w 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. 0 0 Unsigned editorials ap- pearing on the left side of this page represent a majority opinion of the Daily's Editorial Board.