Market efficiency vs. Market morals

I'm reading the latest TNR issue in which Eliot Spitzer and Andrew Celli Jr. lay out the case for market regulation. Unfortunately, I was hoping for an article that laid out the economic case for market regulation, chock full of enticing economic reasons why a regulated market "works better" than an unregulated one, using some intuitively appealing definition of "works better." But as far as I can tell, the Spitzer/Celli case for the regulated market is largely a moral one, riding hot on the heels of a semi-sappy slogan: "The market is there to serve our values, not the other way around."

Noble-sounding, yes. But while that might convince me, and other doe-eyed readers of In These Times and Mother Jones, but it's not going to convince those who, realistically, need to be convinced: the capitalists and industrialists themselves. Here's what I mean. Consider Eliot/Celli's hammer against air pollution:

Take air pollution in the Northeast caused by coal-buring power plants in the Midwest. Corporate players, acting in their rational self-interest, have failed to bear or equitably spread the costs associated with their activity. Instead, they have shifted those costs to others, for whom their is no market recourse. In this case, the costs were acid rain and airborne pollutants, and their devastating effects on the environment and human health--not in the Midwest, where the plants generate and sell their energy, but hundreds of miles downwind, in the Northeast.

Er, okay. Complaints like these offer nothing new-- even Adam Smith talked about externalities, and his argument for government intervention hewed largely to moral principles, just like his arguments for labor laws, workers' rights, etc. But Spitzer and Celli try to suggest, oddly, that it's in the "market's" best interest to curb these unpleasant social costs:

In a perfectly functioning market, the costs imposed by this conduct would be borne either by the producer in the form of reduced profits or by the consumer in the form of higher prices... Northeasterners have been left holding the bag, and the market alone offers them no way to respond. They are stuck-- unless and until government intervenes.

Alas, the Bush administration has refused to do that. Even as it spouts the rhetoric of free-market efficiency, the White House has allowed the polluters to avoid bearing the economic and health-related costs they have imposed.

I hate to say it, but this is a bit ingenuous. You can't convince power plant owners that their economic interests would be served by a dose of environmental controls, on the grounds that that would lead to a "more efficient market." This is just social crusading masquerading as good economic sense. Stale bluster to the people doing the polluting.

Now, even if Spitzer and Celli foundered here, they have the right idea. Democrats should try to make the business-friendly case for regulation and other policies, because ultimately, the big policy hurdle is almost always convincing businesses to hop aboard. Good start: Ruy Teixeira suggests here that Kerry could make the pro-corporate case for health care reform, since socialized medicine does potentially put US firms on a more competitive keel. I'm just not sure you can formulate a compelling, pro-business, non-moral argument for regulation.