Monthly Archives: September 2005

The Peak Oil guys keep trying to tell the economists that there’s a drop-off in oil production coming (the ‘peak’), and the economists keep saying that the market will solve the problem when it arrives. Left unsaid is that sometimes market solutions involve “demand destruction” in the form of recession, depression, or worse.
Most of the energy optimists though think the market will wave its magic wand and incent the development of alternative technology. This is foolish – economics can’t trump physics (especially energy density), but it’s hard to sell this to economists. But I just had an idea, after hearing an old Spin Doctors song on my itunes shuffle.
What amount of money would I have to give you right now to develop a technology that would allow me to achieve Superman-like powers of flight, heat vision, super strength, etc? After all, if the power of the market can solve any problem, presumably there is a ‘bid’ I can make at which it will be able to solve THIS one, right?
(If the answer is “not an infinite amount of money, but considerably more than exists in the entire world economy” then you might as well treat it as an infinite amount of money for all intents and purposes. The same logic applies for oil – how much money will it take to get a portable energy storage mechanism which can achieve goals X, Y, and Z? Answer: money can’t beat physics – there are some problems that no amount of money will ‘solve’ for given acceptable values of ‘solution’).

So I spend a lot of time on this blog which is a stunning waste of time, since the commenters are disproportionately the simplistic wing of the libertarian party, with a handful of SwiftBoat types trolling from the Republicans. A brou-ha-ha there completely unrelated to markets (for once) reminded me that I meant to write this article, so here you go.
I’ve always been interested in, but not really affiliated with, libertarianism. Unlike the leftists that most of the suburban Republicans at my last job think I’m one of, I believe in the market. When things don’t work out, I usually look for market distortions first, rather than simply believing that capitalism is evil or that the market doesn’t ‘work’. The market is a tool, like a really good computer; it produces optimal outcomes if it has very good information, but sometimes doesn’t do as well with inaccurate or incomplete data. Most ills in our society, I think, can be fixed by improving those inputs, rather than through more onerous regulation.
Personally, I find looking at the imperfections of markets a very interesting thing, and am disappointed at how often self-identified libertarians fall back into an eighth-grade “market didn’t do X therefore no demand for X” philosophy. Essentially, they either don’t believe in or haven’t even HEARD of externalities, network effects, the “race to the bottom”, etc.
This applies especially to the various smoking bans being passed all over the country. (Pretend I’m talking about restaurants here rather than bars; I’m uncomfortable with a total ban on smoking in bars, but was very happy to ban it in restaurants). Short summary: the market didn’t provide any non-smoking airlines before the government made them go non-smoking; in most cities non-smoking restaurants were trivial embarassments until smoking bans passed. The simplistic view is to say that people didn’t value (non-smoking) more than (eating-out-at-all) or (flying), and this is technically true. But is it useful when you’re staring down the barrel of a referendum that you’re about to lose? Probably not – which is when it would be helpful, I think, to study the issue and find out WHY so few businesses made the switch before being forced, even given apparent overwhelming customer preference.
And then there’s the ‘remedy’ – again, the simplistic view is to say ‘do nothing’, but the voters in that referendum are going to ‘do something’ for you if you keep messing around. For a brief time, Julian Sanchez at least was willing to explore alternative ways to, in DC, provide more non-smoking venues, but he’s in the minority among the “Ban the Ban” types. To me, using the government’s incentive power to encourage movement towards what appears to be a huge consumer preference anyways is a legitimate use of power – the market is a means to an end, not an end in and of itself. Why don’t more people think of “how can I encourage the market to solve this problem” instead of “oh well, the market doesn’t want it”?
In reference to Austin’s bar smoking ban, I’d much rather have used the market to gently push a greater portion of live music venues and other bars towards non-smoking and still have some smoking bars available for the portion of the population that wants to smoke and drink; but the ban-the-ban-ers weren’t willing to listen to the “hey, a hell of a lot of people want to see music and not breathe smoke; why isn’t the market providing any of these kinds of venues” arguments, so they got a full-on ban.
In other words, with reference to the bar ban in Austin, I’d be most satisfied if substantial chunks of real live music venues existed in BOTH smoking and non-smoking camps. I’m not happy that there will be essentially zero smoking bars; this is heavy-handed regulation. But to say that the only other alternative was the status quo, i.e., NO non-smoking music venues or bars, is basically handing the referendum a guaranteed victory.
Economists study this stuff; I would think that libertarians, who believe in the market, would want to do it as well. It remains a mystery to me why so few are interested in figuring this stuff out.