I don’t like to talk about politics outside of my immediate family. But this isn’t political; it’s basic free market theory IMHO. Tragedy of the Commons: It is human nature to allow an individually rational decision to become abusive to that which is common between those making said decisions. For example, Hardin
liked to use herding as an example. When you have a bunch of sheep herders sharing land, each wants to increase the size of their herd even though it will eventually destroy the land to have too many sheep. Now, Wealth of Nations
: Adam Smith
railed against governments for interfering at all in corporations or the affairs of companies. This goes from tariffs to excessive taxes to limiting what a corporation can do. BTW, this was back in the 18th century at the dawn of the Industrial Revolution.
The market is not free if it is not free to fail.
To me that is a basic tenet of capitalism; one Smith would definitely agree with. In a very Darwinian manner, survival of the fittest produces more and more solvent companies. But when an outside influence steps in to give a specific organization help then it throws off the entire corporate ecosystem. Companies are linked to economies. This might be a chicken plant in a rural area or a large, multinational conglomerate on a national scale. If a company has maneuvered itself in such a manner that the economic solvency of the world is dependent on that company, then the world is better off without the company if that company collapses.
However, an argument can be made that the common, credit, needs to be preserved. But the problem with that argument is that credit is not a common. Lakes, streams, rivers; those are no longer commons because they aren’t shared to some degree, they are owned. I would go a step further and state that the national budget of a country is a common to those living inside that country. I’ll even go another step to say that when that budget is leveraged to provide Billions and then Trillions of dollars in bailouts to actors in the free market economy that we are doing something akin to introducing new species to an ecosystem (which if you’ve ever been to Georgia and seen the kudzu
you’ll note can cause the effects of kudzu on trees and houses). And when you introduce imbalance to an ecosystem then the new actor will often become overly dominant (eg – overly abundant) and end up killing itself off.
So I’m left with two thoughts from a purely theoretical standpoint on the global economy as of late. Either modern politicians didn’t learn basic economics (whether in class or in books) or they’re a bunch of big pansies and can’t think of better ways to spend all that capital they’re using it to bail out the markets, which in turn creates a weaker global economy. Instead, use that capital to build new infrastructure: conduit for fiber optic cabling, schools, universities, solar and wind farms, etc. Build infrastructure, so that when the economy rebounds the skills and the infrastructure will be there waiting for it and the taxes from the following boom will pay the debts incurred to lay the infrastructure. Just like when we came out of the Great Depression there will be another boom – and it will have an epicenter in the places willing to put the old commons behind them, which while it is a tragedy to do, will provide the wealth to people and nations alike.
krypted March 30th, 2009
Posted In: Business
Adam Smith, AIG, corporate bailout, Darwin, Garrett Hardin, Tragedy of the Commons