Friday, July 4, 2008

Bryan Caplan Politely Declines to Join the Pigou Club

from EconLog. One of the reasons I'm such a fan of Bryan Caplan is that he knows welfare economics and public goods and is adept at pointing out when they are misapplied . He draws the line for intervention at actual physical trespass. Here's a reply I had to someone in the comment thread.

Japser wrote:
Caplan: "There's no denying it: If most people are horrified by the sight of an unveiled woman, then Pigovian logic requires a massive tax on visible female faces."
I can deny it. At least my understanding of Pigovian taxes is that they are for optimizing the economy, not for making society more in accordance with your preferences. Being "horrified" doesn't necessarily imply an economic loss.

I replied:
Yes it does. My being horrified has a great cost to me. It can ruin my day. I'm most certainly worse off. You're trying to narrow economics, to fit your purposes. The most interesting economics of the last 20 years has been about topics other than the "economy", i.e. Gary Becker.

For most men seeing a naked woman has a lot of "economic" value. The popularity and expensive price of strip clubs reveals this preference. Now, what about seeing a shirtless,hairy,fat guy on the street,can you deny that has a real "economic" cost to me? What if it gives me nightmares and I can't sleep? I know it has a cost because by introspection I can determine how much I would pay to not have seen it!

The point Bryan was making is that lots of things people do inconvenience other people. Some may call for government intervention, some do not. His analysis fully takes into account the trouble that Public Choice theory tells us will be introduced if we give the government the power to tax or regulate things it calls "externalities". Half of the other commenters didn't get this at all. One wrote that taxation is an optimal solution to congestion, without mention of the price mechanism! If you don't understand that you're probably going to have a lot of disagreements with an anarcho-capitalist economist.
Sadly I think this is the way a lot of econ departments teach welfare economics, as a tool for government to maximize efficiency and correct "market failures". I use scare quotes because "market failures" are so few compared to "market successes" and "government failures". How often does the market for coffee fail you on the way to work? It would be headline news if it did!