Home > Uncategorized > Capitalism and Democracy

Capitalism and Democracy

So again, I’ve begun a post with an incredibly preposterous title, and I’m certain to underwhelm.  But as I said a few days ago, I think it’s important to question whether certain fundamental aspects of our society ought to be left up the free market.  Don’t get me wrong; I would (surprisingly, probably, to some) characterize myself as a capitalist.  Let’s be honest; I’m applying to business programs, I want to be a businessman, perhaps even an investment banker, that most reviled and misunderstood of professions.  There’s nothing wrong with making money in and of itself, and I don’t think there’s anything wrong with businesses taking such actions that are most likely to yield profits.  The question, though, is whether the government, and by extension society, ought to step in and restrit the freedom of markets under certain circumstances.

My answer is yes.  The fundamental premise of the free market is that it distributes all goods equally, that the goods that people value are produced in the quantity at which people value them for the price that people are willing to pay.  Pareto optimal is the magic word: a scenario in which no individual can be made better off without at least one individual being made worse off (for those who have taken Econ, think of points on the PPF).  But suppose that markets don’t always distribute goods efficiently when they’re free, that the societally optimal level of production isn’t reached.  Or, more pertinently, if the production of a particular quantity of good has attached costs to society; these costs are called negative externalities, meaning that the cost to society of production (which, in an efficient market, is simply the price of the good) exceeds the cost to the individual (or the price).  In this case, goods are overproduced since the true cost of production is not realized by the producer or the consumer, leaving neither with an incentive to curtail the equilibrium level of output.  To give a quick example, this is why the government makes environmental regulations (carbon tax, pollution laws, etc), since otherwise companies have no incentive not to pollute (since it’s cheaper), and consumers largely don’t internalize the cost of pollution (either because they don’t know, don’t care, or simply don’t factor it into their decision).  Thus, the government makes laws to internalize the external cost, making the market efficient.

The question is whether the media is a market that has negative externalities.  I don’t feel like launching into an extensive discussion, but I would argue that it does, given that it exerts a tremendous influence on the public conscience and has the ability to reach millions of people.  It’s sort of a tricky market, since the definition of production and consumption is unclear.  Additionally, those who watch TV are not really the consumers of the service provided by the networks, which primarily is advertising.  So it’s a really complex question and I don’t want to put out an argument that will inevitably be flawed; therefore, I thought I’d bring up the topic and open it for discussion.  This is the kind of topic that requires discussion; it’s not black and white, and it’s tremendously multi-faceted, so there are plenty of ways to attack the issue.  So let’s talk.  It’s certainly a question that our society, in this day and age, must face.

 

-Evan Goldstein ’12

Advertisements
Categories: Uncategorized
  1. Ian Chan
    June 16, 2011 at 3:14 am

    Hey Evan,

    Nice to see you thinking about all these important issues. Although I may agree with you in principle, having gone to college and left the Choate bubble and seen more/learned more, I think it is important that we take more classes, do more research, and talk to more people before we make sweeping judgments on society or the models in which our society is formed.

    Though your posts makes some good points, it inevitably shows that high school students are limited by the AP curriculum and Mr. Hartsoe/Mr. Stanley’s teaching, but they came to their conclusions after years of education, and thus can make such judgments. Sorry if I sound mean, I think you’re great to have started this blog and asking these questions, I just urge you to read more and see more, it would benefit you in the future.

    Best,
    Ian

    • June 16, 2011 at 3:40 am

      Hi Ian,

      Good to see that you’re still interested in high school level education though you’ve left it. I agree with you wholeheartedly that high school education is limited — there is much we haven’t seen, and your experience in the world is more deep than ours.

      I would disagree on the point that Evan, and we, should “read more and see more” before making “sweeping judgments on society.” I think that making judgment about society is part of the learning process: the fact that we have an opinion and share it is what will spur discussion, not the further absorption of information and text. Learning and researching more informs us and teaches us, but clash discussion is what makes us grow as humans just as we are doing now.

      I am not sure about which part of Evan’s post you disagree, but I personally agree with what he says. There will be counterexamples to every generalization because of the definition of a generalization, a broad survey of the field, a comment about the majority. You may think of cases where the generalization does not apply, but I think Evan is right that the government should step in once in a while.

      Apologies for the long involved post, and thank you for posting your opinion.
      Helen

      P.S. Not a Choate student, but a student nonetheless.

