Wednesday, November 10, 2010

The Failure of the “Market Failure” Argument

Dr. John Hasnas, Law professor at Georgetown University, gave a lecture to the Students for Liberty (Webminar Series) on November 8, 2010. Hasnas lecture was not on the Market Failure (MF) but rather the FAILURE of the Market Failure argument. Hasnas exposed his arguments against the MF from his knowledge in law and ethics. Hasnas could not being more eloquent in establishing the distinction of what constitutes for him the disappointment in the argumentation of the defenders of the subject in question.

I will now share my notes from Hasnas’ lecture:

The Market Failure (Definition according to Hasnas):
The market is full with transactions that happen simultaneously. There are unregulated voluntary as well as regulated voluntary transactions. However, the market failure occurs when the good outcome(s) of these transactions affect negatively third parties. Advocates of the MF often mention the following examples when the “market fails;” air pollution, deforestation, water contamination to name a few. Economists call these consequences of market forces “negative externalities”; while lawyers call them “negative social transactions.” Therefore, MF happens when:

Negative Social Transactions or Negative Externalities > Benefits produced by market transactions.
The Law:

According to Hasnas, the US’ Law System has two forms: the Statutory Law and Common Law.

Statutory Law: Governments create the general rules and the citizens must follow the statutory law. Hence, legislators write statutory laws; it reflects the political interest. It does not represent individual interest.

Common Law: It settles disputes. Property Law, Tort Law, Contract Law are parts of the Common Law. Common Law implies that there is a victim.

The Real World Conception (Market + Law):

Hasnas expresses that in the real world market and law meet in one place. This place should be the Common Law rather than Statutory Law. Hasnas proceeds to explain in detail his interpretations of market and law as follows:
Market: Voluntary transactions regulated by customs, ethics plus common law.
Law: Legislation is the regulation of voluntary transactions by the state to serve the politically dominant interest plus the common law.

John Hasnas describes the need for a self-correction of the market through the Common Law Regulatory Process (CLRP). Professor Hasnas describes the CLRP in this way:

“Exercise the degree of care that a reasonable person would use to avoid causing harm to others by his/hers actions.” (Hasnas’ Lecture PP Slide)

According to Hasnas, if you deny the claim listed above you deny Common Law. Its denial constitutes an abuse on others. People can an always will be able to regulate themselves without the intervention of the government.

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I believe that Hasnas insights on the MF and its invalidity give us a different approach to the subject. The law approach is a fascinating tool to analyze policies. The understanding of the significance of Common Law and its use constitutes a strong tool to demonstrate the Failure of the MF argument. During, Hasnas lecture I could not help myself but to think in the words of Israel Kirzner.

Kirzner says the following:
“Efficiency for a social system means the efficiency with which it permits its individual members to achieve their individual goals.” (Kirzner 1963)

Kirzner expresses that inefficiencies may occur when the means of achieving a goal it is inconsistent with the goal itself. So the question, is the Market Failure a valid argument? I agree with Kirzner and Hasnas the Market Failure argument FAILS to demonstrate itself.

Friday, October 1, 2010

Was it a Coup d'etat?

On September 30th, 2010, Quito the capital of Ecuador was in shock by the police riots that took place at the Regimiento Quito 1 (Police Headquarters in the North side of the city). The police was (and still might be) unhappy with a new law for the public sector. This law, the police thought, would cut their bonuses and promotions. However, in reality the benefits still there but paid differently. The controversy and conflict took place when President Correa tried, mistakenly and wildly, to confront the crowd.

Police men gathered at the Regimiento Quito 1 Thursday morning, they burned tires and declared themselves on strike. President Rafael Correa went to the Police Headquarters hoping he could calm the police force and get them back to work. However, things were about to take a wrong turn. As Correa, from a window, tried to convince the police that this law will not take away their labor benefits; police men chanted in favor of Lucio Guitirrez, Ecuador's former President and Correa's opponent. Correa could not take the pressure from the police and he lost it. He removed his necktie and unbuttoned his shirt Superman style. Correa told the crowd "if you want me, here I am," implying he did not fear for his life. The situation went from unsafe to unsafer.

