Briefly, in Economics, a situation where someone receives a benefit or a cost, other than through the operation of the market, is called an externality and when this happens we know the market fails to produce the best possible outcome.
Landsburg argument is that when I hire x instead of y, then y loses out. Similarly, if I urinate copiously on y, then y loses out. Why is it that I will be fined or jailed for urinating on y whereas I get off scot-free for not hiring him?
The answer is that hiring x rather than y is a market decision. Y's loss or gain is mediated by the market. There is no externality. Urinating on a guy, or committing some other nuisance, is not mediated through the market, unless he paid me to do it, or I compensated him for it.
Landsburg says 'the social value created by Gruen ( an author he likes) is determined by the value that you get from reading Gruen as opposed to reading someone else.'
This is mad. Suppose I chose to hire you to work for ten hours cleaning my house. I could have hired someone else to work for nine and a half hours. Is the social value of your ten hours of labor actually just half an hour of labor because that is the difference between my benefit from hiring you and my benefit from hiring someone else? If so, why stop there? The social value of everything is zero because the alternative to that thing is 99.9999999 recurring percentage of that same thing. Landsburg just destroyed the economy.
But Steve's just getting warmed up.
His post continues 'That social value is, most of the time, far less than your willingness to pay. But the reason markets work so well is that — most of the time — willingness to pay is an accurate gauge of social value. In this case it’s not, so there’s no reason to trust the market.'
So, according to Landsburg, when people buy a book by Gruen for ten dollars, the social value created by Gruen is less than ten dollars because people could have read Faulkner for free on their Kindle. Suppose Gruen is a believer in Landsburg's nutty Economics. She increases the social value of her product, at least for Landsburg, by offering him the following contract- either buy my book or I cause ten million dollars worth of damage to your body. Now Landsburg's social value from buying her book is just ten bucks short of ten million. Wow! Landsburg hasn't just destroyed the economy, he's resurrected it as an evil zombie.
But why stop with the Economy when one can also destroy Civilization? That's Landsburg's next step.
Question: How do you justify taxing carbon emissions without also taxing novelists?
Let me head off the obvious (but I think faulty) rejoinder that the carbon emitter is intruding on his neighbors’ property rights while Sara Gruen is not. Here’s why I don’t buy that: When we talk about setting policy, we’re implicitly talking about how property rights should be allocated in the first place. When we tax the polluter, we’re declaring that his neighbors have a property right to carbon-free air. If we tax Sara Gruen, we’re declaring that the Faulkner estate has a property right to the attention of potential readers. Neither of those property rights exists ab initio. Instead, they’re created by policies. So a claim that there’s a relevant property right in one case (but not the other) is not an answer to the question; it’s only a rephrasing of the question, viz: “Why is there so much clamor to create and enforce one property right but not the other?”
Suppose no rights exist ab initio. In that case, talk about setting policy can't implicitly be about rights at all. Either such talk explicitly creates rights or it does not. Nothing that goes on during the process of talking can have an implicit reference to rights because we have already stipulated for their non-existence.
What happens if some rights exist ab initio? Then implicit reference can be made to those rights and, while talking about setting policy, the scope of those rights may indeed be broadened such that new property rights become vested.
Landsburg asks- It is possible, perhaps, to understand why self-interested parties have found it worth their while to fight for carbon taxes but not for authorial taxes. My question is whether there’s a principled reason to tax polluters but not novelists. Anyone?
The answer, of course, is- the principles of Economics give a reason to tax externalities such that Social Costs and Benefits come into line with Private Incentives and penalties. If authors compete in the market, no externality requiring a tax arises though there are winners and losers. Carbon taxes, however, are one proposed solution to the Externalities associated with the use of fossil fuel.