Free Market Update
News flash: Skyrocketing gas prices are driving historic shifts in the habits of car buyers, pushing them away from thirsty pickups and full-size SUVs and into four-cylinder compacts.
What a surprise.
Might all the smart people behind tougher federal Corporate Average Fuel Economy rules be watching? If they are, do they understand what we are witnessing? Namely, this: It’s not arbitrary mileage goals, mostly unhinged from engineering reality and focused on a handful of companies, that are dramatically changing the behavior of the driving public. It’s the price of fuel, stupid.
Cars outsold trucks in April for the first time in a generation, according to industry figures compiled by Autodata Corp., and four-cylinder powered cars outsold those with six cylinders under the hood. The shift, clearly a blow to truck-dependent Detroit automakers scrambling to dig out of their deep hole, is confirmation that market forces are a swifter disciplinarian than the collective wisdom of Congress, career bureaucrats and the environmental lobby.
Daniel Howes continues to discuss how the market, better than any government program, quick fix or temper tantrum, has made fuel economy a big issue with consumers.
[tags]Daniel Howes,free market,CAFE standard,economics[/tags]
Filed under: Doug • Economics & Taxes • Energy • Government
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The problem is, this move away from poor fuel efficiency cars should have happened forty years ago. The unfettered market fails to act promptly or responsibly.
Your opinion. Other’s would be different. Different time, different methods, different decisions. And that’s the problem with economy-by-committee. Predicting the future, either 40 years or next spring, is always fraught with peril
But just about every single time, the market economy works better than the government-directed one. Not perfect, indeed, but government intervention in the economy should be restricted to law enforcement, not direction-pointing.
Your faith in the magic of the market exceeds mine. Reality has borne witness to its failures too often.
To be sure, there are failures when we attempt to regulate the market, too. Overall, I will still side on the side of wise regulation.
That is, I place slightly more faith in the People to regulate themselves than I do the market (based on self-interest) to magically work to the good of folk.
As the Republicans are doing now with their opposition to encouraging ethanol.
“Capitalism”. To quote Fezzik from “The Princess Bride”, I don’t think that word means what you think it means.
Your faith in the magic of the market exceeds mine. Reality has borne witness to its failures too often.
And the Soviet Union was a smashing success? The reality is, it left the vast majority of its people living at much, much lower standards — far too many living hand to mouth — due to the attempt to manage the economy at the central government level. The chronic shortages were a direct result of planning that which is impossible to plan (ask Venezuela). While we “do management” here as well, it was not *nearly* to the extent as the Soviet Union. That’s the reality.
That is, I place slightly more faith in the People to regulate themselves than I do the market (based on self-interest) to magically work to the good of folk.
The People are the market, Dan. The People have decided, collectively, that they want cars with better efficiency. The consumers have spoken and the producers are responding, as well as the R&D folks. It’s 40 years later than you would have liked, perhaps, but if you are wishing that the government had stepped in in the 1960s to “do something about it”, that’s much closer to Marxism than you admit to being.
You fellas seem to dwell in absolutes. One can be opposed to a totally free market system (as most folk in their right mind are) and still not be a communist. I’M NOT ADVOCATING A SOVIET-STYLE MARXIST SOLUTION.
Yes, “the market” is the people. But so is the gov’t.
The difference is that the Market is populated not just by those whose self-interest is to buy as low as possible the best quality as possible. It is also populated by those whose self-interest is diametrically opposed to the population at large.
As Adam Smith noted:
“The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution… It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”
So, as we create policy (whether it’s a hands off policy that many corporations might want; or one that is designed to hurt the competition, as other corporations might like: or one that’s an attempt to plan responsibly and sustainably as still other folk prefer), we can trust policies encouraged by those with a vested and often opposite interest to the population at large, or we can trust policies encouraged by folk we elect, who at least nominally have our interests at heart.
Now certainly, there are flawed human beings in both groups, but at least one is starting out with the interest of the People as a starting point (at least in theory) whereas the other is starting out with self-interests as a starting point.
If I understand you correctly, you are saying that we’re most likely to have positive results by trusting the self-interest group rather than the citizen-interest group. I reject that stance as naive and not especially wise.