  2. June 16, 2011 at 3:16 am

    Hey Ian! Hope all is well over on the left coast. I’d appreciate it if you could elaborate a bit more on what you’re saying; the idea of this blog is to have discussion and an exchange of ideas.

  3. Ian Chan
    June 16, 2011 at 8:54 am

    Hi Helen and Evan,

    Opps looks like I’ve caused a bit of a stir. I guess apologies are in order if my first comment offended anyone. It was meant to encourage Evan and students like you who are looking outside the bubble and commenting on society, which I think is great.

    The only point I was trying to make is that in college and potentially graduate school, you have a chance of actually discovering how certain economic theories are proven and taught to us in introductory levels, and the complex mathematics and modeling that go behind them. While everything seems black and white right now (to spend or not to spend/to regulate or not to regulate), there is generally many considerations to be made in making government policy, and there are unintended consequences no matter how much benefit is seen at first. For example the costs of environmental regulation are quite far off, and the benefits of keeping energy costs low are quite evident for people’s day to day lives, and so although it is easy to us in privileged places to say tax the carbon and save the earth, for most people the higher gas prices, additional bureaucracy, and limitations on freedom are quite genuine and realistic. My point is that the socially optimal level is not just where the simple MSC and MPB/MSB curve intersect, because it is never certain where that intersection is given the multitude of factors.

    In terms of media, I think it is an interesting topic whether or not media brings negative externalities. An interesting case study would be the British Broadcasting Channel, which is a primarily taxpayer funded non-profit organization that operates like a private company serving the public good. Commercials are limited, shows are more knowledge-based and substantive, and arguably provide a lot of positive externalities. In this case it is easy to argue that interventions in the markets is a wise choice, but is it fair for all the people to pay taxes for such a service, even if they never tune into the BBC? For those people, they’d much rather have their money spent on more buses, or parks, who gets to decide? These questions of democratic participation and local autonomy are definitely worth exploring, and I applaud you greatly for taking this step. I see you will go far.

    Anyway hit me up anytime for discussions I’m always game for some. My email is ichan14@stanford.edu, good luck with junior summer and hope to see you out in the Best Coast sometime soon!

    Best,
    Ian

    • June 16, 2011 at 11:40 am

      No stir, don’t worry-it’s just that we wanted to know what you meant. And of course it’s not that simple; I was inarticulate if I implied that it was. Economic theory is necessarily a simplification of real life, and the actual answers are often much more obscured. The point that I was trying to make was more philosophical, about government regulation and how it may pertain to the media. With respect to the BBC, would you say that its status as a government funded institution makes it more balanced and beneficial to the public than private media in the United States? Because if so, I’d argue it is fair for people to contribute tax dollars to it, even if they don’t watch it, in the same way that it’s fair for people who don’t join the army to contribute to national defense and people who go to Choate to contribute to public schools.

      Sent from my iPhone

  4. Ian Chan
    June 16, 2011 at 2:43 pm

    Hey Evan!

    Question, have you heard of behavioral economics? I think this is a field you’d be interested in if you haven’t. It blends the most advanced theories of economics and psychology together to explain human behavior, and contributes to modern day policy-making. I think it is a very interesting proposal and using psychology complements the dryness and simplicity of conventional economic theory.

    I think there is a place for private media (if people want fox news they should have fox news, regardless of what we think of it), and there is a place for public media (the obscurity of PBS confuses me). I happen to also think that is is fair that tax dollars go to a public media organization and that it serves the nation well. While the BBC does it well, it is also due to the fierce independence that it maintains (it pans governments of all parties quite regularly) and the virtue of its viewers’ demand. The danger lies when public media, I’m referring specifically to authoritarian regimes, is used as a tool by the government to achieve political means. However, I do not see that danger arising in the US if they ever consider strengthening its public media (sadly under current budget proposals NPR is likely to be cut drastically, and PBS was never really taken seriously).

    I have a suspicion that you probably would argue that outlets such as Fox News should not exist due to its inaccuracies and low level of professional excellence. But I think it is a dangerous step to over-regulate, even censor media organizations, the First Amendment is to be held dearly and as someone who lives in constant shadow of authoritarianism, I can tell you that you should not take those rights lightly, for they are special.

