Sunday, April 04, 2010

Go back to first square

The message of Econ 101 is that price signals guide scarce resources to their highest and best uses.  The complexity of the task suggests that nothing but market prices and people free to respond to them can get the job done.  Substitute calculations are impossible.  And when and where there markets do not generate price signals, it is time to think hard about why that's that case and how signals (and trades) can come about where they are absent.  Emissions fees and tradable permits are often suggested.  But no one has yet figured out how these could be implemented without being politicized.

On top of all that, politicians and friends like to rush in with command-and-control.  Among the friends are those who are serious about green accounting.  The Econ 101 message, including the impossibility stuff, have not impressed them.  I recall that "energy accounting" was promoted 30+ years ago by many serious people.  This has morphed into "green accounting" and "carbon accounting" and perhaps other variants. Today's NY Times includes "How Green Is My iPad?"

But there are problems.  Choose or not choose an iPad based on this particular accounting?  My accountant might disagree.  And do I become a cost minimizer?

And aren't all resources scarce?  And doesn't that make the accounting much more complex than the op-ed suggests.  Go to first paragraph, above.