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>
>We suspect that few readers will be confused by Paul David's dismissal of
>the relevance of history for our understanding of the economy.
>
>The works of Coase and Cheung cited in The Economist article do indeed leave
>the abstract theories of public goods and externality intact. The importance
>of the works cited in The Economist, however, is that they demonstrate that
these theories ought to judged against real events--against history...
Am I the only person who does not understand Coase's argument in his
"lighthouse" paper?
I thought that Coase was trying to argue that--contra
Pigou--lighthouse services, even though a public good, were
successfully provided in England by a private company--Trinity House.
But Coase's argument seemed to me to have a big problem. The
relationship between the ship's pilot and Trinity House was not that
of a customer free to purchase or not purchase a service from a
private corporation. The relationship was that of a subject paying
taxes to a government: if you didn't pay Trinity House, then the
Royal Marines would confiscate your ship and throw you in gaol.
The fact that Trinity House's system of political governance was
different from that of a standard government agency in interesting
ways (indeed, Joseph Stiglitz led a charge in the mid-1990s to try to
set up something similar with the FAA today) does not change the
relation between ship pilots and Trinity House from a "state" to a
"market" relationship. Coase's article seemed to me at least to
provide a springboard for an interesting discussion of federalism,
but to be completely irrelevant to any discussion of the private
provision of public goods.
I also found myself mystified by what I take to be Liebowitz and
Margolies's principal argument.
As I understood it, they say that:
--the evidence that a Dvorak keyboard is better than Qwerty is suspect.
--in fact, we don't know that the Dvorak keyboard is any
better than Qwerty.
--hence the market worked.
But I think that this argument deconstructs itself. I believe that
Liebowitz and Margolies are correct in their claim that we don't know
which keyboard would be better. But that doesn't mean that the market
"worked." By now--more than 100 years after the invention of the
keyboard as we know it--any sensible and efficient social resource
planning and allocation mechanism for establishing standards would
have collected the information we need to know what the most
efficient keyboard layout is, and whether we should switch.
Our--market--social resource planning and allocation mechanism has not done so.
Therefore it is inefficient: there is an important piece of
information that we should have--the relative efficiency of keyboard
layouts--that we don't. The market has let us down.
In my view, L&M have trapped themselves. The more they undermine the
case for the superiority of Dvorak, the more they undermine any claim
that the market gathers and processes information about what
standards would be efficient. The more they claim that the market is
an efficient mechanism for gathering and processing information about
standards, the more trustworthy does the information we do have that
suggests the superiority of Dvorak appear to become.
So I find myself thinking that Liebowitz and Margolies have
deconstructed themselves: they can sustain their case that we don't
know that Dvorak is more efficient only be conceding the broader
point that the market is pretty lousy at providing incentives for
people to evaluate the relative utility of different standards.
Brad DeLong
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
"Now 'in the long run' this [way of summarizing the quantity theory
of money] is probably true.... But this long run is a misleading
guide to current affairs. **In the long run** we are all dead.
Economists set themselves too easy, too useless a task if in
tempestuous seasons they can only tell us that when the storm is long
past the ocean is flat again."
--J.M. Keynes
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
J. Bradford De Long; Professor of Economics, U.C. Berkeley;
Co-Editor, Journal of Economic Perspectives.
Dept. of Economics, U.C. Berkeley, #3880
Berkeley, CA 94720-3880
(510) 643-4027; (925) 283-2709 phones
(510) 642-6615; (925) 283-3897 faxes
http://econ161.berkeley.edu/
<delong@econ.berkeley.edu>
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