When the Market Delivers Too Much of a Good Thing and Too Little of a Bad Thing
People often worry that unregulated markets will not sufficiently provide good things: education, charity, diversity of opinion, art, etc. It is also commonly believed that markets allow too many bad things: racism, discrimination, environmental degradation, consumer scams, low quality or dangerous products, etc.
The irony is that there is abundant evidence of just the opposite. The market provides too many good things and this infuriates certain interest groups who lobby for government to slow the provision, and it does not allow enough bad things so certain interest groups lobby for government to provide more of them. The reason is simple: in a market, everything has a cost. To indulge in racism, for example, one must be ready to bear the cost associated with not hiring the most productive workers, but only those of a certain race. In politics, to indulge ones racism is seen as costless. You can simply vote for the candidate who will enact a discriminatory policy.
Anytime you see a government policy it is evidence that whatever the policy is accomplishing was seen as being insufficiently accomplished by the market. In a market, no companies were engaging in deep sea oil drilling. It cost too much. Government enacted policies to shield them from liability and they began to drill further offshore.
In the market, very few underqualified people were borrowing money to buy a home and very few banks were giving out high risk loans to such borrowers. Government enacted policies to protect banks from the losses on riskier loans, and they got more of them.
We have immigration restrictions because the market does not discriminate against foreign workers enough to satisfy the tastes of some. A majority of voters want to restrict immigration or imports of foreign goods when it is put as a political question—it is free to voice such an opinion—but in the market, these very same voters behave in a way that demonstrates that they do not think such anti-foreign policies are good after all. Does anyone spend all the time researching where every worker comes from, or where every product is made and only buy products made entirely by American workers with American parts? No. It’s too costly to do so, even for the most ethnocentric among us. Plainly stated, the market makes nationalism too costly.
The fact that people have to lobby government to enforce immigration or trade restrictions proves that the market is not restricting these things enough. It does not deliver enough nationalistic sentiment to satisfy the jingoists.
Government enacted bans on interracial marriage because the market was allowing too many of them. The racists didn’t like it, but they were unable to convince enough people voluntarily so they had to request legislation. The market simply did not breed enough racism for them.
Minimum wage laws were enacted because the market was not racist enough. Some people may not have liked black people very much, but even someone with mild racist sentiments had a hard time not hiring a black worker who was nearly as productive as and much cheaper than a white counterpart. Unionized white workers were unhappy with the market’s lack of racism, so they lobbied to create minimum wage laws which demanded all workers be paid at the level of higher skilled white workers. This made racism less costly in the market, and it is no surprise that it resulted in a rise in unemployed blacks.
Despite the immense crowding out effects of government provision of social services and education there is still a thriving non-government sector for education and charity—evidence that there is no market deficiency in these areas. Before government schools, one of the arguments for them was, in fact, that there were too many, not too few, educational options and that the market was providing too diverse a range of educational products. Supporters of public education wanted to create more uniform and obedient citizens, and to do so they had to reduce the choice and abundance of education the market supplied.
Consumer safety regulations and trade licensing are passed at the behest of small groups who are frustrated by the overwhelming number of options markets provide to consumers. Consumers don’t want enough of a particular product to suit that producer, and they want too much of a competitor’s product, so restrictions are passed to reduce the number of good things the market provides.
Markets don’t breed enough conflict and war. Many people claim to want to exact vengeance or carry out justice in far flung parts of the world. In the market, almost no one will train themselves with firearms and head overseas to bring swift justice to tyrants. Nor will they pay a team of specialized killers to do it for them. It is too costly. So those who want it bad enough agitate for governments to carry out such adventurous schemes abroad with other people’s money, and many voters support it because they do not see a direct connection between their pocketbook or their conscience and the warfare waged.
Pioneers in the American West may not have liked the Native Americans much, but they were forced to find ways to get along because if they did not, they stood to lose their lives or property. After the Civil War when U.S. troops were sent to the frontier to defend the pioneers, suddenly the cost of breaking a promise with the Indians was lower. If a settler encroached on Indian land they no longer had to defend themselves against the natives, they had an army who would do it for them. It is no surprise that violence between settlers and Indians escalated. The market didn’t allow for enough conflict, so government subsidized it with the presence of the military.
People claim there are too many box stores in a town and they vote to ban Walmart. Yet if there really were too many, they could just as easily outbid Walmart for the land on which to build the store, or simply not shop there so that Walmart would be unprofitable in that town. Those methods bring real costs on to the people, whereas voting Walmart down is perceived as “free.” The market does not allow enough indulgence of irrational dislike of corporations, so legislation is passed instead.
Where you can be sued by a property owner for polluting a river that runs on their property you don’t get a lot of production that pollutes rivers. It’s expensive. Not satisfied with this, advocates of industrial largesse get exemptions for corporations, or make waterways public property to lower the cost of pollution and get more of it.
When there is too much racism, environmental destruction, financial risk taking or other bad things, there is nearly always a government policy making these things cheaper than they are in a free market. When there is not enough benevolence, consumer protection, choice, education or other good things, there is nearly always a government policy making these things more expensive than they are in a free market.
To understand this phenomenon, imagine if a grocery store surveyed all of the residence nearby and asked them to decide by a vote what items they should stock. Voting is free. How many people would vote for exotic or interesting items they may rarely buy, or vote for silly things just to be funny, or vote for things they think their fellow consumers ought to eat? It’s not hard to see that if a grocer’s stock was determined by voting, grocery stores would be terrible. People might vote for things they aren’t actually willing to buy when a price is put on it. When grocers instead rely on the market force of prices to determine what to supply, they get things people actually want, as revealed by their actions, not their words, and we are all better for it.
Politics is a perceived free way to indulge irrational biases that the market won’t support.
This is not to say markets only produce perfect coordination or do not allow people to indulge their preferences, however irrational. People are free to, and often do, make silly or poor decisions in the market, too. The difference is that they have to bear the cost for their decisions directly in a market, and can neither force those decisions on others or make others pay for them.