The Differences between Liberals and Conservatives – Part 3: The Economic Environment

When I wrote about the differences between liberals and conservatives in the social environment I put forth the premise that the real difference between liberals and conservatives is in the way they view people different from themselves. I stated my belief that liberals are more tolerant and accepting of people of different cultures, ethnicity, economic status, sexual preferences, etc., while conservatives are less tolerant of others who are somehow different.

Whether the characteristics of the two groups are derived from inherited personality, upbringing, or the environments in which they live, these characteristics seem to be deeply engrained at the emotional level. The characteristics of acceptance or non acceptance, tolerance or intolerance seem to be an important part of a person, how he or she feels about others at a gut level. On the other hand, it seems to me that for most thinking, educated people, the differences between economic liberals and economic conservatives seem to at seated at higher, non emotional, almost academic level. (For others they just believe what other tell them to believe so there is no accounting for them.)

I think that is the case because in the economic sphere the differences between liberals and conservatives is not about how we view people different from ourselves, but it about how much free a rein a person believes capitalism should be given in our economic environment. Said another way, the far left economic liberals on one hand believe that unfettered capitalism will lead to wide spread unethical business practices, the dominance by a few ultra wealthy individuals, and the economic “slavery” of the majority of the population. On the other hand, far right economic conservatives believe that any government interference with capitalistic practices will lead to wide spread business inefficiencies and economic doom for everyone.

Since only the government of a country can regulate whether or not companies, especially very large corporations, are allowed to follow the capitalist model without restraint, the difference between economic liberals and economic conservatives is often defined by whether they believe government should be allowed to regulate large companies, and to what extent.

It is interesting to note that in the economic environment far to the right conservatives and far to the left liberals are pretty rare. It appears to me that the views of most people educated in economics seem lie on a continuum somewhere in between the two poles at various points to the right and to the left of center. This is not only because is this more of rational and intellectual process rather than an emotional one, but also we have evidence that neither of the two extremes work very well in actual practice.

Technically communism is the opposite of capitalism and is supposedly defined by slogan popularized by Carl Marx, “From each according to his abilities, to each according to his needs”. While that may sound like a description of an ideal world, it has never been known to work in the real life as an economic model for countries. Various nations such as the China, Cuba, and Vietnam currently advertise their governments as “communist”, but they are actually dictatorships run by Communist Parties, which are “communist” in name only. While the communist system may work for small groups whose members are devoted to one another, such as order of monks, in very large groups where strong inter-human relations are weak or non existent among the members, the most capable, hardest working individuals are often stripped of their incentive in under a communist system because they are not allowed to fully enjoy the fruits of their labor. I can’t point a single a country which has successfully employed a true communist economic system for any amount of time.

On the other extreme, there have been countries, especially in South America, where capitalism has been allowed to go virtually unchecked by the governments and the result has never been pretty. Unchecked capitalism in such countries has almost invariably produced population with a few wealthy individuals with most of the remainder being very poor because large companies have been allowed to exploit their laborers while most of the benefits accrued to the business owners. Such situations almost always have resulted in civil unrest among the majority of the population which often results in a popular revolt against the governments and the wealthy citizens who control them.

So in most developed countries, and certainly in the United States, the battle between economic liberals and economic conservatives is usually fought on the middle ground between the liberal and conservative extremes. So it is not a question of whether capitalism should be reigned in or not, it is most often a question of how much and in which areas of the economic landscape.

So let’s explore a bit what kind of situations we are discussing. The first that comes to my mind is to what extent monopolies and oligopolies should be allow to exist in our country’s economic environment. A monopoly is of course a complete dominance of a company or corporation over a market. An oligopoly is the complete dominance of a small group of companies or corporations over a market. Every firm strives to be the “big player” in their market, and would love to be the only player so unchecked by laws and regulations there is a natural inclination for companies to take steps to establish a monopoly for themselves or at least be part of an oligopoly.

