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OPINION
Sunday, June 3, 1984
The Michigan Daily
Page 6
Vol. XCIV, No. 12-S
94 Years of Editorial Freedom
Managed and Edited by Students at
The University of Michigan
Editorials represent a majority opinion of the
Daily Editorial Board
Indianapolis'
thought police
T o the delight of an astonishing coalition of
religious fundamentalists and feminists,
the City of Indianapolis decided last month
that censorship has gotten a bad rap. In its en-
thusiasm to rid Indiana's capital city of the
menacing problem of pornography, In-
dianapolis' city council has embraced a par-
ticularly broad and offensive anti-obscenity
ordinance.
The ordinance attempts to make an end run
around the limited protections given por-
nography under current First Amendment
doctrine by viewing any "sexually explicit
subordination of women" as an actionable
civil rights offense. The novel approach
claims that the existence of pornography has
the effect of perpetuating discrimination by
reinforcing and encouraging gender-based
bigotry. Therefore, Indianapolis claims, it is
perfectly justified in telling people what they
can and cannot read.
That logic is dead wrong.
The ordinance seeks to mask the use of cen-
sorship in the respectable robes of civil rights.
In doing so, the new law denegrates the
crusade for civil rights, for personal freedom,
and ultimately for feminism itself.
Many Americans would join with In-
dianapolis in its condemnation of por-
nography, and for good reason. Much of it is,
indeed, demeaning to the human spirit
generally as well as to women as a class. The
way to fight demeaning or offensive speech,
however, is not through the use of the heavy
hand of governmental coercion, but through
social persuasion and economic pressure.
Smut, after all, simply is not the cause of
the degradation of women in our society. It is a
symptom - a result - not an independent
causal agent. Its purchasers are not mere tools
subject to the manipulation of clever mer-
chandisers; they're individual human beings
who have chosen of their own free will to view
certain arguably degrading materials. The
evil is not so much with the product, but with
the attitude which encourages its purchase.
Feminism is a great deal more than an ef-
fort to improve the lot of women at any cost or
through any means. It must remain, at its
core, a struggle for liberation, not a struggle
to censor its opponents.
Is free enterprise always 'efficient'?
By John Critchett
Conservative economists have
one word in their vocabulary
which they use more often than
any other: efficiency. It is this
word which supposedly explains
why markets should be left to
themselves: through self-
correcting mechanisms, markets
promote the most efficient use of
resources. When government in-
tervenes with artificial ceilings
and floors, shortages and ex-
cesses occur.
Intuitively, the argument for
efficiency is appealing, and on
close scrutiny, it is logical. If an
engine could be designed to make
a car go farther on less fuel,
society could more efficiently
consume a scarce resource. But
the trouble with conservative
economics lies in the extremely
narrow definition given to the
word "efficiency." Some ef-
ficiencies are singled out ancd
some large inefficiencies are
completely ignored.
UNDOUBTEDLY, the self-
correcting mechanisms in
markets promote a type of ef-
ficiency. Prices automatically
adjust to the level where there
will be no shortages or excesses.
This is supposed to hold for the
price of goods, the price of money
(interest rates), and the price of
labor (wages). This type of ef-
ficiency is "dynamic."-it is
created by constantly changing
circumstances in individual
markets.
Butthere is such a thing as
"structural" efficiency as well. It
is the degree to which markets
are free to adapt to changing cir-
cumstances. If a well designed
machine is "dynamically ef-
ficient," it is only "structurally
efficient" to the extent that its
moving partstare free from frict-
tion.
Conservative economists
correctly point out that gover-
nmental intervention creates
some structural inefficiencies,
i.e., friction. But they completely
ignore the fact that serious inef-
ficiencies are inherent in any
developed free market system.
These inefficiencies would be
present with or without gover-
nmental intervention. Examples
include structural unemployment,
imperfections in capital markets,
cartels and anti-competitive
behavior, and sticky prices and
wages.
WHEN THESE problems are
examined, an interesting
phenomenon is discovered: The
prospect of government interven-
tion usually creates a tradeoff
between structural and dynamic
efficiencies. Like the two sides of
a see-saw, they can't go in the
same direction simultaneously.
