Sigh. Do we really need to teach Economics 1 here at Reform Club University Graduate School? Well, I see that indeed we do, as certain of our stalwarts seem to have swallowed various versions of the Broken Window fallacy (see my post below) whole, washed down with the old "planned obsolescence" chestnut.
Disasters cannot yield economic growth (that is, a bigger economy, or to say the same thing, greater aggregate wealth) because the resources used to repair the attendant physical damage---put aside the human suffering that cannot be redeemed at all---otherwise would have been used to produce other goods valued by individuals. Accordingly: Disasters must make the economy smaller in the aggregate. Yes, certain sectors (e.g., construction) will be bigger, and owners of inputs (labor and capital) in those sectors will be wealthier than otherwise would have been the case; but other sectors will be smaller, owners of inputs in those sectors will be poorer, and it is unambiguously the case that the losses exceed the gains, because in the absence of the disaster we would have both the housing and other physical capital as well as the other goods. Period. And please note that while owners of inputs in such sectors as construction might become wealthier, that does not mean that they are made better off (or happier) by the disaster, in that they might lose loved ones as well.
The "planned obsolescence" argument---as old as it is silly---assumes away the marginal cost of added quality, in this case added longevity. Consider the simple case of a razor blade that lasts forever; if we ignore such irrelevant complications as present value calculations (more on this below), risk aversion, and the like, consumers would be willing to pay for an infinite-life razor blade the expected lifetime purchase cost of ordinary razor blades. If the marginal ("extra") cost of producing such a blade is less than (or in the simple case, equal to) the added value of the blade to consumers, then profit-maximizing firms will produce the blade. If it is not, then the firms will not produce it, and that outcome is wholly efficient, that is, consistent with the interests of consumers, because the extra resources needed to produce the infinite-life blade would yield greater value for consumers in the production of other goods.
Only if the discount rate used by producers to calculate present values is higher than that applied by consumers might some version of the planned obsolescence argument make any sense at all, and that outcome would not necessarily be inefficient. And, anyway, I rather doubt that the "planned obsolescence" crowd has anything quite so sophisticated in mind; their goal is to attack capitalism, however mindlessly. Precisely why would producers discount the future more heavily than consumers (on the margin)? The only plausible argument is the corporation income tax, which in a nutshell forces the corporate sector to discount the future more heavily than other sectors. Is the "planned obsolescence" argument really a left-wing call for fundamental tax reform? Please...
Disasters cannot yield economic growth (that is, a bigger economy, or to say the same thing, greater aggregate wealth) because the resources used to repair the attendant physical damage---put aside the human suffering that cannot be redeemed at all---otherwise would have been used to produce other goods valued by individuals. Accordingly: Disasters must make the economy smaller in the aggregate. Yes, certain sectors (e.g., construction) will be bigger, and owners of inputs (labor and capital) in those sectors will be wealthier than otherwise would have been the case; but other sectors will be smaller, owners of inputs in those sectors will be poorer, and it is unambiguously the case that the losses exceed the gains, because in the absence of the disaster we would have both the housing and other physical capital as well as the other goods. Period. And please note that while owners of inputs in such sectors as construction might become wealthier, that does not mean that they are made better off (or happier) by the disaster, in that they might lose loved ones as well.
The "planned obsolescence" argument---as old as it is silly---assumes away the marginal cost of added quality, in this case added longevity. Consider the simple case of a razor blade that lasts forever; if we ignore such irrelevant complications as present value calculations (more on this below), risk aversion, and the like, consumers would be willing to pay for an infinite-life razor blade the expected lifetime purchase cost of ordinary razor blades. If the marginal ("extra") cost of producing such a blade is less than (or in the simple case, equal to) the added value of the blade to consumers, then profit-maximizing firms will produce the blade. If it is not, then the firms will not produce it, and that outcome is wholly efficient, that is, consistent with the interests of consumers, because the extra resources needed to produce the infinite-life blade would yield greater value for consumers in the production of other goods.
Only if the discount rate used by producers to calculate present values is higher than that applied by consumers might some version of the planned obsolescence argument make any sense at all, and that outcome would not necessarily be inefficient. And, anyway, I rather doubt that the "planned obsolescence" crowd has anything quite so sophisticated in mind; their goal is to attack capitalism, however mindlessly. Precisely why would producers discount the future more heavily than consumers (on the margin)? The only plausible argument is the corporation income tax, which in a nutshell forces the corporate sector to discount the future more heavily than other sectors. Is the "planned obsolescence" argument really a left-wing call for fundamental tax reform? Please...
I seriously doubt Doctor Zycher will stick around and play with you, T-man. He's pretty rigorous with his time and he probably sees arguing with you as a matter of rapidly diminishing marginal returns. No offense, I'm just guessing you're wasting time trying to draw him into a big discussion.
