Why Government Can't Plan the Economy

The Socialist Planning debate was resolved long ago in favor of decentralized planning in a free market system. The strongest theoretical argument against planning, in my opinion, is the lack of price mechanisms in non-market transactions. But on a personal level, I'm persistently fascinated by the market niches that develop only because market planning is so decentralized that vast numbers of different minds are looking for individual (microeconomic) opportunities, rather than a vastly more limited number of minds looking at the overall (macroeconomic) economy.

Case in point: A while back I did some Habitat for Humanity work (mostly involving drilling screws into drywall and missing the studs), and started talking with one of the other volunteers, whose company occupies a market niche that I'd never heard of before, and I'm willing to bet none of my three readers has either.

His company's niche is a mobile laser eye surgery lab. They tow the equipment around a multi-state area, setting it up in particular optometrists' offices, so that they (the optomestrists) can provide laser surgery for their patients. The guy I talked with transports the equipment, sets it up, calibrates it, and trains the optometrists.

Clearly there are many small optometry shops for whom it would make no sense to buy the equipment, but it seems just as unlikely that the costs of renting the equipment would be cost-effective. And apparently it's not, at least not directly. What I was told is that the optomestrists tend to lose money on the operation, but it allows them to retain patients, who would otherwise go elsewhere for the surgery, and perhaps not return as patients. But by providing all the services possible for their patients, the optometrists can keep them returning, which more than offsets the loss on the laser surgery itself.

And that somebody saw this obscure opportunity and filled the niche demonstrates what the planning advocates (are you listening, Barack?) never quite grasp--that the creativity of millions of minds is a better source of solutions than the creativity of a handful of experts, simply because millions of actors can see more details of the market than any few people can.

Which puts me in mind of Asimov's robotic brain in I, Robot, which solves all economic problems, but I'll save that for a post on bad economics in literature.

Pricing Problems for Environmental Goods

I read a claim the other day that using disposable cups is more environmentally friendly than using normal, reusable cups. The logic of the argument is that it takes water and energy (to heat the water) to wash reusable cups. But what if we don't know the marginal cost of that water and energy?

As a general rule, a lower cost product reflects a smaller amount of resources used in making it. I'm reasonably certain that the production of a paper coffee cup uses fewer resources than the production of a ceramic coffee mug. So if I was going to purchase only 1 cup of coffee, it the environmentally friendly purchase would be the styrofoam cup.

But of course I'm not buying just one cup of coffee, I'm a daily coffee drinker. That means I would use many more styrofoam cups than ceramic cups over the course of a lifetime. The problem is that as a consumer of water and energy, I don't know the marginal cost of those resources as applied to the washing of a mug, and there are several variables involved, such as:

1. If I drink 3 cups of coffee a day, am I reusing the same paper cup, or getting a new one each time? If I'm buying it from the coffee stand in our student union, it will probably be a new one each time, but if I'm making coffee in our break room or at home, I'll use the same cup all day (or even two to three days, depending on how fastidious I am).

2. Am I washing the coffee mug after every use with hot water? Or am I washing it once a day with the rest of my dishes? In the latter case, the only extra energy/water used is the water used to rinse the soap away after cleaning.

3. How long do I actually keep a ceramic mug, on average? I'm better than most people at losing things. I've gone through at least 4 travel mugs in the last 4-5 years, which strengthens the case for disposable cups, but I've been using the same mug at home for close to a decade.

I can plot these on a simple continuum, to see the best and worst case scenarios.

Break ceramic mugs regularly.....................Keep the same mug for decades
Wash in diswasher after each use..............Wash only when doing other dishes
Reuse paper cups multiple times.................Toss paper cups when empty

...<---------------------------------------------------------------------->

On the left side of the continuum, I'm disposed to listen to the claim that I'd be a better friend to the environment by using paper cups. But on the right side, I'd be very very dubious that disposables are better than reusables. I'm somewhere in the middle-right. I actually do reuse paper cups regularly; for example when I buy my first cup of the day at the coffee stand, then get my other cups from the breakroom, I frequently reuse the paper cup from my earlier purchase, which would incline me to the left side. But, with the regrettable exception of travel mugs, I keep the same ceramic mug for years and rarely wash it except when doing other dishes (I'm not too fastidious about a dirty coffee mug) , which pushes me more towards the right side of the scale.

Overall, I'm inclined to think that I should probably continue using a ceramic mug. But I can't be sure, because while I can figure out those personal factors, I simply don't know how much it costs me to wash my coffee mug. I suspect it's just not that much, which satisfies me with my own economc choice, but doesn't satisfactorily answer the important question:

How can consumers be environmentally responsible

without adequate pricing information?

Answer: They can't, and that's a pity, because it keeps us uninformed about the environmental effects of our purchasing decisions, and makes us more susceptible to falling for bad arguments, both political and economic, whether they are coming from left-wing environmentalists or right-wing anti-environmentalists.

Addendum: I think I'll use this as an exercise in my environmental politics course next spring. My plan for the course is twofold: (1) to teach students the structure of environmental policymaking (primarily in the U.S., but, if time allows, some focus internationally as well); (2) to teach them to analyze environmental claims rather than just accept them based on their political predispositions.

Any suggestions for good readings, issues to include, exercises, etc., are welcome.