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The preceding chapter was almost entirely about positive economics: how markets work, and how the apparatus of supply and demand analysis can be used to explain economic outcomes or predict how future events may alter the fortunes of individuals and groups tied to the economic system. This is economics as plumbing or dentistry—no values to speak of, just technique. But the great interest most of us have in economic issues is not just technical. We care about meeting human needs, improving living standards and pursuing other goals like liberty, equality and sustainability. This means that we care deeply about the normative side of economics, what it can tell us about whether economic arrangements are good. So this chapter is an introduction to normative models in economics, the foundation for thinking analytically about the desirability of economic institutions and policies.
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While we will be concerned primarily with the utilitarian case for markets (whether markets improve human well-being), we would be burying our heads in the sand if we didn’t take note of the political value that many people put on free, unregulated markets. From their vantage point, freedom in the marketplace is freedom, and free markets would be justified even if the outcomes they produced were inferior in some respects. The most consistent version of this view is libertarianism, the belief that restrictions on individual freedom of choice should be minimized as much as possible. Consider an example, the regulation of food additives. The US Food and Drug Administration is charged with determining which chemicals can be added to foods produced in the United States. It commissions laboratory tests and, based on the evidence (usually), decides whether restrictions ought to be placed on particular substances. For many years there was controversy over artificial sweeteners, for instance: some tests showed that laboratory animals (and therefore potentially humans) were placed at increased risk of disease when fed large doses of cyclamates and similar products. On the other hand, at least in the eyes of some people, these products promised to add sweetness to the diet without the empty calories of sugar. (There is also controversy over their dietary advantages.) In its decision-making, the FDA was supposed to be concerned only with the health and consumer satisfaction consequences of permitting or banning the additives, in the spirit of the outcome-oriented framework of this chapter. But there is another way to approach the question: do consumers have a right to add artificial sweeteners to their diet if companies are willing to sell them? Doesn’t the FDA violate the personal liberty of individuals and companies on both sides of this market? If consumers, on examining the scientific evidence, still decide that the gain is worth the risk, who are government officials to tell them otherwise? This argument, in fact, can be applied to almost any aspect of economic life, particularly if we accept the metaphor of exchange as capturing what economic life is about. In free markets exchanges are voluntary and therefore reflect the decisions of both parties. Surely freedom must have something to do with being able to make such choices and not having them overruled by the force of the state. A useful starting point for thinking about the political case for markets is the distinction between positive and negative liberty initially put forward by Thomas Hill Green, a British philosopher of the nineteenth century (who drew heavily on his predecessors). In modern usage, positive liberty is the freedom to do something, involving access to the resources needed to do it. The positive liberty to play the guitar means actually having the opportunity to play it: having the time, the agreement of others around you to let you play, and of course access to a guitar itself. It also assumes that one knows what a guitar is and has had an opportunity to consider the benefits of being a musician. For such freedoms to be universal, there is typically a need for public programs to guarantee access to all citizens so they can make use of them. For instance, if everyone is to have the positive freedom to play a guitar, society may have to subsidize them or provide low-cost studios where people can go and use a guitar for an hour or two. The mental preconditions (knowing about guitars, being introduced to music) suggest the need for universal education, so that the people who might want to become guitarists can find out who they are. Negative liberty is much simpler; it means simply that one is left alone, unimpeded by outside forces. The negative liberty to play the guitar means only that no one prohibits you from playing; you would have this freedom even if you are never able to actually touch an instrument, or even if you had never had any exposure to music of any kind. In shorthand, positive liberty is “freedom to”, while negative liberty is “freedom from”. Using this framework, we can see that free markets promote negative rather than positive liberty. They give people the right to make choices free of outside interference, but they do not guarantee, or even necessarily facilitate, a distribution of resources and experiences that would make it possible for most people to discover and do what they would like. A philosophical attachment to free markets is equivalent to a belief in negative liberty and a rejection, or at least de-emphasis, of positive liberty. The legal expression of free markets is freedom of contract. This means that two or more individuals are free to enter into any agreement they mutually choose, and no outside force—in particular, no