The Myth of Mandated Markets

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Houston Chronicle business writer Loren Steffy is usually wrong. But today he is surprisingly correct when he calls the government’s biodiesel mandate an absurdity. In the print version of Sunday’s paper, he writes, “This isn’t about the exchange of commerce, it’s a ridiculous government-funded exercise in wishful thinking.” (The online version of the article is slightly different from the print version.)

He goes on to write, “The theory behind both of these plans [biodiesel and cap-and-trade] is that a market will find the most efficient way to achieve the results….” While Steffy points out that the biodiesel “market” isn’t really a market, he fails to identify the essential reason why.

A market develops when producers believe that they have a product or service that other individuals want or need. They act on their own judgment and cannot coerce consumers to purchase their product or service. Both producers and consumers are free to act as they think best.

But this is the exact opposite of the biodiesel mandate. The government has forced producers to take actions that they—the producers—do not judge to be rational. At the same time, consumers are forced to purchase a product that they would not otherwise choose. If producers think that biodiesel makes economic sense, they will produce. If consumers want to use biodiesel, whether for economic or ecological reasons, they will demand it.

These types of programs are an attempt to replace the dollar with the gun, to replace voluntary, mutually beneficial exchanges with mandates and coercion. These programs negate the judgment of producers and consumers alike, replacing them with the dictates of petty bureaucrats. To call such programs a “market solution” is simply dishonest.

Such mandates equate political power with economic power.

The difference between political power and any other kind of social “power,” between a government and any private organization, is the fact that a government holds a legal monopoly on the use of physical force.

The logical and ultimate result of government attempts to create a market is fraud, corruption, and competition to secure government favors. And that is precisely what has happened in the biodiesel “market.”

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