Raymond Aron, the French liberal-conservative philosopher, wrote a book titled In Defense of Decadent Europe (Plaidoyer pour l’Europe décadente, Paris, 1977) where, if my memory serves, he took “decadent” as a badge of honor vis-à-vis the authoritarian and austere communist dictatorships of his time. Hic et nunc, we can take the word in its pejorative sense to describe the sort of decadent, crony quasi-capitalism that seems more and more to be replacing the free market.
Another illustration may have been provided by a report in yesterday’s Wall Street Journal. Apparently, plans are under discussions for either “a potential voluntary shutdown of virtually all passenger flights across the U.S.” or simply a federal government’s order: “U.S. Domestic Passenger Flights Could Virtually Shut Down, Voluntarily or by Government Order,” Wall Street Journal, March 23, 2020. And, if the report is correct, the airlines are not fighting the idea, on the contrary:
Airlines generally favor government orders rather than voluntary industry initiatives, partly because a mandate would provide airlines with extra ammunition in their ongoing lobbying for federal aid. “They would definitely prefer the government did it,” according to one industry official familiar with the deliberations. In addition, a voluntary shutdown could run afoul of some existing labor contracts that stipulate minimum levels of flights, according to other government and industry officials.
It would be better for the traveling public and for the future of capitalism and liberty if the airline owners who can’t run airlines just declared bankruptcy. The airlines’ assets would be purchased at bargain prices by more efficient entrepreneurs and operators. American skies could also be opened to foreign competition without restrictions. Of course, as things are going, it could be worse: the federal government could then nationalize one or many airlines, creating an American Aeroflot.
READER COMMENTS
Phil H
Mar 24 2020 at 6:47am
This I will never understand. Why do people who claim to love and want markets not understand them?
Companies are amoral. That’s by design. They are not supposed to be honorable battlers for superior service. They are dirty, money-grubbing, advantage-seeking brawlers. They adapt to their environments. And sure, a big part of that environment is the government, so government actions figure large in corporate strategy. Economists should understand this, not get snooty about it, or question the competence of those companies that seek to use the government environment to their advantage.
Pierre Lemieux
Mar 24 2020 at 10:50am
Your main error, which is very common, is to confuse the free-market and self-interest. The free-market is useful because it channels self-interest in such a way that the latter works towards general prosperity and human development. The free market is not synonymous with self-interest. There is as much self-interest in a statist (socialist or fascist) system as in as free-market society: hence the behavior of rent-seekers and of government rulers who also use rent-seeking as a means to their own advantage. The free market is a system of voluntary exchange among individuals and private entities. When, for instance, Volkswagen, in the self-interest of its owners, worked for Hitler in return for favors, it was not thereby illustrating the workings of free exchange among individuals, but, on the contrary, showing how a powerful state and its cronies can exploit some individuals in a statist system.
I have further reflections on this topic in my post on “The Political Firm” and in the one on “Markets Against the Mob’s Purpose.” More can be said, of course, and I am not claiming any originality: that has been the standard approach among classical liberals and most economists in the liberal tradition for nearly three centuries.
Phil H
Mar 24 2020 at 11:33pm
Hi, Pierre.
Sure, self-interest can exist within a regulated/state-controlled environment. It also exists in markets. Market behaviour is not necessarily only driven by self-interest. But in reality, successful markets are precisely those that reward self-interest.
Your point falls down here: You see rent-seeking behaviour in a market that has significant government intervention, and you think, that’s bad! And you criticize market participants for engaging in it.
But rent-seeking also exists in pure market environments. (I worked in corporate comms in Huawei for a while, and it seemed like half of their internal communications were dedicated to sternly reminding employees not to accept bribes from suppliers.) The rent-seeking *is how markets work*. It’s not a fault, introduced by government intervention. It’s part of the normal mechanisms of competition.
Which, as I said, is dirty, amoral, and profit-oriented rather than customer-oriented or human flourishing-oriented. Because markets are the worst system out there, except for all the other ones that have been tried. Which is why I say, if you’re a “free market” [obligatory reminder: markets aren’t free this term makes no sense] economist but you don’t like individual (firm/individual) rent-seeking behaviour, then you’re doing it wrong.
On the macro level, markets need to be designed to minimize rent-seeking, i.e. gaming the system. But within the system, market participants need to work it as hard as they can. So they compete clean, and they compete dirty.