Both sides, producer and consumers, are primarily self-interest groups. Even the government has its own self-interest at work. In this imperfect world, that is going to be the one thing you can count on. Even when a Christian won’t pay more than he thinks is fair, that is a self-interest as well. The term “the self-interest group” is meaningless; they’re all self-interest group.
The Smith quote is, of course, from “Wealth of Nations”, where he argues for the free market. I think you’re twisting his words. The portion immediately preceding your quotation is this:
To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.
Smith is arguing against government regulation that would narrow competition in whatever way. Indeed, I agree that business self-interest can often be at odds with the public’s, but the argument being made is that government should allow as much freedom in the market as possible and look warily upon requests to regulate it, especially when that request comes from the narrow interests of business and business lobbyists. I think there’s a specific thing being argued here, and it bolsters my point, I believe.
Most of our founding fathers viewed government as an evil, necessary as it was. The more power it has (and it has far, far more than in the 18th century), the more it was subject to corruption. Why try to convince 300 million of the goodness of your product when a few votes in Washington will make you the winner in the official, government-funded New Alternative Fuel R&D Company?
Yes, the government is part of the market, but just as with other parts of the market, its buying and selling is with its own self-interest in mind. The government is also a unique player in that it has the additional power to regulate the very market it participates in, which is why it should be viewed with as skeptical an eye as the businesses who want a leg up regarding regulation.
The telling part of your reply is that, “at least one is starting out with the interest of the People as a starting point (at least in theory)….” Again, our founding fathers were very aware of the difference between theory and practice. Knowing man’s heart, they did not want a government with too much power able to manipulate the economy to its own advantage, which it inevitably would. Giving the government more and more economic power and counting on it to be continually benevolent is to put more faith in it than they did.
Okay, how about some basics where I hope we can agree:
1. No one wants a totally free market. You don’t want the corporation next door to let the market decide whether or not it’s more desirable to dump their toxin waste in your yard and in your water supply. Am I correct?
2. So, neither one of us – and very few actual people – want a truly unregulated market. We have, in reality, and want in practice, a regulated market. Again, correct?
3. So, the difference is not between an unregulated market and marxism (you’re not a marxist because you want a regulated market, are you?), but rather a matter of degree. Although neither one of us have spelled out where we’d draw lines – what we want regulated and what not – but presumably, you want less regulation than I do. And I probably want less regulation than someone else and someone else wants less even less than you. Fair enough?
4. How do we decide where to draw those lines? Who decides how much regulation is too much? You? Me? Our representatives? Corporations?
And, to be clear, I was not suggesting that Adam Smith was advocating something other than a free market. I was pointing out where I agree with Smith – that corporations have their own self-interests at heart and that those are often opposed to the population at large – even oppressive and deceptive.
He is absolutely correct in that regard. What is strange to many of us is to suppose that this devious and damaging self-interest can somehow work to the positive moral good of society – which is where I disagree with Smith.
Giving the government more and more economic power and counting on it to be continually benevolent is to put more faith in it than they did.
Interestingly, this is true for our bloated, super-sized military, which our founding fathers feared greatly.
1. Regulating disposal of waste by corporations is as much of a “hand in the market” thing as it is to regulate my neighbor’s waste disposal. If we’re defining what “free market” is, that’s not part of my definition. That’s more keeping the peace, law & order type stuff than anything else.
2. No, I don’t think we want a completely unregulated market. I think a better example is that we want to be sure that pharmaceuticals meet a certain standard of quality and efficacy, or that when it says “8 oz” there really are 8 oz. in there. These are regulations that establish trust and rules of commerce, dealing with the implied or explicit contracting. The government should be involved in the regulation of those contracts; legal agreements between parties. That, too, is a law & order type thing.
3. The difference, then, in my opinion, between free markets and Marxism is not one of degree but of kind. It is one thing to say that the shoes you say are made of leather really must be made of leather. It is entirely another thing to say how many shoes you must make, what kind they are, where they should be sold, what prices you may charge, and how much profit you may make before we get angry. We’ve left law & order and are now manipulating the market itself. That is Marxism’s folly, because you simply can’t do that with any medium- or long-term success. Again, ask the (Marxist) former Soviet Union and (socialist) Venezuela. Shortages abound when it’s tried.
