More of the Same

The difference between a government monopoly and a free market monopoly is that, to use the terms on Mischa’s site, a free market monopoly by definition denies consumers both a Voice and the choice of an Exit (other than existing without the particular good or service under monopoly).

Government monopolies (given that the government is democratic or in some way representative) offer consumers a Voice.

Granted, the Voice is not a partiularly efficient regulatory means compared to the Exit in an open and free market, but it’s better than nothing.

American liberal political theory (as I understand it) has always distrusted concentrations of power and sought to turn power against itself — thus the branches of government, divided legislature, “checks and balances”, etc. Having a strong but limited government go up against strong corporate entities would seem to be just another case of the same underlying principle. One of the problems that I find with libertarian analysis is that they take one particular form of social power called “government” and implicitly insist that it is the only form of power that needs to be restrained.

Your Tocqueville example is a good one, but one step away from the source; Tocqueville’s description of the role which the multiplication of “free institutions” supposedly plays in combating the decline of civic virtue in America is really his own vaguely communitarian spin on James Madison’s argument. Madison famously declared, in the Federalist Papers, that republicanism was flawed as a political project, and that the only way to avoid the overall selfishness which self-government gives rise to was to multiply the number of self-interests engaged in that project. The result: a “machine” that would run by itself. One of the great debates in early American history and political thought is the degree to which Madison really thought his solution was, as Tocqueville put it, about the preservation of “political life” and “mutual dependence,” or whether he was dismissing with civic virtue entirely. (See Lance Banning for the former view, Richard Matthews for the latter.)

Modern economics certainly doesn’t regard the economy as a self-regulating system! Under a number of highly specific assumptions, the market will produce a Pareto-optimal outcome, but in practice we all know that there are likely to be market failures. And the problems with correcting market failures are, of course, well-known to economists.

Yes, of course — this post isn’t about point-scoring off of economists, enjoyable as that is ;-) I was more interested in basic images of modern market societies — as self-equilibrating, or self-destroying. The empirical reality of particular market failures (and the toolkit economists have for thinking about them) is a separate issue. Though, in fairness, there are a _lot_ of people who “set their economics book down after chapter 1” — and this often includes economists, who aren’t averse to the argument from “Econ 101” in public debate.

Madison’s argument in Federalist # 10, largely and correctly seen as an argument against tyrannies of the majority in a republican [representative] government, has both virtues and vices. On the one hand, it provides a framework in which one can think through issues such as the imposition of Jim Crow segregation upon the African-American minority in the post-Reconstruction South, and insist upon the inviolability of certain fundamental individual rights, such as the right to vote, for minorities as well as majorities. But on the other hand, it is notoriously weak in its conception of the classical republican pursuit of the common good, and as a consequence, of how public goods, such as education and health care, should be provided.

Madison’s argument, that the common good is the product of competition between numerous, discrete private interests, parallels closely Smith’s argument concerning the invisible hand of the laissez-faire market. Both have roots in Mandeville’s Fable of the Bees.

I address this issue in a comment in the original post.

I think Mr. Healy is missing the distinction between the following two argumentative patterns:

1. too much of X has caused a problem, and we can solve the problem by having even more of X.

2. this problem is caused not by having too much of X but by having too little of X.

Argument type 1 is the “hair of the dog” type. Libertarian arguments about so-called “market failures” are arguments of type 2, *not* type 1. The fundamental difference is that a type 2 arguer *rejects* his or her opponent’s premise that X caused the problem.

To expand a bit: libertarians favor strong property rights and wide freedom of contract. To a libertarian, many phenomena typically called “market failures” are actually the result of insufficiently strong property rights or restrictions on the freedom of contract.

Pollution is a good example. The fundamental problem, in the libertarian view, is a lack of well-delineated, well-enforced property rights in the thing (air, water, etc) being polluted. Both of the standard libertarian approaches to pollution– the pollution credit approach and the pure tort-based approach– are based on extending property rights. No “hair of the dog” approach is required here, since the problem is not a problem with markets per se.

I have argued elsewhere that the domain of economics has to do with cross-secting constraints with respect to production and exchange. I would add that the notion of equilibriation is not necessarily confined to a single type, (e.g., mechanical, homeostatic equilibrium), nor does it necessarily have to do with the maximalization of a single type of value. That stated, I think that fears that positive or negative feedback would run on without limit are misplaced; sooner or later, they meet with constraints, and must needs reverse themselves or be reversed, no matter how much damage has been done in the meantime. Similarly, there are constraints on governmental and political action, such as limits to the efficacy of administrative measures or controls and limits to the legitimation requirements needed to sustain them. A totalized government is precisely an ineffective government, no matter how dire the costs of maintaining its ideological pretensions. If the domain of social “sciences” is the constitutive constraints of domains of social action, (as opposed to a deterministic account of causality), then it is a pity, if the differentiation of such domains were to preclude a consideration of their interaction.

