Help me form the new 'Progressive Market' party.

Great Debates
41

Yes.

At this point, I’d like to highly recommend a book I’ve been reading: The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor–and Why You Can Never Buy a Decent Used Car! (Hardcover)

Many of the ideas I’m talking about here are discussed in the book. It’s an explanation of why free market economics works so well, but it’s no Libertarian polemic. He’s more than willing to discuss serious market failures in areas like the U.S. health care system, and from the title, why the used car you buy is likely to suck. It’s really just econ 101, and for those of us who have been thinking about market economics for a long time, there’s nothing really new. But it’s very well written, and he exposes a number of issues that really make you think. It’s also a fun read.

The latter part of the title, btw, is an example of the cost of hidden information in the functioning of a market. It works like this: Let’s say you have a car that you want to sell. It’s in extremely good condition and well maintained. Its value to you is $5,000, and that’s what you want to sell it.

Now imagine you’re someone with the same model and year of car, only this one’s a lemon. It’s always breaking down, and its value to you is $2500. That’s what you’d take to get rid of it.

Now imagine you’re a buyer. You know an excellent specimen of the car you want is worth $5,000, and a lemon is worth $2500. But you have no way of knowing if any individual car you look at is a lemon or a great car. So what’s the value of any random car of that type? If there’s a 50% chance its a lemon, and the difference between a lemon and a great car is $2500, then the ‘discount’ for the chance that the car might be a lemon is $1250.

So, the market prices such a car at $3250. But wait a minute… If the cherry version of the car is worth $5,000, the owner isn’t going to sell it for $3250. So that car goes off the market. In fact, ALL the really good examples go off the market, leaving only lemons. But as those cars leave the market, the probability of getting a lemon goes up, which the market reacts to by discounting the average price even more. Pretty soon all you’ve got left are lemons, selling for the value of a lemon. The market has failed to provide a way to buy a quality used car.

In the real world, we’ve evolved several ways to solve this problem. For example, car dealerships make a profit on buying and selling used cars by using their reputation as a value-added service. If a car dealer has been in business for a few decades, and has very expensive fixed assets (a beautiful showroom, etc), then you can believe that it’s less likely that they’ll sell you a lemon, because they have a reputation to protect. They in turn have teams of very good car inspectors and mechanics to inspect cars at auction and sort out the lemons from the good ones. They buy the good ones at a discount then resell them at a higher price than the fly-by-night guys can. This means that you can be almost assured that the dingy "Cars R’ Us’ places will only have lemons on the lot, whereas the used car department of the local BMW dealership probably has only cherry specimens, for which the dealership can extract full value by trading on its reputation.

Likewise, there are industries of free-lance car inspectors, ‘certified’ used car programs, etc. All designed to compensate for the fundamental asymmetry of information in this market. But even with all this, there is always some information the seller knows that the buyer doesn’t, and this causes the market to operate less than optimally. It also explains why new cars can sell at such a premium over even late model used cars, and why depreciation on new cars is so great in the first year. It’s not because the wear-and-tear is higher, but because the car goes from being a known commodity to one with some hidden information when sold used.

42

See, this is where I must fundamentally disagree. The government has a role to play as a nanny state. It should be protecting us against scam artists, warning us about bad deals and caring more about whether we are “happy” then “free” to a certain extent. The government should be there to protect stupid people from themselves.

43

Of course not. But this thread is about a new third party. The relevance of PR is obvious.

44

If we’re talking about Canada, this would be a new sixth party (assuming we count the Greens.) Anyways, this thread is clearly about policy and not about electoral strategy or whatever. There’s no reason to go off on your pet tangent of alternative election systems. As a matter of fact, if we’re talking about Canadian politics, Sam has a much better chance advancing this agenda from within the Conservative Party (or frankly even within the Liberal party) than he does starting a new party if the issue is strictly passing legislation that harnesses market effects and passes the Econ 101 test.

Sam, I’d like to press you a little bit to answer my question about what counts as a “real market failure”, since the answer seems like it’s going to be pretty critical in a substantial number of policy areas.

45

Why? (Perhaps you could explain the above for us ignorant Yanks who might not know a lot about the policies of the Liberal Party vs. the Conservative Party – labels which, I infer, mean something rather different than they do south of the border.)

46

Starting another party would be fruitless because the landscape of Canadian politics is simply too cluttered with parties at the present time. “Sixth party” is actually quite generous; the 2006 general election had 11 different parties run in at least 10 ridings.

The labels are not relevant. Truth be told, the names “Liberal,” “Conservative” and “New Democrat” are no longer adjectival, they’re just proper names now. The Liberal Party is every bit as conservative as the Conservative Party, if you actually go by what that word means. They just disagree on what to be conservative about and what to be progessive about.

