Thursday, July 28, 2016

Laissez-Faire Economic Policy

From guest blogger, Liam.

Laissez-faire economic policy fails to address a business's damage/cost to the environment. In a free-market economy, production is determined from where marginal cost maximizes long-run profits. Almost all business's do not take environmental cost into consideration when determining marginal cost. Laissez-faire policy asserts that once the problem becomes relevant enough and costly enough then businesses will react and adjust accordingly. This policy works very well for "normal-goods" but environmental damage is not in the realm of normal goods, it is more than a good (bad) to be considered in a economic problem. Every day we do marginally more damage to the environment but these costs add up over time. If we continued this practice then nobody would have to pay until it was too late. Because of this, the government must intervene to ensure that the economy fairly determines how business production/pollution damages the environment.
Determining a per-unit cost on different pollutants over time is a difficult cost to measure but it provides the necessary incentive for businesses to minimize their environmental damage.
I don't think we can blame businesses for their past transgressions, however. In the free-market, businesses are encouraged to compete with others in their same industry. In order to succeed, most businesses neglected environmental cost. If they had considered economic cost, then their competitors would have bankrupted them by offering lower prices, or higher quality for the same price. So, we must accept that great environmental damage has already been done, and laissez-faire is the economic policy that allowed businesses to produce so carelessly.

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