4. Now the line is easy to draw. Regulate contracts, not markets. Now, as you and I agree, given our fallen world it ain’t always going to be quite as simple as that. So then where to draw the line inside the market regulation? As little as possible, as Adam Smith would, I believe, agree. None, if possible, but when circumstances present themselves, as little as possible.
The key here is enforcement. As much as a hassle as Sarbanes-Oxley is (trust me, I’ve had to deal with it), the business sector brought it on themselves. I think that was a proper response. One could disagree with some aspects of it, but the general idea is sound. But that’s not market regulation any more than auditing a person’s IRS return is.
However, when the government jumps into the market as Kingmaker, deciding which alternative fuel it’ll support and which it won’t, that’s market manipulation rather than letting solutions prove themselves. Ethanol is clearly not the silver bullet environmentalists once thought it was. We know that now. Some predicted the problem, others didn’t, but I think the market is working itself out on this count.
A drum I beat a lot is the whole “big government” thing, and military aside (which is a proper role for government, and the world these days is counting on a strong American military, BTW), more economic power for the feds is precisely the problem when it comes to the very corporate self-interest you rail against. With more economic power, as I said, Washington, DC becomes a one-stop shopping source for corporations seeking to manipulate things in their favor. Were the government to keep their hands off as much as possible, corporations would have to battle it out in the free market. You are rightly apprehensive at corporate influence. Let’s not hand them the tools to expand that, eh?
which is a proper role for government, and the world these days is counting on a strong American military, BTW
Somebody better inform the World. I think they’re pretty fed up with US military adventurism and didn’t realize they were counting on us…
A good writeup of “naked free markets” with respect to the financial markets can be found here.
Europe refuses to ramp up their own armies, instead relying on ours. Before we leave Iraq, how about we leave Germany, eastern Europe, Korea, yadda yadda yadda. Everyone says they loathe it, but when push comes to shove they expect it to be there. When Kosovo erupted, whom did Europe ask to deal with it? Us.
Actions, not words.
So, you think deep down – under all that distrust and anger and sometimes outright hatred – the world secretly respects us and thanks God/Allah/Jehovah every night for our interventionism?
Dan,
Another resource would be Hayak’s Road to Serfdom.
Yet another excellent resource is Ched Myers’ Sabbath Economics – if you’re wanting to read what the Bible has to say about these matters.
So, back to the topic… Perhaps I coud sum up some points where I’m thinking we agree and disagree (correct me if I’m wrong):
We agree:
1. That neither of us want an unregulated market.
2. That neither of us embrace communism and therefore, we aren’t marxists or communists.
3. That “small” decisions at the local level are preferable to large decisions handed down from on high (we didn’t discuss this, but I’m guessing we agree).
4. That there are some decisions/policies that need to be made at the federal level.
5. That neither of us want gov’t stepping in and taking over corporations nor telling corporations how much of their product they can make, but we do think HOW they make and market their product is valid gov’t responsibility (ie, they can’t dump toxic waste into streams, they have to have valid measurements, they can’t lie about their product, etc)
6. That for capitalism to work, prices ought to reflect TRUE costs – that prices shouldn’t be artificially lowered by pushing costs off on the environment, on future generations, on taxpayers in the form of corporate welfare, etc. I don’t know if you agree with me on this or not, but I’d hope you do.
7. That we don’t especially trust Big Gov’t – although we both think gov’t has its role and you are much more comfortable with a massive military than I am (or George Washington was) and I’m guessing you’re more comfortable with the massive police/prison system we have than I am.
We probably disagree:
1. On amounts – how much regulation, how much gov’t intervention. Although neither one of us have spelled out exactly where we’d draw the lines, it seems that I’m probably more willing to draw lines further than you would. It’s not because I trust gov’t but because I also distrust corporations and there needs to be checks and balances in imperfect systems.
2. That gas is horribly underpriced – not reflecting its actual costs. I believe that its True Costs have been deferred in hundreds of ways to others – gas ought to actually cost more like $10-20/gallon and IF it were honestly priced, the market COULD do a pretty good job of regulating its negative aspects.
3. While we both distrust gov’t, I distrust both gov’t and corporations while you seem to have a faith in corporate behavior – even acknowledging that it will often be devious and contrary to public interest – that I simply do not have. I do not believe in the magic of “good” coming from the invisible hand of self-interest.
