Tuesday, December 21, 2010


I've been on Youtube watching videos of Milton Friedman on this issue or that. They are particularly relevant nowadays since we have a resurgence of anti-government and anti-regulation sentiment in this country. I think all of this is very healthy, and I agree with it completely even if I take issue with the abrasiveness of the methods employed (in other words, I agree with the point of the Tea Party but I take issue with the style and methods).

In this video that I linked, Milton Friedman talks about the folly of consumer protection agencies and how absurd that they can be. He finishes by concluding that we don't need government bureaucrats to protect us from ourselves - that we can be trusted to make the right decisions.

An important point that is missed from people who whole heartedly subscribe to these sorts of views, however, is that government regulations and interventions have distorted the market that Milton Friedman and maybe the Tea Party completely trusts to solve the problems that we face today.

Take obesity. Politicians like Sarah Palin have come out and mocked Michelle Obama for wanting to stop children from drinking soft drinks, and the Republicans in general scoff at the idea that we might impose a tax on soft drinks. But the point that these sorts of people miss is that the government has intervened to subsidize corn farmers and these subsidies have artificially driven down the cost of soft drinks; thus have encouraged overconsumption. The cheapness of fast food is another example, thanks to generous subsidies to meat farmers. I do not believe it would be possible for McDonalds to be so cheap without those price supports - and if a trip to McDonalds cost 2-3 dollars more, people would consume far less fast food.

The government does other things, like imposing tariffs on Brazilian ethanol, which is much cheaper than American ethanol, to protect our market. The government has all sorts of regulation regarding property development, commercial development, that stipulate that they must have so many parking spaces available or be so close to this or that. Furthermore, roads are paid for by government, instead of the costs appropriately going to the drivers of cars. This tangled web of regulations, inappropriate subsidies, and other incentives have distorted the market and seem to have contributed to urban sprawl, over reliance on cars, and a lack of other transportation mechanisms in many cities.

Current disciples of Milton Friedman like Greg Mankiw have written about negative externalities. Mankiw argues that driving cars imposes negative consequences other than having to pay for fuel: roads are more congested, CO2 is released, and geopolitics is far more complicated (we need secure sources of oil). Mankiw is no liberal - he is the former chairman of the council of economic advisors under G.W. Bush. He argues for a gasoline tax to account for these externalities and price gasoline so that the market can respond appropriately.

This is an important lesson for Republicans, libertarians, Tea Partiers, and anyone else who wants to keep "government out of our lives" - government is already in our lives. You cannot rely on the market to solve problems if the market is already distorted. We need to make sure we are removing these imbalances to the market before we start deregulating everything. Until then, I'm going to side with Michelle Obama and encourage government bureaucrats to help prevent our children from drinking so many soft drinks.

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