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Free Market Minute
Civility, Self Interest, and the Common Good

Onus ob omne, omnia ob unum, et omnes ob ipsum*

By Dr. Karen Y. Palasek

September 17, 2007

Why can't people just behave better? How can people ignore the needs of their neighbors and fellow citizens? Why aren't they more caring and civic-minded? It's really pretty simple. It would be nice, but it wouldn't make sense, in some situations, to behave 'better.'

Take this summer's water problems in North Carolina. It's not merely a mater of style, of manners, or of decent civic behavior. The way that we use scarce but essential goods, like the water from our public utilities system, is first and foremost an economic problem.

The basic difficulty here is that prices have not been allowed to guide people's behavior. Rationing and other mandates might be avoided if municipal water were treated more like a truly scarce good—like steak, or perhaps steak futures—and delivered on a price basis, instead of arbitrary rationing methods and non-market allocation.

We can see at first hand how poorly rationing is working. But suppose we initiated flexible pricing, instead. Even with the recent drought, we would still have choices under a scarcity-and-demand-driven price system for water. Whether my choice would be to conserve more strictly, pay a higher price for the freedom not to conserve, drill a well for personal use, truck in water from 'abroad,' or another option, I would be better able to plan (which trees to save, which to 'let go,' perhaps) if I faced price options rather than blanket rationing throughout this dry spell.

That's because in weather extremes, each person's needs and interests are far better served when they determine for themselves what costs they are willing to bear. The fact that municipal water is delivered by a public utilities monopoly compounds the lack of competitive pressure on the supply side. Without any competition, suppliers have no incentive to allow the price of water to reflect its current scarcity and replacement cost. And consumers on their part have good reason not to conserve voluntarily—they can't really reap the benefit, but they still suffer the inconvenience if they cut back on their own. Instead of civic-minded behavior, we get the opposite of self-limiting behavior; elements of a ' tragedy of the commons' on the demand side.

The overuse situation doesn't have to occur. With prices, futures contracts, and other market mechanisms, households could purchase and 'save' water from the general supply for their own use in the future. Without market prices, even well intentioned conservation efforts won't guarantee availability later on, because few people can really be expected to conserve out of goodness, duty, or reasoned self-control. Instead, perverse incentives would lead to something like the following: "If I don't use the water now, someone else will use it instead, and I will lose the option altogether. Therefore, I should use as much as I can immediately." When most consumers do this, the resource is depleted even more rapidly. That's a classic 'commons' story.

Let's consider rationing, then. Does rationing solve the overuse problem, and avoid the need to introduce prices into an already complicated situation? Even if rationing does reduce total use, it creates additional problems along the way.

Rationing actually makes the situation more intractable, not less. What's wrong with rationing is that it gives some people too little access to water, relative to their plans, while forcing others to have too much water. People who would be willing to pay a premium to use more than their rationed amount of water, to use water on additional days, or for non-sanctioned purposes, are prevented from doing so. Conversely, anyone willing to use less water, for a price, has no reason—or opportunity—to conserve and sell. Both parties lose value with rationing. And practically everyone's plans are less well coordinated than they could and should be.

We might well wish that people were more considerate of everyone else's needs as well as their own when deciding how to use municipal water supplies. Particularly in a drought situation.

But people aren't necessarily considerate, or perhaps they fail to recognize the gravity of the problem. So campaigns to get people to do something that they may be disinclined to do, too lazy to do, or uninterested in doing (without a compelling reason) often start with moral suasion; simply put, efforts to persuade without force.

One form of moral suasion is an appeal to personal morality or goodness: "good parents vaccinate their children against disease," for example, or "good friends always watch each others' backs." To validate the statement, you must behave accordingly.

Another appeal is the pitch to civic-mindedness—responsibility to others, or to an external ideal. "Responsible citizens vote," and "good citizenship means caring for the environment by recycling," are examples.

A third kind of moral suasion is the 'reasonable course of action.' The suggested behavior is pitched as a smarter, cheaper, or safer alternative to the status quo. "Children are safer in booster seats until they weigh 80 pounds," and "it's cheaper to put 3- and 4-year-olds into full-time preschool than it is to hold them back when they are in second or third grade," are examples of attempts at moral suasion that appeal to logic (good or bad), rather than to 'goodness' or 'duty.'

The fact that local municipalities have had to add compulsory water rationing to pleas for cooperation is revealing. On their own, the pleas are not very effective. Appeals to goodness, duty, or reasonableness are not necessarily 'compelling' because—in addition to the fact that one can’t produce goodness, civility, or good sense by wishful thinking or decree—they don’t give people incentives to behave as if they were really caring, dutiful, or rational.

There is an alternative to both compulsory rationing and ineffective moral suasion. Of course, it's prices and a market. We can avoid a lot of counterproductive and uncivil behavior by allowing opportunity costs to drive citizens to responsible rather than irresponsible actions. In other words, where self-sacrificing consideration for others fails, self interest can be a reasonable means of achieving socially responsible behavior.

* "One for all, all for one, and every man for himself." 'Restless Knights,' 1935.

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