Friday, September 10, 2010

Local Eating

I liked this op-ed in the New York Times on "locovores."

Stephen Landsburg comments on his blog. (I highly recommend both the blog as two of his books: The Big Questions and The Armchair Economist.)

Landsburg's point is very valid and to often ignored. The Soivet Union collapsed because planners can't get enough information to decide who should get what, where and when. Prices, miraculously, do the work of the planner fantastically. They are signals that tell let everyone make individuals choices and when those choices get added up in the market, everyone gets what they want--with a few exceptions.

Exception one is that if people don't make smart choices then they aren't going to get what they want. That sounds stupid to say but its the basis for a ton of experiments in behavioral economics exploring why and when people make bad choices.

Exception two is when the prices don't reflect the real cost of something. For example, the price of gasoline doesn't reflect the cost (externality) of pollution to everyone who likes clean air.

So I disagree with Landsburg that prices are good signals in this case. The price of food doesn't capture the externalities from energy use because there is no carbon tax, so in a way it makes sense to try to "correct" the prices for energy use. That said, my guess is that Landsburg and I would agree locovores (and the op-ed author) don't approach that calculation properly because they don't even attempt to weight the costs of global warming against the happiness from consumption.

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