Laissez faire capitalism vs. The Tragedy of the Commons

As I write this there is a battle going on in the US. It's a philosophical battle over economics, and the results will be millions for the winners, and ruin for the losers. The battle is to justify and continue the 30+ years of deregulation versus the efforts to halt deregulation and begin to reregulate and control the many aspects of our economy and lives that have changed over the past 30 years. Like any battle that results in a huge payoff, it is being fought in the media, on the campaign trail, in the White House and Congress and the Courts, in boardrooms and in PR planning sessions. It is even being fought over the kitchen table.

Here in mid-July, 2019, it manifests in our President characterizing the Democratic party and every Democratic politician as a socialist.¹ In turn, the President points with pride to a large number of regulations the executive has undone.² His position is that these regulations stifle economic growth and prevent businesses, large and small, from operating efficiently. His opponents claim that these regulations are needed to prevent harm, to keep big corporations from taking advantage of their customers.

The President and his advisors promise that the classic theories of the marketplace will provide the greatest economic gain for all. As long as the government stays out of the way the laws of supply and demand will take care of any problems that arise. A single company such as Boeing establishing a monopoly? That simply provides an opportunity for new companies to be formed to compete with Boeing to make new and novel airliners. Your local hospital is charging outlandish prices (for operations, ER visits, aspirin even!). Get together with your friends and start your own. Tired of the local cable company ripping you off. That's a great opportunity to start your own cable outlet!

Unfortunately, the promises of trickle-down economics, deregulation, and laissez-faire capitalism that we have heard since 1980 have not panned out for the middle and lower classes.³ Only the upper class, in fact, the top 1%, have received real returns on the economic changes that were introduced by Ronald Reagan and accelerated by George H. W. Bush, Bill Clinton, George W. Bush, and even Barrack Obama. Every President since and including Ronald Regan have, to a greater or lesser extent, bought into and continued the push for deregulation. The result has been the unraveling of the regulated market place that was established under Franklin Delano Roosevelt during the Great Depression and extended under Harry Truman, Dwight D. Eisenhower, John F. Kennedy. Lyndon B. Johnson and even Richard M. Nixon. The decade of the 1970s and the Presidencies of Gerald Ford and Jimmy Carter marked the transition period from the regulated market place of the New Deal era to the deregulation movement that undid many of the New Deal reforms that grew out of the Great Depression crisis.

In fact, it was in 1971 that future Supreme Court justice Lewis Powell wrote a confidential memo for the US Chamber of Commerce entitled "Attack on the American Free Enterprise System". The memo was, in part, a reaction to Ralph Nader's consumer movement, which he saw as undermining American's faith in Enterprise and the first step down the slippery slope of Socialism. Powell viewed the press as biased agents of socialism, based on his work as an attorney for Phillip Morris and the refusal of the media to publish the pseudoscience that the tobacco industry was promoting to cover up the dangers of smoking to health. Powell urged business to become more active in molding society's thinking about business, politics, government, and law. Powell helped to harness the heirs of wealthy industrialists to invest in the formation of think tanks that would promote Powell's idea of a pro-business, anti-socialist, minimalist government-regulated America as it existed at the turn of the century, prior to the Great Depression and the rise of FDR's New Deal.

The Powell memorandum became the blueprint for the rise of the American Conservative movement and the formation of right-wing think tanks and lobbying organizations such as the Heritage Foundation and the American Legislative Exchange Council (ALEC). David Harvey, a professor at CUNY, traces the formation of the neoliberalism directly to Powell's memo.

Powell's 33-page memo to the Chamber of Commerce was dated August 23, 1971. On October 21, 1971, Richard M. Nixon nominated Lewis Powell to the Supreme Court.

There are many ways to look at the harm that has been done by the deregulation movement and the removal of the safeguards that were put in place as part of the New Deal. One simple lesson falls under the title of the Tragedy of the Commons. Businesses attempt to unload costs that they would otherwise have to pay on to the community or to other parties. An example of this is failing to treat a waste stream and dumping it into a local stream. Without regulations that force businesses to pay for this pollution, the real cost of producing the product is not factored into the price and the cost of the pollution becomes an externality born by the local community. President Trump's deregulation of the coal industry through the reduction and/or elimination of environmental regulations is an attempt to allow coal companies to compete with natural gas prices by allowing them to pollute, and forcing local and state governments to subsidize the coal industry.

An example of Government involvement to prevent this kind of exploitation is occurring today in Thailand. In 2000, the movie "The Beach" brought fortune and fame to Maya Bay on the west coast of Thailand. For years thousands and thousands of tourists fought to travel by small boat to the beach and relax beneath the high cliffs. But in 2018 the Thai Government closed the beach until 2021. The popularity of the beach had caused 90% of the coral to die, and many of the mangrove trees were also dying, along with the fish that lived in the tree's root system. Trash, sunscreen, boat anchors and urine had all contributed to the death of the coral and associated wildlife.

Maya Beach had become a classic case of the Tragedy of the Commons. This occurs when people are paying the full price of a shared resource. The phrase "tragedy of the commons" was created to describe the use of common, shared grazing land in English villages. It was in each villager's interests to graze as many cattle as possible on the shared lands; however, this would lead to overgrazing of the common, shared land.

In the case of Maya beach, any boat owner could take tourists to Maya beach, as long as each tourist paid a fee (about $12). It was in the boat owner's interest to take as many tourists as possible to the beach. Any boat owner that would stop carrying tourists, to allow the beach time to heal, would simply be allowing his competitor to carry more tourists in his place. The tourists were like the cattle in the English village commons, but instead of eating the grass, they were peeing on the coral.

At one point, more than 10,000 tourists per day were visiting Maya beach.

Possible solutions include higher fees, stringent rules on tourist behavior, and a quota to restrict the number of tourists allowed to visit the beach per day. A classic example of where government regulation is critical, and where laissez-faire capitalism and deregulation have harmed, not helped, the situation.

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^{1. "Fact-Checking Trump’s Claims That Democrats Are Radical Socialists", New York Times, July 20, 2019. ↩ 2. "Tracking deregulation in the Trump era." Brookings Institute, July 17, 2019. ↩ 3. "U.S. Census Bureau, Real Median Household Income in the United States [MEHOINUSA672N]", July 24, 2019. Retrieved from FRED, Federal Reserve Bank of St. Louis ↩}