If I Had One Wish…

External costs and benefits

Image via Wikipedia

If there’s one thing I wish everybody understood about economics, it’s that wise resource allocation requires truly vast amounts of information, and that prices do an excellent job of summarizing that information. We led off the week by applying this principle to grocery shopping. A rather silly column in the New York Times had seemed to suggest that socially responsible shoppers should care about the energy costs of producing vegetables to the exclusion of all the other costs. The column was focusing, in other words, on the seen as opposed to the unseen. But the unseen costs of growing a tomato in one location rather than another are just as important as the obvious ones, and because they are unseen (and unseeable) the only feasible way to account for them is to look at prices.

via Weekend Roundup at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics.

All true, but it’s important to remember that the price system isn’t instantaneous and can omit including real costs and benefits due to externalities. Still, the virtues of encompassing the unseen as well as the seen are undeniable.

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