You what?

I\’m sorry, but I think we\’ll need to take that Nobel Prize back Professor Krugman.

Really, we will:

But both sides, I thought, agreed that the government should provide public goods — goods that are nonrival (they benefit everyone) and nonexcludable (there’s no way to restrict the benefits to people who pay.) The classic examples are things like lighthouses….

Erm, lighthouses might not in fact be public goods:

The Lighthouse in Economics is an academic paper written by British economist Ronald H. Coase.

This paper challenges the traditional view that lighthouses are examples of public goods by showing that privately owned lighthouses existed in England. Coase aligned lighthouses more with club goods because they are excludable by way of charging port fees.

And even if they are public goods it\’s still not true that they have to be provided by Government:

Trinity House is financed from “Light Dues” levied on commercial shipping calling at ports in the United Kingdom.

If you\’re not careful we\’ll ask for that cheque back as well.

21 comments on “You what?

  1. oh come on. Lighthouses are a classic example, and easy way of introducing concept, used by econ professors all over the world.

    OK, it turns out private sector can sometimes solve public good problem and lighthouses may sometimes be excludable, up to a point.

    Pendant!

  2. Ahem.

    See especially: “the main source of revenue for private lighthouse owners was a compulsory levy, which was backed by full force of statute law and which was even collected by HM Customs and Excise”.

    The owners may, legally, have been private, but functionally that’s 150% public.

    (relatedly, the Nobel Foundation and HM Carl XVI Gustav of Sweden would seem to disagree on the non-existence of the economics Nobel, based on the fact that it’s awarded at the Nobel ceremony, shown on the Nobel website, that they describe the winners as Nobel laureates, etc.).

  3. I could never understand “that the government should provide public goods.” Why?
    The only valid argument is that the service is not being being provided privately. Yet all “public goods” were being provided by the private sector or charity before being taken over by the government – even lighthouses!

  4. Lighthouse, schmighthouse.

    Whoever owns it, and however it is financed, it is of public benefit ergo it is to all intents and purposes a public good.

    If you look at it that way, there is an element of ‘public good’ in everything. If some bloke shells out hundreds of thousands for a lovely Ferrari, sure he does it for himself, to catch birds and to show off, but doesn’t it give you a bit of a lift when you see one roar past? It does me.
    ———————————–
    What is more worrying is that Paul K reckons Obama’s bail out is nowhere near big enough. In that he has lost the plot.

  5. Although his politics are sometimes a little dodgy Paul Krugman is a genius and has produced work in at least three areas that would individually merit a Nobel prize.

    Left-wing economists can accept Milton Friedman’s contribution as a theorist and I think it’s time right-wingers did the same for Krugman and others.

  6. Nobody denies that in purely technical matters Krugman is a first rate economist. But let’s be honest here: Krugman did not win a Nobel Prize for his contribution to the dismal science, he won it for being an A-list public intellectual at the forefront of the Bush-bashing bandwagon. I don’t hold it against him: He’s entitled to his opinion and he was, in the main, correct in his criticism… but let’s not get carried away.

    Besides, Krugman’s theoretical contributions have been honored, it’s just that Keynes got them first.

  7. Oliver Latham (and Dennis)

    I’m not going to argue with you about what exactly “merits” a Nobel Prize because it’s obvious that excellence in the specific field is only one criterion and, frequently, especially in sciences other than the natural sciences, only of minor importance. In at least one category, it has even been, at times, a laughable disgrace (of course, I refer to the “Peace” award.

    But what about the prize awarded for the fancy equations that eventually led to the failure of Long Term Capital Management? Did they ask that the award (and the money) be returned? To this day, there are those that probably believe that, somehow, they “didn’t get those equations
    quite right” or that they had neglected to incorporate still other “correction factors.” The plain fact is that the entire world of quantitative economics is one big la-la land, no matter how many subscribe to its various strains nor how influential it has been throughout the academic and professional worlds: it is a reserve peopled by the equivalent of alchemists, astrologers, and
    similar charlatans.

    Paul Krugman is a man who said (I heard him say it!) on TV, the very day after 9/11, that the destruction of the twin towers would prove” a great boon to the U.S. economy!” The fallacy of that statement was the subject of a widely-read essay by Frederick Bastiat over 250 years ago; a man capable of such an outrageous error has no place handling anything sharper than a nail file, let alone instructing the supposedly best and brightest at a major university.