That monopolies and oligopolies are problematic for consumers can be seen by the following example. Many different manufactures, both foreign and domestic, serve the U.S. automobile market so there is a great deal of competition on features, quality and price. Each of these manufactures has to taken into consideration its competitors so competition has a tendency to give consumers better features and quality for lower prices. However, if there were only one car company serving the American market, the only choice a consumer would have would be to buy car from that company or to do without and automobile.

Competition always provides incentives for companies to offer ever better features and quality for “competitive” prices to attract addition sales and maximize profits. There would be no real incentive for that company to offer better features or quality or to provide a better price. However, if a company has a monopoly it doesn’t have to consider the products of competitors (because there are none) and it can simply set its prices to maximize its profits. Consequently for any commodity the competitive price is always lower than the monopoly price.

In the same way a competitive market is always better for consumers than one ruled by an oligopoly. If only a few companies dominate a market, true competition is often not achieved. A good of an oligopoly was the American car market before foreign manufactures offered serious competition in the U.S. Three major manufactures basically controlled a very large percentage of the car sales in the U.S. and they didn’t chose to compete with each other on quality. In fact, I vividly recall sitting in a mechanical engineering class in college and the professor, who formally worked for automobile manufacturing company in Detroit, telling our class that common policy of all of the big three car companies was “planned obsolescence”. That is American cars were designed to break down after so many years so that the consumer would be force to buy another car. However, once foreign manufactures started importing better quality automobiles, American car companies had to improve their quality in order to survive because their oligopoly was broken.

So there are good reasons the U.S. and most developed countries have laws prohibiting monopolies and why they strongly discourage oligopolies. That is why we sometimes see the Department of Justice file suit to stop acquisitions and mergers as they did when the AT&T, the largest U.S. communication company, attempted to by T Mobile, the 4th largest. In such cases the DoJ is motivated by belief that the combination of two companies would decrease competition.

The only legal monopolies in the U.S. are regulated utilities where duplication of infrastructure such as electrical lines would actually be more costly for consumers. However such companies are kept in check by government regulatory agencies which ensure that they do not use their monopoly status to abuse consumers. By and large there is agreement between economic liberals and conservatives that is a proper function of government to protect consumers against unchecked capitalism in the form of monopolies and oligopolies. However, there is often serious disagreement how strong such regulations should be and whether a particular acquisition or merger would result in anti-competitive behavior.

One of the areas when there is real contention in this country between economic liberals and conservatives is on the question how much to limit the pollution produced by some industries.

The battle is between economic liberals who favor government pollution control regulations to safeguard the public and the economic conservatives who oppose government regulations which cause business to be less profitable and which could conceivably result in the loss of jobs.

There is ample historical evidence that when industries are totally unregulated in this area they can have very little regard for public safety and safeguarding future generations. One of the most famous cases was that of Love Canal, a 36 block neighborhood in Niagara Falls, New York. Hooker Chemical Company (now Occidental Petroleum) buried 22,000 tons of toxic chemical waste on the site in the 1940’s. Hooker sold the site to the city in 1953 and eventually schools and residential homes were built on it.   By 1976 unusual numbers of birth defects and various illness among the residents to the area lead to a investigation which revealed that the dangerous chemicals had escaped containment and had mixed with the area’s ground water. In 1975 800 families were evacuated from the area. It took years and many millions of dollars to clean up the pollution.

Other examples included companies releasing toxic chemicals and waste pollutants into lakes, rivers, and steams, the contamination of the soil around plants with chemicals and other dangerous substances, and the pollution of the air in industrial areas. Over time federal regulations and in some cases state regulation have outlawed the worst types of industrial pollution making it safer for workers and the people living in the areas around plants, but the introduction of most of those regulations were vigorously opposed by the businesses in question and the conservative politicians who supported them.

