Win-winism: Libertarian's and the Love-Is-The-Answer crowd's absolute faith in win-win solutions

Summary: Last week I wrote critiquing a vaguely-held but nonetheless influential counter-culture faith in win-win solutions solving everything. Today I want to talk about its equivalent in economics and hint at a parallel between new-age niceness and Tea Party libertarianism that will be the subject of a later article. Free-market capitalism is a system that generates win-wins until there are no more win-wins to be had, until a market reaches what's called Pareto-optimality, a state in which there is "no more room for a deal," no more transactions that would be seen by both parties as to their advantage. Beyond Pareto-optimality any transaction that would be to one party's advantage would be to another party's disadvantage-in other words, a win-lose. A market is deemed "efficient" when there are no constraints that would hinder reaching this state of maximum win-win fulfillment. A regulated market that restricts the sale of certain unsafe products is called "inefficient." From this free-market perspective, if there's one party that wants to sell heroin, and there's another party that wants to party and is willing to part with money for that heroin, there's room for a win-win deal and it's inefficient to constrain the parties by preventing the transaction. Except for libertarians (free-market extremists), economists are quick to point out that efficiency isn't everything. Society has goals that can't be met by exclusive reliance on win-wins. Though there's a win-win deal in that heroin sale, it's a loss to society overall. Likewise, though the destitute can't pay for food and therefore can't engage in a win-win with the food vendor, society prefers not to have the destitute die of starvation. The incompatibilities between market efficiency and society's goals are called "market imperfections." Governments step in discouraging some activities (heroin sales between consenting adults) and encouraging others (food sales to the destitute) to actually create market inefficiencies that compensate for market imperfections. Governments, in effect, put their thumbs on the scales, discouraging some win-wins and encouraging some win-loses. They have a number of tools at their disposal for doing so. Laws banning the sale of heroin, taxes discouraging the sale of tobacco, laws forcing the sale of medical services to the poor, subsidies like food stamps that give the destitute the wherewithal to purchase food when otherwise they couldn't. One way to think about this is that there aren't really any two party deals. There are always three parties: the two who do the business deal and society. What we really want is win-win-wins, where everyone is happy. There are lots of those. We buy products from folks who want to sell them and society benefits overall. But since not all deals are win-win-win someone has to make sacrifices. I pay taxes--a loss to me--but a win to society. Companies selling dangerous products lose sales because of taxes on their products (sin taxes they're called), a loss to them but again a win to society. I dream of solving everything with win-win-win solutions but in practice there have to be some losses. Another way to think about it is that society is, in part, you and me, representing our better judgment. I want to do deals that benefit me today, but my better judgment doesn't want me to do deals today that hurt me tomorrow even if they'd be wins for me today. So I win when society wins, or rather my better judgment wins even though my immediate preferences lose. In passing I'll note that this is a compromise to the Golden Rule. What I'd have done unto me is that I could win always and following the Golden Rule I wish the same for you. But sometimes we lose anyway. To make the Golden Rule work we have to break the Golden rule sometimes. I call this the Golden Paradox. Government, at its best, can serve as th