Thursday, March 20, 2014

Free Lunches Require Externalizing Costs

The Wikipedia entry on cost externalizing really wants you to believe that only businesses have an incentive to pass costs onto others.  How convenient...right?  It's only companies that want a free lunch?  Voters don't also want a free lunch?  Unions don't also want a free lunch?

Unfortunately, I'm banned from Wikipedia so I can't internalize the cost of correcting the Wikipedia page.  How convenient...right?  The easiest improvement to make would be to edit the See Also section and add a link to the There ain't no such thing as a free lunch entry.

Reply to reply:  Future of Labor Unions in Changing U.S. Economy

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Xero

We have compulsory taxation because we don't think it's unreasonable that people want a free lunch. Yet, what structures do we have in place that prevent voters, unions and corporations from ordering free lunches and/or congresspeople from serving free lunches?

Does the data reflect the absence of these necessary structures?

A. it does
B. it doesn't

If B...then why doesn't it?

A. people don't really want a free lunch
B. there are necessary structures in place

If B...then what are the necessary structures? I'm certainly not aware of any that actually work. You'd have to be blind to fail to appreciate that the government hands out free lunches left and right.

As far as I can tell...the only structure that would work would be to clarify the demand for public goods.

RGacky3

The structures we have are elections ....

Also sometimes a free lunch is neccessary for the economy.

Xero

"The structures we have are elections ...."

Infinite patience.

Xero: Hey Samuelson! What's going on man? The benefit principle is pretty great...why can't taxes be voluntary?
Samuelson: If we simply ask people (survey, voting) how much they value public goods then it would give them the opportunity to try and snatch some selfish benefit.
Xero: Can you put it another way?
Samuelson: Sure...people can benefit from public goods without having to pay for them...so it is in their selfish interest to give false signals.
Xero: Oh, yeah, that does make sense. We wouldn't want to give people the opportunity to externalize costs. But how do you propose we determine what people's true preferences are with regards to public goods?
Samuelson: Easy, we just assume that government planners are omniscient.
Xero: That sounds iffy.
Samuelson: The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive
Xero: I'm actually still kinda skeptical. Why don't we just allow taxpayers to choose where their taxes go? If the cost is a foregone conclusion...then it would be in their selfish interest to give true signals.
Samuelson: It's easier to just assume that government planners are omniscient.
Xero: But if we created a market in the public sector then people wouldn't be able to externalize costs.
Samuelson: I'm just a stupid monkey.
Xero: That's true.

"Also sometimes a free lunch is neccessary for the economy."

Externalized costs are sometimes necessary for the economy?

The economy is an equation. If we enter accurate input...then the output will be accurate.

Accurate input = internalized costs = what I buy with my own credit card
Inaccurate input = externalized costs = what I buy with your credit card

Do you think that I'd buy the same things with your credit card that I'd buy with my credit card? It's easy enough to find out.

RGacky3

Yes sometimes free lunches are necessary, when everyone gets together to build a road, a community, through taxes or other mechanism, the guy who uses it more is getting a free lunch.

Xero

The guy who uses the road most is passing the cost of his benefit onto others? Why not just give him the opportunity to internalize the cost of his benefit? All that's required is creating a market in the public sector.

Why do you want the supply of public goods to reflect externalized costs rather than internalized costs? How could the supply possibly be correct when everybody is trying to benefit at the expense of everybody else?





[Update:  28 Dec 2014]  Couldn't remember which blog entry had this video and a google search really didn't help...which is because this entry didn't contain the words "Adventure Time" or "City of Thieves" or this passage by Bastiat...
When the state is responsible for establishing fraternity [distributive justice] on behalf of its citizens, we shall see the entire people transformed into petitioners. Landed property, agriculture, industry, commerce, shipping, industrial companies, all will bestir themselves to claim favors from the state. The public treasury will be literally pillaged. Everyone will have good reasons to prove that legal fraternity should be interpreted in this sense: “Let me have the benefits, and let others pay the costs.”  Everyone’s effort will be directed toward snatching a scrap of fraternal privilege from the legislature. The suffering classes, although having the greatest claim, will not always have the greatest success… - Frédéric Bastiat

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