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Dániel Boros

Question regarding market failiure

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My question is: what is the official (or non official) stance of objectivists regarding the role of government in the case of pollution, market failures and cost on third parties?

See video reference for the libertarian position.

Should the government intervene -like the libertarians say- or should it not? If should how (tax/regulation, federal level/or below)? If not why?

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This asks far too many questions for a single answer, and those answers come largely from economics rather than philosophy. If you could break it down into narrower questions, some here (not I) could probably answer those questions or refer you to some readings.

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Also, if you search for any of these topics separately using the forum search, you will find many threads that already hash a *lot* of it out. There are so many scenarios and contexts from which to answer the question of government and its relation to a free market economy. After you familiarize yourself a little, try asking something specific, like, "Should government regulate natural waterways?" (there are already OO.com threads on this), or, "In principle, should a government regulate the free market?" (this is probably also discussed at length on the forum).

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Pollution, should the government intervene or not?

It's a simple, but very general question.

The simple answer to your simple question is that it depends on the context it takes place in. The proper principles to apply to these contexts should be that of property rights, not environmentalist ideology.

Now, if you care to be more specific about the context, we'll be happy to answer or direct you to a different thread (I at least will do it with a link, not by just telling you about the search function. I never understood why people feel the need to tell someone there's a search function on a forum. There always is, and everyone already knows it).

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If pollution injures people or destroys their property, government ought to intervene to protect them. This has been standard tort law for centuries. Much of what government could do, rightly, is to recognize and codify property rights - e.g. to air and to water. Much of the pollution we see comes from treating these as free goods that nobody owns and nobody is responsible for. Once again, there's a lot of literature out there. The Cato and Reason websites might be good places to start your research.

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the general principle is that the government is a trust between people. Instead of the people using force against each other (eye for an eye), they created a government. This government has a monopoly on coercion as a trust between the people it governs with the understanding that it will not initiate coercion. Ie, it will never throw the first punch. As such, there are 3 basic valid branches of the government (as written by jefferson I forget when). 1. police - to deal with domestic threats 2. military - to deal with foreign threats 3. courts for people to work out their disputes.

For pollution, if one citizen effects another directly via pollution, this is basically in the category of the courts. The other issue is about one affecting a third party. This is where the government comes in to do something about it. The basic principle is that pollution affecting a third party is coercion so the government has to step in. (if your factory imposes a higher cleaning bill, or more trips to the doctor, this concept)

Once this principle is established, then it's the matter of degree and corrective action. Some cases, it's a tax like gas guzzler cars. In other cases it's a halt and desist, like in the case of soil contamination by old perc-based dry cleaners. They have to literally dig up the entire area and cannot reopen until the contamination is resolved.

[[[---]]]

In the case of market failures, milton friedman and ludwig von mises, menger and many others who are basically from the austrian school of economics, not the keynsian side, basically have shown that the inefficiencies in the market, from free-market capitalism, have come from government interventions. Entrepreneurs only exist in free societies.

If you look into it, the government really only has the power to say 'no'. All this talk about creating jobs is nonsense, because how can one say 'no' in order to create jobs? The power of production, the power of 'yes' is with the entrepreneur. And the business only* has the power of production. A monopoly is impossible unless it gets help from the government.

In short, market failures are caused by the government. But you also have to clarify what a failure really is. How does one define failure. In free market economics, there are successes and failures in the context of poorly managed businesses or making a bad call, or making mistakes for which the loss of property and money is the rightful consequence. But to define a market failure, to say that the system of trades between people has failed, or that monetary uses have failed, is simply not correct. Inflation and hyperinflation is nothing more than the government increasing the money supply. This is fact shown in countless countries going back 5000 years. The hedge for this government inflation or fiat money system has always been something objective, basically gold and silver.

And to say that the market has failed because all the businesses are going closing up, is also not a market failure because when the policies suck, the trades happen on the black market. This is shown during the prohibition years and today with financials. Instead of people going to the banks for loans (which is near impossible), people are looking for money in their own communities. So, the banks are removed from the picture.