government institution—is allowed to overrule them. I can agree with a landowner to buy a parcel of land, and no one can interfere. I can agree with a building contractor to have a building placed on the land, and no one can say otherwise. I can agree on any sort of building I have in mind, provided I get the consent of the builder. Once it is built I can rent it out to any tenant who agrees to occupy it. I can paint the building pink. I can place a radio transmitter on it. I can open a drug rehab center in it. And so on and on: freedom of contract means that I can enter into any business relationship I choose, provided it is agreed to by all parties to the transaction, and there can be no prohibition or regulation on the part of government or any other third party. No society has ever had pure freedom of contract, but libertarianism upholds it as an ideal. To look at this distinction more closely, let us introduce some formal terminology. Suppose there are two individuals, A and B. (Either could be a collective entity, like a business or government, but we will stick with individuals for now.) We will define coercion as the imposition by B of a penalty on A for an action which A would otherwise, were it not for the penalty, prefer to take, under conditions in which A is not free to break off contact with B. There was a saying in Stalinist Russia that anyone can say anything they want about Comrade Stalin…once. The point is that coercion does not prevent a person from doing something (standing on the street corner and denouncing the dictator), but by exacting a price, changes the victim’s calculation of costs and benefits. Moreover, there is no way for the victim to sidestep the penalty by refusing to accept it. An other example may make this clearer. Suppose A is being robbed by B in a dark alley; B pulls out a gun and announces, “Your money or your life!” In the absence of coercion, A would prefer to break off contact with B and continue on his way, but that is not an option. Instead, A may have to accept a choice he would otherwise never make, to turn over his valuables to the robber. What this suggests is that the extent of the disagreeableness (disutility) of the choice A may be coerced into accepting is limited only by the intensity of the penalty B is able to impose. If the penalty is death, there is almost no limit to how grim A’s choices may come to be. This is one reason why coercion can be bad: it has the potential to create a situation in which people can be made to accept terrible choices in all aspects of their lives. They have been deprived of the one choice they would most like to have: to say no and walk away. Another reason is that B’s influence over A can be turned to self-interest. Of course, this is exactly what robbery is, but the point is more general. Governments, democratic as well as dictatorial, have immense coercive power: they can issues fines, imprison and even employ deadly force. We like to think that this power will not be abused, but history and logic suggest otherwise: with so much potential for individuals or particular interests with sway over government to use this power for their own gain, the risk never disappears. In practice this abuse may occur only rarely, but certainly a high degree of vigilance is in order. What makes libertarianism attractive is that it consists of a general opposition to all forms of coercion as defined above. It opposes robbery, war (except in self-defense) and nearly all exercise of government authority. The only legitimate roles for government, in the eyes of libertarians, have to do with suppressing other forms of coercion, employing limited military and police powers. In other words, in order to avoid the greater coercion of crime and invasion by foreign armies, libertarians accept the lesser coercion of government—but in these realms only. Nevertheless, libertarianism has limits as a political philosophy. There is much to be said for Green’s positive freedom too, freedom in the sense of “doing what you desire to do”, or would desire if you had the chance. (This last phrase reminds us of the importance of exposure to music as a basis for the positive freedom to become a guitarist.) Freedom from coercion falls short of providing this; it only indicates that you will not have to make choices you despise, but it doesn’t say that you will be able to make choices you like (or would like if you knew about them). To use our formal language, suppose coercion is not an issue, but the choice A would prefer to make depends on cooperation from B. This choice will be unavailable if B withholds this cooperation. How bad is this for A? It depends. At the worst, it could mean that A will not be able to improve his situation at all; every desirable choice that would make him better off has been rendered impossible. Suppose what I really want to do is make movies. The type of movies I want to make (big budget disaster epics) are not possible as a solo venture; I need to work with hundred of technicians, actors and other professionals to get the results I want. Of course, I need someone to finance this dream, or it will never get off the ground. My (positive) freedom to make such a movie depends on being trained or apprenticed in a film academy or studio and then having access to the necessary resources (money, equipment, people); if these opportunities and resources don’t exist or are withheld from me, I can’t do what I would most like. This means I will have to do something else: make lower-budget movies (intimate family dramas), or no movies at all. At worst, I am back where I started, doing whatever I did before (waiting on tables), but, unlike coercion, being denied opportunities cannot make me worse off than I was originally. This