Thursday, December 17, 2015


"Waste" is one of those casually used and misleading words that economic thinking clarifies. My favorite is still Alchian and Allen's explanation from Exchange and Production. "Empty apartments per se are not waste. They are a method of production to economize on the high costs of predicting the future and also of the high cost of immediately producing whatever a person wants" (p. 155).

Fast forward to the present -- and technologies that drastically cut transactions costs and make sharing inexpensive and practical. Think Uber and AirBnB. In the Winter 2016 edition of The Independent Review, there is Michael Munger's "Tomorrow 3.0: The Sharing Economy." (Not yet online.) He writes about disruptive technologies.  "Almost everything we own will soon be a potential rental item, or we won't own it at all because we'll rent it from someone else" (p. 391) "In a short time ... many of us will have much less stuff" (p. 394).Think about that "extra" lawnmower in you and your neighbor's garages. How often are they used? How often is it a waste? In Alchian and Allen's day, it was not waste for the reasons that they explain. Search and information were much costlier and scarcer and then.

But, how times have changed! Fewer purchases! Less "waste"!

And we are much richer (thanks to markets and tech) than our GDP data suggest (than they can suggest). GDP still hangs on what we purchase. Listen to all the talk surrounding Janet Yellen's announcement yesterday.