As to Mr. Holsclaw’s well-spoken articulation of a neo-Thatcherite viewpoint, if governments have limitations on their information-processing capacities, then so do markets, for, if markets are conceived as a dispersed information-processing mechanism, then this logically would mean that they are unsurveillable, as such, and the precise effects of the incentives can not be known. Still, such information can be gathered, if never completely, not the least because of the routinization of its operations, and this applies to government as well as market agencies. I think it is bootless to argue that government intervention must fail, whereas markets, if they fail, must necessarily be left to themselves, lest we interfere in the perfection of their allocating, equilibriating mechanism. Furthermore, there are clearly cases, such as, e.g. natural monopolies, where public regulation or ownership is to be preferred or required. (Just think of the catastrophic privatization of Railtrack in the U.K.) This is a case of either/or thinking setting up a false dichotomy in public deliberation, since it fails to consider how market and govermental processes must needs interact and, indeed, presuppose each other. But one thing is clear, whether it be a matter of market failure, government policy failure, or their interaction, those who have little access to wealth or power will always be the ones to suffer first and foremost.

The paradoxical conceptual trope that “the sickness is itself the cure” or that “the spear that wounds one is also the the source that heals one” is not confined to modern social theory. Whether it is a rational idea or not, it must be at least as old as tragedy itself.

Mr. Holsclaw:

No one in there right mind would argue that governments should micro-manage economic affairs or that the operations of markets and private businesses do not have a large role to play in the management of economic affairs. The point of the “unsurveillable” remark is that, if it is true with respect to the economy as a whole, it is equally true with respect to market participants as with respect to government agencies, though, in fact, government agencies would probably have the where-with-all to gather together expertise and information to a greater extent than private agencies. But your account of markets amounts to no more than a blind faith in them. And your articulation of their operations as purely a matter of individuals rather than of organizations is likewise unrealistic.

The argument for markets is not that they don’t make mistakes,- they do and often large ones-, nor that they are perfectly self-correcting and self-equilibriating, for history has proven that this is often far from the case, but that they tend to reduce the size, scope, and duration of errors and it is from their functionning as an error-reduction mechanism that they produce their relative efficiencies. (A functionally equivalent criterion could be applied to evaluating the efficacy of government operations.) But markets, as well as tending to periodically short-falls in demand through their own operations, also generate significant externalities, such as pollution or social dislocations, and underprovisions, since markets tend to produce for consumer demand in accordance with the inverse proportion to the marginal utility of additional income, and to generate concentrations of market power that impede and distort their effective operation. And there are any number of public goods, ranging from health care and education to infrastructure and utilities, where public provision is arguably to be preferred. So the claim that any governmental intervention in the operations of markets is detrimental to the inarticulate wisdom of their seamless functionning bears a considerable burden of proof. A more reasonable prudential maxim may be that governments ought to consider the functional virtues as well as limits of markets and tailor their interventions to work in interaction with markets and in consideration of their functional requirements and carrying capacities, to the greatest extent possible.

“it is equally true with respect to market participants as with respect to government agencies, though, in fact, government agencies would probably have the where-with-all to gather together expertise and information to a greater extent than private agencies.”

No it is most certainly not equally true. My point is that no entity can gather the information that you require. No company can, no government can. The ‘market’ is millions of individual and self-grouped actors making decisions based on their own interest, their own costs, their own needs, and their own desires. And in none of those catagories does the government know better for most of the people. These personal needs, desires, costs and interests are fulfilled by doing something that other people are willing to pay for. People are willing to pay for things based on their own needs, desires, costs and interests which they balance out for themselves.

There is no agency, public or private, which could possibly gather the ‘expertise and information’ necessary to take even a small fraction of that into account. What we call the market is really just the aggregate of billions of free choices.

You do however locate the key leftist contention: “So the claim that any governmental intervention in the operations of markets is detrimental to the inarticulate wisdom of their seamless functionning bears a considerable burden of proof.”

You don’t believe in what you dismissively label ‘inarticulate wisdom’, and you certainly don’t believe that it could lead to better outcomes than those that could be dictated by government officials.

But that is precisely where you are wrong.

Any discussion about Micorsoft and the functioning of markets ought take into account that Microsoft is a governemnet created and maintained monopoly.

Doubt it?

Copy Windows XP , sell it for $10, and watch the state interfere.

We may be accustomed to monopolies created by the copyright law, but that doesn’t mean that they are not a large interference with a free market, and a very pertinent one when discussing a business that relies on them.

Thus the application of anti-trust law to Microsoft is not a question of “ought we interfere with the market” but one of “ought we interfere more with the market that we have granted monopolies in?”

The government source of Microsoft’s original monopoly is not copyright law. Its the government anti-trust rulings against IBM. IBM was forced to decouple IBM software from IBM mainframes. This created an environment where IBM created revenue from hardware, but was prevented from creating revenue from IBM hardware coupled with IBM software. Its not clear if the anti-trust rulings would have applied to the PC world. The ruling did effect IBM’s in place business model. Which brings us to the point of IBM bying operating system code from a new company called Microsoft.

