If there’s one thing I wish everybody understood about economics, it’s that wise resource allocation requires truly vast amounts of information, and that prices do an excellent job of summarizing that information. We led off the week by applying this principle to grocery shopping. A rather silly column in the New York Times had seemed to suggest that socially responsible shoppers should care about the energy costs of producing vegetables to the exclusion of all the other costs. The column was focusing, in other words, on the seen as opposed to the unseen. But the unseen costs of growing a tomato in one location rather than another are just as important as the obvious ones, and because they are unseen (and unseeable) the only feasible way to account for them is to look at prices. We followed up with a 25 year old application of exactly the same principle, this time to the problem of resource extraction.
We moved on to the perils of interpreting data, in this case with regard to the ingredients of a happy marriage. Then a look back to what the world of 1985 thought would constitue a marvelous future; we seem to have met expectations pretty well. And finally, we came in a sense full circle — from lamenting those focus single-mindedly on energy costs to the exclusion of all else to lamenting those who fault others for failing to focus single-mindedly on one political issue to the exclusion of all others.
I’ll be back next week with some thoughts on why we should care about economic efficiency, a little more on the foundations of arithmetic, and some surprises.
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