Correa's security crew tried to get the President away from harms way. But any effort was in vain, a tear-gas bomb exploded right next to Correa's face. Correa walked, wearing a gas-mask and using a cane, to the Police Hospital located right next to the Headquarters. He was treated for a swollen knee that went under surgery last week and breathing problems due to the tear-gas used by police. While Correa was in the hospital he never stopped giving orders to his ministers, government, and military. On the streets the mood was different. Businesses, shopping centers, banks, schools got closed to prevent looting due to the lack of police force on the streets.

Around 2 PM the nation went under state of siege or emergency. According to article 165 of Ecuador's Constitution;

"165. The President can suspend or limit citizens rights of inviolability of residence, inviolability of correspondence, property, freedom of information, freedom social gathering, freedom of transit, in terms in which the Constitution points out."

Following the declaration of state of emergency, all TV and Radio channels had to broadcast the signal produced by Ecuador TV (ECTV) a state-run entity. Ecuador's citizens and the international community were at the expense of the information given by Correa's government. All information given by ECTV, not surprisingly, came onto the broadcast one-sided. It was Correa and his government in charged of orchestrating the information. Information that made it look like a coup d'etat was on its way.

Correa went public from the Police Hospital using Ecuador TV a couple hours after he checked in. He told reporters that he was a victim of a "cowardly attack." He sent a message to everybody by saying "this is a coup attempt" and "they (police men) are trying to get to my room and attack me...But, forget it. I won't relent. If something happens to me, remember my infinite love for my country, and to my family I say that I will love them anywhere I end up." (CNN)

So, was it a coup d'etat?

Doris Solis, who is a president's policy coordination minister, said "this is not a coup." Solis mentioned that the military supported Correa and he was their commander in chief. (FOXNEWS).

A coup d'etat implies that there is a declaration to oust the president and to replace him/her with someone else. However, it never happened in Ecuador. In history most coups, the people who want to overthrow a government are supported by the military, or it is the army the rebel group. Yesterday, the military expressed his support to Correa and his government. (It is important to mention that Correa has always been in good terms with the military. Unlike the police, Correa has increased the salaries of high ranked army officials.) What took place in Ecuador, it was a illegitimate strike by police forces that thought that their bonuses and promotions were taken away by the new law. Also what happened on September 30th was an act of reckless committed by Correa when he decided to confront the police.

Correa never stopped governing Ecuador. Even though, he was "practically captive," as he mentioned to reporters. He kept on commanding the military, leading his ministers and secretaries, and no one stopped him, not even the police.

Yesterday was a horrendous day in Ecuador's history. It was the straw that broke the camel's back. It was the consequence of how Correa governs Ecuador. Correa has been in power since 2007 and he has never stopped being arrogant and despot. He has applied an abuse of power at all levels without taking into account the comments and suggestions from opposition.

After Correa was rescued from the Police Hospital; he went to Palacio de Carodelet, President's home. There, he was received by his supporters in the Plaza de la Independencia. While Correa spoke to his supporters back in the hospital a bloodshed took place. The armed fight between army and police lasted about a hour. The bloodshed's outcome was 6 dead and 193 wounded. It was a fight among Ecuadorean citizens, and Correa was celebrating with his supporters. This is by far Correa's regime worst event, yet.

Finally, here is Juan Fernando Carpio, Economics Professor at Universidad San Francisco de Quito, gives a great yet sarcastic example of the conflict between the police and Correa's government;

"My plan for today: I want to raise my popularity in the building so I'm going to ask them to lower the salaries of guards. If they complaint, I am going to stand by their post guards and provoke them. Then when they retain me until my mom to comes get me, I will ask for solidarity from other neighborhoods. When i leave them ... I will get the guards from the next door building to fight the guards in my building. Then I will throw a party with friends to recognize my courage."