Market failure? never happened.

Edited by durentu

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I would call it a market failure if the government has to intervene in the market for a third party.

I will be more specific:

Imported drinks in plastic containers. For arguments sake let's assume that plastic is very bad for the environment.

I am assuming that the price to compensate for the harm on the environment caused by these plastic containers should be put directly on the vendor and not on the person otherwise the vendor has no incentive to develop better containers.

How do you do put a tax on the company if the company is abroad? Should government put a tax on the items themselves or should govt. tax the items when they enter the country?

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For arguments sake let's assume that plastic is very bad for the environment.

What do you mean by "the environment"? Whose environment?

If an individual can demonstrate that they have been harmed by the pollution of a company, that individual can sue for damages in court, and the company can be forced to stop polluting other people's property. If companies are polluting public property (e.g. open waters, parks) - the government should privatize that property. If lawsuits are too expensive for individuals, again you have government to thank for the cost of winning a court case.

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I would call it a market failure if the government has to intervene in the market for a third party.

I will be more specific:

Imported drinks in plastic containers. For arguments sake let's assume that plastic is very bad for the environment.

I am assuming that the price to compensate for the harm on the environment caused by these plastic containers should be put directly on the vendor and not on the person otherwise the vendor has no incentive to develop better containers.

How do you do put a tax on the company if the company is abroad? Should government put a tax on the items themselves or should govt. tax the items when they enter the country?

That definition of market failure has some major problems because government intervention is completely independent of market system performance. The government can intervene at random, regardless of failure OR success.

So let's say that the government was all wise and knowing, and intervened about the plastic containers. Saying that plastic containers are harmful to the environment and cannot be used. For sake of argument, they say that glass or metal containers are suitable. Since glass and metals are far less efficient, and more costly, the companies will have to raise the price of all their products that used to use plastic. This would price the product outside of may people's budgets or hierarchy of values (marginal utility). Then the company ha to contract and forced to lay off thousands of jobs. And now these newly unemployed cannot afford the glass/metal drink anymore. Then a group will start to riot about the price of it, then it comes down to government price controls, which leads ever more into socialism. The point here is that it is incorrect for the government to impose the costs of 'good will' on its people. Just because it's better, doesn't mean it's free. Some one MUST pay for it, and it's usually the ones they are trying to help the most. And since the government is involved, this force is done before anything else.

Next is the concept of government responsibility for the environment. At which level is this correct and who is responsible for your back yard? The federal government is not your landscaper. The responsibility of your environment is within the individual. If they don't like it, they can move or work with the plastic companies to solve the problem or start up their own company to compete against plastic containers. But you'll see that environmental issues are a special interest group. And a specific group cannot impose a cost on the others. Many people know that these things can cause problems, but they accept it and more on. Some don't care, but to impose gov intervention on a person's liberty is not what america is about. The only way to solve it is to provide a choice to the people through a business. Not via government laws.

Plastic containers aren't perfect, but are the best solution as determined by the market forces. People are concerned about the environment, but you have to let them decide how best to go about it according to their own values. Of course it's not perfect and people will make errors in judgement or whatever, but you must let them make their own mistakes. And perhaps even open dialogue with them to change their perceptions by their own free will, and not by government compulsion. Refuse technology has changed a lot. Take a look into modern landfills, it's not just a pile of garbage you see on charity advertisements. Things are being done by the entrepreneur's free will in hopes to make a profit. If the people want more eco-friendly solutions, the business man will seek that opportunity and will work to make it better, cheaper, than the original plastic. Insofar as it is possible. God cannot give us anything better than plastics, we must do it ourselves. I'm in the front line of this eco-friendly stuff, because I'm a green dry cleaners. I seek out, research and test new stuff every day, and still able to be cheaper than my competitors. Eco friendly will only work if it meets the needs of the buyers. Otherwise, it won't work and intervention will only take away more liberties.

