Michael Battalio

Friday, November 28, 2014

Discussions on Wealth (part 4): Chapter 2 discussion - externalities

This discussion on wealth is an offshoot of Serious Conversations parts 53 and 54. We are considering the book The Origin of Wealth by Eric D. Beinhocker. (I do not profit from clicks). (Ed.: we will be taking the general format of outlining the major points of the chapter and then discussing what we believe to be important or intriguing points.)

        The free market is the most just decider in allocation of wealth (pg 28). This leads into an assessment of externalities:  Is there such thing as a completely free market?  It may be the most just, but does that really matter in practice? There will always be forces outside of the market pulling the market in one direction or another.  The wealthy will always be in more control of the market than the non-wealthy, so if the free market is the most just, by deduction, all other markets must be unjust.  And because no market will ever be the ideal market, all extant markets are unjust.  This is the perfect argument for the intervention of government.  
        No market is completely free. The currency of the market cannot account for all of the costs and benefits for all market forces because our economy is so compartmentalized. Externalities are not noticed when they don’t have an immediate effect on the goods accumulated or exchanged. For example, the climate impacts of greenhouse gas emission are an enormous negative externality that is not factored in because a factory owner doesn’t care how polluting the electricity they use is. They only care that the price not vary drastically. The generation, distribution, pollution of the energy production is some other factory owner’s problem. A second example: societal investments in education pay off in the long run by spurring innovation from educated workers, but a company isn’t going to make a voluntary investment because the investment might not pay off until after the executives making the investment have left.
        A free market assumes that everyone started off fairly and the wealth was distributed evenly. Even if you come up with an amazing strategy for a perfectly fair market, people are still going to start out with advantages and disadvantages, and if your strategy doesn't provide ways for those on the bottom to rise up, then it's not going to help them out at all. So, we need an external entity to moderate the not so free market. The market isn’t free because of the government. The market isn’t free because it is an imperfect universe we live in. The government makes it more equitable though taxation and regulation. Only the quantity of government involvement should be debated.

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