How to Save the World

The idea of the 'free' market economy is that, if each of us pursues our enlightened self-interest, the result will be an optimal balancing of those interests, and an economy that produces what people most need, or at least want. This blog has explained why, as wonderful as that idea may be, it has never been and can never be realized, and our pursuit of it, as if such an idealized notion can work, has led to some colossally dumb ways of doing things. As a consequence:

Since it is in the interests of many that the interests of others be un-enlightened, advertising, marketing and other huge industries have sprung up to deliberately mislead us, and to try to artificially create wants and needs.
Many of us have become addicted to consumption, so that what we buy is not in our self-interest, but in the interest of the pushers of products. Those pushers do whatever they can to ensure we remain addicted, by keeping interest rates artificially low (far less than real inflation) and by encouraging reckless borrowing and indebtedness.
A small minority of the population has an obscene share of the wealth. That means they buy not only what they need but everything they might conceivably want, pushing the price of those items up astronomically. Everyone else buys what they're addicted to, and, if they have anything left over, they buy some of what they need. For an increasing number who can afford nothing, that means they buy nothing - they get what they need by begging, borrowing and stealing, and many of them end up incarcerated, or dead.
Costs and prices are massively distorted by subsidies extorted from lawmakers in return for campaign contributions, by exploitation of abysmal social and environmental standards in desperately struggling nations, and by externalizing the costs of pollution, social dislocation and illness caused by corporatist activities, which end up paid for by taxpayers.

However, even enlightened economists able to see that the 'free' market economy is an unachievable ideal, and a myth, tend to acknowledge that, barring these distortions, it makes sense to pay attention to consumers' expressions of self-interest, as being a reasonable representation of what people need (or think they need) and want -- an expression of the 'wisdom of crowds'.

But Wisdom of Crowds author James Surowiecki, who went to such pains to explain in his book the need for a surveyed 'crowd' to be objective and independent of 'groupthink' (if their collective perspectives are to be truly wise), points out in this week's New Yorker that the self-interest of individuals, taken collectively, can be very different from the collective self-interest of the group as a whole.

As an example he notes that, in a market 'undistorted' by regulation, people choose to buy large, gas-gulping, clumsy vehicles (SUVs and light trucks) -- because they (mistakenly, as Malcolm Gladwell points out) believe they are safer, that if your car is bigger and heavier than the other guy's, in an accident you will fare better. But when asked if they would favour regulations that ban such vehicles, they overwhelmingly say yes.

Another example that was reported recently is that, while the majority of business owners want less social and environmental regulation of their industry (because they think it puts them at a competitive disadvantage versus countries that lack such regulation), an overwhelming number would not only support, but would actually prefer, strong social and environmental regulations on business provided they were across-the-board (affecting every competitor equitably) and rigorously enforced.

We can see examples of this everywhere. The expressed self-interest of individual buyers in the absence of regulation is very different from their acknowledged collective self-interest in an equitably regulated environment. It's not regulation we hate -- in our modern crowded society we could not live without regulation (sorry, libertarians, though I like the idea); it's inequitable regulation, and regulation that is clearly arbitrary and not in the collective self-interest, that we are opposed to.

And because of our (often deliberately fostered) skepticism about the competence of government to do anything effectively (and about its honesty), we tend to believe that all regulations will necessarily be inequitable and 'selectively applied'.

So given that skepticism, we tend to prefer to pursue our (unregulated) personal self-interest, and shrug off the fact that our collective self-interest would be better served if that personal self-interest were restricted, and altered, by effective, honest regulation.

Unequivocably anti-regulation forces (the corporatists) prey off this skepticism, playing us off against each other, and profiting from the inequities and the selective application and non-enforcement of regulations. And laugh all the way to the bank.

Bush's orders to regulators not to enforce the law, and to dismantle regulations, have therefore gone largely unchallenged, except by a few brave whistle-blowers, who promptly lost their jobs.

The bottom line is that we need to restore integrity to government, and restore authority to regulators to uphold and enforce regulations equitably and not arbitrarily, before we have any hope of persuading citizens to vote for their collective self-interest over their personal self-interest.

We're smart enough to know that the collective self-interest is better for all of us. The question is whether we're smart enough and committed enough to fix the shattered hulk of dismantled, corrupted North American governments (I can't speak for Europe's governments, though I sense that regulations there are stronger and more or less intact), so that they can make regulation work effectively again in our collective self-interest.

I'm not entirely sure where we'd even begin. No one trusts government anymore. Self-regulation has never worked (you don't ask the foxes to manage the chicken coop). And corporate charters and mandates encourage unregulated corporations to behave pathologically. Pricing and taxing instead of regulation (as distinct from in addition to regulation) merely punishes the poor

What do you think? The majority apparently want big, heavy vehicles banned from the roads and dramatically increased fuel efficiency standards across the board for all vehicles. They recognize this is in our collective interest. But governments of every political stripe have failed to enact them, and failed to enforce the lax standards that exist. Is there a political, or economic, solution? What might that solution be?

Image: theoretical supply demand curves, from wikipedia

Category: The Political Process