The tragedy of the commons

Cows in an overgrazed commons.

Central Falls, Rhode Island, is bankrupt.  The city, at 1.29 square miles, was once famous as the most densely populated city in America. Bordered on the east by the Blackstone River, Central Falls was at the heart of early America’s Industrial Revolution. But water-powered foundries and textile mills quickly became a thing of that past, leaving Central Falls’ skilled workforce high and dry.

In more recent years, Central Falls’ politicians continued to spend money as if they still had a tax base. They made generous pension promises to the city unions who elected them, creating liabilities that couldn’t possibly be met. So now they are broke and retiree benefits have been slashed in half. There are no winners.

How did this happen?  The most likely cause is a phenomenon called “the tragedy of the commons,” a theory describing human behavior when dealing with shared resources.  Ecologist Garrett Hardin wrote an influential article on the topic in 1968, describing the behavior of a group of herders who all shared the same parcel of land.  Since no one herder owned the land, each was motivated to maximize personal return, resulting in overgrazing to the detriment of all.

This effect can be seen wherever private ownership is absent.  Fishing fleets deplete ocean fisheries.  Graffiti artists deface public property.  Vandals destroy anything that is not theirs.  Politicians make promises they cannot fulfill (it's not their money).

The good news is that humans are very resourceful, recognizing the problem and developing creative solutions.  Taking the long view, farmers often organized and regulated the use of common grazing lands.  The federal government allocates fishing rights and radio frequency spectra. And enlightened politicians recognize that heavy taxation and reckless spending impair the economy that supplies them with tax revenues.

Here is what you can do.  Be aware that the economy, whether local, national, or global, is a commons. We all rise or fall on the tide of jobs, capital, and opportunity thereby produced. The economy is enhanced by the animal spirits of individual entrepreneurs and investors and is depleted by the ravages of short-sighted politicians.

Make your choices wisely.  Take the long view.  Educate yourself. Remember that there is never something for nothing.

The people of Central Falls, often portrayed as victims, repeatedly elected their betrayers.  Be smarter than that. 

Baseball and a Sunday afternoon tragedy

Lewiston Daily Sun, Lewiston Maine. May 25, 1896

It was May 24th, 1896, 116 years ago, and the Puritan spirit still ran strong in Attleborough.  The town had not yet become a city nor dropped the “ugh”, and North Attleborough had just recently seceded. Local blue laws outlawed the selling of beer and, surprisingly, the playing of baseball on Sundays. And the prosecution of these crimes was relentless. 

On that beautiful Sunday afternoon, a group numbering fifty, mostly Irish members and friends from the East Side sporting club of Pawtucket, gathered at Robinson’s farm in South Attleboro.  It was the charter of the club to provide relaxation and leisure activities for the membership on Sundays, and they customarily visited bucolic spots outside of the city to achieve that end.

On the agenda that day were a clam bake and baseball game, the perfect antidotes for a long, hard, work week.   As the day progressed and the baseball game was well underway, someone snitched.  The Attleborough police somehow obtained information that a game of baseball was being played on the Sabbath and that the devil’s brew was being consumed. Soon after a squad of five policemen in civilian dress approached Robinson’s farm.

The Pawtucket sportsmen spied the strangers coming over the hill and suspected that their ball game was to be suspended.  Michael Connors, representing the club, approached the men and asked them their business.  Officer John Nerney, after first engaging in conversation regarding the baseball game, then asked if there was beer on the premises.  To this point the officers had not yet identified themselves as police, so Connors suggested they could stay if they paid a $1 assessment, otherwise they should move on.  Nerney reportedly exclaimed that Connors was “putting up a bluff,” at which point Nerney was ordered to leave.

Now, things quickly went awry.  Nerney pulled his .38 revolver and threatened to shoot unless Connors assumed a more docile attitude.  Connor, unfortunately, took several steps forward and tried to disarm Nerney, at which point a shot was fired and Connors was hit in the side.  Badly hurt, Connors struggled with Nerney and called out to his companions for help.  The other officers, drawn by the shooting and general clamor, gathered swiftly and tried to quell the fight.  One reportedly struck Connors with a blackjack.

Nerney, in a high state of excitement, pointed his revolver at Connors head and fired.  Connors dropped heavily, dead in his tracks.

Daniel Mountain, one of Connors' companions, was nearby and attempted to catch him as he fell.  Mountain apparently made some remarks to Nerney and soon after another shot rang out – Mountain fell, mortally wounded.  Edward Morse, another Pawtucket sportsman, demanded to know why the two men had been shot.  Nerney ordered him off under threat of being shot himself.  Morse wisely retreated.

