I haven't attached the article mentioned for the list, but Robin can
send it to any individual who requests it.
michael
From: "Robin Hahnel" <[EMAIL PROTECTED]>
To: "michael a. lebowitz" <[EMAIL PROTECTED]>
X-ASG-Orig-Subj: Re: Re: [PEN-L] PEN-L Digest - 1 Jun 2007 to 2 Jun
2007 (#2007-156)
Subject: Re: Re: [PEN-L] PEN-L Digest - 1 Jun 2007 to 2 Jun 2007 (#2007-156)
Date: Wed, 13 Jun 2007 09:13:35 -0400
I'm not sure who I am replying to here, so hopefully you can forward
it to the person you were having the exchange with. In any case,
this is the gist of my argument about snowballing inefficiency. I
also attach a short piece that outlines the argument at somewhat
greater length that was published as a chapter in a book honoring
Charles Wilber on his retirement: (Crossing the Mainstream, Dutt and
Jameson editors, Notre Dame University Press, 2001).
There are two parts to the argument:
Part 1: If there is a bias in terms upon which goods and services
are made available to consumers in an economy then it is rational
for consumers not only to adjust their purchases in response to any
such biases, [this is the "preference fulfillment effect" and the
exclusive focus of mainstream microeconomic theory of the consumer],
but also, to the extent that their preferences are endogenous, to
adjust their future preferences in response to the biases [this is
the "preference development effect" and it is only captured in
models that treat preferences as endogenous, i.e. models that
recognize that consumption choices I make today not only fulfill my
present preferences to whatever extent, but also in a subtle and
complicated way affect what kind of human characteristics I develop
over time which then affect my future preferences to some extent.].
Example: If an economic system charges consumers more than the true
social opportunity cost of making a good available to them, not only
will rational consumers buy less of that good in the present than
they would have had the price been equal to the lower opportunity
cost [the preference fulfillment effect], they will also adjust all
their purchases to minimize the extent to which they develop human
characteristics that would generate greater preferences for this
good in the future [the preference development effect.] In essence,
why bang your head against a wall if you can avoid it? If the
economic system is going to overcharge for something not only is it
rational to buy less of it in the present given your preferences
today, it is rational to minimize your preference for this good in
the future to the extent that you can mold your preferences.
Part 2: In market systems it is well recognized that goods whose
production generate negative external effects will be underpriced --
i..e. the market price will be lower than their true social
opportunity costs. Similarly, goods whose production generate
positive external effects will be overpriced -- i.e. the market
price will be higher than the true social opportunity cost of
producing them. [Public goods are simply goods whose supply
generates very large positive external effects.]
In which case, it is rational for consumers in market economies, to
the extent that their preferences are endogenous, to not only
purchase more of goods whose production generate negative
externalities than they would if those goods were "properly priced"
-- i.e. made available on [higher] terms that truly reflected their
social opportunity costs -- but also to make consumption choices
today that develop human characteristics that magnify their future
preferences for these goods that are under priced. Similarly, not
only is it rational for consumers to purchase less of goods whose
production generate positive externalities than they would if those
goods were "properly priced" -- i.e. made available on [lower] terms
that truly reflected their social opportunity costs -- but also to
make consumption choices today that develop human characteristics
that minimize their future preferences for these goods that are over priced.
Note: It is my belief that the crucial difference between different
economic systems are differences in the systematic biases inherent
in the particular defining economic institutions of that system --
to which people adjust over time. Just as I argue that market
systems have biases that emanate from [pervasive] external effects
yielding the consequences outlined above, I argue that central
planning, for example, has a pervasive bias against providing people
with opportunities for self-managed work. In my view the widely
noted apathy of Soviet workers was in part simply a rational
response of Soviet citizens to the difficulty of finding
self-managed work opportunities in a Soviet style economy which
displayed an extreme bias against making these opportunities
available to people.
I hope this short explanation helps. See the attached chapter for
more. And ultimately see Quiet Revolution in Welfare Economics
chapter 6 for the formal model of endogenous preferences and all the
theorems about why snowballing will result, and chapter 7 for an
application of this model to market systems. [BTW: That book is
online at the ZNet web site in the parecon section.]
----- Original Message ----- From: "michael a. lebowitz" <[EMAIL PROTECTED]>
To: "Robin Hahnel" <[EMAIL PROTECTED]>
Sent: Monday, June 04, 2007 3:38 PM
Subject: Fwd: Re: [PEN-L] PEN-L Digest - 1 Jun 2007 to 2 Jun 2007 (#2007-156)
I don't really understand Hahnel's snowballing inefficiency argument. I've
only read his presentation in ABCs of Welfare Economics but it seems to
require that if there are some goods which have negative externalities in
their production and some which don't, that over time people's preferences
for the former will increase relative to those for the latter. I'm not
sure why it would be like this rather than the other way around.
Is the idea that business will produce a set of goods which is comprised
of more goods which produce negative externalities than consumers "want"
so that as preferences acclimate towards these goods business will produce
even more goods involving negative externalities. If so, this would make
sense. Is this the explanation in Quiet Revolution in Welfare Economics?
>
> -------------------------
>
> In reference to Jim's comment on such evidence and thinking of market
> failure as redefining necessity, I went to Hahnel's text since my
> hardcopy version is stored somewhere, and although this is probably
> revisiting something discussed far too long ago on this list, I found
> this section in the last chapter which at least for me clarifies the
> endogenous preference issue but which may raise new questions for what
> counts as "realization" since I would take away some ideological
> implications for theorem 6.8:
>
Michael A. Lebowitz
Professor Emeritus
Economics Department
Simon Fraser University
Burnaby, B.C., Canada V5A 1S6
Director, Programme in 'Transformative Practice and Human Development'
Centro Internacional Miranda, P.H.
Residencias Anauco Suites, Parque Central, final Av. Bolivar
Caracas, Venezuela
fax: 0212 5768274/0212 5777231
http//:centrointernacionalmiranda.gob.ve
[EMAIL PROTECTED]
