Saturday, March 04, 2006

Let the Bads be there

So the Undercover Economist's family moves to Hackney, London --of all places. From there he discussed the problem of externality --a cost or a benefit that affects bystanders, he said-- in Financial Times (link might be non-permanent), or in his own website under the title Friend Chicken versus Fresh Air.

He went to say that negative externalities of living in a London neighbourhood, such as Hackney, are coming from stuffs like "
with late licences; takeaway food; garages; tyre shops; massage parlours; and betting shops..." --man, except those last two, for me, they're positive!--

But, unlike what the standard textbook suggests to overcome this problem --you know, taxation or bargaining--; he argues that "..Taxation is too clumsy, especially when wielded by unresponsive local governments. Bargaining is fine in the textbooks but unappealing in reality..."

Bad news? No. Let the bads be there since the positive externalities of living in London, and in any other big city, would outdo them. And " turns out that people flock to London not to seek their fortune but to enjoy the things that money cannot buy..."

The things that money cannot buy: plays, museums, bloomsbury, park, culture (incl. snobbishness) and etc, etc, etc....well, right!

p/s: By the way, manager, can I request the standard "In a sentimental mood", this time by Bill Evans?


  1. I think Tim Hartford's article can also taken as proof of difficulties of calculating inflation. Or call it income equivalence of consumption.

    The common ways to do it is to take weighted price change of a basket of goods+services as representative of people consumption.

    But since there statistics agency doesnt have panel data from all citizens' consumption, the composition and weight of goods+services at best come from much more limited household survey. Hard to expect the official number will equal any person's actual income-consumption equivalence.

    The matter become more complicated, as Tim Hartford ilustrate, when pattern of consumption change as availability issue arise. Even more so when preference it self change to availability and places.

  2. Berly, is there any alternative for measuring the city price?

    Real wages differential may matter, yet it seems it wouldn't qualify his argument --that people are attracted by the net positive externalities of living in a city.