulations and laws
designed to correct market failures are being dismantled, as government
regulatory agencies are staffed with lobbyists and officers from the
corporations that these agencies are charged to regulate.
But why do markets fail to produce optimal results for society at large?
Railroad tycoon, William Vanderbilt (1856-1938) said it all: “the public be
damned, I work for my stockholders.” Moreover individual entrepreneurs and
workers also want and strive for what is best for themselves. Indeed, as any
neo-classical economist will insist, personal want-satisfactions (e.g., profits)
are what drive an economy.
Implicit in market absolutism and libertarianism is the belief that what is best
for each individual and each corporation is best for all individuals – in other
words, for “society at large.” As President Eisenhower’s Secretary of Defense,
Charles Wilson, put it: “What is good for General Motors, is good for the
country.5
Market absolutism, like "young-earth creationism" and biblical literalism, is a
dogma, and thus it is untouched by hard evidence and practical experience.
"Market -- good; Government -- bad. Period! Now don't
confuse us with the facts."
Those who are not captivated by the dogma of market absolutism (i.e., most of
us), know better. We trust the scientists who tell us that pesticides damage the
ecosystem, that CFCs erode the ozone in the stratosphere, that the continuing
use of fossil fuels is changing the climate. And we know that smoking causes
lung cancer and premature death – the cigarette packs tell us so, not because
the tobacco companies warn us out of a sense of social responsibility, but
because the government requires them to print the warnings.
Government regulation, and laws restricting commercial activity, arise, not from
dogma, but through accumulated practical experience and political action. As
human institutions they are imperfect, which means, to be sure, that they are
sometimes excessive. The appropriate response to “insolence of office” is
reform, not abolition of the office – reform through the same processes of
practical experience and political action.
As James Galbraith puts it:6
“A new spirit of pragmatism surely requires that we discard
the metaphor of market determinism – whole and entire. No more, let us bow
and scrape before that altar. Markets have their place – they are a
reasonably open and orderly way to assure the distribution of services and
goods. They are not a general formula for the expression of social will and
the working out of social problems.”
Corporations quite properly work for the stockholders, and
private individuals, in their economic activities, work for themselves and their
families. But when these corporate interests and private activities cause social
harm, who or what is most authorized to act in behalf of society – of all the
people?
The solution is the same in all civilized societies: the law and the government
that enacts and enforces the law. To be sure, law and government can be despotic
and oppressive, and when they are, “it is [the] right, it is [the] duty” of the
people “to throw off such government.” (The Declaration of Independence). Such
"despotism" surely includes the situation that we face today, as the
corporations that should be regulated by government, instead have taken control
of the government. However, in liberal democratic countries, law and government,
unlike private enterprises, are authorized to act in behalf of the public at
large. This, the unregulated free market can not do and must not presume to do.
There is nothing new or startling about these political principles. They are
enshrined in our founding documents:
We hold these truths to be self-evident: that all men are
created equal; that they are endowed by their Creator with certain
unalienable Rights; that among these are Life, Liberty, and the pursuit of
Happiness. That, to secure these Rights, Governments are instituted among
Men, deriving their just powers from the consent of the governed, That,
whenever any Form of Government becomes destructive of these ends, it is the
Right of the People to alter or to abolish it, and to institute new
Government... (Emphasis added).
And note in the Preamble to the Constitution, these enumerated
legitimate functions of government: “... establish Justice, insure domestic
Tranquility, provide for the common defence, promote the general Welfare, and
secure the Blessings of Liberty to ourselves and our Posterity.”
And yet, the dogma of the ruling elites would ordain that we put all these
founding principles aside, and in matters of public interest and social welfare,
“let the market decide.”
These individuals have the nerve to call themselves “conservatives.”
[RELATE THIS SECTION TO MARKETS]
Are We Consumers Merely, or Are We Citizens?
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If a nation expects to be ignorant and free, it
expects what never was and never will be... the people cannot be
safe without information.
Thomas Jefferson |
Are we consumers merely, or are we citizens? Perhaps a more precise, if
extended, phrasing might be: Are we being treated and are we behaving as mere
consumers? Or, on the other hand, are we not entitled to be treated, and are we
not obliged to behave, as free and rational citizens of a functional democracy?
If we look for an answer to the media and to our political discourse, the
indications are not encouraging. There we may find that those who are soliciting
our votes and our political support act like hucksters delivering sales pitches
to a "marketplace" of consumers, rather than honorable advocates offering
discerning and responsible citizens well-formed arguments based upon confirmable
evidence and logical inference.
The distinction between the consumer and the citizen is crucial to an
understanding of the causes of the degradation of our political institutions.
That distinction might also point the way toward a restoration of our democracy.
As we examine this distinction, we may now “cash in” the concepts and analyses
that we have gained earlier in this book.
