Fellow libertarian here, addressing your fundamental question as best I can: As a general rule of thumb, a good place to look for market failures are places where the market ends.
It’s important to remember that, as our society is structured, the market is -defined by the government-. Capitalism, in our society, is in fact a form of regulation.
Quoting from my blog:
“Suppose we lived in a society in which land couldn’t be owned, and you want to start a farm. However, every time you grow a crop, somebody else comes along and picks and eats it. How can the free market solve this problem?
...well, supposing a government does in fact exist, it can’t. It would be illegal to punish somebody for picking crops. How utterly silly of you to even suggest such a thing.
The free market never gets to act on the problem, because the problem isn’t part of its domain. Crop ownership? What? When somebody picks a fruit, it is theirs, that’s the law. They can pick mushrooms and sell them, they just can’t sprinkle mushroom spores around and claim the future produce as their own. And it would be criminal to sit over a field and bully people who try to pick vegetables and fruit that are theirs as much as they are yours.
That seems utterly silly? Well, that’s the way fishing worked.”
Government defines the domain of problems which the free market gets to act on. Government defines how, when, and why property, the basis of the free market, is owned and transferred.
Tragedy of the commons problems are pretty much inevitable whenever ownership interacts with non-owned goods. Anytime ownership interacts with non-owned and non-ownable entities, you have a problem, and it’s a problem the free market can’t solve. The free market can’t solve it because it isn’t -allowed- to solve it.
Obviously the government cannot simply define everything into the free market and be done with it, however. It’s not always government preventing the free market from solving a problem; sometimes a domain simply isn’t amenable to ownership. Air pollution is a great example of this. In some cases water pollution can be as well, or even simply water use; if I use up all the water in a river, what exactly have the people downstream lost? Water tables, similarly. Ocean, and natural fisheries, as mentioned above. There are a great many areas where ownership isn’t a viable mechanism for resolving disputes.
This is where government regulation is useful and necessary. Good regulation doesn’t interfere with the free market, it defines it.
It’s important to remember that, as our society is structured, the market is -defined by the government-. Capitalism, in our society, is in fact a form of regulation.
Yes. Property is theft. And while I’m a big fan of private property, I also think it’s often really is theft.
Negative externalities are theory dependent, like property. What counts as 0 externality? If the girl you want prefers me, is that a negative externality? I wouldn’t think so, because my rules of justice distinguishes between what I consider best and what I’ll try to require by force from people.
First activity—determine what you think is 0 before you try to figure out what to do about negatives.
Externalities can be measured on a per-transaction basis. So take the difference to everyone not involved with and without the transaction. That yields a natural zero.
Difference, with what? Where the guy stares blankly at a wall? Where he ceases to exist?
The structural difference between libertarianism and various collectivisms is the gap libertarianism creates between “I want you to do X” and “You are subject to sanction if you don’t do X”. You define the zero level where the sanctions start.
What is the dollar value of not living next to a rendering plant? For my friend W, zero, because he has no sense of smell.
What about the value of living above a sports bar? For me, it’s mostly negative, since I don’t like sports. But for lots of people, it would be a positive.
I don’t understand how to take a sum across a speculative set of possible futures like this—in particular, in cases where everyone has every incentive to lie (W doesn’t have to tell anyone about his anosmia, and if he cares about the resale value of his house, he won’t mention it).
For purposes of policy, you can simplify by finding typical values for people in various reference classes, by analyzing what choices they make to avoid / approach cases of the external transaction.
Just because I defined it as an integral doesn’t mean you can’t closely approximate it as a small number of multiplication problems.
A: There is a strong resemblance here, yes. Which specific problems do you think would also apply here?
B: The choices, not the flat money spent. You’re allowed to take the available resources into account. Dumping toxic waste where there’s no one at all seems like it would come out ahead of putting it in poor communities.
Doesn’t this have all the usual problems of average utilitarianism?
There is a strong resemblance here, yes. Which specific problems do you think would also apply here?
