Market "Failures" and Resolution w/o Government

[sdbytnar]

So, I periodically get into "discussions" with a statist in my office at work.  Periodically he brings up points for which I do not readily have an answer.  One example he trots out is market "failures."  His favorite is pollution.  In a truly free market, how would air pollution be handled?  My view is that if harm can be proved then one would have recourse because of a violation of one's right to life.  However, as air pollution can, at least theoretically, have an effect on one a great distance away, how do they prove harm and obtain recourse?

Put much simpler, how might a free market handle air pollution and other externalities?

[BobRobertson]

The only reason "pollution" is an "externality" is because governments stepped in and stopped people from suing polluters back in the 1800s because it "retarded industrial development".

In other words, the politicians were bought off by industry and "pollution" isn't a market failure at all. It's educational that the greatest polluted places in the world are the ones created by governments, such as Hanford Nuclear Weapons Labs.

Imagine thousands of Erin Brokovitches, and companies without any pollution regulations to hide behind...

Both "For A New Liberty" and "The Market For Liberty" cover these ideas. But rather than "go read this book", let me say that if you someone brings up a "market failure", once you scratch the surface you are going to find the hand of government either setting up the dominos to fall first, or preventing people from solving the problem.

I'd like to address what is a "market failure": When, without interference, people arrive at a less-than-optimal result.

But that requires two things.

1) Someone to judge what an optimal result would be
2) That same someone to not act to create that result themselves

Sounds like a God to me. Is your friend a God that they can decide what is or is not a market failure?

[sdbytnar]

What about the "free rider" problem?  Vaccinations are an example.  If enough people receive vaccinations, then a small population can choose not to vaccinate but still benefit (without cost) from those that did vaccinate.

As far as pollution, how can I prove that a factory in CA is harming me if I live in NH?

[Ecolitan]

What about the "free rider" problem?  Vaccinations are an example.  If enough people receive vaccinations, then a small population can choose not to vaccinate but still benefit (without cost) from those that did vaccinate.

that's a problem?

[Diogenes The Cynic]

When individuals own the systems of distribution, they have an incentive to prevent "free riders".

One example I often use here are the pedestrian pathways here in Monsey. Our town was built as a rural community. It has since exploded in population. There was an extreme dearth of sidewalks in town, and everyone, without exception walks to get around on Shabbat, and holidays, so people took it upon themselves to build walkways connecting different parts of town. The upkeep is done by locals, or the actual owner, and each one is of much higher quality than comparative sidewalks.

Sure, the payment might be unequal, but a lot of people are ok with that because they are concerned with the greater good.

[BobRobertson]

What about the "free rider" problem?

Well, how about this: If your proposal can't handle what "free riders" might come along, you're not going to make a profit. You will then sell whatever you have already put together to someone who thinks they have a plan that will handle the free riders.

And so on, and so on, until someone DOES come up with a plan that works.

For example, Tom Woods over at Mises.org has a video lecture he gave talking about transportation costs. Remember that evil monopolist Vanderbilt? His ferries and transports undercut the competition so much that in some cases riding the ferry became FREE, with his costs covered by food sales on board.

Free rider problem solved.

Vaccinations are an example.  If enough people receive vaccinations, then a small population can choose not to vaccinate but still benefit (without cost) from those that did vaccinate.

True. And my spending good money on brakes means I'll be able to stop if someone jumps out in front of me, so they are the 'free rider' to my choice of expensive brake pads.

And those without vaccinations are not risk free, they are still able to get those diseases. Is that a risk you're willing to take?

As far as pollution, how can I prove that a factory in CA is harming me if I live in NH?

Ah! But if you _can_, then in a free market that factory has no government pollution guidelines to hide behind.

And if you can't prove it, hire and investigator to see if you can find evidence of pollution closer, then form a class-action suit. Even if you get no damages from a successful prosecution, the pollution will stop.

[sdbytnar]

So we end up with everyone taking legal action against everyone else that uses a less efficient combustion engine?  I'm thinking that's not very efficient. 

I do value the discussion so far and have read posts with new ideas.  I have a feeling the answer is somewhat fuzzy because a free market system hasn't existed for so long.  There is just no real example to examine.

[BobRobertson]

So we end up with everyone taking legal action against everyone else that uses a less efficient combustion engine?

You're forgetting the concept of "social standard".

Is a less efficient car "pollution"? On some level, yes. So is breathing.

What would happen if I tried to sue someone for breathing too hard? It would be thrown out as a nuisance suit, and I'd end up paying damages to the people I sued, because "we" as a society have chosen to ignore the pollution of breathing because everyone does it.

Everyone has a car, so the "social standard" does not condemn it.

However, someone whose car is belching blue smoke and smelling awful, a suit against them will win the same way that someone who refuses to turn off their stereo at night and keeping others awake could be successfully sued, without someone who plays their stereo while in the driveway working on their car being afraid of "violating noise ordnances".

I'm thinking that's not very efficient.

Keep in mind that markets tend toward efficiency. That doesn't mean that anyone's ideas of "optimum" will ever be reached, just that the incentives lead toward more efficient answers all the time.

To continue the car example, if a technological change happens, and completely clean power becomes available, someone who runs an inefficient gasoline engine might very well become open to prosecution for polluting because of the change in social standards as more and more people become accustomed to non-polluting energy.

I do value the discussion so far and have read posts with new ideas.  I have a feeling the answer is somewhat fuzzy because a free market system hasn't existed for so long.  There is just no real example to examine.

I find it interesting to look at those places and times where regulation is comparatively lower. Like the PC vs. the automobile. Or computer networks before and after the Internet was de-regulated.

For 20 years the 'Internet' stagnated as a toy for government, big companies and educational institutions, because of the restriction on any participation by commercial entities for the purpose of commerce.

Go look up AlGore's "Information Superhighway" proposal from the 1992 presidential race. Total government control.

Then, just before Clinton/AlGore took office, the NSF repealed their non-commercial restriction and threw open the "Internet" to anyone who could afford the cost of connecting. Within 2 years what we now know as the 'Net was alive and thriving.

Yes, a substantial quantity of the information that is now, and for that matter has been for 15 years, is "illegal" due to copyright, patent and such. But that's not a market failure. A demand is being met, that's a market success.

Granting monopoly "letters patent" by government, that's not the "market". Scratched surface, government found.