NW | March 19, 2012 at 10:09 pm |
Bart, I think that you fundamentally misunderstand what ‘economic scarcity’ is and is not.
I live to be enlightened. Let’s see if I can keep up with your lessons.
When a government auctions broadcast frequencies, they are not creating artificial scarcity where there was no true economic scarcity.
Exactly.
There is true economic scarcity in the Carbon Cycle.
CO2 keeps going up, after millions of years so far as our best estimation can tell of the widest definition of the Carbon Cycle keeping it stable at 230 +/-50 ppmv.
What’s changed? Most probably, us.
Market decisions aren’t made on scientific evidence, or courtroom evidence, but on opinion and deliverables. Can you deliver a 280 ppmv atmosphere tomorrow?
No? Then can you prove the level has no connection to human activity? No? Then the opinion of the Market ought be sought, through the democracy of individual players making individual purchase decisions.. unless you seek to substitute the wisdom of your own personal opinion for the judgement of the Market.
The reason is that the use of a frequency imposes external costs on near-neighbor frequencies in the form of interference. Incidentally, I think technology is an important determinant of the scope and severity of that externality: The guys who know about these things get better over time at dealing with that interference. As that takes place, the ‘frequencies resource’ can be used more densely, and this allows more frequencies to be auctioned. But fundamentally two things are making frequencies scarce: Current technology, and the fact that each frequency has a socially valuable alternative use–if only to minimize interference at near-neighbor frequencies by laying it aside unused. At least this is my touchy-feely understanding of the issue. Surely some of our denizens with signal-processing expertise (they are legion) will chime in and say “NW you bonehead it is like this” but I doubt they will disagree that using frequencies too densely imposes external costs on all users of frequencies.
NW, you’re close enough for horseshoes, based on my experience in the industry (why do you suppose I keep talking about it?) Certainly you’re not so far off as will alter the meaning of the metaphor.
Then there’s oxygen in the atmosphere at sea level on dry land. There are highly valued uses for this. But at the margin when I breathe in, subtracting some from the atmosphere, that imposes no private or social cost on anyone else. No labor or capital needs to be delivered to supply it; and it deprives no one of an alternative valued use of that breath of oxygen. If you tried to set up a business to provide this oxygen to normal healthy people, you could not command a positive price for it. There is no private or social cost associated with taking free oxygen. There MAY be a private or social cost associated with inserting other obnoxious crap into the atmosphere. But the oxygen itself is not a scarce good: So it is a free good with a zero price everywhere at sea level on dry land, and that is the right price for it, from the perspective of economic efficiency. If the government were to declare that we can use no more than q* units of oxygen, and charged the price p* to everyone for using it, the social damage at the margin would be the price p*, because this is a contrived kind of scarcity putting a wedge equal to p* between the benefit of the last unit consumed and the total social cost (zero) of consuming it.
That’s a long way around to get to a point, which is always suspicion-arousing, but I’m with you up to here, and hardly in a position to complain about longwindedness.
The oxygen case is, I think, wholly analogous to the good I would call “CO2 disposal services” from the viewpoint of private costs and benefits. We all gather on this blog because we all would like to straighten out whether the marginal ton of “privately free” disposal of CO2 is “socially free.” That depends on whether that marginal ton has a deleterious net impact on social welfare. A contrived scarcity of CO2 disposal services (by setting q* and auctioning off that quantity at the p* the private market bears) cannot answer the question of whether CO2 has a social cost or not. It simply ignores that question, totally, and creates a contrived (not an economic) scarcity, and thus has no basis whatsover in any utilitarian social welfare maximization.
Respectfully, no.
Your analogy falls apart immediately.
Firstly, net impact is a nubbin.
If I don’t seek a benefit, then being handed it does not indenture me to debt of any sort.
You walk up to me and hand me a $20 bill I did not seek, nor make any agreement upon for exchange, you cannot later say I owe you anything.
This is one of the fundamentals of contract law, for example, and is a well-understood principle. Your argument does not wash in the particular, and it does not wash in the general.
(Also, I’m the last to claim to understand why anyone else gathers on this blog.)
The scarcity of CO2 disposal services arises naturally with the Risk of increased CO2. No other element is needed, nor impinges this social cost. It’s well recognized (see Hale 2002) and established.
You’re makin’ stuff up. I’m not ignoring the question. I’m addressing the known inequity.
Do you still disagree? Why?