In this post of a few days ago I wrote that I would offer a follow-up post in response to Oren Cass’s claim that when a government doesn’t obstruct its citizens’ freedom to purchase imports one result is a negative externality – specifically, an alleged undervaluation of the nation’s industrial base. That follow-up response is now written; it will appear as my next AIER column, hopefully to be published sometime next week. (I will, of course, share a link to that column here.)
Here I will briefly remark on James Broughel’s inaccurately capacious notion of “externalities.” Broughel, you might recall, tweeted this after Cass tweeted out my criticism of him (that is, of Cass):
In Oren’s defense, Boudreaux does have a history of denying externalities exist
David Henderson then tweeted, in response to Broughel:
Actually, he doesn’t.
In reply to David, Broughel tweeted:
I provided evidence. You make assertions. He denies them in both the title and the text of the post I linked to.
What is the evidence provided by Broughel to support his accusation that I “have a history of denying externalities exist”? According to Broughel, it’s the post of mine that he shared on X. That Cafe Hayek post is titled “Other People’s Choices Made With Their Own Resources Do Not Create Externalities.”
I could end this post here and simply encourage readers to judge for themselves if, in that post of mine to which Broughel links, I’m guilty “of denying externalities exist.” But I’ll write more.
What I do deny in that post is that the particular phenomenon classified by Broughel as an externality is an externality. But it’s incorrect for Broughel to infer from what I wrote in that post to the conclusion that I am therefore in the habit of “denying externalities exist.”
If Broughel were to show the world a picture of Secretariat crossing the finish line in the 1973 Belmont Stakes and then identify Secretariat as a pigeon, no one would be guilty of denying the existence of pigeons if he or she pointed out that Secretariat wasn’t a pigeon. Yet such an error is the sort that Broughel commits in his response to David Henderson.
Broughel’s writings on negative externalities clearly reveal that he thinks these consist of any and all choices that have negative effects on third parties who are not directly compensated by the persons whose choices cause these negative effects. This understanding is what enables him to treat as a negative externality the “desire on the part of the public to engage in conspicuous consumption. It would be more economically efficient if we lived in a world where scientists and engineers were as highly valued as actors and athletes are in our own culture.”
Given what economists mean by “economically efficient,” this claim by Broughel is simply mistaken. (And by “economists” here I don’t mean only Austrian or Chicago economists.) Overlook Broughel’s economically ambiguous line of “a world where scientists and engineers were as highly valued as actors and athletes are in our own culture.” (What, exactly, does this mean? Is he talking about marginal valuation? Would Broughel cheer if some mysterious disease overnight killed off so many scientists and engineers that the few who remained alive would command salaries equal to those of George Clooney and Shohei Ohtani?)
Instead, recognize that people value – truly value – consumption, including watching movies and sporting events. Broughel simply assumes that the value of the enjoyment of engaging in these consumption activities is inferior to, or less than, the value of getting more scientific and engineering services and breakthroughs. He cannot know that. In fact – and here’s the foundational, scientific point – because individual income earners choose to spend on entertainment whatever portions of their incomes that they spend on entertainment, the foregone utility that these individuals give up by choosing not to spend their money in other ways is internalized on them. There. Is. No. Externality.
Broughel is free to express his normative assessment that the world would be a better place if fewer people liked Taylor Swift and more people liked Stephen Hawking. But in doing so he’s stepping outside of his role as an economist, and so it’s illegitimate of him to use a word with scientific meaning – “externality” – as a label for that which he normatively dislikes. Broughel is also free to make scientific predictions of the sort that if people had stronger preferences for going to science lectures and weaker preferences for going to professional wrestling matches, then production patterns would change in ways X, Y, and Z. But he is not free to describe the preferences expressed with the expressers’ own resources as “externalities” simply because these expressions of preferences reveal that the expressers have some positive demands for some consumption items (including leisure) that cause the set of opportunities open to other people to differ from what Broughel thinks that set should be.