We are doing the best we can, that is humanly possible with the available labor force and materials available. And I have to meet, federal, state, county, AND village regulations with paperwork all over the place. DO NOT goto the government for more regulations. Another license fee will put my shop and others like me out of business, despite the fact that my entire industry went through a near 40% reduction. DO NOT raise minimum wages, because I will be forced to close because my customers will not be willing to cover raised labor costs. DO NOT put taxes on foreign non-eco-friendly materials because it will raise my material costs in one way or another. I must be free to find a creative solution to the eco-friendly problems. And creativity and coercion NEVER mix. I try to bring green to the masses, not just for the elites who can afford it.

Honestly, If there are more government regulations in regards to more eco-friendly stuff, I will most definitely 'Go Galt'.

ok - that's enough from me. lol

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Since this board is devoted to philosophy, I have two somewhat philosophical questions:

1. Can you give us a genus-and-species definition of "market failure"? You may have the materials for this in #8, but it would be cognitively easier to use in standard form.

2. What is the principle you're invoking with the example of plastic bottles? A statement of principle would help us to connect it to wider principles we already hold and to apply said principle to other cases. #8, so far, does neither.

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Views on 'market failure'? I've read that it's a myth, that the market can deal with market failures itself, that government regulation is necessary to deal with it, etc.

Background: "Economists acknowledge, however, that a situation known as market failure warrants government intervention. A market failure occurs when the private market is not efficient. Market failures fall into four types: the existence of monopolies and oligopolies, externalities, information failure, and inability to provide for the public or collective good." (Public Policy by Kraft & Furlong, pg.17)

Edited by mdegges

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Well, Objectivism is a philosophy, not a theory of economics outside of the ethical consequences of not forcing yourself on someone else. So my only remark there is that if you think Government force is needed to fix an economic issue then you should check your premise.

For a real economic answer, what you are describing is the concept of externalities.

I’ll give you the same answer I give everyone – There is no such thing as “The problem of externalities” and it is an artificial construct. “Externalities” as they are thrown at free market people are already handled in a free market through property rights. Externalities only exist as a consequence of Government force. As an example – In a free society if someone pollutes my land I sue for the damages. In a mixed economy the company can get zoning permits, lease agreements for working Government land, exemptions (like the Tennessee Valley Authority Flooding debacle) and other privileges to try and hide behind. In this case, the “externality” is only a problem that was caused by Government interference and the solution is obviously not more Government interference, but to look at the law that caused the problem in the first place.

Edited by Spiral Architect

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I suppose a more in-depth analysis would be found in the capitalist manifesto or free market revolution. Was curious about it because a lot of people I speak to believe that the government is needed to 'regulate' the market (ie: if there are no caps on carbon emissions, global warming/pollution will destroy the planet, or cause asthma and other health conditions.. or if there are no mandates to put ingredients on food labels, companies will pump a lot of crap into our food.. etc.)

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That's funny, I was just watching this video, this morning.

To me polllution, if actually does harm is a criminal offense. If a company dumps its waste into a local water source, thereby poisoning people, they should be fined, but above all the executives (or board of directors) should go to jail. If I put poison in your food it is murder, so if a company through lack of oversight causes environmental damage then yes the law should interfere and hold those responsible to account.

In a market failure, no. Market failures as we know today are typically the result of government interference in the first place. (And financial crisis as we think of today is a term defined by Karl Marx). But suppose a market crisis were to happen in a true free market economy, the market failure will correct itself. As Nicky said:

failure to do something(i.e. succeed) is never a violation of rights

But I do make one exception if the market collapse was a result of a major natural disaster. I think there is room for government to apply a Keynesian stimulus, for example like in Japan after the Tsunami, to create sufficient cash flow to rebuild.

Edit:grammar

Edited by Nith

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The market is by definition simply the sum total of the individual decisions each person makes. When someone says they need to regulate the market what they are saying is that they need to regulate your decisions. It is the base conflict between freedom and central planning.

