Economics at stake

posted by Kaihsu Tai on April 15th, 2006

BBC News reports today that Professor Leighton Vaughan Williams, director of the Betting Research Unit at Nottingham Trent University, said:

I’m not a sociologist, I’m not a psychologist, I’m not a moralist, I don’t come from that more philosophy [sic] background. I’m an economist, and what I’m saying is that this has been massively good for the economy in terms of productivity, and it’ll create a lot of jobs as the casinos come through and it’ll create a massive amount of inward investment.

At the risk of being accused of not being intellectually rigorous, I daresay that if a certain definition of “productivity” affords the anomalous result that an increase in gambling boosts “productivity”, then – as intuition and common sense would direct – the definition is likely to be useless and needs to be challenged and revised.

Published in: Heresy | on April 15th, 2006 | Permanent Link to “Economics at stake” | 7 Comments »

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  1. On April 15, 2006 at 18:33 Mike (Worcester) said:

    This reminds me of the old Adbusters “economists must learn to subtract” campaign, which got at the idea that economic indicators are sometimes flawed. For example, they would point out that someone who came down with cancer while going through a messy divorce was an “economic hero,” since spending on medial care and lawyers contributed to GDP, even though cancer and legal fees are both clearly bad things. I guess “true cost economics” is another name for this idea. Everytime I read stuff like this, I wish I had a basic grounding in economics.

  2. On April 15, 2006 at 20:29 Adam (Southern California) said:

    I read some article yesterday about the idea of shifting taxes away from income to environmental costs. The idea is that it’s better to tax things that you want to curb (like damaging the environment), and not tax things that you want to encourage (like labor). To a certain extent this is just applying the idea of externalities to things like consumer products. You tax things that lead to air pollution, for example, because cumulatively, they affect the quality of life and need to be cleaned up, or lead to public health problems, etc. I think this is a good idea — and in fact, some of this happens already — but there are a few things that need to be considered:

    1. If there were a large effort to shift taxes from income to the environment, there should be some way of ensuring that the overall effect is as tax-neutral as possible, rather than treating the two categories of taxation separately.

    2. How progressive or regressive of a tax would this be? Income tax is useful mainly because the amount that you pay is linked directly to your ability to pay it. Would the poor get screwed by this new system? Old, junky cars emit tons of pollution compared to new cars, even gas guzzlers.

    3. Quantifying the environmental effects from everything out there is a rather daunting task. Doing something like this fairly would be enough of a problem in itself, with lots of research necessary behind every tax assessment. How could this be simplified and still be fair? And how much lobbying would there be from different industries to make the tax on their products lighter?

    4. If a tax is too successful in controlling a particular behavior, then it might not end up collecting the money it was designed to collect. This is one of those “good problems to have,” but, for example, there is already talk that if hybrid cars become too popular, gas taxes won’t be able to pay for the highways cars use.*

    So, I think it’s a good idea at its most basic level, but there’s a lot to think about before implementing it.

    *The basic idea holds, but there are some serious problems with this concept. First, hybrids are still a very small fraction of the total number of cars on the road right now, and at least for now, their lesser gas taxes serves as a carrot to get more people to switch. Big trucks that run on diesel cause more wear and tear on the road than passenger vehicles do anyway — even scaled to their weight or the amount of fuel they use. And the alternatives proposed are just absurd— GPS receivers that track mileage, etc.

    As they stand, gas taxes are just about the best-designed taxes out there, directly taxing the use of the things they fund, being very easy to collect and almost impossible to cheat on, and not placing an undue burden on anyone. Just make sure that the gas taxes are used on transportation expenses. If hybrids really start eating into revenues, just increase the tax. And tax diesel higher, since big trucks do more than their share of damage.

  3. On April 16, 2006 at 16:02 Dr Kaihsu Tai (Oxford, England) said:

    A basic grounding in economics is not difficult to acquire. Reading one book each by Smith, Marx, Keynes, Hayek, and Schumacher (and if necessary, a couple more textbooks) should cover the field pretty well. I’d like to see more economists worry about their basic groundings in social studies, psychology, moral philosophy, etc. before going about with their latest anomalous results and demand public policies be formed accordingly. On eco-taxes and internalization, I shall again refer to the books in this green economics bibliography rather than rehearsing the arguments. Happy Easter.

  4. On April 16, 2006 at 18:22 Adam (Southern California) said:

    Probably the biggest caveat to a lot written in economics is the fact that the notion that people act people always act rationally does a poor job of describing actual human behavior, and the assumption that people act economically based on complete knowledge of their situations is an even poorer approximation of reality.

  5. On April 17, 2006 at 13:07 Adam (Southern California) said:

    From Michael P. Brooks’ “Planning Theory for Practitioners,” p.98, the chapter on “Centralized Non-Rationality:”

    “[Herbert] Simon’s principal target was the ‘economic man’ of classical economics, a person with no counterpart in the real world. Simon wanted to replace him with the more realistic ‘administrative man.’ Economic men maximize, administrative men “satisfice because they have not the wits to maximize.” Economic man strives strives to deal with the real world in its full complexity; administrative man perceives a highly simplified model of the real world, omitting consideration of all but its most relevant and crucial aspects. Thus, for example, he never attempts to consider all the alternatives open to him but only those that seem most plausible. Having constructed a simplified model of the real situation, Simon wrote, administrative man does behave rationally with respect to that model—which, however, is ‘not even approximately optimal with respect to the real world.'”

  6. On April 20, 2006 at 08:25 Dr Kaihsu Tai (Oxford, England) said:

    Applying Rudi Cilibrasi et al.‘s CompLearn for a basic grounding in economics etc.

  7. On April 21, 2006 at 12:09 Mike (Worcester) said:

    I’m a little mystified by this. Did you give it a phrase to generate the map?