The Economics of Public Issues

This review appeared on my previous blog, Rat's Reading.

I took Economics 200 – Micro-Economics last spring at Seattle Central Community College. It was an online course; my only trips to campus were for the mid-term and final exams. I didn’t really expect the class to be tough. Instead I was using it as a way to get myself back into the swing of a college routine. But I digress before I even start. The Economics of Public Issues was one of the two required texts for this class. Sadly, we did not use this book for anything in class. Though several topics in the main textbook were also covered in this, and using information from this book in my answers would have added a dimension that others didn’t. As it was, I only did that for the first couple of chapters and after that I didn’t read this book until yesterday.

Cover of The Economics of Public Issues

This book is a series of short chapters on various public issues, like tobacco, trash collection, and electric deregulation in California. It’s all standard market economic theory. For the most part fairly informative and gets one thinking about how incentives work. However, particularly in the case of deregulation of electric utilities in California, the authors wrote their chapter too soon. Though standard market economic theory would still probably explain what happened, their explanation doesn’t take into account the chicanery found to have been used by the energy trading companies like Enron and Dynegy.

I really wish they had explored the practical aspect of information disparity. The class’s main text dismissed it with the admonition that information is another good and this shouldn’t be regulated. Therefore, according to that author’s analysis, the fact that Enron knew how to game the system was just fine. This book touches on it briefly in the context of illegal goods and how in a market for illegal goods you can’t build up a reputation for quality because sellers have fewer ways to protect trademarks, which can represent quality. In other words, if you are a seller of quality crack, there’s no such thing as a Consumer Reports rating of your crack, and you can’t keep someone else from selling King Rat’s Most Excellent Crack®. And buyers can’t sue in court for breach of warrantee of fitness for a purpose. So sellers have an advantage in that they can sell sub-standard crack cause of the buyers less effective ways to determine what is quality crack. It’s an informatin disparity. I wish this book had covered more cases of that.

For a bit about the biases of the authors though, Daniel Benjamin is affiliated with the Property and Environment Research Center, which thinks it can save the environment through property rights. Their web site says that 92 percent of their funding comes from foundations, but they don’t say which ones. Douglass North won the Nobel Prize in Economics. Though it isn’t part of the regular Nobel Prizes, it’s still pretty prestigous. He won for his study of economic history. Not sure what insight he brought to that field that made it worth a Nobel though. The Nobel committee didn’t say on the web site.

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