Jon Murphy
Mar 24 2020 at 11:22am
I don’t understand what you think economists are missing. No one has said that governments are not part of the environment firms operate in. Just the opposite; we argue that government plays a vital role. Pierre’s whole post is about the vital role government plays. Part of the Coasian revolution, beginning in the 30s and extending through now, is about how government shifts incentives. There are several major fields of study that examine how governments interact with markets: Public Choice, Law & Economics, Institutions, Public Finance.
Mark Z
Mar 24 2020 at 7:26pm
Huh? Adam Smith and Milton Friedman both not only were aware but expected companies to behave in a self-interested manner, indeed it was a key aspect of their model. Why don’t anti-market people ever seem to understand this?
Isn’t the whole point of this post to point out private companies behaving in a self-interested manner at the expense of the public when the state gives them the opportunity to do so? I don’t grasp what your complaint is, because the post is about the exact phenomenon you are apparently accusing the author of being oblivious to.
Phil H
Mar 24 2020 at 11:18pm
Hi, Mark.
You’re right, PL points out exactly the phenomenon that I refer to. The phenomenon that Smith and Friedman predict. And he hates it!
“It would be better…if the airline owners…just declared bankruptcy.”
“as things are going, it could be worse:…an American Aeroflot” [implying that things are not *as* bad the Russian carrier, but still definitely bad]
My complaint is, PL is an economist who appears to despise competition the way it actually happens in the real world.
Christophe Biocca
Mar 24 2020 at 8:16am
Given the circumstances, the bankruptcies would probably be of the Chapter 11 kind, which means really that the airlines themselves are going to keep operating more or less the same way (modulo being effectively shut down a while), but the shareholders will be wiped out (to compensate the debt holders for not getting their money back on schedule). I don’t think there’s a way for anyone to profitably run an airline for the next few months, so it’s mostly about who will eat the losses.
Being the first ones to lose every penny is precisely why equity has such great average returns. It’s compensation for risk.
MarkW
Mar 24 2020 at 9:19am
It would be better for the travelling public and for the future of capitalism and liberty if the airlines owners who can’t run airlines just declared bankruptcy.
I understand the argument that we should allow stockholders to be wiped out, but I don’t grasp the derision. I’m not sure there there was any way to run a competitive, profitable airline that also maintained a large enough cash hoard to survive this. So I just don’t understand the idea that bankruptcy under a pandemic is a sure indication that present owners of airlines didn’t know how to run them and deserve to lose their money.
And why focus on airlines particularly rather than apply the same logic to all businesses? You weren’t structured to survive a complete loss of of all revenue for several weeks or even months? Well then that means you’re a ‘decadent’ badly-run business that deserves to DIE!?
Thaomas
Mar 24 2020 at 11:17am
Bankruptcy has nothing to do with “deserving.” It is a way to re-write contracts (and not the only way) to maximize the value of the company. It does demand a macroeconomic framework that maintains expectations that aggregated demand continues to grow normally.
Pierre Lemieux
Mar 24 2020 at 1:09pm
Thaomas: Consider that contracts, if that’s what your “it” refers to, were written much before Keynes claimed that there was such a thing as “aggregate demand” and that it had to continue to grow normally (and growth was not really his topic). And I am not sure I understand what your critique of “deserving” means or to whom it is directed.
Pierre Lemieux
Mar 24 2020 at 1:45pm
And from an economic as opposed perhaps to a legal viewpoint, isn’t commercial bankruptcy more, or ultimately, a way to transfer resources to those who are better able to use them to satisfy consumer demand, from those who have proved unable to do so?
Mark Brady
Mar 24 2020 at 5:23pm
I suggest that other relevant considerations are the extent to which government bankruptcy laws and limited liability laws violate freedom of contract, and what would likely occur if we were to amend or repeal them.
Mark Z
Mar 24 2020 at 7:32pm
How would changing limited liability laws affect this?
Mark Brady
Mar 24 2020 at 10:51pm
I had in mind the fact that laws creating limited liability don’t just determine contractual liability (that can be negotiated between the contracting parties in advance) but also limit liability for torts (that by their very nature cannot be negotiated in advance because no one knows who will be harmed).
Maniel
Mar 25 2020 at 11:57am
Bonjour Pierre,
You are arguing for a free-market, a laissez-faire economy.
Commenters appear to be saying that there is a trough full of $lop in Washington, so why shouldn’t “enterprising” companies go get some.
It appears that the free market, the kind that some libertarians (like me) say they want, just might be incompatible with a gigantic federal kleptocracy. Sigh!
And behold the latest from DC, at the low, low price of $2T. As the late, great Everett Dirksen might have said (today), “a $trillion here and a $trillion there, and pretty soon you’re talking about real money.
Merci de votre fidélité.
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