Unlike the see-saw, however, the
efficiencies created by gover-
nment intervention can, in cer-
tain circumstances, outweigh the
inefficiencies it engenders. When
the dollar values are netted out,
the results could be positive.
Take the unemployment
problem, for example. For
several years now, the U.S. has
suffered from sustained struc-
tural (not cyclical) unem-
ployment. The underlying cause
is the shift from a goods-oriented
to a service- and information-
based economy. The government
could give tax breaks to high-tech
firms who sponsor worker
training programs. But some
workers approaching retirement
are effectively unretrainable,
since they will not work long
enough to recoup the initial in-
vestment.
The government could also
give huge subsidies to the steel
industry in order to prevent
layoffs. The result may be more
surviving steel companies than
would be dynamically efficient.
CONSERVATIVES say that
resources should be directed
away from steel toward more
productive uses (which generate
higher profits). In the process,
steel workers are laid off. But
labor is a resource like any other,
and it is inefficient to waste or
underutilize it. Government in-
tervention to save these jobs
would prevent this waste at the
expense of some dynamic ef-
ficiency.
Again, it is like a see-saw, but
the value of the jobs to the
economy (not the steel com-
panies) could outweigh the loss to
the economy of having too many
steel companies.
Cartels and imperfections in
capital markets arise from a
basic trait in human nature: risk
aversion. Among the glowing
successes of capitalism are
stories of entrepreneurs who
risked everything to start a
business. These stories are not
rare, but there is a general in-
clination to shy away from risks
rather than to embrace them
wholeheartedly.
CONSERVATIVES argue that
everyone should be willing to
take a "fair bet", i.e., where
there is an equal chance of win-
ning or losing a certain amount of
money. Many loans which appear
to be fair bets or better are tur-
ned down because the lender is
risk-adverse. This risk aversion
tends to increase with wealth
(or assets in the case of a cor-
poration). Those with little to lose
will gamble everything they
have. Those with much to lose
will not gamble at all. This
behavioral phenomenon creates
structural inefficiencies in
capital markets, as those who
control resources are typically
the ones who do not wish to gam-
ble.
CARTELS ARISE for the
same reason. Conservative
economics says that a cartel will
eventually destroy itself because
there are always incentives for
individual members to cheat.
This is correct only if the mem-
bers are willing to take the risks
of competing with each other. It
is not worth competing over a
commodity like oil whose high
demand will always guarantee a
reasonable return to the in-
dividual members of the OPEC
cartel. If one is satisfied with a
riskless prospect, why take
risks? In contradiction to con-
servative theory, there are prac-
tical limits to economic satisfac-
tion.
Sticky prices and wages arise
from cartels and unions (a form
of cartel). If demand for a good
falls, its price should fall. Cartels
keep this from happening. If
price remains stable during
falling demand, sales and profits
will decline. Individual members
are willing to bear this cost for
the guarantee of retaining their
market shares.
If prices are allowed to fall,
then workers' marginal product
(contributions to profits) also
falls, and wages should decrease
accordingly. Unions don't allow
this to happen. The result is
called "sticky wages." In blunt
terms, it means that workers are
being paid more than they are
worth. This is clearly an inef-
ficiency.
ALL OF THESE structural
inefficiencies cause "friction" in
the economic system. It's like a
car with a cup of sand in the gas
tank. Milton Friedman would call
it a slight imperfection and note
that nothing is perfect anyway,
right? Wrong. Ten miles down
the road, the engine would be
destroyed. If you couldn't get the
sand out of the engine, it might be
a good idea to install a filter in
the fuel pump.
This is what government inter-
vention attempts to do. Everyone
agrees that it would be better to
have a clean fuel tank in the first
place, but sometimes we have to
settle for second best. This is not
to say that all types of gover-
nment intervention are ap-
propriate in all circumstances,
but to borrow a well-worn phrase,
they may be a "necessary evil".
Critchett is a graduate
student in the School of
Business Administration.
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