Nixonian Fallacy
A good op-ed about the idiocy of trying to control the price of oil appeared in today’s Washington Post. It’s written by Sebastian Mallaby and it is truly a must read; he perfectly explains why both Barack Obama and John McCain are wrong about this issue.
Perhaps it is time for politicians to learn from mistakes made in the past. There’s no reason to repeat them… time and again. Nixon tried to do this, the result was chaos. If America’s president would try to artificially control the price today, it would not be less destructive.
I think Mr Mallaby is probably right in practice in this instance, but wrong in theory.
The market is very good at optomizing in win-win situations, where the best choice for the individual lines up with the best choice for society. In such situations it is smarter than any single people or small group of people, and quickly finds the best of all possible outcomes. However, the fallacy made by many including Mr. Mallaby is they assume all economic choices follow that model. What’s best for the idividual ends up being best for the socity.
However, there are some clear cases where this isn’t true. Pollution is clearly one. It is much cheaper and better (from a selfish standpoint) for a company to dump their waste in a river and let it be carried away than paying to properly dispose of it, yet it hurts society at large. Here, government intervention is critical to prevent the free market for quickly finding the worst of all possible outcomes. This had some direct parallels in models of multi-round prisioner’s dilema.
Now the speculation on oil probably doesn’t fit into this type of destructive free-market. But if I’m wrong and there is good evidence that it does, then the government certainly has the right and the obligation to intervene.