Map of life expectancy at birth from Global Education Project.

Wednesday, March 11, 2009

Econ101, my way -- continued

Quick, what's the most valuable thing on earth? Don't think about it too hard, just blurt out your answer.

You might have said platinum, or saffron, or the Mona Lisa. Or maybe you said something like your spouse, or baby girl, or human kindness. Any of those could have made for an interesting starting point, but I'm going to vote for the planet's atmosphere. Take it away and ( ) And try not using it for a couple of minutes.

Of course, the theory of the market completely ignores the atmosphere, because the theory only considers stuff that somebody owns, that can be allocated by buying and selling. Somebody might glibly claim that the atmosphere has no price because it isn't scarce, but that is obviously wrong. We aren't about to use it up but we're certainly damaging it -- not only through greenhouse gas emissions but through particulate and gaseous emissions that cause a very large burden of disease and shorten life spans.

While the lunatic libertarians and corporate greedheads who control the Republican Party, Fox News and talk radio may essentially deny it, actual economists across the spectrum recognize the existence of public good such as the atmosphere and concede that there is a legitimate argument for regulations to protect and conserve them, although they may differ on the specifics of the cost-benefit analysis and the ethical framework for rule making. However, once again they are thinking upside down by putting the market at the center of their theory and viewing this as a peripheral problem to be tacked on.

When B went to A's supermarket -- and if B lives in Jamaica Plain A is a company in the Netherlands that owns Stop & Shop -- I've already noted that among the externalities she generated was damage to the atmosphere. Obviously A's supermarket wouldn't exist without the atmosphere, but there's is a great deal more that it requires which is completely unrecognized by the theory of the market. For example, it needs the roads by which B and the other customers get there. Before we had a large scale infrastructure of roads and everybody owned a car, supermarkets could not exist. Only small grocery stores were possible because they could only serve a limited, local population.

Stop & Shop also needs the police protection provided by the city, or it would be looted. For all the harm the police sometimes do, they are obviously essential. Without them we simply could not have complex modern society. Merchants could not operate and we could not walk down the street with money in our pockets to patronize them even if they did. Fortunately, most people are law abiding anyway, so the police don't have to follow everybody around all the time, but only need intervene when people commit deviant acts. That most people are generally respectful of the rights of others, are helpful and cooperative, and can trust and be trusted unless otherwise indicated, is another very important public good called social capital. Again, neither the supermarket nor any other business or market institution could exist without it. Yet the theory of the market completely ignores it.

Then there is human capital -- the capabilities of people to create value. The theory of the market can recognize this only after the fact, and very crudely, by counting up how much people are paid. But this is a completely erroneous measure of human capital. For one thing, much of its benefit is created outside of the market, in non-market social transactions, or in the creation of public goods such as -- well, for one thing, the reproduction of human capital in public schools. Teachers' pay is not set by the market, but by politics, and so it is far too low. Furthermore, executives conspire with boards of directors to award themselves grossly disproportionate compensation which has no relationship to the value they create. Most of the jobs in the supermarket don't require a lot of skill, but they do need managers, accountants, buyers and so on -- whose essential base of skills is provided by their families and by the state, all outside of the market.

So the market is actually just a part of society, and a much smaller part than economists recognize. It is embedded in a social and physical environment on which it is entirely dependent, which shapes it and changes its nature over time, and which is largely responsible for its outcomes. For economists to focus on the market as the essential determinant of welfare and treat everything else as peripheral is as though physicians thought of human health entirely in terms of a theory of the liver. The rest of the body would come into consideration only insofar as it was essential to explain the condition of the liver. While you and I know that the ultimate implication of this would be that we would have to understand the entire body, without which the liver could not survive, it would be a very strange and disabling perspective, no?

And so it is said that economists know the price of everything and the value of nothing. Indeed.

Next: National Income Accounting


kathy a. said...

nice analysis.

you left out most of the people who help the supermarket operate, though -- and most of the environmental and human costs, and some behind-scenes corporate stuff.

the food that is sold in the supermarket is grown and produced somewhere else, most often on corporate farms and in corporate factories. the food is harvested, packaged, and shipped to destinations by a sea of unseen workers.

the people working crops and raising animals [for dairy products and for slaughter] are essential to the process, do some of the most grueling work, and generally the most poorly paid in the food chain. digging potatos, picking strawberries, sorting tomatos -- these are thankless jobs. [don't get me started on immigration policies, because a good deal of underpaid and hideous work has gone to illegal immigrants, who cannot protest conditions because they will be deported.]

field workers are apt to be sprayed with or otherwise exposed to toxins used to control pests. working conditions can be awful beyond description -- you ever try crouching over for 8-10-12 hours a day to harvest crops on the ground? dairy and meat operations are huge polluters; many have inadequate space, and especially with cattle and pork, inadequate methods for dealing with waste products. these conditions affect both workers and everyone nearby.

factories processing food range from slaughterhouses to canneries to bakeries to packaging operations, just at a glance. much of the work is repetitive, fast-paced, loud. the work is often poorly paid; there isn't desk work available for those who are injured. the factories may not be safe, and they often are polluters.

once you've got your food all packaged up and boxed, it needs to go where it is going. a great deal of food transportation is by truck. drivers are expected to work very long shifts, and to meet deadlines that allow for little sleep, even in unsafe weather conditions. then you've got your diesel fumes pouring out across the country.

there is a large subterranean work force behind that 50 cent apple or the $4/lb. beef at the supermarket. those guys and gals often don't have it so good as the checkers and stockers at the market itself. it is very easy to forget they exist at all, or that the conditions existing before something turns up in your market have an impact on us all.

Cervantes said...

Thanks Kathy. I did try to cover that sort of issue in the previous post but you're right, it's almost impossible to be exhaustive. The transactions and outcomes that are visible to economists are less than the tip of the iceberg.

kathy a. said...

yes, you did -- thank you. it is impossible to be exhaustive -- and economists, for the most part, don't bother with the details.

this comment is partly a personal exercise in fitting some information into understanding how badly things have failed. as a middle-class suburban person, i can get worked up about a line of credit being suspended for reasons having nothing to do with my personal responsibility -- but it is easy for me to forget that much of my good fortune rests on the backs of unseen others.

if someone in the house wants something, we can run to the market and get some. it's so simple. but if you talk to people who have done some of the backbreaking behind-scenes-work to get things to market -- it's horrifying. i need to remember that.