That’s not terribly relevant to this thread, because Sam is calling for ideas on policy, not electoral strategy or Constitutional structure. But it’s simply the case that nobody right now could start another serious party unless there was some terrible upheaval. The Green Party is the first major national Canadian political party in our lifetimes that was created without a significant amount of momentum from regional anger, and they still haven’t won any seats.

For that reason, you’d likely find it easier to push the Conservative party towards being the new PMP, though to be honest it would now be harder now that they’ve won the last election; if they’d lost a few more than might make them desperate enough to give the reins to a new leader, that Sam Stone guy from Edmonton.

47

Why? Because the chances of a 6th party getting enough influence in Parliament to advance this sort of agenda with or without proportional representation are miniscule, whereas to advance the agenda from within the Liberal or Conservative parties would only require convincing the leadership that you’ve got a good idea. And, as it happens, the Tory leader and current PM is a policy wonk with a good understanding of economics and an appreciation of free markets. I frankly don’t think Harper would be a hard sell. The Liberals are a little bit iffier at the moment, given that their leadership is in flux, but their 13-year run in power included a very impressive track record on fiscal matters.

48

But, as I understand it, the Canadian Conservative Party is, at least in part, a religious-social conservative party; also a militaristic party; neither of which has anything to do with what Sam is proposing. So the CP could not evolve into a “Progressive Market Party” unless it were entirely purged of those elements and tendencies – could it?

49

Sam–as an environmentalist, I see one big problem with your platform: Enforcement. See, to me, the EPA had done a great job nailing those companies that were illegally polluting, and had sued them long and hard enough to make them cry “uncle”. At the end of the Clinton administration, some 25-30 years’ worth of back penalties were about to be paid, compensating the American people for billions of dollars’ worth of environmental damage.

Then Bush & Co. came to power, and all of those suits evaporated. The polluters got away with it all, because the administration refused to enforce the law.

How can you assure voters that your party will not be subject to the same corruption? A policy is good, but it’s useless if that policy is never actually enforced.

50

Although this seems a little circular. Surely the original question is in part asking “what do we define as criminally misrepresenting”? If the government is not involved that implies there are no such laws, and therefore nothing is criminally misrepresented.

In principle, I like the party that is being suggested in this thread. I am in favor of heavy handed disclosure regulation and minimal other regulation (aside from what would be required to correct broken markets). I believe this is consistent with the principle of having as much information about the market as possible, so that participants can make the most rational choices.

51

toadspittle’s question is good, I think, although I’d state in slightly differently: if there’s no net revenue from pollution taxes (or ongoing reveneue from pollution permits), where’s the incentive for governments to enforce the (implied) standard? Why will it be different from now, where pollution standard/ tax enforcement depends on the distribution of costs and the power of lobbying industries? And of course, if it is anticipated that the government won’t enforce the artificial property rights, the market will be thin and any auctions won’t raise much money.

This worries me. Pollution taxes have negative marginal excess burdens, at least at the start. Why not raise revenue from them and reduce those taxes that are distorting? Or are you saying that in the Canadian case the marginal excess burden on fuel taxes is higher than for other taxes (I don’t believe this for the US, but I dunno about Canada).

What’s the advantage of this over (say) an overall revenue limit for government? Is there something implicit in your story about the status quo? I don’t understand why you would otherwise constrain the use of an efficient tax base (maybe you’re concerned with the incidence of the tax falling disproportionately on the poor).

Sensible transport taxes are pretty tricky. Road damage goes with (IIRC) the 4th power of axle weight. Noise is local. Particulate stuff kills heaps of people and varies by time of day and atmospheric conditions. Greenhouse is global. Leaving this to local governments is going to promote some goals at the expense of others, as they merrily free ride. Relying on them - or some Tiebout process - to get it right is pretty optimistic.

I’m sure I’ll have objections to anything you might say in these threads, but this is nonetheless a very useful thing to be discussing and good for you for doing it.

52

That’s the press their opposition will use, but in any practical sense the Conservatives are not at all militaristic - their proposed military spending increases are no larger than what the Liberals were proposing - and are quite a bit less religious in nature than the Democratic Party.

The history of the Conservative party is such that Sam’s approach is quite possible; the party has changed and changed again over time. In its last run in power it was fairly socially progressive, fiscally liberal, and largely dominated by Quebec interests; separatists sat in the Conservative cabinet. Parties will gladly dump ideology for convenience, votes, or effectiveness.

There’s no particular reason you need to “purge” the party of anything; you just need to give its supporters a reason to believe they need to go in a different direction to win an election. The CPC’s religious-right supporters have given up any hope of making abortion illegal, for instance, because their leadership knew it was a dead issue and would cost them another election.