ReplyDeleteT is right about one thing, he argues in circles.
ReplyDeleteT, this is one of the less savory aspects of your character. JFE is the same way. I once heard it said that fear is the world's worst perfume. Unwarranted triumphalism is not much better.
ReplyDeleteI always love it when engineers and B-schoolers collide and confuse being half-assed economists with repealng the laws of economics. Businesses run by rules of thumb all the time, because additional knowledge also has a high marginal cost, and sometimes "good enough for government work" really is good enough on average. That doesn't refute any principles of economics, it confirms one -- that only one firm at a time is the one perched on the equilibrium point. You're just not that firm today. You might be tomorrow.
ReplyDeleteThat's because we rationally choose to spend our times on things that are more fun and rewarding.
ReplyDelete"JFE is the same way."
ReplyDeleteOh! OH! I was just pwned! Hunter is teh pwnx0r!
End sarcasm.
Being lectured by Hunter on unwarranted triumphalism? Where will the irony end?
So if I say something happens, you say it doesn't and then I show you it happening that somehow proves your point
ReplyDeleteYou don't show it happening. It doesn't matter what a bunch of mid level engineers and marketing hacks think they're doing. They call it the invisible hand because it works without the conscious intention of the players.
You claim that companies build widgets that last five years, when they could build widgets that last for twenty years with no additional input costs. If that is true (which it most certainly is not, but I'll stipulate your argument just to get to the next part) then one of these things must be true. (1) Consumers would find the 20 year widgets more attractive and be willing to pay more for them than the 5 year widgets. (2) Consumers would not find the 20 year widgets more attractive and are not willing to pay a premium for them.
If (1) is true, then the company is turning down free money. If this is your company, then you are stupid, and have no business lecturing other people about economics. If this is your company and you do it long enough, someone else will figure it out and you will be looking for work instead of spending your entire workday writing posts claiming that economics does not exist and posting them to economics blogs.
If (2) is true, then the company is doing exactly what consumers want.
Which is it?
T ... in your "analysis" you have assumed that there are multiple companies involved. Thus, you are assuming massive collusion.
ReplyDeleteIf your defense of your position requires some kind of conspiracy theory, I suggest you try again.
Hey T, we don't make a forum with any obligation that we participate. If I had my way, this would just be a straight "no comments" weblog like instapundit, hugh hewitt, etc.
ReplyDeleteThe idea that you are threatening anybody with any creeping awareness is hilarious. I tried to get you into a basic conversation about philosophy and values and you bowed out, not me. This, of course, was after you complained that you weren't being engaged.
And JFE, I've never done any happy little victory dances like you where I run around claiming "I WIN! I WIN!" So, I can't imagine what irony to which you refer.
ReplyDeleteT, I stand by my assertion on the victory dance thing. I think we'd all be better off if commenters avoided that. It would keep the discourse at a higher level. Readers are more than capable of deciding for themselves who has the better argument. I seriously doubt they are ever swayed by self-congratulation.
ReplyDeleteBut weren't you reading, T? He said he's under no obligation to tell you anything, or even engage you. Which he isn't. But it's still funny to see him take his version of the moral high road and then make like it's not his version of the "happy happy joy joy" song from Ren and Stimpy.
ReplyDeleteI agree with you on the comments thing. The best part about blogs is the discourse. Through this blog, I've discovered an interest in ethics and philosophy I didn't know I had, and the contributors here have led me to read in subjects I never would have if not for the discourse. It would be a sad thing to see the comments go.
But then, we all know how much conservatives hate dissenting voices. =]
P.S. I never denied the absurd triumphalism. My fiancee would be the first to agree that it is unseemly coming from me.
ReplyDeleteIt's the unwarranted part that I find funny. =]
Did you want a full C.V., Tlaloc, or will highlights suffice? I have spent a fair amount of time in think tanks and universities. I have also worked in a telephone factory, a recording studio, and a nursing home. I have run several small businesses, including a construction subcontracting company and a farm. I have been a union member. You could find any of us in Nexis/Lexis I suppose, but I am probably the only Reform Clubber listed in Index Medicus. I helped create the computer coding system that thousands of health facilities worldwide now use to digitally transmit and store medical test results.
ReplyDeleteI've had plenty of real jobs. Too real. I've worked in an imposter perfume factory, at a nutrasweet packaging company (it's in your nostrils at all times), at an Albertson's grocery store, at an electronics firm cleaning circuit boards, at a drug store, and as a lawn cutter for a school district.
ReplyDeleteProfessionally, I've done a good bit of college teaching, worked for a large multi-specialty health clinic, for a large insurance company, in university administration, and in several public policy advocacy roles. Also, plenty of freelance writing.