The Observer Fails Basic Economics

In a leader about fuel poverty, windfall taxes and the rest.

So it is to the Liberal Democrats\’ credit that they have grasped some simple truths about the relationship between climate change and household energy use: protecting people from the cold is an urgent public good, not a private consumer choice.

The definition of a public good is as follows:

In economics, a public good is a good that is non-rivaled and non-excludable. This means, respectively, that consumption of the good by one individual does not reduce availability of the good for consumption by others; and that no one can be effectively excluded from using the good.[1] In the real world, there may be no such thing as an absolutely non-rivaled and non-excludable good; but economists think that some goods approximate the concept closely enough for the analysis to be economically useful.

For example, if one individual eats a cake, there is no cake left for anyone else, and it is possible to exclude others from consuming the cake; it is a rivaled and excludable private good. Conversely, breathing air neither significantly reduces the amount of air available to others, nor can people be effectively excluded from using the air. This makes it a public good, but one that is economically trivial, as air is a free good.

So, lessee, is heating a home more like eating a cake or more like breating air?

Well, the energy that is used to heat the home cannot be used by anyone else, so it is indeed rivalrous. And yes, it\’s also excludable, in that we can indeed stop others from coming into our homes to share that heat.

Hmm, so, heating is cake: it\’s not a public good. So The Observer employs economic illiterates to write leaders on economic matters then, yes?

Given that I know nothing whatever about opera no doubt they have a place for me writing about opera?

3 thoughts on “The Observer Fails Basic Economics”

  1. Why are we bothered about fuel poverty at all? If people can buy the same stuff with the same money they’re not poorer- so a fall in the cost of say electrical goods, food, clothing etc. would leave room in anyone’s budget to pay more for energy and keep the same standard of living. If energy is becoming dearer to obtain a rise in energy costs would encourage people to re-allocate their resources – more woollies and cooler houses perhaps- and hence make the most of what is available. Anyway I thought the whole carbon tax/ carbon trading idea was based on the principle of raising energy costs- we can’t raise energy costs and reduce them at the same time.

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