The model consumer is the perfect egoist – "economic man." He sees the world
through "the mind's I" and is motivated by the desire to "maximize preference
satisfaction" (to use the economists' jargon). "Values" are interpreted by the
consumer as "prices" – willingness to pay – and thus moral value (i.e., virtue
and justice) is "factored out." Those with something to sell – be it a product,
a service or a candidate – address the consumer with any device found to be
effective: imagery, slogans, deception, fallacy, "spin," and even slander and
outright lies, if one can get away with it. If need be, these devices include
"junk science," as when the tobacco industry sets up "research institutes" to
"prove" that smoking is not harmful, or when the fossil fuel industry concocts
"scientific reports" to "prove" that global warming is a "myth."
In contrast, the ideal citizen takes a "moral point of view," by perceiving
himself or herself as one equal member among many engaged in cooperative
activity for mutual advantage, i.e. a "community." The citizen, as a moral
agent, acts not only from personal desire, but also from abstract principle,
through which the citizen is enabled to recognize rights and responsibilities in
oneself and in others, and just laws and political institutions in society. The
moral point of view enables one to recognize excellence in individuals
("virtues") and in societies ("justice"). As we have seen, these "moral values"
are independent of economic values ("prices"). In political debate, the ideal
citizen (like an "ideal" judge or juror) is unmoved by devious salesmanship and
is persuaded by "the better case" – the clearer presentation of facts, the
greater weight of evidence, and by the more coherent and consistent argument.
In a nutshell, the governing impulse of the consumer is "I want." The governing
impulse of the citizen is "we need."
Sadly, it appears that the American public is behaving ever more as a
marketplace of consumers, and ever less as a polity – a community of citizens.
Surely our politics both reflects and promotes this trend, as rational discourse
and argument is replaced by such marketing devices as imagery, slogans, and
"spin."
Some cases in point:
Late in the Reagan administration, "60 Minutes" broadcast a segment dealing with
the Reagan policies toward senior citizens – social security, medicare, etc. The
script contained a devastating criticism of Reagan's broken promises and the
failure of his administration to address the problems of the elderly. Over this
text, the screen showed a smiling "Gipper" addressing various crowds and token
"citizens." After the broadcast, Michael Deaver, Reagan's publicist, personally
thanked the reporter, Leslie Stahl, for the "very favorable" portrayal of the
President. Stahl was stunned – this was not the intended message. But as the
media-savvy Deaver knew full well, verbal content counted for little – image was
everything.
The supremacy of imagery and connotation (the tools of salesmanship) over
evidence and logic, appears time and again in our political campaigns. In the
1984 election, polls disclosed that on almost every issue, the public preferred
the Democratic to the Republican positions. Yet Reagan trounced Mondale.
Likewise in the 2000 campaign: the public overwhelmingly preferred Gore's
position on the issues to those of Bush. Moreover, during the debates, Gore
clearly displayed a superior mastery of facts and policy, not to mention the
English language. Yet the GOP "spin doctors" and the pundits successfully
directed public attention away from issues and content and toward "drama
criticism" – Gore's body language, and Bush's "likeability."
In 2004, the media quickly “moved on” to new entertainments after the
presidential debates, at which George Bush was acutely embarrassed. The totally
unsubstantiated “swift boat” smear against John Kerry kept the public attention
away from important issues, while Bush’s derelictions during the Vietnam war
received no media attention – “move along, folks, nothing to see here.” A
majority of the voters went to the polls believing, falsely, that Saddam Hussein
was involved in the 9/11 attacks, or else was in league with Al Qaeda and Osama
bin Laden. There is only one plausible source of this regressive-serving
misinformation: the corporate media.
The GOP handlers learned well the advertiser's rule: "Don't sell the steak, sell
the sizzle!" And the media was all too willing to send the message.
The triumph of salesmanship over substance in politics is exemplified by the use
of polls and focus groups by campaign strategists. "Typical" voters are
meticulously studied, not for their ideas or their responses to arguments, but
for their gut reactions. "Real time" voter responses to campaign speeches are
electronically collated and graphically displayed. "Low negative" words and
phrases ("liberal") are then incorporated into attack ads, and "high positive"
words ("compassionate") are put to use in slogans and speeches – hence
"compassionate conservative." Fully formed ideas (which require full sentences)
and still less arguments (which require paragraphs of coherently related
sentences) have no place in this new science of "voter profiling."
With the voter reduced to a bundle of feelings and impulses – "preference maps"
as the economists call it – there is little perceived need either by campaigners
or the media, to deal with old-fashioned concepts such as issues, evidence,
argument or logical cogency. As reasoned argument disappears from public
discourse, the public loses interest in serious discussion of public issues. In
turn, the media cut back on programming dealing with public issues. In what
remains of "news" programs on the TV, images, trivia, and personalities (e.g.,
runaway brides, missing vacationing teenagers, celebrity romances, etc.) replace
issues (social security, economic justice, civil liberties, campaign finance, a
foreign war). Serious on-air discussion is derided as "talking heads." (By
"talking heads" is meant such insignificant events as the Sermon on the Mount
and the Gettysburg Address). "Entertainment" becomes the supreme commodity in
the media – thence "info-tainment" and "edu-tainment."
