Some Problems with Capitalism.
In general, I believe in free markets.
The fact that there is money and that things that anyone (a person or a company) wants to buy have a price helps to convey a lot of information in a highly dense manner.
Price may just be one of the most information-dense things out there. Think about it, in just a few numbers; you get a ridiculous amount of information.
This number packages up the sum of all the costs of the base materials and time required to make that product, the distribution costs, and gives you an easy comparison to any alternative uses that you could take with the money you have.
It is easy to forget just how important this is, but when markets don’t work, or when they are highly manipulated, such as in the Soviet Union, you see a bunch of strange behaviour that doesn’t make any sense.
One example I always enjoyed from the Soviet Union was that some type of fur required the price to be adjusted down, because there were already plenty of warehouses with so much fur that it was starting to rot away, and yet the state was continuing to buy fur at the set price. The reason the price didn’t automatically go down when there were plenty of furs already in storage, thus discouraging anyone from selling more furs because the price would have been too low, was that the price was controlled centrally by the state — and they were too busy trying to keep track of 24 million other prices to focus on furs.
Fifty years later, there are likely to be an order of magnitude more products to keep track of the prices of, so it would be senseless to try and do this in a centralized manner.
The market (i.e. millions or billions of individuals making their own decisions) plays a far better role in setting an appropriate prices for goods and services.
But, capitalism does have its share of significant problems, and a lot of this is linked to externalities, or things that are not factored into the price of a specific product or service.
If we take the industrial farming complex that processes billions of chickens, pigs, and cows from animals into the meat you find in supermarkets and restaurants.
There are a significant number of problems with factor farming:
- The massive amount of animal waste is produced each year, is often stored in lagoons that can leak.
- Anyone living near a factory farm will often suffer significant health issues.
- The overuse of antibiotics in animals contributes to antibiotic resistance and the fact that keeping lots of animals in terrible conditions helps to breed diseases, including COVID.
- Use of various chemicals that persist in the final meat product and make people sick
- The methane gas emitted by these animals (which is a significant greenhouse gas);
- The fact that these animals are often kept in extremely cramped conditions.
These are all problems that are not factored into the price of meat because the companies that produce the meat do not have to pay for the environmental and health damage they cause. If they did, perhaps the cost of meat would rise enough that fewer people would purchase meat, and thus there would be an effective feedback mechanism.
It might even be the case that running a typical factory farm is completely unprofitable once all the external costs are indeed accounted for.
We see a similar story with oil, where oil price does not factor in the environmental damage caused by using oil. If it did, then renewable energy sources would be far more competitive.
The list goes on, but the general idea is that when prices do not factor in all relevant information, you get sub-optimal outcomes. This is often because businesses are trying to externalize as many of their costs as possible so that they can report higher profits to their shareholders.
There are various ways to try and correct this, but they all have their problems. For example, you could tax meat production to make up for the environmental damage that it causes. But then you get into a host of political problems, including the fact that some countries produce far more meat than others and thus would be unfairly taxed relative to other countries. And, if you make the meat too expensive, people will purchase fewer healthy substitutes, such as processed food (which has its own set of problems).
You could also try and impose regulations on factory farms. Still, you run into the problem of regulatory capture, where the businesses that are supposed to be regulated end up writing the regulations in a way that is beneficial to them.
Ultimately, there is no perfect solution to this problem, but it is essential to be aware of it because it contributes to many of the problems we see today.
