What mainstream economist thinks interpersonal utility comparisons are possible? If your prof mentioned no exmamples, I would be very skeptical of the claim.
Well, he said that economists come up with utility curves that they then maximize. For example, there is the common claim that “a dollar for a poor man means more than a dollar for the rich man”, which comes down to “poor people get more utility than rich people out of a marginal dollar.” This is completely unjustified, because although marginal utility is downwards sloping, we don’t know either the y-intercept or the actual slope. In fact, we cannot know them.
Do economists still believe in this?
It appears so:
Murphy addresses it (snapshot of page because his website is down): http://webcache.googleusercontent.com/search?q=cache:Xjky0pCt5c0J:consultingbyrpm.com/blog/2011/11/modern-utility-theory-and-interpersonal-utility-comparisons.html+krugman+interpersonal+utilty&cd=2&hl=en&ct=clnk&gl=us
Also, I point out the flaw here: https://forum.freecapitalists.org/t/ridiculous-the-rich-are-completely-satisfied/21126
Furthermore, Krugman makes the same mistake (another Murphy post).
This seems like an odd thing to say. There was also no market for the iPad before it was invented. Could Apple have no way to find out how much consumers valued it? I don’t see why not. Companies like Apple hire marketers to studies with potential consumers to answer exactly these types of questions.
Then the problem of socialist calculation goes away! Horraaay!
No. It is not possible to know how much customers value this. What companies do is guess the value. Now, it’s interesting that you bring up Apple. Why not consider Microsoft’s Zune instead? What about the standard MP3 players? Do you think they didn’t do any market research? Why suppose that government can be as efficient as Apple? It could very well turn out to be a Zune maker, could it not?
While customer surveys are useful to plan ahead, they’re useless unless the market actually is forced to put its money where it’s mouth is.
Furthermore, the market, as you point out, is dynamic and constantly adjusting. Do you really expect a bureaucracy to do the same?
It seems to me the same “problems” you identify here could easily be applied to most companies developing new or improved products.
Sure, but government implementing a policy across the board can result in the entrepreneurial failures that happen so often in individual firms. That’s why there’s competition in the free market. This doesn’t exist in government.
But that is not a new or uniquely Austrian insight. Indeed, bringing market forces to bear on government policy is exactly the point of things like emissions markets.
And how can we be sure that the cap is the “right amount”? It again makes some assumption that you know people’s utility better than they do, because if a free market exists then this is a de-facto demonstration of relative utilities for individuals.
it sounds like you are skeptical of the idea of positive externalities in general
Oh, I obviously see that there are benefits which aren’t necessarily taken into account. I’m just pointing out that we’re looking at what is seen and not what is not seen.
But, in the real world, transaction costs are not always low. And that is where the argument for intervention begins.
If I remember correctly, Coase’s idea is that the parties get together and “bribe” each other to get their policy instituted, right? If so, then transaction costs are simply part of the cost calculations.