In sum, we are being treated more and more as mere bundles of "gut preferences,"
by our political leaders, and by the oligarchy that selects, finances and thus
"owns" these politicians. (By "oligarchy," I mean primarily individuals among
that fortunate one-percent that owns 40% of the national wealth, virtually all
of the mass media, and which is the recipient of half of George Bush's tax
refund). And because we are treated by the oligarchs as "mere consumers," we are
evolving, ever more toward that strange abstraction, "economic man" – perfect
egoists striving for a maximum satisfaction of "felt preferences," bereft of
dignity, autonomy, compassion, self-sacrifice.. "Civil society" – a community of
shared ideals – is being replaced by an aggregate of alienated individuals who
"bowl alone" and retreat to the their private sanctuary in front of the TV.
To the oligarchs, the ideal "citizen" (better, "resident") is a worker who
produces wealth efficiently, consumes and wastes thoughtlessly and lavishly, and
willingly turns over the product of his labor to the oligarchs. In addition,
this ideal resident, while well-trained so as to increase productivity, will not
be well-educated to think critically or creatively, for original and dissenting
ideas may upset the efficiency of the marketplace. Instead, this individual will
obediently acquire the tastes, political loyalties and consumer preferences as
dictated by the oligarchs, and will not be distracted from his or her function
as an ideal consumer by troublesome political ideals. These individuals in
Marketplace America are not "created equal," rather they are valued in
proportion to their wealth – and by extension enjoy political power in
proportion to their capacity to finance politicians.
Thus American society is coming more and more to resemble a "corporate-nation,"
with the public at large as employees, the oligarchs as stockholders, and the
politicians as corporation managers. America, Inc.
This was not the sort of "citizen" envisioned by those who signed the
Declaration of Independence in 1776 or who ratified the Constitution in 1787. On
the contrary, the framers of our republic understood that the "life, liberty and
pursuit of happiness" promised in the Declaration were not and are not simple
commodities to be priced at the market, nor are the triad of political ideals
proclaimed in the French revolution: "liberty, equality, fraternity."
Furthermore, they did not conceive of the human being as a mere preference
bundle, malleable into a shape desired by marketing geniuses. Instead, they
affirmed that each infant and child deserved the care, nurture and companionship
that might engender lifelong sense of compassion and of justice. And they
believed that each individual is capable at birth of being educated to a
condition of knowledge and critical intelligence sufficient to assume the
personal responsibility of conducting one's own life, and the civic
responsibility of participating in the governance of a free and democratic
society.
We residents of "America, Inc." have drifted far from these ideals, and, as
obedient consumers, we may be ill-equipped to reclaim them. Great ideas and
moral principles do not lend themselves to the vivid images of the salesman.
These political ideals are not captured by slogans extracted from focus groups,
and they are often far removed from the "preference maps" of the economist. As
we become more accustomed to images and slogans and more estranged from ideas
and principles, the philosophical foundations of our republic decay and the
content is drained from our civic covenants. The resulting detachment of theory
and practice is alarming. "Equal justice under law" is carved over the entrance
of the Supreme Court, within which sit five seditious political hacks who
dispense unequal "justice." The words, "with liberty and justice for all" are
uttered daily in schools and at public occasions by a citizenry that takes no
notice and does not protest as those liberties and that justice are taken away
under the excuse of "national emergency." "Government of the people, by the
people, and for the people" is mocked in stolen elections, following which the
electorate is urged by the illegitimate "winners" (apparently successfully) to
"get over it."
The road back to authentic democracy will be difficult, for the oligarchs will
not willingly surrender their ill-gotten power and privilege. The means to that
restoration are familiar enough: a reintroduction of civic education ("Civics"
and History), both formal and informal (i.e., through the public media). The
media conglomerations must be broken up, and the "Fairness Doctrine" restored,
so that a variety of political opinions might be heard, and a broad range of
political issues discussed. Today, nothing remains of the alleged "public
ownership" of the broadcast spectrum save a pleasant fiction. Finally,
thoroughgoing campaign reform must be enacted. I will have more to say about the
means to this "restoration" of democracy and citizenship, as the book
progresses.
In sum, there are, I submit, two overarching questions that must be put to all
American citizens, but most directly to the media and the oligarchs:
(1) Are you bringing about the kind of country that you would wish for
yourselves, your children and your posterity to live in?
(2) If not, then what are you willing to do to prevent it?
These questions must be asked, again and again, until at long last we face the
implications of what we are doing to ourselves and to our republic.
- - - - - - -
We end as we began, but hopefully with the support of evidence and sound
argument:
The Free Market should count for something, but not for everything.
Free markets are invaluable servants and cruel masters.
11/16/07
NOTES AND REFERENCES
1.
http://www.geocities.com/libertarian_press/fundamentals2.html
2. David Boaz, Libertarianism, a Primer,
Free Press, 1997, p. 40, 185.
3. Free to Choose, pp. 13-14)
4. [CITE]
5. For a refutation, see Chapter Five.
6. “Toward a New Pragmatism,”
Association of American Law Schools, January 3, 2003.
www.journaloflawandsocioeconomics.com/Galbraithluncheon0302.pdf
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