More Bad, Leftist Economics

We have 2 new exhibits today that leftist economics continues to produce poor conclusions, from both positive and normative perspectives.

 

Case 1: NASA is inefficient, but government apologists aren’t concerned

Senator Tom Coburn (R-OK) puts out an annual Wastebook which covers various ways in which the government wastes money. A recent article discussed Coburn’s notes on how NASA is wasting taxpayer dollars.

A critical friend referenced a National Journal article which attempts to evaluate benefits from NASA spending. The article says that one estimate of the ratio of benefits to costs from NASA spending have been as high as 14, although no source is given. A supposedly more reasonable estimation was 2. Two problems persist, even with this now unimpressive estimate. First, that estimate is given by a researcher that was employed by NASA. Secondly, it does not consider opportunity cost.

If NASA generates two dollars in benefits, but the market could have generate more than two dollars in benefits, there is a net loss. Not to mention the costs of the collection of those taxes, as well as the unfair and negatively motivating distributional effects.

 

Case 2: Krugman is mad that Amazon is lowering prices

Paul Krugman recently argued that Amazon has too much market power. He notes that Amazon has so far only used their market power to lower prices. He says this is bad, even while he admits that, “So far Amazon has not tried to exploit consumers.”

Basically his two arguments are as follows:

  1. Amazon has huge market power like Standard Oil and the Robber Barons. The Robber Barons were bad, so Amazon is bad.
  2. Amazon isn’t being bad, but it could be bad.

My responses:

  1. Three responses here:
    1. Huge market power isn’t bad. Amazon has market power because it provides a service other people demand. If Amazon were to create a situation such that consumers were worse off, that demand would cease and so would Amazon’s market power. It’s true that Amazon could use short-run tricks to create a monopolistic situation, but it the situation would not sustain in the long run. Short run rent from monopoly is a good thing. It is a natural incentive for entrepreneurs, inventors, and others.
    2. The alternative, a system of regulation and elimination of monopoly incentives, is a mess. Look at our patent system. Look at the loss of economic power due to regulation.
    3. The Robber Barons weren’t bad. Historian Tom Woods takes lead on this point.
  2. Two different versions of two previous responses address this point:
    1. It could be bad, but if it did it would lose its market power. In the long run it will be bad and lose power, or not be bad and not lose power. So in the short run they can be bad, but in the long run the market prevails either way.
    2. The alternative seems to be forcing them to be good by using government. This is security at the expense of liberty and it is both morally and also practically an unworkable solution.

 

Conclusion

In conclusion, I’ve noticed that when people are wrong they often refuse to admit it. Probably even including myself.

That’s fine; if the people who are wrong stop speaking and the people who are correct continue to speak then the general result is nearly just as good.

The only people who end up hurt are those who refuse to admit they are wrong.

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