Self-interest within a market and the individual

Emily Veninga –

I am walking in a park. It’s beautiful; the trees are huge and green due to the wonderful spring showers. There are flowers and it is calm there. Nobody, in particular, owns this park. It is maintained by the Parks Department in the local government. That agency is funded by taxes because if it wasn’t, that park might be destroyed because, although it can give people utility to walk through it, it does not help the economy. Externalities and the Free-Rider “problem” helps to bring context and understanding to the main supposition of Economics that Charles Wheelan explains: “Individuals act to make themselves as well of as possible.” (1) This idea makes perfect sense, it happens every day. With it, we can predict human choices, how markets will act, and even something as big and as complicated as how the economy will react to changes in our world. Are we all so predictable? If each person acts in their own best interest, what is the difference between a good deed and a bad deed? At each of their bases is personal gain, so is the rest societal excess? Choices could, therefore, seem as amoral as the market when faced with externalities. “When an externality— the gap between the private cost and the social cost of some behavior— is large, individuals have an incentive to do things that make them better off at the expense of others. The market left alone, will do nothing to fix this problem. In fact, the market ‘fails’ in the sense that it encourages individuals and firms to cut corners in ways that make society worse off as a result.” (1) If it was in the best interest of a company to pollute the beautiful park, according to this economic philosophy, it would. People would. Is their progress worth the externalities created when they chose to pollute that park? Is it morally justifiable to always seek your own improvement if it is at the cost of others or the innocent?

“The free-rider problem is that some people may benefit from a public good without paying their share of the cost. Since public goods are non-excludable, free-riders not only can’t be prevented from using the good but actually have an incentive to continue to free-ride. If they will be able to use the public good whether they pay their share of the costs, they might as well not pay.” (2) Funnily enough, these consumers while acting logically to benefit themselves are actually creating a deficiency of this public good that is giving them utility by avoiding costs. When consumers don’t pay their appreciation forward, the supplier either won’t be able to provide the service and/or product that gave the consumer utility anymore, or the consumer won’t see the point. That is why, in both cases, one solution is for the government to step in. equalize the difference of public and social costs in externalities and to provide public goods that are paid for with mandatory taxes. It seems people cannot always be left to do the best good. For what is good, valuable, or successful will not be the same for another and in that difference can create a mess of a selfish system. Through governmental intervention, the good of the public is taken into account, externalities don’t pose problems, and public goods can be provided. However, the government is still made up of individuals acting to maximize their own utility. How separate can one be from their own instincts? Individuals by themselves can and, if left alone, will act in their own self-interest. The market, our government, our society, our world is made up of these individuals; if we would make the choice to help ourselves, how can we expect any different from anybody else.

 

(1)

  • Wheelan , Charles . “Government and the Economy .” In Naked Economics: undressing the dismal science, 55-75. New York , N.Y.: W.W. Norton & Company, Inc. , 2010.

(2)

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