[DEBATE] : A sneaky attack on prosperity

[Patrick Bond]

Russell, I've occasionally found useful things in Ben Ami's material. 
But what a dolt:

> -----Original Message-----
> From: Russell Grinker <grinker at mweb.co.za>
> ... It is simply a measure of the amount
> of goods and services produced in an economy in one year. 

No it's not. It's a measure of (some not all) goods and services 
'produced' for the market. When a woman does unpaid work, which she 
'produces in an economy' that superexploits her, does GDP pick it up? 
When the cost of a good's production includes pollution, does GDP 
measure it?

Here are some other things Redefiningprogress.org does to correct GDP in 
ways Ben Ami should learn about:

Subtract crime and family breakdown;
Add household and volunteer work;
Correct for income distribution (rewarding equality);
Subtract resource depletion;
Subtract pollution;
Subtract long-term environmental damage (climate change, nuclear waste 
generation);
Add opportunities for increased leisure time;
Factor in lifespan of consumer durables and public infrastructure;
Subtract vulnerability upon foreign assets.

And here's more elementary material about flaws in economic growth logic 
and measurement that Ben Ami would do well to consider before lowering 
the tone of sp!ked...

http://www.smirkingchimp.com/thread/8218
 
Market Failure: The Back of the Invisible Hand
by Ernest Partridge | Jun 20 2007 - 2:14pm |
 

The concept of "the invisible hand," cherished by self-designated 
"conservatives," has its origin in Adam Smith's Wealth of Nations.

    [The individual] neither intends to promote the public interest, nor 
knows how much he is promoting it... [H]e intends only his own security; 
and by directing that industry in such a manner as its produce may be of 
the greatest value, he intends only his own gain, and he is in this, as 
in many other cases, led by an invisible hand to promote an end which 
was no part of his intention.

An unyielding faith in the infallible beneficence of "the invisible 
hand," leads to "market absolutism" – the doctrine that whatever 
government attempts, privatization and the free-market can do better.

What market absolutists (unlike Smith) fail to notice, is that not all 
workings of "the invisible hand" are beneficial. Some unintended 
consequences of market activity are harmful -- "the back of the 
invisible hand." Economists call these "market failures."

One cannot enroll in an Introduction to Economics class, without 
encountering the concept of "market failure" – the acknowledgment that a 
totally unconstrained and unregulated free market can, at times, have 
socially undesirable consequences (as I will exemplify below). It is one 
of the most obvious and incontrovertible facts of economics. Almost all 
of us are aware of market failures, whether or not we have ever studied 
economics.

Some students of Econ. 101 choose to major in Economics, and a few of 
these earn doctorates in the field. Those scholars who go on to work for 
The Heritage Foundation, The American Enterprise Institute, The Cato 
Institute, and other such "conservative think-tanks" somehow manage to 
completely forget about "market failures." The free unregulated market, 
they tell us, always brings about the socially optimum result. Some 
examples (with my italics):

    **"In the free market, the individual would have to produce a good 
that the other person desired in order to receive a good in return. Adam 
Smith's "invisible hand" of the market guides all participants in 
society to promote the best wishes of everyone else by pursuing his own 
wants and desires." ( Jacob Halbrooks).

    ** "[T]he free market allows more people to satisfy more of their 
desires, and ultimately to enjoy a higher standard of living than any 
other social system... We need simply to remember to let the market 
process work in its apparent magic and not let the government clumsily 
intervene in it so deeply that it grinds to a halt." (David Boaz, 
Libertarianism, a Primer, p. 40, 185.)

    **"A free market [co-ordinates] the activity of millions of people, 
each seeking his own interest, in such a way as to make everyone better 
off... Economic order can emerge as the unintended consequence of the 
actions of many people, each seeking his own interest." (Milton and Rose 
Friedman: Free to Choose, pp. 13-14).

Accordingly, governments should never interfere with markets. 
Furthermore, governments should not own property, which is better 
managed by private individuals. So argues the libertarian, Robert J. 
Smith: "The problems of environmental degradation, pollution, 
overexploitation of natural resources, and depletion of wildlife all 
derive from their being treated as common property resources. Whenever 
we find an approach to the extension of private property rights in these 
areas, we find superior results." (My italics). "All," "whenever" -- no 
compromise or qualification here!

In short: let the free market decide. The mysterious "invisible hand" of 
the free market will "promote the best wishes of everyone..," 
(Halbrooks), "[allow] more people to satisfy more of their desires" 
(Boas), and "make everyone better off" (Freidman).

Practical experience tells us otherwise:

    **The unconstrained chemical industry promoted pesticides and caused 
extensive damage to the ecosystem, until the public and then the 
government, aroused by Rachel Carson's book, "Silent Spring," put a stop 
to it.

    **Similarly, the chemical industry strenuously resisted demands that 
it cease the manufacture and distribution of chloro-fluorocarbons 
(CFCs), when atmospheric scientists discovered that the CFCs were 
eroding the stratospheric ozone, which protects the earth's inhabitants 
from ultra-violet radiation. Once again, the federal government, joined 
by the governments of other industrialized nations, enforced a ban on CFCs.

    **Scientific warnings about global climate change ("global warming") 
were countered by "junk science" sponsored by the energy industry. Now, 
at last, as the fact of climate change becomes undeniable and widely 
acknowledged, the same industry is promulgating the "line" that climate 
change may not be all that bad, and might even be beneficial. Clearly, 
mankind can not count on private enterprise to solve this grave crisis. 
Only international agreement among the industrial nations will suffice. 
Meanwhile, the Bush administration, on behalf of its "sponsors" the 
energy industry, is resisting international action.

