[Part 6 of Values-based vs. Market-based Approaches to the Economy]
One of the fundamental principles underlying a market-based framework is that through consumer choice, everyone gets a say. Some bureaucrat doesn’t decide what shoes you get to wear, you do. If you decide hot pink ballerina slippers or combat boots — or hot pink combat boots — best express who you are, you get to make that call. If you have the cash, that is, and if it’s profitable for someone to make hot pink combat boots. For this kind of freedom, the argument goes, the market is pretty effective.
But as Krugman said in Building A Green Economy, there are limits to how much real freedom markets can provide for all.
Now, efficiency isn’t everything. In particular, there is no reason to assume that free markets will deliver an outcome that we consider fair or just. So the case for market efficiency says nothing about whether we should have, say, some form of guaranteed health insurance, aid to the poor and so forth. But the logic of basic economics says that we should try to achieve social goals through “aftermarket” interventions. That is, we should let markets do their job, making efficient use of the nation’s resources, then utilize taxes and transfers to help those whom the market passes by.
The “aftermarket” approach runs into two problems. The first is what almost happened in Chula Vista. In Chula Vista, the fuel plant’s owner planned on spewing toxins close to folks’ homes and their kids’ schools. Doing something about it afterwards would be too late. And although there was a city plan that should have protected these folks, the owner of the fossil fuel plant simply ignored it He knew that unlike my or Krugman’s neighborhood, politicians wouldn’t crush him. He figured these folks didn’t have enough political power to protect themselves.
We can see the same market calculus at play with BP. BP figured it didn’t have to worry that not paying enough attention to safety would wipe out the company, because in 1990 Big Oil got Congress to cap their liability at $75 million (although there’s a chance there may be a way around the cap).
The same is true for the finance industry, which back under Clinton managed to gut the rules stopping them from taking insane risks without getting rid of their bailout safety net.
In short, a market-based framework gets into trouble because it doesn’t take power seriously enough. It pretends that power isn’t at the heart of markets, that it isn’t central to the shaping of markets. It doesn’t deal with the critical question, who gets to define what counts as “efficient”? One person’s market “failure” may be another person’s market success.
That’s also why many folks who are fans of the market-based framework end up proposing fairytale solutions. Take people like Tom Friedman, who says the best way to stop the climate crisis is create a carbon tax and then let the market do its magic. Even if the word “tax” wasn’t political suicide for Republicans now, there is no way a carbon tax large enough to do any good will happen in the US. Suburban folks who live far from their jobs and rural folks will stomp any politician who votes for it because it would devastate their lives.
A values-based framework puts power at the center. If you’re going to talk about what values should shape our economy, you’ve got to talk about who gets to decide which values. And if you believe in fairness and justice and freedom, that leads you to say, everybody should have a real say.
There are some great side benefits to this approach. If you empower many voices, more likely to explore a broader range of solutions. It also acts as a check on policy mistakes — if everyone has a real say, it’s harder to hose people.
Mind you, figuring out what “everybody should have a real say” means isn’t always straightforward. You could probably get most Americans to agree, big corporations shouldn’t be the ones who get to make all the big decisions — few people would argue the fuel plant’s owner should have been able to run over the folks in Chula Vista. On the other hand, I don’t want to live in a world where every decision is ground through a never-ending series of neighborhood community meetings. It’s hard to see how you end up with a world filled with interesting startups if you did. Ditto for NIMBYists, who essentially argue that people who live in a place today have veto power over the people who might live there tomorrow.
But pretending the complexities of power in the economy don’t exist doesn’t make them go away. All that gets you is the crazy, dysfunctional mess we have today. Better we own up to the difficulties and stumble towards a better answer.
Up next: conclusion
