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Internalized Costs Are Not Evidence of Market Failure

Here’s another letter to an aggressive young opponent of “free market fundamentalism”:

Mr. Fosse:

You label as a “cheap shot” my criticism of Robert Orr’s argument that free markets fail families. In your opinion, I should have, as you write,

focused on the substance of his [Orr’s] critique of the market which comes out where he says “exposed to market pressures, people who want children face an ugly dilemma: either accept a lower standard of living, or sacrifice family life (whether by delaying childbirth or spending less time with the children you do have).”

I’m sorry, but the passage that you quote in Mr. Orr’s essay doesn’t salvage his case. Quite the opposite, for it reveals that what Mr. Orr is griping about is inescapable reality.

Of course children are costly. So too are nearly all desirable and worthwhile things. Yet by calling the need to make the trade-offs and sacrifices entailed in having children an “ugly dilemma,” Mr. Orr attempts to create the false impression that when it comes to parenting, we humans should be freed from this reality. But why?

Because someone must care for children, the only way to free parents from this responsibility is to impose it on others. But even if we grant the dubious proposition that most people who would be decent parents wish to be freed of the necessity of making the trade-offs traditionally required of decent parents, where’s the justice in compelling those who aren’t parents of the children to be cared for to absorb the cost of caring for these children? If it’s an “ugly dilemma” for people who want children to have to sacrifice to care for these children, it’s a far uglier injustice to compel other people to pay for the care of these children.

Markets are said to fail when they allow some people to free ride on the efforts and resources of other people. And those who can free ride ride excessively. I believe that sightings of such alleged market failures are mostly mirages, but I accept the logic of the case and the legitimacy of complaining about, and wishing to correct, such cases when they arise. Yet here Mr. Orr argues that the market fails precisely because it does not allow free riding! His complaint with the market is that it works – that it internalizes on the individuals who make choices the costs of those choices. His argument is perverse. It’s an argument that might be expected from someone untutored in economics; that it comes from someone with an economics degree is utterly bizarre and baffling.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030