Bad Economics

May 30, 2007

I’ve noticed that a lot of bad economics is based on some notion of the “socialist man,” who, according to Marx and Engels, was to rise from the lifeless body of the greedy capitalist who sold his hangman the very noose that hanged him. Or something like that. The “socialist man” is a paragon of virtue and self-sacrifice; he is not beholden to the incentive for personal, financial, or material gain - his only incentive is the abstract community, and he will do anything to further whatever interests are the community’s.

But “socialist man” is no more real than the orthodox “Homo economus,” whose is basically a Benthamite, utility-maximizing automaton. Crafting policy, based on either assumption, or with the intent of forcing man closer to these ideals, is bound to fail. Always, and everywhere - because values, tastes and preferences are subjective, and individual results may vary, unintended consequences usually follow. Anti-trust laws are the breeding grounds for politically connected oligopoly. Prohibitions encourage corruption and black-markets. Price restrictions cause shortages, from either a demand or supply effect, &c.

And there is no more severe price restriction than an effective ceiling of “zero.” How many donuts would the baker bake if he could only give them away for free? How many panes of glass would the glazier make if compensation for his time, effort, and knowledge was zero? How many shoes would the cobbler make for naught?

Better yet - knowing these limitations - who would be induced to enter into the trades mentioned above? How many bakers, glaziers, and cobblers would be available to supply the world’s demand for their wares?

It should come as no surprise to anyone, that the waiting lists for organ transplants are often longer than the donee’s life expectancy. After all, if you choose to donate a kidney to a stranger, you get a hug, a handshake, or a bouquet. He gets a new lease on life. It is not surprising that there are very few people willing to make this sacrifice - noble or virtuous as it may be:

If we allowed a free, or even a semi-free, market for kidneys, then although we might all be less “noble,” at least some of us would also be less dead.

Nobility is also subjective. The consequences of reality, however, are not.


Posted in: Economic Fallacies, Seen and Unseen

Comments

4 Comments so far

  1. KipEsquire May 30, 2007 9:00 am

    Thanks as always for the linkage.

    Is that graphic in your banner the infinitely recursive “God’s Fingerprint” that I seem to recall seeing in a documentary years ago?

  2. David Z May 30, 2007 10:23 am

    I don’t know about “God’s Fingerprint.” AFAIK, it’s just a representation of the Mandelbrot fractal.

  3. razorgator May 30, 2007 4:07 pm

    “Anti-trust laws are the breeding grounds for politically connected oligopoly.”

    Politically connected oligopoly how so? I’m a capitalist who has always been a supporter of anti-trust laws. Could you do an editorial elaborating on how monopolies are fine?

  4. David Z May 30, 2007 4:54 pm

    Razorgator -

    I’ve got about a dozen articles in the works, and antitrust legislation is not on my radar. For a better synopsis than I could ever hope to give you, I’d suggest Armentano’s “Antitrust & Monopoly: Anatomy of a Policy Failure. He demonstrates, as Kip is fond of saying, that antitrust laws have historically protected competitors, not competition, and in all the landmark cases he discusses how the actual economics of the situations were generally discarded, or not allowed to be presented as evidence.

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