in praise of economics*

I’ve always been skeptical of economics—the curves and intersecting lines depicting utility and preferences and other variables I no longer remember. It seemed so reductive, and it always seemed to rest on the shaky assumption that additional consumption was better (though with diminishing marginal returns).

While I have yet to be convinced that economics can explain all of human behavior, I’ve grown to appreciate its applications to real life situations. Understanding people’s preferences and their assessment of costs and benefits, enables the effective implementation of policies. It’s often not helpful to try to control and legislate the end result. Rather, it is often better to put in place the conditions that will make people inclined to choose that end result. To clarify, here are two examples:

In this article, referenced in Lee Huang’s blog, Krauthammer writes:

At $3 a gallon, Americans just grin and bear it, suck it up, and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down 4 percent. (Any U.S. decline is something close to a miracle.) Hybrids and compacts are flying off the lots. SUV sales are in free fall.

America's sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company's fleet have to meet by precisely what date.

At $4 a gallon, the fleet composition is changing spontaneously and overnight, not over the 13 years mandated by Congress. (Even Stalin had the modesty to restrict himself to five-year plans.)

In the Death and Life of American Cities, Jane Jacobs writes about how unsuccessful cities designed around car transportation can be (including the terrible traffic). She writes about cities often unknowingly enter a slippery slope in order to accommodate cars. As soon as the city makes room for more parking spaces, widens streets and build highways, even more people use cars, resulting in more traffic troubles, which demand further changes to accommodate cars. Eventually, the city becomes one large traffic sprawl where you can’t get anywhere without a car (e.g. Los Angeles).

In order to avoid this, Jacobs does not advocate complicated tax schemes or incentive plans (though she does acknowledge the need to improve public transportation). However, the primary measure would be to make the city more inconvenient for cars (e.g. staggering stoplights with frequent changes – inconvenient for personal cars but good for buses). As the city became more inconvenient to drive in, more people opted to walk, bike or take public transportation.

So yes, more and more, I’ve seen the effectiveness of policies that take advantage of the market system or that employ cost benefit analysis. (I feel like I'm supposed to write a better conclusive sentence to this blog entry, but that's really all I have to say...)


* I haven’t taken an economics course for about six years, except for one on Urban Fiscal Policy about three years ago … so if I am mistaken on a few items, please forgive me and clarify in the comments. Thank you!
** I was also very enthused to hear Mayor Michael Nutter’s commitment to “a pedestrian-focused urban form that would not be trumped by the design demands of cars.” Gas prices are not going to go down, and the age of automobile is waning. So what if Chestnut Street is always a traffic mess? It's a lively street that would be destroyed if the road was widened. It’s much eaiser to just walk or to take the trolley or the subway. For more details on Nutter’s speech reinstating powers to the Philadelphia Planning Comission, please see this article in the Inquirer.