Today those battles of new environmental regulations continue continue to divide economic liberals and conservatives into warring camps. For instance the economic liberals and environmentalist continue request regulation to stop coal companies engaging in mountain top removal mining in the Appalachians. Of course the mining companies and the conservative politicians who support them are fighting against all such regulations. This type of open pit mining removes the entire tops of Appalachian mountains and dumps the debris in adjacent valleys to get at coal seams below which causes wide spread ground water and coal dust pollution and leaves what was formally beautiful land permanently ugly and disfigured.

Cancer rates in locations near this type of open pit mining have double and tripled, likely caused by ground water polluted by the process. Coal miners are dying from black lung disease cause by coal dust as the mining companies tie them up in court to avoid paying them federally mandated benefits. Again it is a classic battle between those who seek preserve the beauty of the land for future generations and prevent the illnesses caused by polluted ground water and coal dust and those worried about the loss of jobs and ensuring that the coal companies maximize their profits. (For a vividly portrayal of the evils of mountain top removal mining, read John Grisham’s novel, “Gray Mountain”. It may be fiction, but the background is accurate.)

In the State of Alabama the three conservatives who serve of the Public Service Commission which regulate utilities in the state are often quoted in the media decrying “Obama’s EPA” for continuing to force Alabama Power to install equipment in coal fired electric generating plants to cut down on pollution and CO² emissions. Alabama Power’s five coal-fired plants will be impacted by the new, stricter EPA standards. Meanwhile the PSC continues to grant Alabama Power rate increases without public hearings despite the fact that the average price paid by Alabama Power’s residential customers are approximately 14% higher than utilities in other Southern States. This is a prime example of economic conservatives defending the capitalist system regardless of the costs to the general population.

Economic liberals and conservatives often battle on how much to regulate banks and other financial companies who maintain and invest the money of many individuals. For instance, after many large banks and financial companies failed or threatened to fail 1in late 2011 because they took huge unwise risks with other peoples’ money in order to maximize their profits and threatened to take the world’s economy down with them, there was a call for tighter regulation of such companies to prevent a reassurance. The additional regulations which were enacted were championed by economic liberals while the current efforts to roll back those regulations are championed by economic conservatives.

Government loans corporations like the American car companies to keep them failing in the subsequent economic crises were championed by economic liberals to save those companies and the American jobs they provided, Those measures were opposed by economic conservatives who strongly believe that such actions are not the proper role of government and our capitalist system should have be left to sort out the situation on its own.

We could go through example after examples of how economic liberals and economic conservatives continue to battle in number different areas, but the basis of their conflicts remains constant. Economic conservatives believe in closely restricting the capitalistic behavior which they believe intrudes on the public good and government involvement in the economic process during times of economic emergencies. Economic conservatives resist restraints on capitalistic behavior because they believe such behavior is the foundation of a prosperous economy and they strongly resist any involvement in the economic process regardless of the situation.

As I mentioned earlier, because of the known excesses of both extreme economic liberalism and extreme economic conservatism, people in this country have a tendency to be more grouped about the midpoint than position at the two extremes. So most economic liberals and conservatives tend to take reasonably moderate stances.

I myself could probably best be described as and economic moderate who is neither strongly conservative nor strongly liberal on economic issues. In most situations I find myself a bit the left of center because I know left to their devices in the pursuit of maximum profits companies sometimes don’t make the best choices for the public at large and sometimes not even for themselves. I also see that there is sometimes a need for government to be involved in the economic process. For instance government intervention during the last financial crises not only saved the American car companies, but also kept the world from sinking into a deep depression.

On other hand, I have a fairly strong academic background in economics and I appreciate the advantages of a capitalistic system. I totally understand that if the system is not allowed to work its magic we can easily take away the incentive of entrepreneurs who make our economy strong. I am constantly in favor of finding the “sweet spot” where we can enjoy the benefits of a capitalistic system while reining it in sufficiently with laws and regulations to avoid its most serious defects.

Cajun   5/19/15

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