I have something of a love-hate affair with NPR's Planet Money podcast. On the one hand, it is consistently informant and engaging, belying Carlyle's adjective for the science of economics. Since understanding economics will be the most important thing we can do during the coming years, anything which furthers this goal should be lauded. At the same time, the people who run the podcast reliably follow threads which can't possibly lead anywhere. Insofar as this is not taken seriously, it is merely diversionary, and often amusing. But it also has the tendency to instill poor thinking.
To take an example, in a recent episode titled LeBronomics, one of the guests brought up the notion of a util. This unit has no real value, but it supposedly helps to quantify that which would otherwise be unquantifiable, namely the utility of a particular economic choice. Thus the hosts examined the utility, measured in chimerical utils, of Lebron James's Decision.
In the interest of full discretion, for those who do not follow sports, LeBron James is one of the best basketball players currently in the NBA. Since his contract expired at the end of last season, teams had been clearing cap room so as to have the chance to win the LeBron lottery. The Decision was an hour long television special in which LeBron turned his back on his home state of Ohio so as to party with his friends, Dwyane Wade and Chris Bosh, while trying to win titles with the Miama Heat.
Much was written and said about the display of narcissism involved in the decision, but I have a slightly different take. I want Supreme Court Justices to follow in LeBron's footsteps. Tell me the Judicial Branch doesn't become that much more compelling when we put Anthony Kennedy in the hot seat on national television.
Based partially on the fact that the perennial loser New York Knicks play in a large city, the Planet Money panel decided that in order to maximize the utility of all involved, LeBron ought to have played for them instead. This analysis is faulty for two reasons. Most obviously, LeBron is and should be primarily interested in maximizing his own utility. It was tactless to stab Cleveland in the back on national television, but he has the right to play for the team he so chooses; it's not as if any of us run felicitous calculus before determining whether or not to accept a job offer. While it might be nice if athletes took sports as seriously as the fans, we place an unreasonable amount of pressure on those who are little more than kids. If given the chance, most twenty-five year olds head to South Beach to party.
Less obviously—but more importantly—the discussion is an exercise in futility. There is no way to quantify utility; nor is it the sheer number of factors—the fans of the various teams, etc.—which makes quantification impossible. A single person can rank his preferences, and thereby qualify utility; for LeBron, his first choice was to play in Miami, his second, perhaps, Chicago, etc. However, as soon as a second person becomes involved, there is no way to compare scales of value. To pretend otherwise is not only deceptive, it leads one down dead ends.
The great economist Ludwig von Mises discovered this long ago. In his treatise on Socialism—first published in German in 1922—he explained that economic calculation was fundamentally impossible because, without the market's determination of prices, there was no way to compare goods and services. He was later to restate this truth in his magnum opus, Human Action: "The director [of a socialist society] wants to build a house. Now, there are many methods that can be resorted to... Which method should the director choose? He cannot reduce to a common denominator the items of various materials and various kinds of labor to be expended. Therefore he cannot compare them."
For the socialist commonwealth, the problem is of utmost importance. Without the feedback mechanism of profits and losses provided by the market, the director has no idea if his production is sustainable. He may be inefficiently allocating resources, thereby impoverishing society. This has nothing to do with the character of the director; as Mises points out, even an omniscient and benevolent leader would be incapable of comparing different goods, be they apples and oranges, or even similar iron from forges in slightly disparate locations. Mises's critique is ninety years old, but, so far as I know, it has not been successfully challenged.
Now, clearly, Planet Money is not advocating socialism. However, by entertaining a nonsensical idea, it gives credence where none is due. Economics is not rocket science; it is well within the grasp of reasonably intelligent individuals; but it does require patience and clear thinking. The util is an absurdity, with no more validity than discussions of angels dancing on pins. We should strike such silliness from our minds and proceed cautiously toward true economic knowledge.
To take an example, in a recent episode titled LeBronomics, one of the guests brought up the notion of a util. This unit has no real value, but it supposedly helps to quantify that which would otherwise be unquantifiable, namely the utility of a particular economic choice. Thus the hosts examined the utility, measured in chimerical utils, of Lebron James's Decision.
In the interest of full discretion, for those who do not follow sports, LeBron James is one of the best basketball players currently in the NBA. Since his contract expired at the end of last season, teams had been clearing cap room so as to have the chance to win the LeBron lottery. The Decision was an hour long television special in which LeBron turned his back on his home state of Ohio so as to party with his friends, Dwyane Wade and Chris Bosh, while trying to win titles with the Miama Heat.
Much was written and said about the display of narcissism involved in the decision, but I have a slightly different take. I want Supreme Court Justices to follow in LeBron's footsteps. Tell me the Judicial Branch doesn't become that much more compelling when we put Anthony Kennedy in the hot seat on national television.
Based partially on the fact that the perennial loser New York Knicks play in a large city, the Planet Money panel decided that in order to maximize the utility of all involved, LeBron ought to have played for them instead. This analysis is faulty for two reasons. Most obviously, LeBron is and should be primarily interested in maximizing his own utility. It was tactless to stab Cleveland in the back on national television, but he has the right to play for the team he so chooses; it's not as if any of us run felicitous calculus before determining whether or not to accept a job offer. While it might be nice if athletes took sports as seriously as the fans, we place an unreasonable amount of pressure on those who are little more than kids. If given the chance, most twenty-five year olds head to South Beach to party.
Less obviously—but more importantly—the discussion is an exercise in futility. There is no way to quantify utility; nor is it the sheer number of factors—the fans of the various teams, etc.—which makes quantification impossible. A single person can rank his preferences, and thereby qualify utility; for LeBron, his first choice was to play in Miami, his second, perhaps, Chicago, etc. However, as soon as a second person becomes involved, there is no way to compare scales of value. To pretend otherwise is not only deceptive, it leads one down dead ends.
The great economist Ludwig von Mises discovered this long ago. In his treatise on Socialism—first published in German in 1922—he explained that economic calculation was fundamentally impossible because, without the market's determination of prices, there was no way to compare goods and services. He was later to restate this truth in his magnum opus, Human Action: "The director [of a socialist society] wants to build a house. Now, there are many methods that can be resorted to... Which method should the director choose? He cannot reduce to a common denominator the items of various materials and various kinds of labor to be expended. Therefore he cannot compare them."
For the socialist commonwealth, the problem is of utmost importance. Without the feedback mechanism of profits and losses provided by the market, the director has no idea if his production is sustainable. He may be inefficiently allocating resources, thereby impoverishing society. This has nothing to do with the character of the director; as Mises points out, even an omniscient and benevolent leader would be incapable of comparing different goods, be they apples and oranges, or even similar iron from forges in slightly disparate locations. Mises's critique is ninety years old, but, so far as I know, it has not been successfully challenged.
Now, clearly, Planet Money is not advocating socialism. However, by entertaining a nonsensical idea, it gives credence where none is due. Economics is not rocket science; it is well within the grasp of reasonably intelligent individuals; but it does require patience and clear thinking. The util is an absurdity, with no more validity than discussions of angels dancing on pins. We should strike such silliness from our minds and proceed cautiously toward true economic knowledge.
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