- Paperback: 352 pages
- Publisher: CreateSpace Independent Publishing Platform; Large Print edition (January 1, 2004)
- Language: English
- ISBN-10: 1479220809
- ISBN-13: 978-1479220809
- Product Dimensions: 8 x 0.8 x 10 inches
- Shipping Weight: 1.9 pounds (View shipping rates and policies)
- Average Customer Review: 53 customer reviews
- Amazon Best Sellers Rank: #589,578 in Books (See Top 100 in Books)
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Economics for Real People: An Introduction to the Austrian School Large Print Edition
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About the Author
Gene Callahan is a software-technology professional in Connecticut, an adjunct scholar of the Mises Institute, and a commentator on economics issues in venues such as Marketplace and The Free Market. This is his first book. --This text refers to an out of print or unavailable edition of this title.
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Top customer reviews
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I have a lengthy criticism of some of his arguments below but I should emphasize that the book is enjoyable and effective overall. Chapter 14 on regulation and Chapter 15 on externalities overlooked some important counter arguments and issues.
Chapter 14 overlooked the tort system as the means to internalize the cost of defective/dangerous products into the purchase price. If a product will cause harm that outweighs its benefit, then if the manufacturer is made to bear the cost of that harm as an expense then it will have an incentive to reduce the harm to an efficient extent, i.e. to take precautions that are worth taking and ignore those which are not. Instead he essentially only discussed the downsides of direct regulation which are quite clear. His counterpoint to direct regulation was the use of private consumer guides (I would suggest that upon updating the book, actual consumer reviews such as Amazon are more useful and widespread than his examples). Consumer guides may make sense in the context of large (or online) purchases where search costs are low compared to the benefit, but I think the tort system is simply more relevant in the context of most dangers if I don't want to seek out private reviews of my store brand antacids, etc.
Chapter 15 on externalities also came across as narrow. Mr. Callahan essentially determines that because the exact cost of externalities are not susceptible to pricing except through negotiation, there is no scenario in which government should attempt to price, tax, regulate, etc. externalities where the costs are too diffuse for private negotiation to take place. The common example from Coase which he addresses is where a factory pollutes a river. If a small number of people are affected then they can negotiate a price for the pollution with the factory with relatively low transaction costs, but if thousands are affected then transaction costs may be too high for negotiation to take place. He points out that where an actual exchange has not occurred we cannot properly price the value/cost of that pollution for either party and each can make arbitrary declarations about the cost where they will not have to make a trade off.
This is pricing problem is correct, but we can point out that in many scenarios the cost is real but hard to quantify, and the failure to at least minimally price it only arises because transaction costs are too high due to collective action problems. Where it is clear that the optimal amount of the externality produced would be lower IF the parties had been able to negotiate, then it is rational to set some non-zero price on that externality even if it cannot be precisely ascertained, as long as the price does not exceed the actual cost. E.g. if we could establish that the cost of some pollution could be anywhere from $10 to $1,000 per ton, a $10 charge for each ton would at least bring the situation closer to optimal. The idea would be to be conservative in pricing estimates while recognizing that the cost exists.
Instead, Mr. Callahan makes a flimsy and question begging proposal that "we might want to define property rights so that each person has a right to be free of airborne pollutants that exceed a certain level on his property." The reason for pricing pollution via negotiation in the first place is to reach an optimal balance between the amount of production which causes pollution and the cost of that pollution. We do not want to continue marginal production beyond the point at which cost exceeds value. So it begs the question to say we should define some "right to be free of airborne pollutants that exceed a certain level" because the appropriate amount for that "certain level" is exactly what we do not yet know without negotiation. And yet he has already pointed out that transaction costs are too high due to collective action problems to do this negotiation at all. And so the result of this proposed property right in clean air would be hold up value for each and every hypothetical villager which may kick in well before the aggregate cost of production exceeds the aggregate value (depending on what we define as this "certain level" of air cleanliness).
Aside from these two chapters, I do recommend Mr. Callahan's engaging book and Austrian economics in general.
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