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To me it matters a lot. Capitalism only works when the true costs of things are accurately reflected in their prices. If the road maintenance cost of transpor

To me it matters a lot. Capitalism only works when the true costs of things are accurately reflected in their prices. If the road maintenance cost of transporting the potatoes is priced into the potatoes, then the potato company might opt to transport the potatoes in a different (cheaper) way. But if the road maintenance costs appear free or near-free to the potato company, they have no incentive to care about it. Also it makes drivers who don't eat potatoes subsidize the potato consumers.

joejerryronnie 8y ago
I believe you’ve just justified my french fry habit!
briandear 8y ago
The price is included. Potatoes are sold and the proceeds taxed. Those taxes go to pay for roads. If we didn’t have to fix roads, taxes could be lower, resulting in higher profits for the potato farmer.
- lsc 8y ago
  So in your model, road wear is priced into the costs of all goods, no? That's one way to do it, but the problem is that then a single potato logistics company has no incentive to use a (presumably more expensive) transport method that causes less road wear, because the benefits are spread evenly across everyone, and costs are borne entirely by the switching company, so nobody would switch. (unless you made some rule forcing everyone to switch, which is another way to do it) If road taxes are directly tied to the things causing wear, then every company causing that wear has an incentive to find a transport method that causes less wear (assuming that the additional cost of that transport method is lower than the cost of the road wear - that's why some people argue that using markets is better than using rules; if you've properly priced the market, the market will balance between road and rail based on cost.) That's why it's important to make sure that all externalities are directly tied into the cost of whatever is creating those externalities.
geezerjay 8y ago
> To me it matters a lot. Capitalism only works when the true costs of things are accurately reflected in their prices. That's actually not true. Capitalism always works, no matter the problem. However, free markets don't account for externalities, and in some cases supply/demand constraints create unacceptable non-economic problems. Thus, to avoid the effects of non-economical problems then it's preferable to create economic incentives that reflect the non-economic constraints.

joejerryronnie 8y ago

I believe you’ve just justified my french fry habit!

briandear 8y ago

The price is included. Potatoes are sold and the proceeds taxed. Those taxes go to pay for roads. If we didn’t have to fix roads, taxes could be lower, resulting in higher profits for the potato farmer.

lsc 8y ago
So in your model, road wear is priced into the costs of all goods, no? That's one way to do it, but the problem is that then a single potato logistics company has no incentive to use a (presumably more expensive) transport method that causes less road wear, because the benefits are spread evenly across everyone, and costs are borne entirely by the switching company, so nobody would switch. (unless you made some rule forcing everyone to switch, which is another way to do it) If road taxes are directly tied to the things causing wear, then every company causing that wear has an incentive to find a transport method that causes less wear (assuming that the additional cost of that transport method is lower than the cost of the road wear - that's why some people argue that using markets is better than using rules; if you've properly priced the market, the market will balance between road and rail based on cost.) That's why it's important to make sure that all externalities are directly tied into the cost of whatever is creating those externalities.

geezerjay 8y ago

> To me it matters a lot. Capitalism only works when the true costs of things are accurately reflected in their prices. That's actually not true. Capitalism always works, no matter the problem. However, free markets don't account for externalities, and in some cases supply/demand constraints create unacceptable non-economic problems. Thus, to avoid the effects of non-economical problems then it's preferable to create economic incentives that reflect the non-economic constraints.