This post has been de-listed
It is no longer included in search results and normal feeds (front page, hot posts, subreddit posts, etc). It remains visible only via the author's post history.
Here is the reply I refer to in the title of this post, but the commenter has many more takes throughout I'll refer to in the body of this RI. /r/AskTrumpSupporters is a goldmine for this kind of stuff. Low hanging fruit here probably but here goes nothing:
Market failures are NOT the result of imperfect allocation of resources.
There are a wide variety of ways to define market failures, and this is certainly not one of them. Let's focus on Pareto efficient allocation of resources, whereby one person cannot be made better off without making someone else worse off. A market failure is a case where a competitive equilibrium does not lead to a Pareto efficient allocation of resources, by definition. For market failures, the competitive equilibrium delivers an outcome that does not maximize social efficiency. Why might this be true? There are a variety of possibilities, including imperfect information asymmetries, principal agent problems, etc. but given the title of this post and the other comments in that thread, it seems best to talk about externalities.
there is no such thing as making a choice which is perfect and doesn't affect other people. Everything we do has externalities business or otherwise.
This is not what an externality is. Externalities arise whenever the actions of one economic agent make another economic agent worse or better off, yet the first agent neither bears the costs nor receives the benefits of doing so.
Because it seems appropriate to talk most about negative externalities, let's use a (probably the) typical example, pollution. Imagine a factory that produces widgets. This factory also happens to produce pollution, which hurts the people in the town of the factory. Assume that widgets are produced more cheaply if they are produced with pollution. If the factory does not internalize the costs of its pollution, it will produce more widgets than it should, because it's reaping all of the rewards of producing widgets cheaply, without paying for any of the health problems it causes.
In other words, the social marginal cost of the factory producing widgets is made up by the private marginal cost of the widgets (the direct cost to the factory of producing an additional widget) PLUS the marginal external cost (the cost to the people in the town of the production of an additional widget due to pollution. In a competitive equilibrium the factory will produce widgets where the private marginal cost is equal to the private marginal benefit. This is not an efficient outcome because the factory is overproducing widgets. It would be much better for the factory to be producing at the point where the private marginal benefit is equal to the social marginal cost, as this figure nicely illustrates.
There are solutions to this problem, and in fact, from looking at the figure, a few should jump out at you right away. One could be to tax the factory the marginal external cost of the pollution, which allows for the firm to internalize the cost of the externality. More on private solutions in the next section.
Keep in mind if your apple orchards are damaged under capitalism you still have individual rights. Your right to keep your apple orchards from being damaged by cars. So you can Sue someone who pollutes and destroys your Apple orchards
Given a charitable reading of this sort of rebuttal, it seems that this commenter is trying to get at some of Coase's ideas, which propose market solutions to negative externalities of this sort. The issue is that these sorts of solutions require well-defined property rights and costless bargaining. The lawsuits he or she brings up consistently are not costless bargaining, and in many problems related to pollution there are not particularly well-defined property rights. These two assumptions are further complicated for larger, more global externalities involving large number of people and firms (like global warming!): assigning property rights is more difficult, and it is even harder to negotiate in these cases.
To wrap up all this, we can return to the very first comment that started the thread I'm referring to.
Since capitalism i.e. the free voluntary exchange of goods and services among people dictates that fossil fuels are the most appropriate source of energy then mandating anything else would lead to decreased profits and therefore eventually more deaths.
Given all the above, this is certainly not necessarily the case if we do not account for negative externalities.
And just for fun,
this externalities attack is another Marxist attack on capitalism. Nobody can account for the exogenous variable of anything not just selling goods and services.
"Nobody can account for the exogenous variable of anything" will be the title of my JMP.
Subreddit
Post Details
- Posted
- 5 years ago
- Reddit URL
- View post on reddit.com
- External URL
- reddit.com/r/badeconomic...