This rant goes out to all you Ron Paul supporters out there, who think the free market can fix anything.
There was an interesting article on MSN today (hey, weirder things have happened), about green cars the car companies won’t sell you. And a normally non-poltical column suddenly becomes an object lesson in how the free market can fail, and why libertarianism fails in the real world.
Now, before you go and put on your conspiracy theory tinfoil helmets, this behavior of the car companies is perfectly rational (for them) and even predictable, as Lawrence Ulrich explains:
It’s not all the fault of the car companies. The crazy quilt of environmental regulations is forcing carmakers to design and build two versions of the same cars. And it costs real money to make a car this green. So in states where there are no regulations to force their hand,automakers don’t want to have to boost their prices for the green versions—or to simply eat the extra cost and make less profit.
Honda appears to be doing just that. It currently charges Californians and other green-staters about $150 extra for these solid-citizen models. But experts suggest that it costs carmakers closer to $400 a pop to install the gear.
Another issue: The PZEV cars don’t get any better mileage than conventional versions. Would most self-interested Americans even pay a lousy 100 bucks for cleaner air that doesn’t put fuel savings back in their pocket? “With hybrids, the selling point is fuel economy, so there’s a dollar amount on that,” said William Walton, Honda’s product planning chief for U.S. cars. “We want to give people the cleanest vehicles we can produce, but how much are people willing to pay for clean air?”
This is a classic case of what economists call an externalized cost. Adding these extra-green features costs money- to both the car manufacturer and the car purchaser. But neither of them are directly incurring the cost of not adding these extra-green features- the increased cases of asthma and other lung problems, and the degraded quality of life- these costs are bourne by the society as a whole, or by individuals who had nothing to do with the economic transaction of buying a car.
Worse yet, if you’re the poor sod who’s going to come down with asthma or whatever, it doesn’t matter if you spend the extra $400 and get a green car, if the schmuck in front of you didn’t. So given that it doesn’t matter (to you) wether you buy the green car or not, and there is an advantage to not buying (or selling) the green car- it’s $400 cheaper.
So this gaurentees that the green car will never be bought or sold, and everyone will drive the more-polluting cars.
At this point, you’re probably saying “what about hybrids?” Yes, hybrids solve the problem (sort of)- by being both less polluting, and being more fuel efficient. And it’s the fuel efficiency which is valuable to the buyer. The point is, that this isn’t just about cars. The concept of externalized cost shows up everywhere.
Take pollution controls on factories. These cost millions of dollars, and don’t (directly) benefit the companies installing them. Or take just about any form of pollution. The cost is bourne not by the person/company doing the polluting, but society as a whole.
One of the things we’re forgetting as a society is just how bad pollution can become, when it becomes an unchecked race to the bottom. We’re starting to hear stories about how bad the environment in China is, due to lax environmental controls there. At which point one has to ask: why the heck do we want to recreate their problems over here? But as bad as it is China, they’re still better off then we’ve been recently.
After all, I haven’t heard of a Chinese river catching fire yet. Yep, you read that right: rivers can catch fire. The Cuyahoga did multiple times- according to Ohio History Central, the Cuyahoga river (connecting Akron and Cleveland) caught fire and burned in 1868, 1883, 1887, 1912, 1922, 1936, 1941, 1948, 1952, and 1969.
So what’s the solution? Unfortunately (for the libertarians), the only solution that has proven effective is government regulation. The free market itself can not address this issue. Each player is acting rationally an in their own interests, but the result is suboptimal for all. The solution needs to be extra-market.
And the solution enforcer needs to be large enough to enforce the solution on all market participants. The Cuyahoga is easy, as it exists entirely within Ohio- but how do you address pollution in the Mississippi? It doesn’t help for Missouri to have strict anti-water-pollution laws if Iowa, Illinois, Wisconsin, and Minnesota don’t also. This is the same problem as the schmuck in front of you driving a polluting gas hog, only with states instead of drivers- same problem, different players.
And it doesn’t matter if New York and California impose strict greenhouse gas emissions, if the rest of the country, or China and other countries, don’t. Or turn that around- it doesn’t matter if everyone else signs Kyoto and limit their greenhouse gas emissions, if the US doesn’t. The effects of global warming are going to be bourne by everyone. Same problem, different players.
Now, this is just one way free markets fail. I’m going to try to point out some others in later blogs. When free markets work, they’re great- the important point is that free markets don’t always work. No matter how much we’d like to beleive they do.
So a vote for Ron Paul, or anyone else expressing libertarian opinions, is a vote for rivers that burn.
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