How’s that for a summary of our positions?
…the world secretly respects us and thanks God/Allah/Jehovah every night for our interventionism?
You spoke of a “bloated, super-sized military”. I think if those countries we’re stationed in suddenly had no US military, yeah, I think they’d complain.
Perhaps it would be nice to let them make that call. We who believe in democracy, after all.
A question about the market and the real world: I’m wondering what you think of the ethanol/food price skyrocketing issue?
The Market would dictate that we, in the West will benefit (ie, corporations will make money), by listening to Bush and going full speed ahead on producing ethanol.
But the result of that will be/is mass hunger, starvation, riots, discontent and misery for millions – perhaps hundreds of millions. That does not matter to the Market, which is soul-less. It does matter to most people (especially the hundreds of millions affected directly).
What does the Free (or Slightly-Regulated) Market advocate have to say to such reality?
And make no mistake, this is an every day reality in big ways and small all around the world – and usually/especially in the places with the least resources/ability to affect the Market and who will be most negatively impacted BY the Market.
On the agreement points, yes, general agreement but for a couple of points:
6. That for capitalism to work, prices ought to reflect what the market will bear. Nothing more. Anything beyond that is pushing towards Marxism. Yes, though, I think that the government might contribute to the costs that work into the price (e.g. environmental regulations) while doing its normal functions.
7. Are you talking about the George Washington that believed in peace through strength? And while I do think that we could do without incarcerating as many non-violent offenders as we do, I also hope you’re not one of those who see a “contradiction” that we put so many folks in jail when the crime rate is lower.
On the disagreement points:
1. You distrust corporations because their interest may not be the same as the public interest. Indeed. But I also don’t trust the government to do what it has historically shown it cannot do well, either. I just don’t see your view as making much sense in a historical context.
2. This is the suggestion that I believe starts to move you towards/into Marxist territory. Guess it depends on how you would determine True Cost, who would determine it, and how you would enforce it.
3. As I have said, I agree with Adam Smith’s wariness with corporations, noting that SOX regulations are corporate chickens coming home to roost. However, the best answer to corporate self-interest is public self-interest, aided primarily by a well-informed public and proper government regulation of contracts (not markets).
Perhaps it would be nice to let them make that call. We who believe in democracy, after all.
They did in the Philippines. We listened.
The Market would dictate that we, in the West will benefit (ie, corporations will make money), by listening to Bush and going full speed ahead on producing ethanol.
But the result of that will be/is mass hunger, starvation, riots, discontent and misery for millions – perhaps hundreds of millions. That does not matter to the Market, which is soul-less. It does matter to most people (especially the hundreds of millions affected directly).
Let me say it again; The People are the market, Dan. As much as the corporations and with their own self-interest. The Market is not just the corporations, as much as you’d like to continually frame it that way. High corn prices will have an affect on the people and the people will respond, likely by buying less corn. 300 million people in the US have quite an impact with their wallets. Like I said, I still don’t think capitalism means what you seem to think it means.
I believe I’ve already agreed with this, but if not, yes, we are in agreement. The people make up the market. The people who buy, the people who sell, the people who produce, the people who market, the people who set policy or not.
Just as the People make up the gov’t. Flawed humans make up both entities. What’s your point?
6. That for capitalism to work, prices ought to reflect what the market will bear. Nothing more. Anything beyond that is pushing towards Marxism.
Well, then on that point, we disagree. The market will bear a heckuva lot less – and strive mightily and in ungodly, devious, dishonest ways – to bring costs down below true costs. It will do this every time. Why? Because it is in the Market’s interest to do so.
This is why we need gov’t to serve as a balance to the Market.
Which is not the same as communism.
7. The George Washington who said:
Over grown military establishments are under any form of government inauspicious to liberty, and are to be regarded as particularly hostile to republican liberty.
The Thomas Jefferson who said:
The spirit of this country is totally adverse to a large military force.
The Abe Lincoln who said:
Allow the president to invade a neighboring nation, whenever he shall deem it necessary to repel an invasion, and you allow him to do so whenever he may choose to say he deems it necessary for such a purpose—and you allow him to make war at pleasure.
You know, those type of fellas expressing those concerns.