Once they realized what Nerney had done, the other officers devoted themselves to the victims.  But Connors was already gone, and Mountain expired within a half hour.

The county Sheriff was notified of the events and within an hour, Officer Nerney himself was under arrest.  Nerney, when questioned, said that he did not know what happened, that he had lost all control of himself. 

To the utter shock of the friends, family, and children of the deceased, Nerney was ultimately and inexplicably exonerated. The news of this episode and its outcome was shocking and enthralling, and appeared in eastern newspapers from New Jersey to Maine.

Quite a sad tale, this, and leaves us with a few observations.

First, note that a modern, professional police force would never show up in civilian dress and fail to identify themselves.  And their use of force would be far more judiciously governed.  The potential for a repeat of this tragedy is vanishingly slim.

But, also, remember this – government is force.  If you disagree, try not paying your taxes on some principle, ignore the warnings, and wait until the U.S. Marshals show up in full SWAT regalia.  Government is force. Which is great cause for us to give thanks for the strength of our Constitution and its guaranteed freedoms.  It took many years for the grip of Puritanism to ease.  We don’t ever again want government to tell us that we can’t play baseball on Sunday.

The price is right

Soviet farm women search empty shelves for overshoes.

How is it that we can find fresh tomatoes in Manhattan in January while Soviet farm women struggled to obtain adequate footwear and were often faced with empty shelves?

A seemingly simple question, but one which reveals the power of a market economy and the importance of prices.

When you decide to buy something, price is a very important factor in your decision.  You may decide to buy McIntosh apples at $1.29, or perhaps Red Delicious at $1.39.  But you might decide to substitute bananas for your fruit, or buy nothing at all.  Any of these actions sends a signal to suppliers whether to provide more or less of which variety of apple, or perhaps bananas instead. 

When you participate in these economic decisions as a consumer or supplier, you become part of an enormously powerful, highly parallel, economic computer.  This computer, orders of magnitude more capable than IBM’s Watson, allocates resources to meet demand at prices that consumers will pay.  Hundreds of millions of decisions are made every day: prices accepted or rejected by consumers, set by competitors, and read by suppliers.

What happens when this mechanism is bypassed or distorted?  There is abundant evidence that we suffer shortages, unwanted surpluses, or unaffordable prices when government, in its hubris, attempts to plan supply or control prices.

At one extreme is the Soviet Union; it was a managed economy with faceless bureaucrats determining investment, resource allocation, and production schedules.  Over the period 1928 to 1991, the Soviet citizenry’s experience was one of chronic shortages of food, fuel, and consumer goods.  A bureaucracy, even armed with automation, cannot begin to approach the immense power of our collective  economic computer.

Our government can, and does, fiddle with our market economy, with less than stellar results.  There are many examples.

·       Subsidies cause high prices.  During the conversion from analog to digital TV transmission, the government offered $40 coupons for converter boxes.  You never saw a converter box offered for less than $40 – it became the new zero (price floor).  There is strong evidence that government grants and loan programs have contributed mightily to the inexorable rise in college tuition.  Scholarly  studies show that government subsidies of ethanol have resulted in higher corn prices.  (Have you noticed what a box of corn flakes now costs?)

·       Price controls create shortages. When the government puts a cap on prices, shortages result.  During the gasoline crisis of 1973, price caps resulted in widespread shortages and massive lines of people waiting to get a few gallons of scarce gasoline.  In an attempt to control "gouging" during emergencies, government price caps only insure that shortages will occur.

·        In the absence of price information, competition disappears. Our current health care system is a perfect example of the lack of price information inhibiting wise consumer decisions and supplier price competition.  The result?  The cost of health care rose 7.32% in the 12 months ending in August 2010 (last period available), while the general rate of inflation during that same period was 1.1%.  So why did health care costs increase nearly 7 times the rate of inflation?  Because consumers have no idea what services cost, and additionally, have no skin in the game.  After all, the insurance company will pay.

What can you (citizen, consumer, voter) do with this knowledge?  First, be very skeptical of your legislators.  They may think that they are superior to our human, economic supercomputer, but they are not.  Be wary of schemes that “control prices”.  That can only be done with effective competition and full knowledge of pricing.  Look askance at subsidies; they will only result in higher prices.  Meet with skepticism any proposal that does not engage the pricing mechanism to determine supply, and competition to moderate prices.  

More and better information is always the answer, so that you, the wise consumer, in concert with millions of your fellows, solve the equation of how much of what to produce at a price that consumers will pay.  This is equally true of apples and hospital stays.