Democratic Underground: They Are Not Economists
And that is for sure! As some of you may have noticed, I have been getting a few hits from DU <
http://democraticunderground.com/discuss/duboard.php?az=show_topic&forum=104&topic_id=540455#540877>.
This is a mis-application of economic theory. The problem here isn't the guy's economics, but his logic: just because a person would not, given the choice, make a certain decision, doesn't mean that decision is incorrect. To see how off he is, let's take this situation: if you gave someone $10,000, and gave them a choice to either A) pay for part of a highway to be built or; B) spend it on something else, what would that person be likely to do? Obviously, he or she would probably spend it on something else.
Well no kidding the person is not going to spend anything on a public highway. A public highway is a public good. The problem with the public good is there is no way for any individual to realize the full benefit the good provides. Hence why spend money on it. This is a classic problem with public goods. Further, the poster has done nothing to show that this decsision is irrational.
By the way, notice the italicized part, Billy Bunter is basically making my very point! Just because Bob thinks buy X is rational doesn't mean Roy is irrational for not buying X. The utility functions (which represent an individual's welfare) are subjective--i.e., they are individual concepts. I might like coleslaw, while you like potatoe salad. Is one of us irrational for making different decisions? No. Further, it could be quite rational to not have health care coverage. I myself went without health care coverage for a couple years in my twenties even though my employer offered it. I didn't make a lot of money, I was young and pretty much healthy, so I figured I could go without for a while. It was a thought out, purposeful decision. I decided I'd rather have the extra cash vs. health coverage.
That doesn't mean building the highway was the wrong choice -- I like the highway that gets me to and from work every day, and that allows trucks to deliver food to the local supermarket, and medicines and so on to the local hospital, and kids to school.
Nor did I say spending money on the highway was the wrong choice either.
What it does mean is that what is rational behavior for people acting as individuals is sometimes different from what is rational behavior for people acting in aggregate.
Wrong. Even if you had 1,000,000 people making this decision there is nothing that says they will provide the public good (i.e., the highway). In fact, both economic theory and experimental evidence suggest the level that is provided is quite low when done on a voluntary basis. If anything as the number of people gets larger the allocation will be smaller.
Small group dynamics are a bit different in that social pressure can be brought to bear which migh alter the outcome. But still the voluntary provision is typically quite low.
This is another principle of economics, by the way, and this person's ill-use of logic in this instance illustrates the fallacy of composition, one of the cooler fallacies of logical rhetoric.
There is no fallacy of composition here, or if there is it is one that every economist makes (well that is, if they subscribe to neoclassical theory). The results follows directly from the assumptions about individual behavior analyzed in aggregate. The problem can be analyzed using that branch/area of mathematics known as game theory. How much is an individual going to contribut, given the contributions of everybody else. That is solve the following problem
max Ui(Ci|C1,C2,...,Ci-1,Ci+1,...Cn)
subject to:
fi(Ci;Yi,ai)
Where Ui is the utility function for the ith person, Ci is the ith individual's contribution, Yi is income for the ith person, ai is a (vector) of paramters for the ith person, and fi is the constraint function for the ith person.
When you solve that problem you'll have a "best response curve" which gives the best amount to contribute to the public good given what everybody else is contributing. The "intersection" of all these best response functions is an equilibirum (a Nash equilibrium to be precise). It is pretty much accepted that when it comes to public goods, Nash equilibiria are sub-optimal. Notice something there? No fallacy of composition. I am not assuming that because one person contributes $x everybody contributes $x. Or that the total contributions is $n*x (although that would be the case if everybody were identical in terms of their utility function and their constraint function). No fallacy of composition. I'm not even assuming that since everybody is maximizing their personal welfare (i.e., their utility function) that total welfare is maximized.
This guy added another post after this one that was a long attack on Krugman's analysis of Gephardt's health insurance plan....
Uhhh, no I didn't. There is no such post anywhere on this blog. The post he is referring to is in regard's to the work of Kenneth E. Thorpe. Maybe he is using the Klingon alphabet and has his universal translator mis-calibrated.
...frankly, it doesn't interest me to the point where I care to invest the time necessary to figure out how valid the criticisms are.
My universal translator is calibrated correctly, and its telling me the above really says, "Okay, he might actually be right, but since I don't like the conclusions I'll just ignore whatever he says."
http://www.steveverdon.com 
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