The Tragedy of the Commons
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.
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In: Business · Tagged with: Adam Smith, AIG, corporate bailout, Darwin, Garrett Hardin, Tragedy of the Commons
on March 30, 2009 at 4:03 pm
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Well put. I think part of the problem is that there is no real reward system for policy makers to create a framework that is not actively managed. We reward those who look busy trying to fix problems, but never address the systemic issues.
If only we would get rid of the central bank entirely and use an independent standard for the value of currency. One can dream.
on March 30, 2009 at 10:27 pm
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A very thought provoking post. Though I’ve been a follower of Garrett Hardin for decades, I’ve never thought to apply his work to the American economic structure. A very creative idea. My first reaction to your post would be to attach income, rather than credit, metaphorically to the common. As some cattle owners are able to increasingly hoard more and more of the commons, each cow has accumulates more pasture than he can possibly eat while the cattle belonging to the poorer farmers have increasingly smaller fields of grass to sustain them. When 1% of the village’s cows are grazing on 90% of the common grass it illustrates the income inequality such as it exists in today’s America. But as you pointed out, Hardin’s metaphor hardly applies since ownership eliminates the possibility of a shared commons.
Let’s not forget that the American economic system hasn’t been an Adam Smith type of laissez faire capitalism almost from the beginning. It’s better described as a social capitalism (unfortunately, the rich seem to enjoy the capitalistic gains while socializing the costs of their risk onto the rest of us). Smith’s “invisible hand” would never have allowed for things like import tarifs, antitrust laws, or social entitlements. I can only assume Smith never imagined that greed could kill his theoretically perfect system much the way it does socialism. Most amazing to me is the idea that a seemingly intelligent and rational society could repeat such a tragic mistake – as if the history of the Great Depression was only a fable.
Which brings us to the current group of “big pansies” running our government. I’m convinced that there will never be any hope of a true democracy in this country as long as our elected representatives are dependent upon huge financial institutions to stay in office. Until elections are publicly financed and lobbyists are stripped of their hold over Congress, “We the People” will never truly be represented unless we are within the guidelines set by the powerful, top 1%. I mean, c’mon, a bailout for Wall Street and the Banking system? How utterly absurd! They emptied the Reserve long ago, now it’s time to shake down what’s left of the global economy. I guess it’s only logical that as long as we allow it, the rich and powerful will exploit the government, taxpayers and the poor. Why not?