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The Myth of Market Failure / Interess. Artikel

verfasst von JüKü, 08.07.2002, 17:03

http://www.mises.org/fullstory.asp?control=982

The Myth of Market Failure

 

by Christopher Westley

[Posted July 8, 2002]

[img][/img] I
receive many emails commenting on my articles that appear on Mises.org, and 99
percent of them are thoughtful comments or rebukes. The other 1 percent
sound something like this one (in response to my article"Enron’s
Long Shadow"):

Sir,

I am astonished and disgusted with your mischaracterization of the California
energy market and Enron’s criminal participation. Have you no shame? Have
you read the Powers Report? Even the company admits to wrongdoing. How can you
possibly print/post such disingenuous lies? Shame on you.

Ouch. My first thought after reading this was that I needed to
find my confessor immediately, but then I remembered the implicit rule in
respect to emails that border on ad hominem: Ignore them. Although this
typically is a good rule, I decided to respond to this one. After all, I have
invested much time studying the Enron saga, and I wanted to be sure that I was
not misleading or unclear. So I responded:

Can you point out one lie, disingenuous or otherwise, in my
article?

There is an obvious difference between Enron’s wrongdoing
and the way that politicians are manipulating the Enron debacle to further
their own agendas, which is the point of ["Enron’s Long Shadow"].
If you doubt my belief that Enron was run by a bunch of criminals, then read
the academic article linked at the bottom of my most recent piece, as well as
my original
Enron article on Mises.org

I hate to be the one to inform you that this issue is
slightly more complex than Katie Couric lets on.

Thankfully, my email friend’s response did nothing but
assure me that the standards for disingenuous lying have fallen in recent years,
since it was obvious that he could not reply to my request for evidence of
distortion on my part. This was his response:

Thanks for your reply. I’m quite surprised you would take
the time, inasmuch as you and I will never see the rape of California’s
energy market through the same prism.

Re: [i]Can you point out one lie, disingenuous or otherwise,
in my article? Yes, one example of disingenuousness with which I am quite
familiar regards the creation of AB 1890 in 1996. You state:"It is
important not to lose sight that the energy crisis in the state was created by
the state itself."

This completely mischaracterizes the legislative process by
which the energy crisis was created. Present at the negotiating table were
State Senator Steve Peace (D-San Diego), a handful of other elected
representatives, lobbyists for the electrical utilities (PG&E, SDGE, SCE,
etc.) who were adamant on being compensated for stranded costs, lobbyists for
the largest industrial users of electricity in California, and lobbyists
representing the interests of the power traders. Specifically excluded
from a place at the table were any representatives of consumer advocacy groups,
such as TURN (Toward Utility Rate Normalization), or other watchdog
organizations. This was reported quite thoroughly in The Bay Guardian,
among other publications at the time. The abomination that got created as
AB 1890 was the result of active deception on the part of industry lobbyists
during these negotiations. You only need to contact Sen. Peace to find
out that he feels thoroughly betrayed by the industry that he was attempting
to help modernize. The monster that was created was the result of active
fraud by the industry. The state could well be considered complicitous [sic]
and naïve, but the state was hardly the creator of the mess we are now in.

I believe that is enough for now. As to your comment about
Katie Couric, you are absolutely correct. That’s why I’ve watched every
congressional hearing on C-SPAN, and follow this issue extremely closely in
the press.

[/i]

Emails such as this reflect why I am attracted to the study of
the Enron case. Its story provides what academics call"teaching moments,"
by creating opportunities to explain how economic theory can explain the outcome
of state involvement in market processes. Interventionism often results in
failures such as Enron’s, and lessons learned by studying it may help avoid
similar problems in the future with firms like Fannie Mae and Freddie Mac in the
housing and mortgage industries.

I wrote back what I thought was a cordial response:

Rest assured that I do not think you are a simpleton on this
matter, and that I agree with you that we would not see this issue through the
same prism. After all, a prism requires light, which is more likely to be
generated back here in Alabama than over in your neck of the woods.

