Coase, cars, cities

Alerted to it by Peter Sinclair, this week I read Ezra Mishan’s 1967 (and frequently reprinted up to 1993) book [amazon_link id=”0140210903″ target=”_blank” ]The Costs of Economic Growth[/amazon_link]. It’s a short, polemical book, and the overwhelming impression you get is that the author was a grumpy chap not at all happy about modern life. Especially in cities. Too much noise, too much dirt, too many people, too much traffic, above all too much traffic. I’m not entirely sure I’d want to have been seated next to him at dinner.

[amazon_image id=”0140210903″ link=”true” target=”_blank” size=”medium” ]The Costs of Economic Growth (Pelican)[/amazon_image]

Still, there’s a lot to like in the book. It has some excellent sections on the Coase theorem; on its non-applicability in many situations of environmental externalities because the transactions costs of negotiation are so large; and of the way the legal framework, in defining the status quo, shapes the outcome. If the law does not protect the interest of inhabitants in clean air, polluters will have no incentive or need to negotiate. Mishan in fact calls for general amenity rights to be enacted in law, rather radical but think how much difference it would have made to pollution and emissions since the 1960s. He also wants private vehicles banned from city and town centres, which also seems a radical but basiclly good idea; as he points out, transport analysts too often think their job is to get the traffic moving, when it ought to be to get people moving.

He also points out the importance of the initial distribution of income: “The wealthier the party, the more likely it is that his, or its, favoured outcome will be the optimal outcome.” The reason is that relative wealth will affect the parties’ judgements about what they are willing to accept/pay in a negotiation. Generally, the book is clear – as economists often are not – that an evaluation of social welfare is not possible without taking initial distribution into account. The level and distribution of income are not separable. I might need to go on to read Mishan’s [amazon_link id=”0394303962″ target=”_blank” ]Welfare Economics[/amazon_link].

A little bit of his dyspepsia is reserved for the way evaluations of policy only take account of what can be measured even if it is clear that effects that cannot be measured are nevertheless very important. He would like to “arrest the mass flight from reality into statistics,” he writes. He decries ‘growthmania’, “the fact that the fascination with index economics detracts attention from the broader aims of economic policy.” There’s certainly something in this, and indeed I increasingly think economists have to do much better at measuring the size of externalities rather than shrugging the collective shoulders. But, unlike Mishan, I’m for sustainable growth, not no growth.

Mishan died aged 96 in 2014. I’m glad to have filled a gap in my knowledge.

4 thoughts on “Coase, cars, cities

  1. Indeed the Coase Theorem does apply. But that was Coase’s point. The zero transaction cost world, where the theorem does apply is a world Coase wanted economists to give up.. As Coase himself said “The world of zero transaction costs has often been described as a Coaseian world. Nothing could be further from the truth.It is the world of modern economic theory, one which I was hoping to persuade economists to leave.”. Coase’s view of the “Coase Theorem” is,
    “It’s not about my work at all. George Stigler, who’s a very nice man, wanted to pay me a compliment so he invented the Coase theorem, but he named it Coase theorem, not the Stigler theorem. The reason I don’t like it that it’s the proposition about the system in which transaction costs are zero. Well that isn’t the way the system actually is, therefore, it’s a theoretical proposition and I don’t like that.”.

  2. Mishan was my tutor at LSE for Economics. A delightful and thoughtful chap he got on well with all of us in his group. I was grateful to him for opening up what might have been a difficult subject at that time. Unluckily, the Welfare minority were crushed beneath the juggernaut of the Keynesians and the booted Miliband Marxists in a manner of speaking.

  3. I have mentioned this before, I think, a while ago. But Mishan was one of my tutors at LSE and a delightful and thoughtful man. He certainly helped me to grasp the difficulties of Economics. Sadly, Welfare Economics was a minority group crushed by the Keynesian juggernaut and the boots of the Miliband Marxists.

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