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Saturday, March 1, 2008

[PlatCommLP08] CHAT: markets are not perfect

I can't agree that unfettered markets are perfect regulators.  Even in his paper Markets Never Fail, geoanarchist Prof. Fred Foldvary admits that unfettered markets can fail to police negative externalities like pollution:
FF) If the transaction costs are low, the affected parties can negotiate an efficient outcome. If there are too many persons affected for negotiations to be effective, then government, acting as an agent for the people, can levy a pollution charge equal, so far as can be measured, to the social cost. Such a charge does not correct a market failure, but rather enhances the market by preventing trespass. Excessive pollution is therefore not a market failure, but a government failure (FF
This is somewhat a sleight of hand, because Fred defines a completely free market as one in which there is no aggression (such as pollution), but that option won't be on the table until all humans are angels.
For a list of many kinds of pollution and other negative externalities that no market has ever come remotely close to successfully policing, see Can Torts Police All Negative Externalities?
P.S. Foldvary also defines away positive externalities (i.e. free riders) as not being market failures:
FF) people can lie if the amount they pay depends on their stated values. Since the externality cannot possibly be eliminated, then the market cannot fail, since failure needs to be defined in a real-world context. The inability to do what is impossible cannot be designated a "failure." One can only fail if it is hypothetically possible to succeed. (FF
Foldvary's geonarchist solution to all these problems is called "private communities", but I don't see them as in practice very different from geominarchist local governments.  He writes:
FF) The covenants, bylaws, and deeds of private communities can and do deal with positive and negative externalities. [...] People can then move into communities with the covenants they prefer. Contractual governance can thus provide for positive externalities, and if people consider them important enough, there will be communities that require these.  The voluntariness of such communities exits at the level of choosing to join it. Once one is a member, then there may be rules which they may not like, but they accept them as part of a package that provides for greater benefits than if they were not members. (FF
If choosing to reside in a place is under geoanarchism the biggest part of how one consents to the package of externality-regulation that exists there, then that is not very different in practice from geominarchism -- as long as the principle of maximal decentralism/federalism is followed.