The Endless Depths of Economic Analysis

There is apparently a factor in economic analysis called “lost pleasure” or lost consumer surplus that assigns a monetary value to the pleasure denied to people when something they are doing is being banned or regulated.  The idea is that if, for instance, the government were to ban the playing of Chess in the United States, then Chess players would suffer a certain dollar amount of “lost pleasure” which is factored into economic calculations to offset whatever economic gains there would be to banning chess.  Suppose the average chess player played 50 games of chess per year and received an estimated $10 of pleasure from each game, but as they play, they develop the illness, “Chess fingers”. which can be treated with a cream costing the players an average of $3500 per year.  Thus, per year, they gain $5000 worth of pleasure in exchange for $3500 for cream.  So economically, banning chess would result in a $1500 loss per chess player, and would thus be considered a bad idea.

Clearly, there is a lot of oversimplification going on in that chess example calculation.  For instance, how is the pleasure value of each game of chess calculated?  Why is the cream the only cost associated with chess?  What about the time lost while playing?  How can there be a disparity between the pleasure gained and the cost?  Wouldn’t people just keep playing more until the cost/benefits balanced out?

The subjective nature of this type of analysis makes it easier to challenge, and there are other complicating factors.  Suppose for a moment that playing Chess was also addictive.  This further complicates the calculation, because as the addiction progresses, the incremental pleasure gained from each new game of chess decreases, while the cost remains the same or increases.  Furthermore, there is a large point cost to transition from being a Chess player to being a non-player, this accounts for the pain associated with kicking the habit.  Also there could be Chess cessation aids like checkers or Connect Four which would have a cost.

But the issue can be even further complicated when you account for social pressures.  For instance, suppose that after discovering the addictiveness of Chess and the crippling finger illness, a group of activists create an Ad campaign which tells people that Chess players are less sexually attractive. “When you see a Chess player, you have to left swipe dat.”  This further reduces the pleasure gained from Chess playing by causing social ostricization of Chess players.  After all this, the cost of Chess playing greatly outweighs the “lost pleasure” and it becomes reasonable to consider a law banning it.

There are still some things missing from the calculation, however, if the goal is to decide whether or not to ban Chess.   There are costs associated with enforcing the ban, including extra policing needed to control or prevent the unlawful playing of Chess.  Organized crime could be attracted to the unlawful game as they could easily leverage its addictiveness for their own gains.  The cost of preventing or subduing that organized crime must be considered before banning or over-regulating Chess.  Consider the ongoing costs being paid for the war on drugs after those bans, it’s been so costly, unsuccessful, and unpopular that some states are starting to lift bans on previously banned or regulated substances.

Now, suppose all of this is taken into account somehow with good and accurate data, and projections for the future which somehow incorporate shifts in popular opinion, and it is put into a report which is given to a Senator or Congressman, for review by a committee of such.  This committee then has to consider the credibility of this report in relation to the image they want to project of themselves in order to get re-elected and/or to curry favor for a separate bill that they co-wrote, depending on how publicly visible the committee meetings are.  In fact, you could do a whole separate economic analysis for each legislators’ desicion making process, all of which could easily have far reaching effects on other societal economic issues.  (i.e. If you vote for this ban on Chess, I’ll help you pass your bill which limits interstate highway maintenance funding for states that have a speed limit less than 85 mph).

This can all get extraordinarily complicated, and many people (some that aren’t even aware of the complexity) develop ways to simplify it all down.  These are what people refer to when they talk about values or beliefs.  Some people will say, “I believe that Chess playing should be banned.” and that is an often socially acceptable way of absolving them from any responsibility to perform the actual economic analysis themselves.  So what does this do?  Well, it adds additional levels of complexity to the grander economic analysis.  The cost associated with changing these peoples’ beliefs or just opposing them now has to be considered for each new decision after their belief sets in.  For instance, suppose an economist produces a report on the effects banning Chess playing and that report is released to the public.  Did the economist factor in the effects of his own report on his analysis?  Did he expect to inspire belief in a certain percentage of people?  Did he account for the talking heads on the news channels to use his report as a rallying cry?  Or did the economist just believe that those factors would be insignificant (thereby assuming the report would go largely unnoticed)?


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