Econoclasm: Lesson Three

 

Continuing with our explication of why the "discipline" of economics as commonly taught is complete bullshit, a component of the theory is called “declining marginal utility.” This means that the first two or three tomatoes you buy are worth more to you than the next three, and by the time you have more than you can possibly eat before the next one goes bad, they’re basically worthless. (We’ll leave aside that the seller, whether a corporation or your neighborhood farmer, would like to sell as many tomatoes as possible and does not experience declining marginal utility of money.) This idea seems basically to make sense for groceries or movie tickets,  but it doesn’t make much sense for medical services. Either you need something once, and you’re done; or you need it continuously, for the rest of your life. I’m not going to get a second right hemicolectomy no matter how cheap it is, and I would have been no more inclined to get the first one if it were free or even if they paid me to take it. On the other hand I’m not going to stop taking my blood pressure medications because I’ve gone long enough without a heart attack that I’m now satisfied.

There are some other assumptions required by the theory, but I’ll end this exercise with one of the most important. In order for transactions to make the world a better place, all of the benefits and costs of the transaction have to be experienced by the parties. If a transaction somehow affects other people, that’s called an “externality,” and it’s the best known example of a so-called market failure. But it is difficult to imagine a transaction that does not have externalities. They aren’t an occasional problem that needs a special fix, they are pervasive and inevitable. 

When you drive to the store for your tomatoes, you spew pollutants out of your tailpipe and you clog the road for other drivers. You also risk crashing and killing or injuring yourself or others. (Riding in a motor vehicle is mostly likely the most dangerous thing you will ever do.) The tomatoes were grown on farmland that was created by destroying a beautiful wilderness, sprayed with pesticides that indiscriminately kill beneficial insects as well as pests, fertilized with synthetic nitrogen that runs off into the river and ultimately causes a dead zone in the estuary. When you buy them you put them in a plastic bag that winds up in a landfill or maybe the ocean . . . I could go on.

As Polanyi wrote (page 3), referring to the origins of laissez faire in the 19th Century: 

[T]he idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness.

That sounds bad. We have learned a few things since the 19th Century but nowadays many people seem to want to return to it. Next lesson: Public goods.