More on Economics as a Study, then some Ethics

© 2009 Joshua Stark

Paul Krugman has a good post today breaking down the real costs and benefits of some kind of CO2 emissions price. Unfortunately, his post gives two good reasons why economics is labeled the "dismal science."
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First, he immediately flies off into econo-babble-speak, which is a very logical place for him to be, Nobel winning economist that he is, and is also a logical language in and of itself. However, outside of the nerd-camp, it becomes nearly meaningless. I have a few reasons as to why, and I'll give you my kindest one:
1) Technical studies require special definitions;
2) Economics is a technical study of mundane human behavior;
3) Therefore, economics uses mundane words with specialized meanings, and also makes up words to describe things that are so common or mundane to humanity that we hadn't named them.

I have other, more conspiracy-minded ideas, too, but I'll leave those for another post.

Here I've decided to clarify Prof. Krugman's description in good standard English, as much as I can - which is funny, because I have to start off by giving a nerdy name to a very mundane concept: When somebody sells something to somebody else, sometimes things happen that affect people outside of this transaction. For example, when you drive to the grocery store, your car pollutes a tiny bit. That tiny bit may aggravate somebody's asthma, somebody not even at the store. That external thing there is called an 'externality'. There are good ones and bad ones.

Now that externalities are understood, here's Krugman's post, in easy speak and without the comments about other people (which is probably the only reason why Krugman gets the NY Times and I have to settle for a poorly edited "letter of the week" in a local alternative weekly... yeah, right):

Carbon emissions cause negative externalities. We can put a price on them to make people polluting them realize the true cost of that pollution. We can do this by taxing carbon emissions, or by creating a market for trading carbon emissions while limiting the amount of total carbon allowed. When we do this, the cost of these things will go up, and so will the benefits of not polluting. The true cost or benefit of putting a price on pollution, then, is benefit-cost.

Thank you.

Okay, now that this is clarified, I want to point out the ethical causes and implications of pricing externalities. The ethical statement being made here is that people should pay for the true costs of their economic activities. If you believe that (I do), then you should consider the best ways to accomplish that goal. The second ethical consideration is over who, exactly, should get the money from the new, true price: Government, producers, or consumers. I'll leave that for another post, too.

I don't mean to belittle Prof. Krugman's post, and if you love Harberger Triangles and debates between the freshwater and saltwater schools, or if you even just want to get a basic understanding of economics from within, he's a good writer. I just think that some reasonable people get left out of much of economics talk, and that hurts economics as a topic.