sounds like freedom from coercion is more salient than freedom to have opportunity, but it is not always so clear. What if A is not self-sufficient—what if he would starve to death or face a health crisis without access to resources controlled by others? This is clearly not an idle question; indeed a vast majority of the world’s people are in exactly this situation. Without employment (which depends on the cooperation of others to hire and pay them) and without access to medical services they would be (and in many cases are) in dire trouble. If the initial condition, prior to cooperation, is not viable, then denial of opportunity may be just as crushing in its consequences as forcible coercion. Even short of these dire constraints, most of us would find life seriously impoverished if we were forced to live as isolated individuals, without access to the resources of society. Denial of positive freedom is not trivial for anyone. So let us now briefly consider positive freedom as a value. We can define it as the ability to do what you most want, based on having had the opportunity to discover this want, and subject to these restrictions:What you want to do is reasonable in some broad sense. People who are mentally deranged or otherwise poor decision-makers are not served by being free to make highly self-destructive choices. What you want to do is feasible if other members of society provide you with the available resources, including their participation, to facilitate it. It makes sense to speak of a positive freedom to attend college; it does not make sense to speak of a positive freedom to learn all the subject matter of a college education in 1 month so you can spend the rest of your time partying. You simply do not have this ability, whatever the opportunities opened up to you. Positive freedom is about opportunity in an interdependent world. It generally implies the need for collective action—the exercise of political will—to bring it about. Your ability to attend college quite likely depends on the availability of public and private funding, as well as the willingness of college admissions officials to allow you to attend. You need to be able to afford not only the immediate financial costs of going to school (tuition, room and board, other expenses), but also the opportunity cost of not doing something else instead (like holding down an additional job). This in turn depends on economic policies that put you in a position to make these choices. Sometimes negative and positive freedom seem to complement one another. Consider the situation of someone who wants to play the guitar, as discussed earlier in this appendix. For one thing, she needs the negative freedom from coercion by those who might punish her for playing this instrument. In some societies, such as Afghanistan under the Taliban, who opposed the playing of music on religious principle, this is a real issue. But just being free from restrictions on playing will not be enough to make a musician out of her; she also needs to own or have access to a guitar to practice on, and perhaps also the opportunity to take lessons. Thus both negative and positive freedom have a role to play. Quite often, however, these two types of freedom tend to come into conflict with each other. Let’s return to the example of attending college. The positive freedom to be a college student requires financial support, typically through taxes—but tax collection occurs on the basis of government’s power to punish (coerce) those who do not pay. Admissions offices must also not be able to discriminate against applicants based on considerations unrelated to qualifications; they cannot refuse whole categories of people based on ethnicity, gender, religion, etc. (A few colleges do this, but positive freedom would be infringed if the practice were widespread). The “cannot” in this last sentence is enforced by government anti-discrimination laws backed, as before, by the civil and criminal justice systems. Finally, most economic policies are more than friendly suggestions; they are administrative requirements whose force depends on the potential for coercion. In other words, almost everything governments do to provide positive freedom to attend college conflicts with someone’s negative freedom to avoid coercion. To make matters somewhat more complicated, there is a third notion of freedom, beyond negative and positive, that you may want to think about. As defined above, freedom is about freedom from constraint, whether coercive (negative) or lack of opportunity (positive); both threats to freedom are essentially external. Nevertheless, there may also be significant internal threats, barriers to freedom within our own minds. It is reasonable to speak of a free person as someone who is not a prisoner of social convention, ignorance, habit or addiction. This notion comes to us from an intellectual movement dating from the late eighteenth century that has gone under names like romanticism (England), idealism (Germany) and transcendentalism (the US). To some extent, it is an alternative framework that downplays the role of external inhibitions, as in the saying “stone walls do not a prison make”. In this sense its scope is entirely personal; it calls neither for or against any particular laws, other than freedom of expression. Many political philosophers, however, have argued that the ability of individuals to pursue freedom of this sort depends greatly on public institutions and policies, including universal education (of a certain type) and alleviation of poverty. To the extent they are right, the claim of “inner” freedom coincides with that of positive freedom defined above. To conclude this all-too-brief discussion, it is useful to consider the larger context. We