    The problem with Krugman and the great majority of mainstream economists is not that they don’t know anything about economics, it’s that they know so much that is wrong.

  8. Gene-

    Actually, I’d be hard pressed to argue against your point at all.

    And just to set the record straight, I absolutely loathe Krugman. He’s everything you don’t want in a economist cum public intellectual.

  9. It was not so much the theories of Black, Scholes and others that led to the collapse of LCM, but their application. These economists forgot that their creations were models of reality, not perfect encapsulations.

    This is a criticism that is difficult to bring against Krugman: his personal trademark is to simplify a problem just short of the level that makes it absurd and then draw intuitive results from this sketch of reality.

    The great irony with Krugman is that one of his great intellectual achievements was to demonstrate how monetary policy could continue to be effective in a recession, yet his world view and desire to increase the size of the federal government means that he has become the greatest cheerleader for a fiscal response

  10. Oliver Latham:

    Yes, you’re right. The weather, in all likelihood, will be tomorrow very much like it has been today. Except, of course, if there’s been some unforeseen change.

    Oliver, I will call your attention to an experience that we’ve all had countless times throughout our lives (if we were paying attention.

    An economist or other credentialed forecaster
    predicts growth in some magnitude–say GDP, f’rinstance–of 4% and, when the period in question is complete, it proves to have been only 3%. Is the error described as one of a margin of 25% from the forecast? You know that is never the case: he’s been “slightly in error” or somesuch, but “only by one percent.”
    Not in a thousand such cases will the difference from prediction be described in its true proportionality. Just that should be a clue to those not brain-dead that “there’s a game afoot.”

    I leave it to you to reread your first paragraph and see how completely silly it really is. And to draw your own conclusions as to the nature of the game that’s afoot.

  11. Gene Berman:

    Your patronising tone is unnecessary. My first paragraph is entirely consistent with my view of economics and I stand by it: I do not believe that economics should claim to perfectly describe the world and in many cases it does not. Krugman and myself would argue that our models boil issues down so that their key concepts can be recognised and understood.

    If this is the bar by which Economics is judged then its contributions are undeniable. To discredit Economics for its failure to predict the future is bizarre: this is probably the hardest task that the subject can be set.

  12. Oliver:

    I meant only to ridicule. Sorry if it sounded patronizing.

    Nor is it “bizarre” to expect any science to predict the future; that is the very deliberate function of science (and of reason itself). If you know of any other purpose (apart from “satisfying mens’ curiosity” or “whiling away the hours in innocent recreation”), clue me in, please. Every facet of science is focused on unearthing those truths that enable success (or greater success) in mens’ actions, all of which are oriented toward the future.

    My criticism is not directed at some hasty or neglectful “glitch” in the mathematical economists’ equations or methods; rather, it is with the entire prevailing view that there is anything whatever quantitative in economic processes or relationships beyond generalities of “more,” “less,” “greater,” smaller,” “positive,” and “negative,” etc.

    And, if you believe it true that “our models boil issues down so that their key concepts can be recognised and understood,” then I’d also expect
    you to be able to explain what model (or even what underlying explanation) could possibly prompt such a “public intellectual” to assert that the destruction of the twin towers (9/11) would prove of great benefit to the U.S. economy. To tell you the truth, I’d have expected anyone who actually believed in the efficacy of “our models”
    to have jumped on that particular opportunity to demonstrate a superior, more comprehensive grasp of reality.

  13. Mark Wadsworth. Read Coase’s paper, you might learn something.

    Lighthouses do not benefit everyone, they benefit ship operators. Hence ship operators pay. Roads do not benefit everyone, they benefit drivers, hence drivers pay.

  14. Gene:

    I understand your frustration with predictions by economists, I share it.

    As for Krugman’s claim about 9/11, I am unaware of it and if I had been aware of it at the time I would have ridiculed it as well, economists never claim that those among their number will never make mistakes.

    With regard to the main thrust of your argument, I do not believe that economists genuinely limit their answers to those of “more,” “less,” “greater,” smaller,” “positive,” and “negative,”. But, even if they did, would this not still advance human understanding of the economy?

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