    Ian

    • June 16, 2011 at 5:44 pm

      I’ll respond to this more fully later because I’m at work but I’ll just say now that I wouldn’t argue that Fox shouldn’t exist, though perhaps we’d be better off if it didn’t (though I actually am not so sure that that’s true). The question is largely philosophical.

      Sent from my iPhone

  5. June 16, 2011 at 10:18 pm

    I mostly agree with what you said (aside, of course, from the bit about Fox not existing; I’m fine with Fox existing just like I’m fine with BP or Exxon-Mobil existing. Whether or not they should be regulated is another question, and I think media can be regulated without violating the First Amendment). And yes, I’ve read about behavioral economics, though to be honest, economic theory in general doesn’t interest me much. Or at least not as much as business, which I find much more practical and applied (not to say that some economic theory isn’t, but as you said above, it tends to be reductive and general).

  6. Tony Giunta
    June 17, 2011 at 1:19 am

    Evan,

    Up until now i haven’t really responded to some of your posts, but this one im going to take a crack at. When I read your opening section, the only thing i could think of was Atlas Shrugged. Im not in any sense saying that i think your suggestions lead to that form of world, but i do think that Rands philosophy which she used the book to assert is pertinent to your topic. essentially, She argued for an entirely lezze faire economy, one in which the government had nothing to do with the economy. The argument is that in a truly free market society, fair competition will ultimately allow for the best product and the most wealth to be produced. Another economic model which fits along this line is Adam Smith’s work ( which im sure your aware of so i wont go into it). essentially, i support this form of economic model because i think it has proven its value and simply works.

    That is not to say i believe in it 100% per se. With that framework, let me actually address your blog. While i dont necessarily disagree with your assertion that the government should regulate certain aspects of our society, i think that the danger with this sort of thinking is that once you start down a road of using the government in this manner, it becomes almost a crutch. I’m probably not articulating my position very well, so let me use some examples. I dont think there is a problem with the government establishing production standards for food and medication. Ultimately the free market ( I believe ) would self regulate because consumers wouldn’t buy dangerous pills, but lives would be ruined before this happens. What im trying to say is that its very easy to throw around the idea of whether or not things should belong to the free market, but i think it should be done as the exception to the rule.

    However, id like to use your example of govt regulation on pollution as an example of what im talking about, because i think its a perfect example of where the govt has overstepped its bounds .While yes, pollution is bad, i disagree with your assertion that society doesn’t internalize these costs and that ultimately the free market system would not self regulate. I think the main point is that there is incentive for companies through the free market system to produce cleaner products because of the heightened awareness of the issue, and the fact that people are simply not buying highly pollutant products. I think the government is overstepping its bounds with some of the policies on this issue proposed by the current administration such as the carbon tax you mentioned and begin interfering with the individual rights of Americans to live their lives as individuals . Ultimately the question that must be weighed is the harm of increased govt power VS the good of govt intervention into a product.

    To your second point regarding whether or not media falls into this category, and also in response to your earlier discussions on media and whether or not the Government should regulate it, I think its important to mention some of the precedents on 1st amendment limitations. Ultimately, the first precedent i can think of is the much-quoted “clear and present danger ” test from Schenck V US . Ultimately, this test was replaced in Brandenburg V Ohio with the Brandenburg test, which included a temporal element, which had three facets, intent, imminence, and likelihood. The reason i bring this up is to frame what i think are the only reasons Govt should be allowed to limit free speech and in this case, the media. currently, the Govt can limit speech when it defames, incites to illegal activity or is obscene. Ultimately, what im trying to say is that i dont think the issue ( as you admitted ) is as simple as you suggested, and that i think we must weigh whether or not Constitutionally ( according to the previous tests/standards) the Govt has the right to limit media. So in conclusion, i agree that yes media can be regulated , but i think we must be very careful how we do so.

    I hope i was at least somewhat clear in my position, and i have greatly enjoyed reading all your posts Evan even if i dont agree with alot of them!

    P.S. I disagree with Ian’s representation of Fox ( didnt really wanna get into this but felt i had to say it =b )

  7. June 17, 2011 at 1:35 am

    I mean I think it’s an open question, Tony. The media plays a huge role in our society, so there’s a vested interest in having it play that role well, and we can regulate them if they act in ways that are bad for society. IE, if TV networks were free to show porn, they would, and that would be a manifestation of the free market (and they’d probably make more money), but as a society we find that unacceptable for a number of reasons, so we don’t allow that. There are a lot of examples of this (we have bans on cocaine and other illicit drugs, we don’t allow prostitution, we don’t allow hospitals to allow patients to die simply to clear space. All of these are instances in which a rational economic actor would perform action X in order to gain profit, but we have believe that action X is bad for our society, so we don’t allow it). I’m not advocating severe censorship, or anything along those lines, nothing authoritarian, and to be honest, I think the problem lies in our educational system more than anything, but it’s hard to argue that the profit incentives for the media are aligned with the social good.

