How the "Tragedy of the Commons" Can Become Even More Tragic

The "tragedy of the commons" is an idea put forward by Garrett Hardin in the late 1960's (http://en.wikipedia.org/wiki/Tragedy_of_the_commons), describing how commonly held resources are supposed to be stripped to nothing when those who use them act solely on self-interest instead of in the common good. The notion is that a community resource will be over-used when individuals apply their private profit calculation to how much of it they will employ. At first glance, this matches economic theory in that there is no economic motive to economize the use a variable input when it is valuable to the production process and free of charge.

Economists often note that a solution to such a problem is to privatize the "commons" and sell it/rent it or its uses to those who can afford to pay the most for it. Prices allocate use and only the lowest cost producers would be able to afford to continue using the resource as it's scarcity increased and price pushed up. This mechanism insures that the community resource isn't wasted by those who have high cost production functions and cannot convert the use of the input to valuable products very efficiently. A common but usually less effective strategy is government allocation of the commons on the basis of fairness which results in the tragedy thing coming. Use of even the national parks in the United States is allocated by an admission price and often by daily maximum admissions after which the gates are closed, etc.

Where things really ramp up for tragic outcomes is when government constructs a framework for playing in the commons based on unsustainable rules and/or short-term, narrow constituent payback or wooing. Nowhere is this more evident than in the housing market debacle where the government forced private banks into loans that their credit scoring models would have rejected outright but were made based on the enabling government guarantees. Nothing gets the powerful and efficient forces of the market off-track and headed for more tragic results than when government constructs the playing field on the commons, maps out unsustainable goals and then unleashses markets to drive home the outcome. The result of course is that when things go predicably awry, the government is surprised at how selfishness coupled with "unmanaged" and "unregulated" market forces could create such a mess.

Forces are teeing up to create such a problem in a variety of issues related to agriculture. When USDA decides to start listening to some of the new ideas being put forward like subsidizing "how we produce food" instead of just producing food, tragedy cometh nigh. I can predict without much fear of contradition that bans on the use of all anitbiotics in livestock chains except for diagnosed disease control will lead to increased antibiotic resistence in humans throughout the world.

Forcing global trade back to regional supply chains with cap and trade will exhaust the planets resources at a significantly higher rate and lead to increases in global hunger and more volatile prices in the regional chains. Removal of a third of the corn crop for fuel by extra-market policy actions will not result in a single penny in average net income to corn producers on a ten-year, inflation adjusted basis but will lead to billions in lost equity and production system instability not only in corn use chains like livestock systems but for corn producers too.

Oh, a minor correction, the average, inflation adjusted net margin to corn production will increase by an amount just necessary to compensate the added riskiness of agriculture due to the instability generated by the initial policy action but it will only be received by the fewer and larger corn producers who remain after the inevitable consolidation which the policy actions will cause.