Sunday, September 21, 2014

The Hours of Labour and the Problem of Social Cost

Peter Dorman commented:
[T]here has been unprecedented economic growth (as I and other textbook writers have defined it) over the last few centuries, and there have been massive increases in environmental stress over the same period. Does this mean that the two are necessarily yoked, and that the hypothetical possibility of increased growth and decreased environmental burden is a chimera? Well, if you want to make that argument you have to make it, not just assert it.... 
No, I don't want to argue that it's an unalterable causal relationship. I want to argue something much more subtle -- that the relationship is institutionally constrained. We can't keep doing the same things and expect different results. Nor can we solve a problem using a discourse that systematically excludes a key variable -- one might say the key variable.

Here is my explanation of the exclusion of that variable. I hope you are open-minded enough to give serious consideration to my explanation of the argument I have made rather than demand an explanation of an assertion I didn't make.

The Hours of Labour and the Problem of Social Costs outlines what I call an ellipsis (...) in the conventional analysis of what are called externalities, social costs and/or market failures. A proper ellipsis leaves out words that are unnecessary to the meaning of the passage. The paper is concerned with a theoretical ellipsis that leaves out the core variable and substitutes "simplifications" that evade one of the most crucial issues, especially with regard to cumulative effects over the long period.

I have expanded on the analysis and particularly on the historical context in my "supply creates its own demon" series here over the past few months. I can't expect you to have read or to agree with everything I have written but if you want to challenge my assertions, you are welcome to criticize things I have actually asserted.

2 comments:

media said...

Regarding the omitted variable (social cost, or externalities) it seems this is basically a matter of belief or values. People like Daly of course include it and comes up with his own form of GDP indicator (and there are plenty of others---eg including household (unwaged) work, underground economies, etc.

I find it amazing (and have always) that Coase's theorem is seen as some big idea . (I see 'opportunity cost' as being in the same rank of concepts, something people can talk and write about (like the conjunction fallacy, and often the monty hall propleme) only because usually they are presented using some sort of word game or trick that obscures the logic).

The basic theorems of welfare econ cover these logically though not practically of course. The real issue is property rights, the original position.

Coase says the problem is not what A owes B if s/he hurts B, but rather also includes what happens to A if B hurts A? This reminds me of one hypothetical argument I have suggested regarding reperations for slavery----sure, give reperations to those injured by it, but then they have to pay it back to descendents of slave owners for loss of property. Its a win-win situation, though not very pc.

Sandwichman said...

Well, media, you didn't do the assigned reading so you get no marks for seminar participation this week, regardless of how eloquently you can bs.