    With respect to the issue of government regulation, I don’t want to get off the point too much, but I think it’s relevant. The system that you propose is slow to correct for social problems. It’s obvious that pollution and greenhouse gas emissions are social problems that will have long term impacts on our society, so why should we allow people to do things that harm society? We don’t allow murder, rape, assault, for many of the same reasons. I seriously doubt that you’d contend that we should allow murder, because some advocacy group will just have a march against murder and people will be under so much pressure that they won’t do it anymore. Correct me if I’m wrong, but the argument seems to be “We know that something is wrong, we wish it were otherwise, but let’s wait until people mobilize rather than fix it”. The whole point of a negative externality is that people won’t mobilize (and if you depend upon collective action for social change, you run into issues of tyranny of the majority, etc). Of course I agree that government should have a limited role, the question is what the limits ought to be. But this entire line of discussion, while interesting, is not related to the media question lol.

  8. Tony Giunta
    June 17, 2011 at 2:45 am

    To your first section, i think we are in agreement. Although i would say that the media will only want to add such things as long as there IS a profit margin. If there was no money in showing pornography and other such things, media wouldn’t do it. So free market regulation technically still would regulate it but i agree govt regulation in this aspect is important. This really applies to your last sentence. The only reason media profit incentives are not aligned with the public good is because the public is pushing for it. That of course begs the question of should the govt be able to “over ride’ the public will for what it construes to be the public good? i think THAT’S an interesting question.

    To your second section, i wont stress it to much but i would like to take issue with your examples. The problem is that free market is important because we are dealing with the production of goods and wealth in the largest quantity at the cheapest cost. That’s different from something such as murder, there is no actual product there, so applying a free market model to it doesn’t really work. With regards to your crystallization of my argument, i think the main issue with your framing of it is that its almost dealing with more social issues. The point of free market economics is to generate wealth and prosperity through the production of the best good at the lowest cost. I would say that the issue is the system im proposing isn’t meant to correct social problems.

    Im sorry if im taking to tangential an approach also lol.

    • June 17, 2011 at 2:54 am

      Quick note on your second bit: I think that’s precisely the issue: free market systems, or at least laissez-faire systems, not only don’t correct for social problems, they often cause them. Best example is BP. You think if the government had known in advance how unsafe Deepwatet Horizon was they should have waited for some advocacy group to bully a multibillion dollar corporation into changing? And also, yes, murder is not an economic market but the point is just that the government can impose restrictions on natural liberty when the exercise of that liberty is out of the public interest. To the first point, I think that’s precisely the problem. Profits are only created by demand, obviously, so corporations have no incentive to change. But if something is obviously out if the social interest, the government not only has reason to correct the market, it is the only actor who can, since no other actor has an incentive to change their behavior. Note I’m still only speaking in generalizations, not advocating a particular form of regulation other than to say that it would have to correct the incentive scheme. I think we agree on that point.

      Sent from my iPhone

    • June 17, 2011 at 2:55 am

      Oh also if you think murder wouldn’t be profitable you’re just flat out wrong. Can you say barrier to entry? Forget hostile takeovers…

      Sent from my iPhone

  9. Tianzan
    June 29, 2011 at 4:57 am

    sorry, I know this is like over a week after the post, and I’m not part of the debate team, but I couldn’t resist pointing out that pareto optimal is two words, not one word. I’m not sure if anyone else pointed that out b/c I don’t want to read all these comments, but if you’ve ever watched the west wing, you’ll know why I couldn’t resist. Also, I don’t agree that the fundamental premise of free markets is that they distribute goods equally. The premise is that free markets allocate goods efficiently, so goods are distributed where they are most highly valued, such that individual decisions and actions optimize societal benefit.

    • June 29, 2011 at 11:33 am

      Right, that’s what I meant to say. And then when the distribution of good is unfair such that society is worse off, the government may step in to make the market efficient.

      Sent from my iPhone

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: