Putting the incentives in the wrong place

At Slate.com, Eliot Spitzer argues that the BP disaster and the Wall Street disaster have something in common:

The law of incentives is what links the Wall Street cataclysm and BP's ongoing eco-disaster: In each case, we socialized risk and privatized gain, creating an asymmetry that created an incentive for private actors to accept and create too much risk in their business model, believing that at the end of the day, somebody else would bear the burden of that risk, should it metastasize into a disaster.

He mentions the astounding fact that in their current risk analysis of the too-big-to-fail banks, the Wall Street agencies assume that the federal government will come to the rescue with future bailouts. What we have is amazing. Public risk and private gain don't begin to pass the smell test. We are doling out corporate welfare where it is not needed and where it is not in the best interest of the taxpayers. And somehow, this catastrophic system passes as "the free market" among many modern-day free market fundamentalists. Spitzer points out that there are two ways to deal with businesses that engage in dangerous activities, tort liability and regulation, and that the public will be protected only if we have at least one of these.

A regime of full tort damages and recoveries is one way to balance safety and exploration, or investment and risk, or whatever economic activity we are discussing. But there is another way: meaningful and vigorous oversight to impose safety standards that are dictated not by the market for insurance but by the judgment of serious experts in a regulatory context.

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The death of free market fundamentalism?

Richard Eskow is more optimistic than me about the "death" of free market fundamentalism. Here's part of what he had to say at Huffpo:

We're . . . seeing the death struggle of a dying ideology. This ideology provided intellectual cover to business and political elites for decades, but events have proved conclusively that it doesn't work. What's more, people are beginning to see that it's inconsistent with the country's traditional values of competition and free enterprise. . . . While the theories and rationalizations varied wildly, the conclusions were always the same: Deregulation was always the right approach, even (especially) for the most concentrated and rapacious businesses. Consumer regulations should be avoided because they hurt everybody, especially (somehow) consumers. And cutting taxes for the rich magically made things better for everybody else. The arguments changed but the results were consistent: greater upward distribution of wealth, and more concentration of power, delivered by those the special interests funded and placed into positions of influence. . . . Now the ideology lies in ruins.
I am sold by Eskow's description of why free market fundamentalism should be publicly discredited. But I think Eskow is over-optimistic about the "death" of that idea: In modern times, ideas get their legs from a combination of truth and power. We might have truth on our side, but we don't have the power. There's still too much money to be had by too many big business by promulgating fair market fundamentalism. Lack of regulation and lack of transparency simply makes too much big money for many big businesses, many of whom have bought substantial control of the media, as well as having bought Congress. I don't think free market fundamentalism will die until there is real debate, but that won't happen without campaign finance reform and media reform. If the "merits" of free market fundamentalism were ever freely debated in the media, it would shrivel and die, but have a long way to go before that pernicious idea is fairly and freely debated.

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