    **Reduced labor costs yield increased profits and increased 
dividends to the stockholders of the corporation. Thus, if workers 
abroad accept wages that are a fraction of the wages demanded in the 
United States, then the "responsible" policy of the corporation 
executives is to re-locate jobs abroad. "Outsourcing." The consequences 
to the displace workers, and eventually to the national economy, is 
devastating. But strictly speaking, that is not the concern of the 
corporation. Not, that is, unless the government intervenes with 
tariffs, tax incentives, regulations, and laws.

    **Finally, the tobacco industry, whose corporate responsibility to 
its stockholders is to maximize profits, successfully marketed its 
products to the point where half of the US population were smokers. As a 
result, almost a half million Americans die prematurely each year – more 
than the total US casualties in World War II. Today, only a fifth of 
adult Americans are smokers. No thanks to the industry. Once again, 
government intervention, vigorously and persistently opposed by the 
tobacco industry, has curtailed marketing and has publicized the health 
hazards of smoking, saving the health and lives of millions.

We are all quite familiar with these "market failures," and many more. 
It is obvious that, in numerous undeniable cases the unregulated free 
market fails to "make everyone better off," as Milton Friedman would 
have us believe. So why, if market failures are so compellingly obvious, 
should we even bother to mention them? The answer is that our present 
government is dominated by individuals who behave as if they don't 
recognize these malevolent consequences of free markets. So one after 
another, regulations and laws designed to correct market failures are 
being dismantled, as government regulatory agencies are staffed with 
lobbyists and officers from the corporations that these agencies are 
charged to regulate.

But why do markets fail to produce optimal results for society at large? 
Railroad tycoon, William Vanderbilt (1856-1938) said it all: "the public 
be damned, I work for my stockholders." Moreover individual 
entrepreneurs and workers also want and strive for what is best for 
themselves. Indeed, as any neo-classical economist will insist, personal 
want-satisfactions ( e.g., profits) are what drive an economy.

Implicit in market absolutism and libertarianism is the belief that what 
is best for each individual and each corporation is best for all 
individuals – in other words, for "society at large." As President 
Eisenhower's Secretary of Defense, Charles Wilson, put it: "What is good 
for General Motors, is good for the country." (For a refutation, see my 
"Good for Each, Bad for All").

Market absolutism, like "young-earth creationism" and biblical 
literalism, is a dogma, and thus it is untouched by hard evidence and 
practical experience. "Market -- good; Government -- bad. Period! Now 
don't confuse us with the facts."

Those who are not captivated by the dogma of market absolutism (i.e., 
most of us), know better. We trust the scientists who tell us that 
pesticides damage the ecosystem, that CFCs erode the ozone in the 
stratosphere, that the continuing use of fossil fuels is changing the 
climate. And we know that smoking causes lung cancer and premature death 
– the cigarette packs tell us so, not because the tobacco companies warn 
us out of a sense of social responsibility, but because the government 
requires them to print the warnings.

Government regulation, and laws restricting commercial activity, arise, 
not from dogma, but through accumulated practical experience and 
political action. As human institutions they are imperfect, which means, 
to be sure, that they are sometimes excessive. The appropriate response 
to "insolence of office" is reform, not abolition of the office – reform 
through the same processes of practical experience and political action.

As James Galbraith puts it:

    "A new spirit of pragmatism surely requires that we discard the 
metaphor of market determinism – whole and entire. No more, let us bow 
and scrape before that altar. Markets have their place – they are a 
reasonably open and orderly way to assure the distribution of services 
and goods. They are not a general formula for the expression of social 
will and the working out of social problems."

Corporations quite properly work for the stockholders, and private 
individuals, in their economic activities, work for themselves and their 
families. But when these corporate interests and private activities 
cause social harm, who or what is most authorized to act in behalf of 
society – of all the people?

The solution is the same in all civilized societies: the law and the 
government that enacts and enforces the law. To be sure, law and 
government can be despotic and oppressive, and when they are, "it is 
[the] right, it is [the] duty" of the people "to throw off such 
government." (The Declaration of Independence). Such "despotism" surely 
includes the situation that we face today, as the corporations that 
should be regulated by government, instead have taken control of the 
government. However, in liberal democratic countries, law and 
government, unlike private enterprises, are authorized to act in behalf 
of the public at large. This, the unregulated free market can not do and 
must not presume to do.

There is nothing new or startling about these political principles. They 
are enshrined in our founding documents:

    We hold these truths to be self-evident: that all men are created 
equal; that they are endowed by their Creator with certain unalienable 
Rights; that among these are Life, Liberty, and the pursuit of 
Happiness. That, to secure these Rights, Governments are instituted 
among Men, deriving their just powers from the consent of the governed, 
That, whenever any Form of Government becomes destructive of these ends, 
it is the Right of the People to alter or to abolish it, and to 
institute new Government... (Emphasis added).

And note in the Preamble to the Constitution, these enumerated 
legitimate functions of government: "... establish Justice, insure 
domestic Tranquility, provide for the common defence, promote the 
general Welfare, and secure the Blessings of Liberty to ourselves and 
our Posterity."

And yet, the dogma of the ruling elites would ordain that we put all 
these founding principles aside, and in matters of public interest and 
social welfare, "let the market decide."

These individuals have the nerve to call themselves "conservatives."

Copyright 2007, by Ernest Partridge