Welfare economics and externalities

[Autolykos]

@Student

Obviously, not all guesses are created equal.

That’s not what you seemed to be saying before. From my reading of your earlier post, you seemed to be saying that Apple somehow knew just how much “consumers” valued the iPad before it was invented and/or marketed. But how can anyone know anything about the future? After all, the future hasn’t happened yet. In other words, I was challenging your apparent claim that there can be certainty about the future. If that’s not what you were claiming, then I think it’s up to you to clarify - assuming you actually want me to understand what you mean.

@Student

If you are asserting that businesses could improve profits by firing their marketing teams and choosing prices at random, then you are crazy and we have no need to continue this conversation.

I’m not asserting that, and I think you know that already. But I could be wrong.

@Student

If you are asserting that even an educated guess isn’t perfect and that prices will ultimately be determined by the interaction of producers AND consumers, then we agree on supply and demand 101 and have no need to continue this conversation.

I’m asserting that it’s impossible to know the future before it happens. As I mentioned above, you seemed to be asserting the opposite. Here it seems like you’re by and large agreeing with me - but I think a better way of putting “even an educated guess isn’t perfect” is "even an educated guess isn’t knowledge."

@Student

And judging from the 3 other posts you have written about me recently (calling me a liar, a coward, and worst of all not amusing) it seems you are in the mood to troll and thus we have no need to…well you see where this is going.

In no way am I even attempting to troll you. Somehow I think you already know that. But I will call people out when I perceive intellectual dishonesty from them. If you really want to call that “trolling”, then I’ll gladly stand “guilty”.

@Student

But I have no time for dark energy during the holidays. So let me just say Happy Christmas. I hold no hard feelings.

Don’t expect to see any change in my behavior. I couldn’t care less what you call it - “dark energy”, “trolling”, whatever.

[Student]

Yet you believe that policy makers can calculate this cost effectively?

It depends what you mean by “effectively”.

But the last thing I want to make this thread about is what I think policy makers are capable of. I just wanted to lay out my thoughts on your original criticisms, and I think I’ve done that. So we can probably pack this in.

But if you are really interested in the topic and want to read more about it, here are some parting thoughts and links for further reading that you might find interesting.

Throughout this thread, it seems like you are framming your questions as if this was the 70-year-old calculation debate–with “central planners” on one side and “markets” on the other. But I really don’t think that a discussion about U.S. policy can be framed in those terms. Namely because not all “government intervention” could accurately be described as being led by “central planners.”

Specificlly, I would say that many (if not most) of the disputes that arise over conflicts created by externality problems are not settled by the market or bureaucrats, but judges (as I remember Coase presents several examples of relevant cases). Yet, even though judges are “central” decision makers working for the state (whose decisions are in turn enforced by the state), they are not at all the type of central planners that Hayek or Mises was talking about in the 30s/40s. This is because, in a common law system, the rulings of judges are subject to “feedback” in subsequent court cases. That way, even if the one judge makes a ruling that doesn’t allocate resources to their highest valued uses, future judges will eventually reverse it.

It isn’t obvious why this should be the case, but a number of papers in the field of Law and Economics have been written trying to make the case. Here is one good example if you would like to read more on the subject:

http://business.baylor.edu/Charles_North/4318Files/4318Rubin1977.pdf

(Note: this line of research is relly a continuation of Hayek’s assessment of common law v. statute law in Law, Legislation, and Liberty–also worth reading).

Similarly, even the decisions of executive branch “planners” are not made in a vacuum–they are directly subject to legal action (the EPA is routinely sued by both industrialists and environmentalists for example) and indirectly scrutinized by the electorate. It is harder to make the case that these pressures tend toward “efficient” policy decisions, but it is also harder to pretend we can treat these “planners” like Soviet Commissars.

Anyways, those are just some thoughts and a few things worth reading. Thanks for the discussion and have a Happy Christmas.

[Matthew]

Well, that wasn’t very convincing.

[MrSchnapps]

Good posts, Student + others. This is a solid thread.