Sunday, November 17, 2013

Economics in One Lesson... not so much

One of the classes I am now taking is Microeconomics.
While much of econ can be distilled to simple equations, it must be remembered that they are trying to explain human behavior using pretty fundamental mathematics.

Among the topics we are now covering is the influence of "social benefit". To explain this graphically, economists try to factor in the social benefit of a product by increasing its "cost". (For example, they would suggest that purchasing a hybrid car has an unaccounted for social benefit cost that is higher than its listed price. Thus while it may have an MSRP of $23,000, it has a social benefit cost of $27,000).

I was fine with the school attempting to preach this to me in class (although it was not without my intervention and statement of disagreement), but I started to get really annoyed when I saw this question on a recent quiz:

Say that in the production of asphalt, manufacturers emit smoke that is harmful to both human and plant health.  If the market for asphalt is allowed to work with no government intervention, the result would be:


Not only is this theory starting to affect my grade (a minor detail as I know what they want, and purposely answered it "incorrectly" anyway), but the question is phrased so that only government intervention can ever hope to contain an industry's perceived wrongdoing.

As subscriber to the free-market theory, this comes into conflict with my understanding and beliefs of economics for a wide range of reasons.

A few examples:
1) I would argue that "social benefit" is a skewed term. In the example of a hybrid car, it is slanted towards the (short-term) environmentalist's lens. Not only have there been many studies showing the increased environmental costs and carbon-footprint of hybrid cars, but simply comparing to gas-only cars, they are obviously more expensive to the consumer.

2) How does one calculate and/or measure "social benefit"?
Using this term as fact has profound implications on our economy and welfare. Government programs are initiated and funded using numbers that often can never be proven.

3) The theory assumes consumers are completely in the dark regarding social issues.
As in the quiz question, it assumes consumers are unaware of the dangers of the toxic smoke; therefore, they cannot take action to boycott and/or voice their opposition to the emission of smoke.

This is only a quick taste of what I believe is a very lopsided teaching of economics, but I needed to get the complaint off my chest.

To those who were wondering about the post title, I borrowed it from 'Austrian' economist, Henry Hazlitt.
If you're interested, be sure to read his book, 'Economics in One Lesson'. It is a great read, especially for those who have always found it hard to understand the logic of economics that is being taught in schools.

For those interested learning more about this alternative school of thought, I suggest checking out (in particular, the daily articles).
To those less inclined to read, watch the show: Stossel, to get a taste.

No comments:

Post a Comment