Libertarian Perspectives on Economic and Social Policy

October 14th, 2005 by MrLuxuryFashionGuru

Wow, this class really gets me fired up, largely because I am sooo incredibly skeptical about the things the professor argues for.  And the scary thing (to me, at least), is that so many students just eat it up, and uncritically accept claims like “Even in countries like Singapore with strongly enforced drug prohibition, the numbers show no significant difference in substance abuse with the US or elsewhere.”* and “Economic analysis shows that recycling is usually about equal to or even worse than new production in terms of cost and pollution.”**  Arghh.  Admittedly I respect his far greater experience and knowledge, and also his good faith effort to be even-handed in presenting and answering the counter-arguments.  Yet I fundamentally think limited and democratic paternalism can be a very good and economically efficient way of ordering society.

*This is outright wrong if you believe the 2005 UN World Drug Report 

—> The professor was arguing that all drugs should be legal and treated like any other consumer good (how can crack cocaine be a “good”??!) like blue jeans or toaster ovens.

** Well, except that recycled paper/cardboard pulp is now the largest US export good by volume, and recycling aluminium reduces the need for horrifically damaging aluminium ore mines.  Clearly there are many economists (like the ones at these highly profitible recycling firms) who think the economic analysis is in favor of recycling. 

—> The professor’s position was that compulsory residential recycling programs are silly since market incentives will lead to optimal behavior as necessary.  Which is an ok position at first glance, but ignores possibilities like the negative incentives for people to sort their trash, and also the important potential for government-mandated programs to capture economies of scale.  For example, Harvard pays something like $80/ton of trash that’s landfilled, but gets paid $60/ton of paper it sells to a recycling firm.  Clearly few Harvard students are going to be persuaded to sort all their trash by any monetary reward because it would probably be about $1 per person per semester, or even $6 over 16 weeks if that student throws out 100kg or 220 pounds of paper.  Yet Harvard (20,000 students, not including staff) cumulatively throws out hundreds of tons of paper every semester, which could either mean a huge landfill bill, or a very sweet profit for the school.  This is ignoring any environmental benefit like the reduced need for forests to be turned into wood-pulp plantations etc.

This was the “short” email I tried to write to him, but just couldn’t stop myself from turning it into a fairly lengthy response on what I thought were some of the bigger problems with what I heard in class today.  As background, today we talked about environmental protection, and the relevant point the professor was arguing for is that “in most/many cases, private contracting and other market mechanisms can usually help to internalise externalities and achieve a socially optimal situation, if only there were clear property rights to environmental goods like clean water, clean air, silence etc. etc.”

Dear Professor M,


As discussed after lecture today, could I (and the rest of the class) have access to a couple of sample mid-terms and final exams from last year?  This coming Monday is the add/drop deadline, so it would be particularly useful if students could have access to these past exams as soon as possible.



Concerning today’s lecture, my intuition is that people have a limited amount of money, and face many potential harms, which together lead to logical/practical difficulties in applying Libertarian Land principles generally.  Starting with the infinite number of negative environmental externalities we face, just for water pollutants we have to consider lead, mercury, arsenic (and many other heavy metals), PCBs, all manner of pesticides, all types of bacteria etc. etc.  Taken case-by-case, people would probably be willing to pay significant amounts of money to prevent each one of these pollutants from being in their drinking water.  But summed over all the many externalities and sources of externalities that people might have to consider in environmental pollution (eg. not just arsenic, but arsenic from all kinds of different industrial/agricultural sources which would each expect compensation to not produce/dump their waste in the river), the cost per person/household seems like it would be extraordinarily high.  (This is my hunch, even if each potential source of harm were to be each compensated by just a dollar or even a cent per household.)*Because there exists a virtually infinite number and sources of harmful externalities, it seems that one of two things might happen – either people would have to “be rational” and scale back what they would be willing to pay to protect themselves against these externalities (e.g. Q: “How much is not suffering long-term arsenic poisoning worth to you?”  A: “Only $0.00001, because I cannot afford anything more.”).  


Alternatively they would simply come up with a final “bill” that would be well beyond anyone’s means.  So even in theory this does not seem like a principle that could be viably applied in a general fashion.Yet the reality is that we *can* afford to have all these harms at the low levels of the status quo (assuming our water is safe to drink right now, for example), the prima facie proof being the status quo.  You said after lecture that the costs are just being pushed around because these costs are somewhere out there but I’m not certain this is true.  On one level it seems possible that these costs are partly being borne in the form of foregone economic development, for example (which society can afford, as opposed to paying sums of money we do not have).  Alternatively, it seems as if many of these costs just don’t exist in reality.  Recalling the dorm room example, in the status quo no exchange of money would be necessary so neither of us would incur any monetary costs.  We would rely instead on systems of reciprocity or fuzzy “social capital” (Putnam, 2000) or mutual respect or some moral principle or mutually-agreed guideline.**


* This also assumes that the “property right” for clean water or the right to dump waste in a river is privately owned, e.g. by industry, rather than held in common by the relevant community, e.g. the town council.  (Which reminds me of my concern that companies/individuals that don’t value/care at all about the environment can hold everyone else hostage as long as they hold a property right to something other people value.  A frightening example is PCBs, which persist in the environment over many human generations and concentrate in our bodies to cause developmental disorders.  Any company could then potentially hold the world hostage if they owned the right to dump PCB waste in the ocean.)  But technically I’m not sure this assumption matters because the logic seems to work in reverse too – if companies had to ask communities what they would expect to be compensated for every single type of harm that the company might generate to residents, the amount demanded may well be absurdly high since residents cannot rationally say “The increased risk of developmental defects in future unborn children due to your factory emissions over the next decade is worth…. $1,000 total.”  If the questions were posed this way communities would likely list a higher number, and in total the costs to companies would likely be prohibitive.My reflexive theory about this is that collective bargaining and “bundled” negotiations (such as when the government makes standards decisions for everyone, or when companies simple abide by existing zoning laws), where many different externalities are tied together (e.g. “emissions” rather than individual pollutants), helps many of the externalities and costs to be hidden/overlooked/forgotten.  Which is another way of saying that transaction costs are lowered because there are fewer elements to each transaction.


** We probably have a greater store of reciprocity or respect (ie social capital) to dole out or bargain with (since we create this instantaneously and almost without costs in many cases) than we do actual cash.–I would not be surprised to learn that I’m missing something important about the way the Libertarian system of almost total property rights would work, but in my mind not only are the logical implications impracticable (or at least inconvenient), but there are also huge problems surrounding the initial execution of the system.  How would the property rights to silence or clean air or a healthy ecosystem be divisible or enforceable?  And how will these rights be distributed, and who will have the right to distribute them (intuitively it seems that you can’t give away rights to things you don’t own to begin with)?  Will it be decided by an international system of law, the federal government, indigenous peoples?)



I would love to hear your thoughts on these fundamental issues, and I look forward to looking at a couple of sample mid-term and final exams from previous years of the course. 


Thank you for your attention.



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3 Responses to “Libertarian Perspectives on Economic and Social Policy”

  1. Rosie Foreman Says:

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  3. Stoffwechsel ankurbeln Says:

    Thanks for the great article. I couldn’t believe when you stated that your professor was arguing about legalizing drugs and treat them consumer good. I mean there is a drug problem but in my opinion there is another solution for the problem and not the easy way of legalizing ist.