Is interventionism a conservative force?
An economics quandary
It wasn't the most common argument for supporting government intervention in the banking and automotive industries last year, but every once in awhile you heard somebody say that the government needed to step in because one company or another was "too big to fail."

Much of the time, this is actually wrapped up in a nativist, protectionist ideology — many people are deeply opposed to the emigration of industry from the United State, and have convinced themselves that we would be better off if everyone purchased cars, clothes, consumables, and consumer electronics that were "made in America."

Stripped down to its core, though, the notion that something is "too big to fail" represents the idea that the government, serving as an instrument for the welfare of its people, ought to intercede for them when it appears that the collapse of a company, or industry, would put many of them out of work — in other words, that this collapse is an inherent harm. We should note two things.

Firstly, this is not a new argument. This was essentially Ned Lud's position: widespread mechanisation threatened artisanal craftsman to a degree that compelled action, although the Luddites' response was of a destructive kind.

Secondly, it is largely blue collar in scope. That is, although entertainment is perhaps America's most significant export these days, nobody argues that the government needs to prop up film and recording studios in the face of piracy, competition from abroad, or the transference of the means of production into progressively smaller and smaller shops.

Regardless of its provenance, however, I've been thinking about this from an economics perspective (I know there are economists who read this sometimes). If one accepts the idea that a company can be too big to fail, does this imply an inherently conservative stance? That is, does this serve to limit innovation?

For instance, take the auto industry. Suppose, through the magic of self-replicating nanotechnology and rapid prototyping or what have you, I invent a means of assembling cars entirely autonomously. Really, really good cars, built to tolerances that improve their fuel efficiency, reliability, safety, comfort, the whole deal. All without anybody pulling a switch: give the nanobots a big pile of steel and petrochemicals, and they will do everything else. There's no need for any human intervention at all. The only employees I need are me, and maybe somebody to drive the cars onto a train.

This invention represents a paradigm shift in automobile construction, and because the machines are so well designed and built, they require fewer spare parts. There aren't machine tools to build or molds to cast. The existence of this production process implies that traditional automobile manufacturing, and the ecosystem that supports it, is completely obsolete. Furthermore, there's no way to compete on cost; because there is no labour or machine maintenance, I can sell cars effectively at the cost of materials. So a brand-new car maybe only costs a couple thousand dollars.

Does the government have the right to intervene? A responsibility, even? Rational economic decisions on the part of car-buyers will put the big three completely out of business (and squeeze Kia pretty hard too). Now, granted, there is also a tangible benefit, in the sense that more people will be getting higher-quality cars for less money. The air is cleaner, because my cars pollute less. Does that outweigh the sacrifice or the potential shock to the economy?

What if I decide that the fact that the cars are so much more reliable (and so I will be selling fewer replacements, in the long run), and so much better than the competition, means I should sell them at a comparable cost to a new Ford, or maybe even slightly more. I intend to make as much money as possible, so I sell the cars for ten or fifteen times what they're worth. Rational actors would still be advised to purchase my cars over Detroit's in the long run, but the price isn't so democratic anymore. Does that change the calculus in any way? What if I choose to focus on big trucks and SUVs that consume a lot of petrol, but sell them so cheaply that anyone can afford to buy them because the long-term operating cost is outweighed by the low initial sunk costs.

More pressingly, if there is a point at which rational actors as consumers and legitimate, equally rational businessmen delivering an innovation nonetheless converge on a point that, while rational, compels the government to step in, does this imply a limit on innovative technologies? If I have an idea to design and build self-replicating constructors that can make virtually anything cheaply and efficiently, but doing so collapses the centralised industrial system into a world of cottage industries and so the government will move to stop me, why would I act on my idea? What would I do?

Would I go to a corrupt but freer country where I could bribe a local warlord into letting me set up shop? Would I go to a fascist state that could simply embrace the technology and tell the newly-unemployed ex-factory workers to sit and spin? Would I just shrug and go back to my desk job?

And, more importantly, if there is a utilitarian bent to government, where is the best place for them to stop? Only when my invention would put 100,000 people out of work? If it's just 99,000, is that ok? How about just ten thousand? How about just ten?

The government, or at least the parts that are concerned with these affairs, values a single human life at around $7 million. Now, in the first world most people won't starve because they're out of work, so maybe the cost is lower. But does that imply that there is some dollar figure that I should be required to improve the general economy by for each person cast out into the cold by a new invention? $50,000 a year? $100,000?

What's the best role of the government? Only to intervene when there is no "better option" or immediate competitor? But what if the relative sickness of a company implies that its collapse will lead to better results in the long run as people step in to fill the void? Is that not good enough? What is the most effective calculus to determine that line?

La Chevre!
27.05.2010 - 4h32
Comrade Alex
27.05.2010 - 4h43
La Chevre!
27.05.2010 - 6h48
Vulpecula
28.05.2010 - 12h47

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