Arnold Kling  

The Park Ranger Metaphor, Further Continued

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Here are some responses to comments on my original post and the follow-up. Again, the idea is that the park ranger represents someone who is not convinced that he or she can improve on the natural rain forest, despite what might seem to be obvious imperfections. The museum curator thinks that he or she should control everything about the rain forest. This metaphor produced these main types of pushback:

1. The U.S. Botanic garden is actually all right. The curators do a good job.

My response is that indeed the U.S. Botanic Garden is a success. However, that does not imply that operating the Hoh Rain Forest on the same model would be a good idea. Human planning and regulation works well enough in many settings. However, it works best in simple, self-contained situations, such as the Botanic Garden. It works less well in larger, more complex situations.

2. People need more sympathy and management. We could sit back and watch a plant species in the rain forest suffer a 50 percent loss. We would not feel that way about such a tragedy among humans.

Here, my response would be to ask whether charity or the state is the best instrument for addressing these issues. It seems to me that charities do a better job of providing targeted aid to those for whom we have sympathy. When it comes to large-scale disasters, my inclination is to see states as the cause more often than as the solution.

Off the top of my head, I think that the best case for taking a favorable view of state action would be in some areas of public health. Water sanitation, meat safety, and regulation of snake oil come to mind. Of these three, I think that water sanitation probably would be the most difficult for the market to accomplish well. Meat safety probably could handled as well or better by market solutions, such as private inspection seals.

I think that the drug market works better if drugs are tested in a reliable way. Without the FDA, we conceivably could have a worse equilibrium, with too little in the way of scientific testing. However, we could very well have a better equilibrium. The challenge, both for government and private solutions, is that many people want to believe more about the potential for perfection in medicine than is actually realistic.

Beyond those areas, I have a hard time thinking of any government intervention that we could not live without fairly readily. Until the recent financial crisis, I might have said that deposit insurance was a clear benefit, but when you take into account the way that deposit insurance necessarily requires government regulation and creates a rent-seeking dynamic in which banks maximize the value of their government guarantees, I have changed my mind.

3. Even relatively hands-off park rangers do intervene in small ways. As economists, we know enough to intervene in some market situations. How can we refrain from doing so?

Again, my concern is that some economists over-estimate the value of their knowledge for designing state interventions. And the political process has come to select the over-estimators into policy positions.

Let me use as an example the issue of alternative energy. An economist or other expert might say, "I know a lot about alternative energy. That knowledge should affect decisions."

I think that there are plenty of market-based opportunities for such an expert to apply knowledge. You could go to work in the energy industry, become a stock analyst specializing in energy, join a venture capital firm investing in young energy companies, and so on. In each of those occupations, your ability to take risks with other people's money will be subject to rigorous checks, and gaps in your knowledge will be exposed relatively quickly by market outcomes. In contrast, if you take your expertise in to government, you can make larger mistakes with a less effective corrective mechanism in place.

The currently-fashionable counter-example to this sort of skepticism about state planing mechanisms is China. Megan McArdle expresses the doubts that many of us feel about the ability of this model to avoid tripping up over the next decade or two. We shall see.


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CATEGORIES: Political Economy



COMMENTS (2 to date)
Hyena writes:

The counter example is always that prior to those regulations we actually had huge problems with snake oil and impure food. So the empirics don't tend land on the side of the market.

After all, marketing innovations are very cheap relative to actual gains in quality....

Ashwin writes:

Arnold - The analogy to ecological management is valid. Try this famous paper by Holling and Meffe appropriately called "Command and control and the pathology of natural resource management" .

The fundamental conclusion is the much discussed resilience-stability tradeoff which is valid in most complex adaptive systems: "when the range of natural variation in a system is reduced, the system loses resilience.That is, a system in which natural levels of variation have been reduced through command-and-control activities will be less resilient than an unaltered system when subsequently faced with external perturbations."

This is similar to the Minskyian conclusion that "stability breeds instability". There's a lot that macroeconomic managers can learn from ecosystem managers which I've analysed many times on my blog:
1. Minsky’s Financial Instability Hypothesis and Holling’s conception of Resilience and Stability
2. Knightian Uncertainty and the Resilience-Stability Trade-off
3. The Resilience Stability Tradeoff: Drawing Analogies between River Flood Management and Macroeconomic Management

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