The Economist, a British weekly newspaper, seems to the PAP’s bible*. It believes that pricing is the best way to allocate scare resources and long before the government introduced road pricing, the Economist was advocating it: just like high taxes on petrol (we got this) , permits to drive cars (our COEs), consumption taxes with rebates for poor (GST and rebates) , low rates of corporate and personal income taxes, and no tax on savings (All present and reporting). Oh yes and it believes low fertility rates are bad and that immigration is to be encouraged, screw the social problems.
But even the Economist accepts that there are limits to using prices to allocate resources. It recently wrote:
– People often exclude financial considerations from their most important decisions, from the person they marry to the foster child they adopt. Even some transactions that do involve money are not really about price. Universities in America do not admit students based on who pays the most, for example. Rather, they select students based on complex criteria that include grades, test scores and diversity. Similarly, students choose their university on more than just financial factors.
Money is not essential to a market. After all, economics is about maximising welfare, not GDP. But the absence of a price to allocate supply and demand makes it harder to know whether welfare is being maximised. This year’s Nobel prize in economics went to two scholars—Alvin Roth, who has just joined the economics department at Stanford University, and Lloyd Shapley, a retired mathematician at the University of California, Los Angeles—who have grappled with that very problem http://www.economist.com/news/finance-and-economics/21564836-alvin-roth-and-lloyd-shapley-have-won-year%E2%80%99s-nobel-economics.
– Mr Shapley’s and Mr Roth’s Nobel prize illustrates a larger point about economics. Undergraduates often study “utility functions” to learn how people choose alternative consumption baskets in a way that makes them better off. Once they go on to graduate school and then a job, they deal almost exclusively with priced transactions: for wheat, autos or equities.
Yet in countless private and public policy questions, welfare can be improved in ways that do not show up in the price. Mr Roth’s work on public school admissions and kidney donations are an obvious example, but there are countless others. I recall reading that Starbucks had a plan that would let an employee in one store trade jobs with an employee in another so that both could work closer to home. The result would not change either employee’s output or wages, or Starbucks’ profits. Conceivably GDP would fall because the employees would spend less on petrol or bus fare. But provided the swap was voluntary, the welfare of both would without question rise http://www.economist.com/blogs/freeexchange/2012/10/understanding-economics.
(Cooperative game theory is waz the above is all about. It looks at how well people can do when acting together; by examining all the possible combinations, theorists can spot outcomes that individuals acting alone cannot achieve http://www.economist.com/blogs/freeexchange/2012/10/microeconomics)
Well one hopes that the government too recognises the limitations of using prices to allocate everything. And that bit about “maximising welfare, not GDP”. It’s in the PAP’s bible. Juz read it, not juz Hard Truths which incidentally is derived from this book book.
*Where they differ is on democracy and a free media. The Economist is a strong advocate and proponent of both these principles, unlike the PAP. BTW I used to joke that the government doesn’t need high-salaried ministers and civil servants to think up policy. They need to read the Economist. Declaration of interest: the Economist is my favourite source of info and analysis. I like its combi of social liberalism and conservative economics and its style of prose, entertaining, and
It says things like: “The branding function of philosophy in politics is to give individual conscience a form congruent with group interest, to transform the mathematical necessities of coalitional partisan politics into many millions of separate acts of self-congratulating private virtue. It’s a neat trick. It would be neater still if fewer pundits played along.”