However, I must say that I do not get your point about where
I have been misleading. There is no question that energy firms were invited by
the state to influence California’s deregulation, that this influence came
at a price (wealth transfers to politicians), and that firms would be expected
to influence the final regulatory product to their best interests.

But in the end, it is the state [of California] that is
ultimately responsible. It is the body that has the final say on the pricing
schemes employed, and so it is to blame for problems that always result from
price controls. If electrical utilities were calling the shots, then why would
Californians need a state government in the first place?

No disrespect to the Hon. Sen. Peace, but to say that
politicians are not primarily to blame is like saying Eve was not primarily to
blame for eating the apple. After all, that sweet-talking snake forced
her to do it.  (Incidentally, I’d be curious to know how much
money Sen. Peace accepted from energy-related PACs in the 1990s.) 

And frankly, it doesn’t matter what environmental groups
are offered"a place at the table," as you put it. The same results
would have occurred if price caps were a part of the final product. Besides
needlessly causing shortages, state-imposed price caps will always create
pressure within markets to bring prices up to market levels.  This
occurs whether the market is gasoline in the 1970s or electricity in the
2000s.  The state of California brought this about, not PG&E.

I will not say you are disingenuous to argue otherwise, but
I will say that my position is closer to the truth than yours. Electricity
providers cannot force a regulatory regime on politicians. Indeed, it is
the other way around.

Shame on you?

The response I received was, well, what word is the opposite
of gracious? It was filled with invectives, expletives, and a dash of
anti-Southern sentiments thrown in for good measure, making me regret my
willingness to engage my correspondent in dialogue in the first place. Though I
won’t reproduce it here, the response was filled with shock that any thinking person
would question the fact of market failure and the need for the government to
manage the greed-driven private sector to prevent even more Enrons.

But thinking people must know that that market success--characterized
by stable and sustainable growth levels, generally falling price levels, and
increasing real incomes--is the norm in the absence of state
intervention. This can be shown empirically in the U.S. by comparing the
performance of the economy in the 60 years prior to the Great Depression (an era
of small government) to the 60 years following it (an era of big government).

To be sure, price inflations, financial panics, or labor
crises occurred prior to 1929, but they were routinely short-lived phenomena
whose damage was minimized by adjustments in the goods, labor, and money markets. You
would be hard-pressed to find a 19th-century financial panic that lasted as long
as the current recession, or a 19th-century firm that grew as corrupt as Enron
without protection offered to it by the state.

Yet, the idea that markets fail is strongly
engrained in the American psyche. This is the dominant theme of any high
school civics class, the subject of numerous Hollywood movies, and, yes, it is
even the preferred slant of any economics discussion on The Today Show. This
message of market failure teaches that Enron's excesses were the rule, not the
exception, of the market order, and that governments only fail when they do not
intervene quickly or forcefully enough. My email friend simply repeated the
arguments I hear at the beginning of every semester’s Principles of Economics
classes.

But it isn't so. The government's record of stewardship
over the American economy is miserable. The business cycle is more
pronounced, characterized by unsustainable booms followed by longer-lasting
busts. College graduates entering the job market require twice the incomes
that their parents did in order to maintain parity with them in real terms. The
state’s approved currency loses value by the hour, while its spending and
taxing schemes pit politically privileged groups against the unprivileged. Given
this track record, anyone who continuously defends state interventionism on
empirical grounds should be challenged.

Besides, confronting the anti-capitalist mentality is easier
when so many have access to email. It is time to expose of the myth of
market failure and point out that government intervention in the market process
is the greatest source of instability in society today.

In fact, failure to do so might be considered disingenuous.

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Christopher Westley is an assistant professor of economics at
Jacksonville State University and co-author of"Enron:
Market Exploitation and Correction" in Journal of Financial
Decisions. See his Mises.org Articles
Archive and send him MAIL.



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The Myth of Market Failure / Interess. Artikel - JüKü, 08.07.2002, 17:03