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Wednesday, November 30, 2005

Liberty can support government intervention; maybe.

From the perspective of economic liberty the role of government (if accepted at all) is to prevent harm to its citizens whether domestic or from abroad.  In this week’s issue of the Economist (No thanks, we're European, subscription) there is a very intriguing discussion about the economics of chemicals.  The EU has been stalled on a plan called the registration, evaluation and authorization of chemicals (REACH).  The purpose of this plan is to limit the negative externalities these chemicals cause.  According to the article, “But the EU sees savings on the other side of the ledger—by limiting exposure to hazardous materials, it foresees savings in health-care costs of as much as €50 billion over the next 30 years.”  So far is sound like sound economic policy, from either an efficiency or liberty perspective.  The harmful externality that the chemicals cause will be incorporated into the cost of the chemical and that those harmed will at least be treated if not fully compensated for their harm.
It may be surprising but according to the article, “Even giant chemical companies agree that it would be useful to know more about the chemicals people are exposed to.”  It may be that government could have a role in informing society about the nature of these chemicals so that a logical allocation of resources can be made, but remember this if government.
Being a government plan (and a plan by the EU for that matter) it is not surprising that this plan goes beyond handling an externality and tilts towards outright control of the chemical market.  As the article points out, “The chemical industry was disappointed too, by a rule that hazardous substances will be authorised for at most five years, after which business must find a substitute, unless it can establish some ‘socio-economic justification.”  Instead of working towards dealing with the harm done by chemicals the EU couldn’t help themselves but try to distort the market’s allocation of resources and get businesses to stop use of certain chemicals all together instead of correcting harm.
Chemicals are hazardous, but as long as people know the risks and bear the full cost of their actions government should remain neutral.  If third-parties are harmed or the true hazardous nature is not know then the government should step in and inform society and prevent harm.

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