Imagine that I say that everything costs me a million dollars in value. Maybe there’s a sense in which it’s true—I’m just really sensitive. Still, it doesn’t seem fair to give me that level of disproportionate influence.
Alternately, doesn’t this lead to just dumping toxic waste in poor communities, since people there can’t afford to spend very much to avoid it?
The choices, not the flat money spent. You’re allowed to take the available resources into account.
I’m afraid I don’t understand this.
Dumping toxic waste where there’s no one at all seems like it would come out ahead of putting it in poor communities.
For a number of waste products, there does not appear to be an unpopulated place that they can be dumped—and if there were, environmentally-minded people would put a high value on not doing so, since it would disrupt unspoiled wilderness.
Imagine that I say that everything costs me a million dollars in value. Maybe there’s a sense in which it’s true—I’m just really sensitive. Still, it doesn’t seem fair to give me that level of disproportionate influence.
This is a good argument for why it’s hard to measure external costs by asking people. It doesn’t undermine the definition.
And the situation isn’t quite as bleak as you imply, in terms of measurement. We have techniques, such as revealed preference, for measuring costs when people have incentives to lie. We also routinely, in the legal system, apply estimates of “reasonable” costs for things.
The question was, ‘how do we measure the intensity of externalities’? We can measure this by peoples’ economic choices. The nice thing about money is that it’s more objectively quantifiable. You can actually see where money moves. Therefore, the scale, at least is set.
The line of reasoning that this would lead to dumping on the poor relies on the idea that the only way we’d measure economic choices is by adding up the dollar amounts spent. The dollars let us see the choices, but we can be cannier than an adding machine about combining them. At least we can use a disposable income correction, and of course a knowledge correction (if you don’t know you have a problem and never end up spending money fixing it − 8Hz noise pollution, say—then we have a bit of a problem with this approach)
What waste products are you thinking of? At the very least, the inside of a carefully constructed toxic waste container won’t have any jukes or tree narfs in it.
Thanks for getting more specific, but you left out the particular part I was asking for.
Difference, with what? Where the guy stares blankly at a wall? Where he ceases to exist?
If I don’t do X?
That’s not a particularly identifiable state. If you play basketball for an hour, during that hour I know you’re not doing a lot of things. If all I know is that you’re not playing basketball, you could be doing a zillion other things, all of which have a different economic value to me.
If you play basketball, that has a range of economic value too, but a much much smaller range than not playing basketball.
Ok, so if we take the action with the greatest value to me as the reference zero, then all other actions count as negative externalities.
That may be how utilitarians do it, but it isn’t the way libertarians do it, and that was the context of the original question. Libertarians set a less than greatest value action as the reference zero. Before they talk about what to do about negative externalities, they need to identify that zero, so they can know what they’re talking about when they say “negative externality”.
Ok, so if we take the action with the greatest value to me as the reference zero, then all other actions count as negative externalities.
An externality is when A’s action results in costs for B who wasn’t a participant. B isn’t acting at all. And it’s usually obvious and uncontroversial what counts as “action” or “inaction” on the part of A.
My ideal tax system taxes people based on land ownership (not property ownership—you can only be taxed for the land your house sits on, not the house itself, for complex reasons which basically come down to “the land was there before people, the house wasn’t”), and distributes all post-spending taxes evenly across the population (and there’s your welfare system). So I more or less agree with you that (certain kinds of) property (are)/is problematic.
I’m less certain what you mean by “determining what I think is 0”—I understand the concept you’re conveying, I am clueless as to why you’re conveying it, which means I’m missing something you’re trying to communicate.
Fellow libertarian here, addressing your fundamental question as best I can: As a general rule of thumb, a good place to look for market failures are places where the market ends.
It’s important to remember that, as our society is structured, the market is -defined by the government-. Capitalism, in our society, is in fact a form of regulation.