Mr. Holsclaw:

I have no doubt the you and I would never agree on these matters, having read some portion of your vociferations before; the ideological gulf, that is, the difference in basic normative conceptions and commitments, is simply too great.
But allow me to respond to some of your contentions. That ” the market is really just the aggregate of billions of free choices” adventitiously flitting about is a beautiful idealism. However, more realistically, it would be described as billions of interactions, deriving from productive activities with their own conditions, constraints and functional requirements. That money changes hands there is not in doubt; however, that fact alone is not sufficient to guarantee systematic equilibriation, nor the optimal equilibrium of human needs. Furthermore, that the economic realm is the primary domain of human freedom is an idea that shows a want of realistic imagination. To the contrary, the economic realm is primarily the realm of necessity, of onerous activity directed toward the fulfilling of the basic needs and necessities of life, so that some of the finer things in life may develop, flourish and be enjoyed, which goods would not be reducible to material goods, subject to private appropriation as property, but would include ends of life derivable from the basic capacities of our sociality, perhaps not the least of such goods being deliberative participation in the affairs of a political community. And “economic freedom” is in the first instance primarily a functional description, pertaining the the requirements of a systematic way of arranging economic affairs, which may, indeed, arguably have its considerable merits and on balance be desirable with respect to optimizing and augmenting the production of the net social surplus product, but which is not derived from an expression of individual volition. Finally, to argue that domination and coercion pertain only to the political realm and government action, whereas the economic realm is blissfully free from any such taint, beggars thought and experience.

There is a peculiarly paradoxical flavor to your thinking, for at its core there is a claim that the raising of cognitive validity claims about these matters is futile and can only amount to a deleterious interference in its mute, spontaneous harmony, which itself amounts to a claim to some sort of transcendental “knowledge”. An argument from complexity can be a valid and insightful approach, but an argument from complexity in the name of ignorance is not. I’m sure I am not the first one to note the naivete’ of such supposed scepticism, as well as its defensiveness. It amounts to the evasion of any requirement that validity claims be tested. Now I am just as sceptical as the next fellow of some of the claims of professional economists, but to claim that they spend their time worrying about what can not be known and provide no understanding of complex states of affairs is tantamout to denying any possibility of remedying the course of blind fate.

No one should underestimate the difficulty of establishing good government and of subjecting it to effective public oversight and rendering it responsive to the claims and needs of the public sphere in searching out the overall balance of the public interest. In this, us lefties are not naive idealists, but are just as capable of bitter cynicism as anyone else, though perhaps we are deficient in enjoying it with full relish. Not the least of the difficulties is the usual extent to which political leaders betray the public trust as guardians of the public interest and abuse the processes of public political legitimation, especially at the behest of concentrated private business interests that covertly and symbiotically support them financially. But to argue as David does, that political leaders and actors should regularly act in an “apolitical and socially-upright way” is a piece of laughable misunderstanding, similar to demanding of businessmen that they behave uneconomically, and is itself a piece of ideological fantasy. The recurrent trope on the right is that all human behavior is necessarily solely self-interested, but that in a market economy self-interested behavior must necessarily and miraculously be converted into the operations of the general interest, as if excesses of fraudulent and coercively exploitative behavior did not regularly occur there, whereas political actors are necessarily comsumed with and corrupted by self-interest, such that they can not possibly do anything right. The veracity of this platitude is especially amusing and instructive to observe when right-wing governments take charge. Still, for all its pitfalls and dissappointments, there is often enough sadly no other recourse than political action and government policy when dealing with the errancies and dysfunctions of our inevitably collective condition, lest we all succumb to the blindness of fate and lose any capacity to recognize any common belonging. Finally, Jack Lecaw brings up a crucial point about the asymmetry of information, though I don’t see why a “default setting” should necessarily be preferable to the avoidance of default: very often, government action, regulation or intervention is, in fact, required to bring about the effective functioning of markets.

So I’m sorry, Mr Holsclaw, that I must defect from joining you in your indulgence in the “higher fatuity”.

Without the governments anti-trust rulings, we would be talking about the software giant IBM instead of the software giant Microsoft. The anti-trust rulings made it possible for Microsoft to exist as an OS provider. By the time IBM entired the OS market, Microsoft was already entrenched. Copyright laws might keep Micrsoft going, but the anti-trust rulings created it.

Concerning a debate on Government intervention vs Market forces, the origin of Microsoft is important. By showing that government intervention against IBM created the entity Microsoft, it demonstrates that the government cure for a problem can be worse than the original problem. Thats why its important.

The government handling of Copyright law is one of the tools Microsoft uses to maintain its position. If the source code to the OS became public domain, competitors or manufactures could offer windows compatible OS. This would immediatly remove Microsoft’s monopoly.