They obviously don’t mean it this way since the market is seen as some mysterious body separate of us like the public good is some entity that is not you but yet your still part of it. It is a typical floating abstraction in the form it is treated as something apart of everyone. It can get very interesting when you turn this around on others and simply ask “Why do you want to tell me what to do?” and “Can I regulate your life too?” Watch how fast they create a bad guy who is not you but some other group!

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My question is: what is the official (or non official) stance of objectivists regarding the role of government in the case of pollution, market failures and cost on third parties?

See video reference for the libertarian position.

Should the government intervene -like the libertarians say- or should it not? If should how (tax/regulation, federal level/or below)? If not why?

No role in polution - need to properly define and apply property rights.

Market failures is an invalid concept. Markets don't fail.

Cost on third parties is utilitarian and no basis for action.

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Well, the government is obviously a piece of sh*t. It has demonstrated nothing but its inability to intervene competently. Its "role", about which you inquire, is undefined IMO, because the whole system of government as it is currently implemented, is not suited for the purpose of benefitting humanity. Sorry I don't have a more meaningful reply, but at the moment I think that is the most important assertion.

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Well, the government is obviously a piece of sh*t. It has demonstrated nothing but its inability to intervene competently. Its "role", about which you inquire, is undefined IMO, because the whole system of government as it is currently implemented, is not suited for the purpose of benefitting humanity. Sorry I don't have a more meaningful reply, but at the moment I think that is the most important assertion.

You're wrong (about that last part). That's not the most important assertion. In the context of this thread, a meaningful answer is the most important assertion.

I don't mind that you're venting, but just say that you're venting. Don't say that your emotional reaction and subsequent stating of the obvious is the most important thing anyone could say.

Edited by Nicky

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(And financial crisis as we think of today is a term defined by Karl Marx). But suppose a market crisis were to happen in a true free market economy, the market failure will correct itself.

Would you say the 'problems' on the left-hand side are not really problems, or that they are problems but they would eventually sort themselves out?

29ckgfl.png

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Monopolies can only be created by the government, private individuals can not impose restrictions or require lisencing of other individuals.

Information symmetry(or asymmetry)is a strawman. What is the term supposed to denote? I believe the arugment is along the lines of insider trading and such. In a free market that would not be issue unless you are speaking of fraud, which is a problem that the government should mitigate.

As to the categories of goods , I do not understand the terms.

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Would you say the 'problems' on the left-hand side are not really problems, or that they are problems but they would eventually sort themselves out?

29ckgfl.png

I'll take stab for fun! I would agree that they are not a problem.

Here is my breakdown...

Monopoly – Prices to high…

Then someone can undercut them. The only way to keep prices high and stop competition is to forcibly restrict their access, which is government coercion. Without force this is not an issue since a litigate monopoly can only exist if the customers are universally satisfied enough to make the profitable breaking point of a ROI unreachable for any competitor.

Information Asymmetry

Why would anyone buy something without knowledge? If people don’t buy it then the producer will have to negotiate with the demands for knowledge. Besides, in the computer/internet age is this even a valid argument anymore? It sounds like a straw horse.

Toll Goods

A toll is a fee and is the price to use something. Don’t like the price? Fine, don’t use it. The producer will either limit himself to a nitch market or be forced to change his price to get customers back. This really is supply/demand 101.

Common Pool of Goods

Did the person who made this chart actual make the Tragedy of the Commons a market problem? Really? That’s ballsy.

Pure Public Goods

I love this one and a real peeve of mine, the idea that certain goods only exist because the Government is creating them. It is laughable to think we wouldn’t have a road or I would not have a water pipe going into my house if City Hall never existed. If the free market can create and launch a billion dollar satellite into geosynchronous orbit so I can call my parents anywhere in America I’m sure it can run $50 worth of pipe into my house. Good @#$% God(s).

Edited by Spiral Architect

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