Quoting from my blog:
“Suppose we lived in a society in which land couldn’t be owned, and you want to start a farm. However, every time you grow a crop, somebody else comes along and picks and eats it. How can the free market solve this problem?
...well, supposing a government does in fact exist, it can’t. It would be illegal to punish somebody for picking crops. How utterly silly of you to even suggest such a thing.
The free market never gets to act on the problem, because the problem isn’t part of its domain. Crop ownership? What? When somebody picks a fruit, it is theirs, that’s the law. They can pick mushrooms and sell them, they just can’t sprinkle mushroom spores around and claim the future produce as their own. And it would be criminal to sit over a field and bully people who try to pick vegetables and fruit that are theirs as much as they are yours.
That seems utterly silly? Well, that’s the way fishing worked.”
Government defines the domain of problems which the free market gets to act on. Government defines how, when, and why property, the basis of the free market, is owned and transferred.
Tragedy of the commons problems are pretty much inevitable whenever ownership interacts with non-owned goods. Anytime ownership interacts with non-owned and non-ownable entities, you have a problem, and it’s a problem the free market can’t solve. The free market can’t solve it because it isn’t -allowed- to solve it.
Obviously the government cannot simply define everything into the free market and be done with it, however. It’s not always government preventing the free market from solving a problem; sometimes a domain simply isn’t amenable to ownership. Air pollution is a great example of this. In some cases water pollution can be as well, or even simply water use; if I use up all the water in a river, what exactly have the people downstream lost? Water tables, similarly. Ocean, and natural fisheries, as mentioned above. There are a great many areas where ownership isn’t a viable mechanism for resolving disputes.
This is where government regulation is useful and necessary. Good regulation doesn’t interfere with the free market, it defines it.
Yes. Property is theft. And while I’m a big fan of private property, I also think it’s often really is theft.
Negative externalities are theory dependent, like property. What counts as 0 externality? If the girl you want prefers me, is that a negative externality? I wouldn’t think so, because my rules of justice distinguishes between what I consider best and what I’ll try to require by force from people.
First activity—determine what you think is 0 before you try to figure out what to do about negatives.
Externalities can be measured on a per-transaction basis. So take the difference to everyone not involved with and without the transaction. That yields a natural zero.
Depends on what scale they’re using.
For example, if I have some ideal of perfection that I scale at 0, whenever you diverge from perfection I will consider it a negative externality.
Differences wash that out.
Difference, with what? Where the guy stares blankly at a wall? Where he ceases to exist?
The structural difference between libertarianism and various collectivisms is the gap libertarianism creates between “I want you to do X” and “You are subject to sanction if you don’t do X”. You define the zero level where the sanctions start.
EDITED TO MAKE THE POINT OF THE EXAMPLE CLEARER
Alice, what’s the total economic impact on you from everything, if I do X?
+$475
Alice, what’s the total economic impact on you from everything, if I don’t do X?
+$476
So, X causes a difference of -$1.
Alice, could you reconsider things from a negative point of view, now? Thanks.
Alice, what’s the total economic impact on you from everything, if I do X?
-$7032
Alice, what’s the total economic impact on you from everything, if I don’t do X?
-$7031
So, doing X causes a difference of -$1.
Works out the same.
What is the dollar value of not living next to a rendering plant? For my friend W, zero, because he has no sense of smell.
What about the value of living above a sports bar? For me, it’s mostly negative, since I don’t like sports. But for lots of people, it would be a positive.
… so?
As I said, you add them all up from all different people for both (all) cases of what you could do. Then you take the differences between them.
That captures what you’re talking about.
Sorry for not making the example clear.
I don’t understand how to take a sum across a speculative set of possible futures like this—in particular, in cases where everyone has every incentive to lie (W doesn’t have to tell anyone about his anosmia, and if he cares about the resale value of his house, he won’t mention it).
For purposes of policy, you can simplify by finding typical values for people in various reference classes, by analyzing what choices they make to avoid / approach cases of the external transaction.
