Rand Paul and the fervent cult of The Market

Rand Paul claims to represent the Kentuckian masses and their disinterest in the political status quo: both with the Obama Administration’s policies on everything from the bailout to punishing BP for destroying the Gulf of Mexico and with the typical politician’s willingness to allow political pragmatism to trump ideology. Paul’s certainly showed, since his election, a willingness to let political ideology trump both political considerations and practical experience, but Kentucky voters are hopefully now asking themselves if that’s maybe not as good a thing as they’d originally thought.

Paul’s political philosophy is a combination of social conservatism and dogmatic libertaranism: no fan of abortion rights, he nonetheless steadfastly insists that the best America is one with the least government. More interestingly, he insists, despite all practical evidence to the contrary, that all problems can be solved by The Market. For Paul, like many libertarians, the mythical, all-encompassing Market is like an omniscient god and, like those who believe in a more standard god, Paul’s market is absolutely, positively not made up of fallible people that could have any effect on their god or his supposed acts on earth.

Libertarians and Paulites like to claim that their quasi-religious ideology is grounded in social science — and, in particular, in economics. They are accolytes of Adam Smith’s invisible hand of the market and believe, like Smith, that, when everyone acts in their own self-interest, the market and society functions efficiently. For Paulites, any government action — or interference, as they term it — creates rather than solves market inefficiencies and creates imbalance in their perfect system guided by the higher power of the Market.

Of course, if one believes that the Market, rather than being an invisible, omniscient guiding force, is an economic organizing system made up of fallible individual actors that fail to fully recognize or implement their own interests by virtue of having incomplete information, an insufficient to judge short- and long-term gains or by sublimating their own interests to those of an employing corporation, then there are such things as market failures and social goods that require an accounting. Paulites aren’t keen on discussing either of those, as they obligate Invisible Hand accolytes to admit the fallibility of their higher power and the insufficient intellectual abilities of their fellow men.

But, to take Paul’s now infamous statement that the Civil Rights Act, as it applies to private business, is an unnecessary interference in The Market, which would weed out discriminatory practices on its own. Paul’s example is that The Market would cause a person of color, when discriminated against, to fail to patronize a lunch counter. In concert with other actors, the business lost by the racist lunch counter owner would put him out of business, and racism would be disincentivized by the market.

What Paul fails to realize, among myriad other things, is that businesses and individuals act against their own market-based self interest all the time, often with few consequences. The marginal cost of a racist business owner’s discriminatory practices might be judged, by said racist, as a welcome price to pay for his unjustified and unjustifiable racism. He would be, by definition, not acting out of economic self-interest, but, as many of racist business owners proved for generations, the cost of privileging racism over economic self interest didn’t cause enough people to go out of business — in part, because there were plenty of racists who liked patronizing business, even if it cost more money, that allowed them to privilege their own racism over economic self-interest.

But even if the economics of individual discrimination might play out differently almost fifty years after the passage of the Civil Rights Act which codified and reinforced the belief of equality — and which, arguably, made racism even less economically and personally justifiable — the results of institutionalized racism play out every day to the economic detriment of companies. Diversity isn’t just a catch-word: companies that do more than token hiring of women and minorities find that, when their employees aren’t cut from the same mold, they bring insights, techniques and value to the company that contribute to its bottom line.

In Paul’s world, The Market would have driven such hiring practices from the start; in reality, when hiring is done within social circles and bis based on who (if not what) one knows and where one went to school, women and minorities were hired less often, if at all, paid less well and treated more poorly despite the economic disincentive to the company.

The problem was, as ever, that the marginal losses due to institutional and personal discrimination weren’t felt deeply enough to matter and that, in the absence of other models of hiring, no one could quantify them. Racist practices, in the economic lexicon, are a market failure: due to imperfect information, fallible actors and a cost-benefit analysis that favored discrimination over profit, the market didn’t force businesses to act in their own self interest. In economic theory, this is, in fact, exactly the sort of case in which government intervention (like the Civil Rights Act) is the only remedy to a deep and ongoing market failure.

But, that’s just the charitable economic interpretation. Another way to look at it would be that racism had positive economic benefits because African-Americans did not make up a majority of society and racists did, meaning that there was likely an actual economic incentive for some business owners to engage in racist practices.

Furthermore, there is an obvious self-interest to white men of keeping women and minorities economically marginalized, meaning that what is good for the company isn’t necessarily good for the people working at the company who, due to social preferences if not active racism, select new hires and people for promotion based upon their social capital. In other words, The Market might not ameliorate racism and, in fact, might exacerbate it. Either way, government intervention and regulation becomes the only way to resolve the failure.

And that’s just one example of where the Paulites’ blind faith in The Market and willful ignorance of the existence of market failures collide to cause them to make stupid and unrealistic pronouncements and policy prescriptions. From things like public schooling (a social good for which The Market has no incentive to provide because the short term concentrated costs outweigh the long-term and diffuse benefits) to pollution (a market failure, due to diffuse, long-term and potentially cost-free impacts), Paulites insist despite all historical and current evidence to the contract, that The Market is the source of all solutions if we just give ourselves fully over to its power.

But, as with the gods of others, praying to a higher power for its intervention doesn’t bring it about, and faith without common sense leads to miscues, missed contradictions and a religion that bears little resemblance to the personal lives and struggles of individuals. Rand Paul believes in The Market, and can’t imagine why anyone, even those with exposure to and experience with its many failures, might not be willing to believe that The Market has all the solutions.