Markets Aren’t Perfect; Regulation Is Often Far Worse

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A rhetorical tactic commonly employed by both my technocratic and progressive friends is a straw man argument. “If market processes are so great,” they charge, “how do you account for X or Y bad outcome?”

Markets are not perfect. Markets are not perfectly efficient. Markets produce undesirable outcomes that include pollution (sometimes called negative externalities), inequities that may favor one group of people over another, and information asymmetries. The only place where perfect markets can be found are in the blackboard economics of academic models—which is to say, in theory, not practice.

Assessing market outcomes eventually leads to a discussion of the essential question for policy makers: Compared to what? When markets produce undesirable outcomes, what alternative would be better? For those who don’t follow along with the bulk of CEI’s work, a short sidebar is in order to point out that while markets are not perfect, regulation is often far worse. Economic regulation typically produces large and negative unintended consequences, including rent-seeking. Regulation is also sticky, difficult to adapt to changing technologies, circumstances, and democratic tastes. Further, it is often unresponsive to democratic accountability.

So far, so good. Which brings us to Google’s recent announcement that it will no longer allow its digital advertising service to place ads on sites if the associated “content contradicts the well-established scientific consensus around the existence and causes of climate change.” The new policy is sure to be unpopular with many conservatives profoundly skeptical of Google’s ability to fairly arbitrate “well-established scientific consensus.” But it is also an effort to develop new systems and protocols to combat malicious misinformation that plagues the most popular and well-financed corners of the Internet as well as the less well-known dark Web, and that intent is noteworthy. Because these are private actions, we’ll have an opportunity to measure the effects of the new policy against the intent, and for Google to change course as necessary.

But let’s speak plainly. I believe in climate change and am concerned with many of its likely effects. I lead an organization that employs scientists, economists, and lawyers who analyze new information in this field on a regular basis. We are recognized by the United Nations as an NGO focused on climate policy. Nonetheless, I routinely find myself and CEI labeled as a climate denier or skeptic by both cranks who find my email address online as well as by well-established journalists and politicians who disagree with us about what to do about climate change.

The new advertising policy is well within Google’s legal rights. This is an exercise in control of Google’s property and a statement about the type of business dealings suitable for it. It surely was not a decision taken lightly. The company has staked out a position on a relatively non-controversial idea that nonetheless generates contentious cultural and political debates about what to do as a result of that idea. Conservatives and other minorities are familiar with the pattern.

The arguments employed from the political right are no better than the ones from the political left. If it’s climate consensus today, it is the pro-life, pro-gun, pro-military, pro-flag or any other culturally divisive issue tomorrow. At least, so I’m told from my conservative friends who are too quick to abandon principles of property rights, tort, and contract in order to crank up the rhetoric about decisions made by private enterprise.

Google’s decision to become the arbiter of what constitutes mainstream views, or consensus interpretation of a rich and varied scientific, political, or cultural debate, may come back to haunt it.

First, it is an opportunity for YouTube competitors like Rumble or Odysee to attract market share at YouTube’s expense. It may also invite cumbersome regulatory oversight from excited politicians less interested in market outcomes and more interested in pleasing vocal constituencies.

Second, there is no apparent limiting principle. What issues are worthy of a new policy? Is it measured based on political saliency? By the number of people who complain? The likelihood of the issue presenting an existential threat, as I’m told climate change does? Should we expect a new policy for videos that do not express the well-established scientific consensus on transgender issues or the status of Uyghurs?

I contend that Google ought to get out of this business quickly. If the objective is to develop and deploy better tools against extremist content, there are better issues to select. It ought to find topics where the scientific process, which relies on challenges to consensus views, is not central and to ideas that do not so readily conflate scientific knowledge with political or policy prescriptions.

We know markets are not perfect. We don’t have to believe that market solutions are perfect to prefer them to greater regulatory intervention. I’m typically for less regulation, more individual liberty, and stronger market processes because they make up the recipe that produces, extends, and defends and ordered liberty. Without unencumbered free markets, we miss the opportunity for each person, endowed with equal measure of dignity, to author his or her own future. The latest announcement from Google risks giving more power to those who shout down minority or inconvenient views about how to apply evolving scientific knowledge. All in all, we could do with less shouting.