applied economists habitually assume that people are selfish in the ordinary language sense of the word. Consider Yoram’s congestion example. Every applied economist says, “Raise the price!” But if drivers were unselfish in the right way, all of the following would be equally economically plausible solutions:
1. Ask everyone to drive less “because they’re inconveniencing others.”
2. Tell people they’re contributing to global warming.
3. Announce that if traffic doesn’t fall by 20%, we’ll abolish foreign aid to Senegal.
4. Denounce materialism so people quit their jobs and stop commuting.
Now you could say that applied economists are being closed-minded. But I think we’re correct to focus on congestion charges. Why? Because the assumption of human selfishness is roughly true. Almost everyone cares a lot about the price they personally have to pay to use a road, and getting their weekly paycheck. Most people don’t care very much about the effect of their driving on other drivers, global temperature, or the people of Senegal.
It’s easy to multiply examples. Rent control leads to shortages and/or declining quality – if landlords are selfish. If they loved their tenants as themselves, it’s a different story. Printing tons of money wouldn’t cause inflation if people were happy to build up unlimited cash balances for the “good of the country.” Yadda yadda yadda.
I’m not going to deal with every example Bryan raised, and I’m not here to deny that a lot of people–perhaps even Americans who are trained in Chicago School or Austrian economics in particular–are selfish in the everyday sense of the term. What I am here to argue is that modern economic theory does not assume people are selfish in this sense of the term. I think Bryan is simply wrong.
I would suggest that most of the problems with Bryan’s alternate suggestions for alleviating road congestion are due to strategic and knowledge/calculation issues, not to the fact that most people don’t really care about global warming, the Senegalese, etc.
To make things apples-to-apples, we should have contrasted those strategies with #5, for every mile reduced, put in $1 into a pot to be divided among all drivers. That wouldn’t work either, and gosh did I just prove that people don’t care about money?!
Of course not. So by the same token, if the government somehow could actually assure me that the number of Afghan civilians killed by a Predator drone would go down by 1, for every fewer mile I drove on the public road, then I definitely would alter my habits. I’m not saying every other American would took, but a lot would. So there, did I just prove people are basically altruistic?
Suppose we look over the books of a hospital or a group set up to send bottled water to Haitians, and we find that they buy the relevant stuff at Wal-Mart or other cheap vendors. Would we be aghast and say, “You selfish scoundrels! Why are you paying attention to price?!” On the contrary, we would salute them. The real scandal with such “non-profits” would be if they wasted their resources by not paying attention to prices.
Whether you had a world of Mother Theresas or Ayn Rands, the laws of supply and demand would still work, and price controls would still lead to shortages.
The law of demand doesn’t say, “People always buy the cheapest thing.” I am not violating the law of demand when I buy a $20 steak instead of a $5 burger.
Economics also doesn’t assume workers go to where they make the most money.
No, all economic laws (properly construed as the Austrians stress) are ceteris paribus. The demand curve holds everything else equal, and then traces the impact of quantity demanded by altering the price.
In the grand scheme, demand curves slope downward because of budget constraints i.e. scarcity. They don’t slope downward because of selfishness.
Like I said at the beginning, I didn’t think this through such that I’d bet my life on it. Maybe Bryan can convince me that the above standard schtick from Austrian economists is wrong. But he has yet to convince me.