And I still want to know what the wise, correct answer from a Christian capitalism fan would be to our world starvation problems we’re currently experiencing?
Let the market be? Starvation of the masses be damned? That IS, I repeat, the answer of the Market. Is it the one you endorse?
This is why we need gov’t to serve as a balance to the Market.
Which is not the same as communism.
Fair enough, though, as I said, our differences in what that balance entails differ, I believe, more in kind than degree. And so it goes.
Fair warnings, all, about the concerns of a too-powerful military and an executive in charge of it. Indeed, there are many countries where the military has become the government.
Fair warnings, and I’d say we’ve heeded them, in an overall sense. Never has there been a nation so strong that, comparatively, used that power as responsibly. How many other nations this strong have given the country it invaded back to the citizens instead of colonizing it?
And instead, our being prepared for war helps secure the peace. When we turn away from those preparations, when we ignore Washington’s other enjoining as Clinton did, we get attacked.
As to the starvation issue, I believe we should respond as we’ve always responded; with (personal) Christian charity. You may recall that starvation has been on this planet for a bit longer than this latest issue with food prices driven up, primarily, by demand from China and India. Fortunately, market-driven capitalism has brought enough wealth to this nation that we have enough to share while the market readjusts to the new dynamic. Neither markets or governments turn on a dime, but the people can and will.
Oh, and regarding the people making up the market as well as the people make up the government; this is a misuse of the term “people”, or at least conflating two definitions. The “people” I refer to are the individuals, where as when the government acts for the people it is doing so corporately.
As you are well aware, the government sometimes does what many of the people don’t want. But there are certain decisions that the government makes that the 300 million of us cannot. We can’t require 300 million signatures on a treaty. That is one decision, hammered out in Washington, that affects us all.
But, as the writers of the Constitution noted (and indeed they understood this distinction), government is given the power to do certain thing by the individuals called “the people”, and most other powers are reserved for the individuals themselves. Hence the more of the economic power in the individuals, the freer they are. The more of the economic power in the government, the more socialistic it is and less free the individuals are.
You’ve been conflating both the two types of “people” and the two types of “regulation”, and that, I think, is the crux of our disagreement. I’ll likely bring up this topic again in the future, so if you want to talk about it again then, I’ll be happy to, but for now I’d just rather let you respond if you’d like.
Neither markets or governments turn on a dime, but the people can and will.
Here’s a prediction: Because of soaring food prices, some individuals and groups will give some aid to some nations. It won’t be enough. It won’t be wisely administered. Millions will be negatively affected or plain out die.
As you rightly noted later: “There are certain decisions that the government makes that the 300 million of us cannot.”
300 wealthy individuals cannot make the policy changes necessary to stop millions (hundreds of millions?) from starving. That takes organized cooperation.
I cannot emphasize how correct you are on that point and it’s sad that you apparently don’t realize how apt it is for this mass starvation issue that is currently underway.
Individuals can assist on the small scale, but individuals can’t easily change corrupt and/or dysfunctional economic systems. That takes the People working together. And I mean that usage of “people” deliberately.
(I meant to say “300 MILLION wealthy individuals…” not “300 wealthy…”)
Something to be considered, I think, in looking at these issues is the freedoms and responsibilities of individuals vs the freedoms and responsibilities of the group.
What is in the best interest of the individual is not always in the interest of the group and vice versa. If I were the only one driving, that would be to my advantage. I could get places faster, more safely, without contributing too much pollution or sprawl or costs. But when EVERYONE wants to have all those same privileges (and they are privileges, not rights – no one has an innate right to drive), then it becomes a disadvantage to the many.
If we all want to drive, then oil prices go up, death and destruction increases, pollution becomes literally sickening, costs go up (someone’s gotta pay for all those billions of miles of road and parking lots and all the military protection of “our” oil), etc, etc.
What is in the best perceived interests of the individual is not in the best interests of the group. The “right” of the individual to drive everywhere interferes with the right of individuals and the group to breathe clean air, to have more affordably priced food, to drink clean water, to not have the costs of sprawl and the deaths and devastation associated with personal autos.
It seems to me that those who are the cheerleaders for a more free market tend to recognize the right of the individual but fail to recognize the responsibilities of the individual and the rights of the group.