have been examining different conceptions of freedom, but freedom, as precious as it is, is not the only thing of value. People also place value on a wide range of other qualities, such as health, general economic well-being, personal and social justice, and the quality of the culture and natural environment we pass on to future generations. For instance, consider the aggressive measures sometimes taken in a public health emergency, like the outbreak of an epidemic. Restrictions are placed on people’s movements in order to prevent the spread of disease. You could try to make an elaborate argument about health and positive freedom, but in fact the justification is not about freedom at all; it’s simply to safeguard our health. If the health benefits are large enough, it would be a good idea to ignore modest infringements on freedom, at least temporarily. It would not be difficult to come up with many other examples from other spheres of life, involving not only the avoidance of harm but also opportunities to achieve substantial gains. A particularly important limitation to freedom is that, in order for human society to function acceptably, someone has to take responsibility for those unable to care for themselves. This includes children, the very old, and those restricted by illness or disability—in other words, all of us at some times during our life. It has been pointed out that, in the past, philosophers were nearly always men who could count on women, such as their wives, to see to these responsibilities, leaving them free to spend their days thinking about freedom. This freedom would have been imperiled if the women in their lives had claimed it too. Today we expect a political philosophy to encompass everyone, women as well as men, as we should. But if personal obligations to care for others are unavoidable, erasing the gender barrier means not only extending men’s freedom to women, but also women’s care obligations to men. It would be nice if everyone freely assumed these obligations, since that would allow us to reconcile freedom with social need, but if they don’t some restriction on freedom is inevitable. There are two further aspects of the need to provide care that ought to be considered. First, this responsibility can be shouldered either privately, by individuals and their families, or publicly, through government programs. Doing more of one releases obligations on the other. For instance, most societies today have, or are moving toward, a system of publicly financed education for all children, public pensions for the elderly, and access to health care and social services for the sick and disabled. The regulations and tax collections that make these programs possible certainly constitute a large deduction from negative freedom. On the other hand, these programs release us from many of the caring responsibilities we would otherwise have to assume in our private lives, allowing us to enjoy a much higher level of positive freedom: more opportunities to pursue the activities we find fulfilling. Of course, a freer lifestyle is not without costs as well; we lose something valuable when we face no responsibility at all for caring for others. All of these considerations speak to the complicated question of how far society should go in collectivizing obligations that were once private—and not always well met. A second question has to do with boundaries: whose needs are we obligated to provide? Our own children and parents, of course. (But not always.) Other members of our family? What about people in need in our community or elsewhere in our country? We now expect the government to provide emergency assistance in the wake of natural disasters, but that means we allow ourselves to be taxed and regulated so that these programs can function. Is it a social obligation to ensure that all children have access to a good education, and that everyone, whatever their age, has food to eat and a roof over their head? And why stop at national borders? There are hundreds of millions of children around the world who lack the basic necessities of life. Millions of families live in refugee camps, and many more face intolerable poverty. Finally, does history confer responsibility? Do non-native Americans have a responsibility toward native peoples whose lands and livelihood were taken from them in the past? What about the descendants of slaves or other particularly exploited people? And how do we balance our obligations to care for others with a commitment to personal freedom? There is no easy answer to this last question, except to say that neither extreme—all obligation and no freedom, or all freedom and no obligation—is very appealing.The libertarian case for free markets is that they maximize human freedom: no one, according to this view, should tell anyone else what they must do or what they cannot do. Any interference with market behavior, or a substitution of some other decision-making process for markets, could be seen as a violation of this freedom. A relevant distinction in political theory is between “negative” and “positive” freedom. The first refers to the noncoercion principle: one is not forced to do or not do something. The second refers to having the actual option to engage in a desired activity. In an interdependent society, fulfillment of positive freedom normally requires some restriction of negative freedom. The practical case for libertarianism is that there is no limit to the amount of harm individuals may be forced to accept under conditions of coercion. The practical case for interfering with markets is that our dependence on one another is often substantial, and many would suffer serious deterioration in the quality of their available options without institutions that organize (and compel) measures of social support. There is an “internal” conception of freedom as well, concerned with freedom from mental and emotional shackles. To some extent, freedom of this sort does not depend on how much or little positive or negative freedom is available. It can be argued, however, that a society that wishes to promote “internal” freedom has to place greater weight on positive freedom as well. However defined and understood, freedom is one of many political, social and economic values, and tradeoffs are unavoidable. A particular tradeoff of importance is between freedom and the obligation to care for those who need the help of others. Social programs that provide this care collectively release individuals from obligations that would otherwise fall on their shoulders, but at the cost of reducing negative freedom from taxation and regulation.Coercion Freedom of contract “Internal” freedom Libertarianism Negative vs positive freedom Fifty years ago, in large parts of the United States stores, restaurants and other public facilities were segregated: many where “white-only”, refusing to serve to black customers. On February 1, 1960 a group of black college students sat down at a segregated drug store lunch counter in Greensboro, North Carolina, refusing to leave unless they were waited on. The owner called the police, but the students’ arrest only served to further inflame the civil rights movement in Greensboro and elsewhere. Eventually the Federal Government passed the 1964 Civil Rights Law prohibiting restaurants and other businesses from discriminating on the basis of race. What negative freedom was at stake in this controversy? What positive freedom? What lessons would you draw from this episode regarding the balancing of positive and negative freedom? Would your evaluation change if, instead of black college students, it was homeless families that were being denied lunch (assuming they had the money to pay for it)? What about people wearing Republican campaign buttons being told to leave a restaurant owned by an ardent Democrat? Finally, what effect, if any, do anti-discrimination laws covering business services (like restaurants) have on the “internal” freedom of the people in our story—the owner of the drug store, his or her employees, and white and black customers?
What you want to do is reasonable in some broad sense. People who are mentally deranged or otherwise poor decision-makers are not served by being free to make highly self-destructive choices.
What you want to do is feasible if other members of society provide you with the available resources, including their participation, to facilitate it. It makes sense to speak of a positive freedom to attend college; it does not make sense to speak of a positive freedom to learn all the subject matter of a college education in 1 month so you can spend the rest of your time partying. You simply do not have this ability, whatever the opportunities opened up to you.
The libertarian case for free markets is that they maximize human freedom: no one, according to this view, should tell anyone else what they must do or what they cannot do. Any interference with market behavior, or a substitution of some other decision-making process for markets, could be seen as a violation of this freedom.
A relevant distinction in political theory is between “negative” and “positive” freedom. The first refers to the noncoercion principle: one is not forced to do or not do something. The second refers to having the actual option to engage in a desired activity. In an interdependent society, fulfillment of positive freedom normally requires some restriction of negative freedom.
The practical case for libertarianism is that there is no limit to the amount of harm individuals may be forced to accept under conditions of coercion. The practical case for interfering with markets is that our dependence on one another is often substantial, and many would suffer serious deterioration in the quality of their available options without institutions that organize (and compel) measures of social support.
There is an “internal” conception of freedom as well, concerned with freedom from mental and emotional shackles. To some extent, freedom of this sort does not depend on how much or little positive or negative freedom is available. It can be argued, however, that a society that wishes to promote “internal” freedom has to place greater weight on positive freedom as well.
However defined and understood, freedom is one of many political, social and economic values, and tradeoffs are unavoidable. A particular tradeoff of importance is between freedom and the obligation to care for those who need the help of others. Social programs that provide this care collectively release individuals from obligations that would otherwise fall on their shoulders, but at the cost of reducing negative freedom from taxation and regulation.
Freedom of contract
Negative vs positive freedom
In this text we will use the world “liberal” in its original meaning: a policy or institution is liberal if it minimizes restrictions on free individual choice. Espousal of free markets is one of the clearest examples of liberalism in this sense; so is freedom of speech, freedom to travel etc. In contemporary US usage, a liberal is someone who favors more rather than less economic regulation, but also less political control over private behavior. This means that a liberal (in the everyday sense) is a liberal (in our sense) in social policy but not economic policy. Also, note that the word carries no moral weight for us; it is not necessarily good or bad to be a liberal in either sense.
- Markets and Human Well-Being
- Springer Berlin Heidelberg
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