Just because I defined it as an integral doesn’t mean you can’t closely approximate it as a small number of multiplication problems.
Doesn’t this have all the usual problems of average utilitarianism?
Alternately, doesn’t this lead to just dumping toxic waste in poor communities, since people there can’t afford to spend very much to avoid it?
A: There is a strong resemblance here, yes. Which specific problems do you think would also apply here?
B: The choices, not the flat money spent. You’re allowed to take the available resources into account. Dumping toxic waste where there’s no one at all seems like it would come out ahead of putting it in poor communities.
Imagine that I say that everything costs me a million dollars in value. Maybe there’s a sense in which it’s true—I’m just really sensitive. Still, it doesn’t seem fair to give me that level of disproportionate influence.
I’m afraid I don’t understand this.
For a number of waste products, there does not appear to be an unpopulated place that they can be dumped—and if there were, environmentally-minded people would put a high value on not doing so, since it would disrupt unspoiled wilderness.
This is a good argument for why it’s hard to measure external costs by asking people. It doesn’t undermine the definition.
And the situation isn’t quite as bleak as you imply, in terms of measurement. We have techniques, such as revealed preference, for measuring costs when people have incentives to lie. We also routinely, in the legal system, apply estimates of “reasonable” costs for things.
The question was, ‘how do we measure the intensity of externalities’? We can measure this by peoples’ economic choices. The nice thing about money is that it’s more objectively quantifiable. You can actually see where money moves. Therefore, the scale, at least is set.
The line of reasoning that this would lead to dumping on the poor relies on the idea that the only way we’d measure economic choices is by adding up the dollar amounts spent. The dollars let us see the choices, but we can be cannier than an adding machine about combining them. At least we can use a disposable income correction, and of course a knowledge correction (if you don’t know you have a problem and never end up spending money fixing it − 8Hz noise pollution, say—then we have a bit of a problem with this approach)
What waste products are you thinking of? At the very least, the inside of a carefully constructed toxic waste container won’t have any jukes or tree narfs in it.
I’m still not sure what a viable combining mechanism is. (Oh, and also: children)
As for waste products, I’m generally skeptical of containment—not so much in theory, but in practice, we don’t seem to do a very good job of it.
FIne—then not producing the toxic waste in the first place would be the baseline comparison.
Thanks for getting more specific, but you left out the particular part I was asking for.
That’s not a particularly identifiable state. If you play basketball for an hour, during that hour I know you’re not doing a lot of things. If all I know is that you’re not playing basketball, you could be doing a zillion other things, all of which have a different economic value to me.
If you play basketball, that has a range of economic value too, but a much much smaller range than not playing basketball.
Choose an arbitrary action as reference, then! You’ll be taking the difference in the end anyway.
This is just a non-physics example of gauge symmetry.
Ok, so if we take the action with the greatest value to me as the reference zero, then all other actions count as negative externalities.
That may be how utilitarians do it, but it isn’t the way libertarians do it, and that was the context of the original question. Libertarians set a less than greatest value action as the reference zero. Before they talk about what to do about negative externalities, they need to identify that zero, so they can know what they’re talking about when they say “negative externality”.
An externality is when A’s action results in costs for B who wasn’t a participant. B isn’t acting at all. And it’s usually obvious and uncontroversial what counts as “action” or “inaction” on the part of A.
Which bring me back to my previous question:
You can define a reference zero that way. Libertarians generally do not.
My ideal tax system taxes people based on land ownership (not property ownership—you can only be taxed for the land your house sits on, not the house itself, for complex reasons which basically come down to “the land was there before people, the house wasn’t”), and distributes all post-spending taxes evenly across the population (and there’s your welfare system). So I more or less agree with you that (certain kinds of) property (are)/is problematic.
I’m less certain what you mean by “determining what I think is 0”—I understand the concept you’re conveying, I am clueless as to why you’re conveying it, which means I’m missing something you’re trying to communicate.