Tuesday, April 14, 2015

Banska Bystrica, Matej Bel University: What is Voluntary Exchange?

The video of my talk in lovely Banska Bystrica, with thanks to my good friend Richard Durana and the folks at INESS.

Monday, April 13, 2015

Pete Boettke: I want to eat unicorn for breakfast

This morning had a great time watching Pete Boettke wander around at APEE, complaining that all the breakfast (advertised on the program as "continental breakfast", btw) foods were breads and sugar.  He wanted "protein."

If ONLY there were a system where one could go to some establishment, order exactly what one wanted, and then exchange some valuable tokens for that meal.  We could call it... markets.  And restaurants (there are at least six full service restaurants in this hotel complex...)

But I have to admit that I was with Pete.  Wouldn't it be great if there were just free food, as much as I want, and it had bacon and eggs (the Angus special) and cheese and ham and steak and.... Wouldn't that be great? 

It's so tempting to want that, and to want someone else to provide it.  The difference is that Pete was actually just  joking and having a good time.  Many people really think there "should" be free stuff for everyone. But when they/we try to provide free stuff for everyone, you get people standing in long lines for stuff like toilet paper.  Forget protein...we're talking about toilet paper.  That's not right.  Markets are the best we can do, and they are actually pretty good.

Memo to the NYT: Consumer Surplus is not a "social return"

In Sunday's NYT "Economic Views" column, I was stunned to read, fairly early in the piece, this error of basic economics:

"Every profession produces both private returns — the fruits of labor that a person enjoys — and social returns — those that society enjoys. If I set up a shop on Etsy selling photographs, my private returns may be defined as the revenue I generate. The social returns are the pleasure that my photographs provide to my customers."

People, private returns are the returns enjoyed by market participants both producers AND consumers. Consumer surplus is not a "social return". It flows to the buyer alone.

Social returns are returns that accrue to people outside the market. People other than the buyers and sellers.

Let's try an example of our own.

If I paint people's houses, the private returns are the producer surplus (which is not my revenue) I enjoy AND the consumer surplus my customers enjoy. The social returns could be (A) zero, (B) positive because the newly painted house raises my neighbors' property values, or (C) negative because my customer had the house painted purple and it is causing disutility for the neighbors.

If that quote above was given as an answer to a question about the difference between private and social benefits in my principles class, it would fail.

The worst part of the whole thing is that, to introduce the offending quote, the columnist says, "As an economist, I look at it this way".