Matt's primary interest is in the biotech industry and ag policy.
Picking Winners and Losers
Aug 15, 2009
By Matt Bogard
In my last post
I hinted at the fact that environmental policies like the proposed Clean Water Restoration Act may do more harm than good. In past posts I've warned how the increased levels of government intervention could lead to the same problems in agricultrue as we have seen in the Auto Industry
. Recently, in a post on the AgWeb blog Sound Off
Scott Ruppert provides a great example of what can happen:
"Meanwhile, the hardworking ranchers of the San Joaquin Valley that are personally vested in their own form of environmental conservation watch as their livelihoods are being stolen from under their noses by a feckless bunch of experts, extremists, bureaucrats, and a judge named Wanger. As if the destroyed families and industry in the Central Valley were not enough, it only takes a little common sense to realize there are other unintended consequences that arise from such regulatory overreach. Consider that if food is not produced in the Central Valley, there are other places around the globe eager to provide America with its food supply; China, for instance. Wait until the extremists get a load of how they grow their crops in the shadow of the Great Wall. Produce from California, home to the most environmentally friendly growing practices in the world, will be replaced by tomatoes grown in sludge, sprayed with deadly pesticides, and then shipped thousands of miles to our markets...hmmm, wonder what that carbon footprint looks like. "
Governments allocate resources in a fundamentally different way than free individuals behaving cooperatively in voluntary exchange via market capitalism. Individuals acting in their own interest results in a spontanous order guided by prices which reflect tradeoffs based on the knowledge and preferences of millions of individuals. Governments allocate resources based on the limited knowledge and preferences of a few voters, elected officials, or appointed bureaucrats. The fundamental problem facing government is that it never has enough information ( or incentives) to carry out plans effectively. As Economist F.A. Hayek (1945) said:
'the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all separate individuals possess'
We must also recognize that there is a moral difference between the two processes as well. With government, resources are coercively taken from one individual and given to another. Through the voting and legislative process, government picks winners and losers ( this would not be so bad if we limited government to a few basic functions but becomes problematic with greater intrusion into our lives). Markets do not pick winners and losers. For voluntary exchange to take place, all parties must gain. Again, as F.A. Hayek (1973)noted :
'the particulars of a spontaneous order cannot be just or unjust'
Certainly there are situations where government has a role in our lives. Our founders outlined many of these in the constitution and explained them well in the federalist papers. While government may provide a necessary mechanism to achieve certain societal goals, we must also be aware of it's weaknesses and its threats.
We should especially be on guard when we hear political leaders justifying some policy or condemning capitalism because the current system has 'benefited the wealthy and well-connected at the expense of the vast majority of Americans.' They are likely staking the deck to take what you have and give it to someone else, or pass some law that benefits a corporate competitor over your small business in the name of some lofty social goal, or they may be compromising your ability to make a living to satisfy some special interest. Ironically, the effect of their policy will likely be to benefit the wealthy and well connected and will likely be at the expense of the majority of Americans.
F.A. Hayek.The Use of Knowledge in Society. American Economic Review (1945)
F.A. Hayek. The Mirage of Social Justice (1973)