Tuesday, October 22, 2013

A challenge to Landsburg

Steven Landsburg is an economist I greatly admire. The depth and uniqueness of his mind and viewpoint are quite amazing. So it is with trepidation that I challenge an argument he has made several times before and has touched on in another guise yet again. I expect it is likely that I am not refuting Landsburg. More likely I am misunderstanding the argument and hence not addressing it or I'm making a weak argument--a weakness I cannot see.

The main argument is about wasteful competition. The first appearance I can recall is here. Followed by another here. Then came this very interesting question about taxing novelists for the same reason we may want to tax carbon. He followed the post with another for clarification.

There are multiple arguments being made in these posts, and I agree substantially with many. Where I disagree is in this concept of wasteful competition--that the additional athlete, football team, novelist, etc. is more socially costly than beneficial. If I have it correctly, the argument runs as follows:

  1. The resources devoted to a marginal addition in output for good X can be substantial.
  2. In many cases the output of good X before the marginal increase was already substantial.
  3. The gain from the marginal addition of good X is slight.
  4. Therefore, we have wasted resources on the margin since the gain does not justify the cost. There is a market failure.

I think there is more going on here. On the surface he appears to lack an appreciation for quality. It is as if at the extreme (perhaps an unfair reductio ad absurdum) he believes mediocrity is the optimum. Yes, that is an unfair characterization, but it is getting toward my point. Looking deeply I do not think we can be so linear in how we think about marginal improvement. It is multidimensional and part of a larger purpose.

The resources that flow into a given endeavor only look out of proportion to the marginal output when we narrowly define the output. The nth cereal on the aisle may not add much to the quality of my breakfast, but it may be a natural and unavoidable byproduct of the magnificent process that brings me cheap cereals (and so much more) on demand and basically without fail.

Consider also that although cost curves decline as quantity produced increases while economies of scale persist, only usually does quantity produced mirror the progression of time. It doesn't have to be the case that quantity and time are interchangeable as the X-axis. So while it may seem wasteful in isolation to see yet another novel published, that may be part of the cost of the first novel.

Finally, innovation often comes in unexpected surges emerging from dull periods of slight and arguably inefficient activity. The iPod was not just one more MP3 player. ESPN was not just one more way to see the already-watched sports.

As for competition and the fear it may become wasteful, be scared. You can't help that. But don't be afraid. We have to strive on for better and higher possibilities.

PS. Here is how I answered the novelist taxation question.