Thursday, March 19, 2009

Bumblebee Sex!

So, I just read this article:

In a nutshell, here's why this guy is wrong.

The blindspot in this article's logic is extremely telling. Because I know you won't read it, Miller essentially begins his argument by noting that regulations have costs, and that those costs outweigh their benefits. And this analysis is presented by comparing the monteary value of different regulations. His logic is something like "regulation x has a cost of $y and a benefit of $z. y>z therefore, regulation x is a bad regulation." The obvious blindspot here is that regulations exist because the real costs of certain policies are not quantifiable in market terms. So who knows if the cost of lead poisioning on our public health care apparatus is greater than the loss of revenue from lead based products, or the costs of restructuring buisness away from lead based products. But no matter which side of the equation the numbers fall on, not selling lead contaminated products is still a good idea because even if the market punishes those who market these products, there is a tangible- if not perfectly quantifiable-human cost.

The terrifying subtext of this article is that regulations which are put in place to limit "phantom risk" have real costs. But the single overriding cause of the global meltdown was EXCESSIVE RISK. Simply put, if the market is growing at 7%/annually, a 6% net positive return is still underpreforming. Incentives are structured to favor those who outpreform the mean, and the only way to have that capacity is to take risks. The collective action problem is results is that the market therefore drives people to collectively take greater risks than any individual would given otherwise identical market conditions. The question is one of balancing the interests of risk and growth. Miller IS BLIND to the alternative side of the equation.

But even ignoring all that, the ultimate perversity is found in the fact that the ultimate goal of his worldview is profit, not human welfare. The slippage between the two is easy to see, but not if you only read the National Review.

1 comment:

  1. Looks like Miller slept through all the economic courses on negative externalities...

    The lead reminds me of one of the arguments for heavily taxing coal power. They are actually trying to quantify the cost of mercury poisoning on the general public by looking at medical costs, and opportunity cost in loss in human capital. Similar studies have a tough time making a valid case, but there are more of them being done, hopefully they will stumble upon some sort of solid methodology.
    One example of such a study is mentioned here:

    Also, why bumblebee sex?