Speaking again as a political scientist and not an economist (although it is impossible to think about politics without also considering economics, and vice-versa), I return to some of my observations in a related discussion:
Ask about economics (2): can money be defined solely in units relative to the value of human life?
There are three fundamental difficulties in devising a system that eliminates the harmful effects of externalities:
First, the number of variables that influence economic outcomes are incalculable. As I stated in the other thread, this is one of the reasons why the planned economies of the Soviet bloc failed so spectacularly. It wasn’t that the leaders were necessarily malicious in their intent (although perhaps some were), but that they were mistaken about the ability to control every aspect of a system so complicated as economics. Perhaps if an economy made only one thing (the ubiquitous “widget” of economics theory), it would be possible to calculate all the costs involved in making a widget and its outcomes, including unintended ones, i.e., externalities. However, human economic interactions involve commerce in millions, maybe billions, or even trillions of goods and services. Moreover, all these goods and services are interconnected, such that a change in the production of one item could have spillover effects to dozens of others. Not even the most advanced supercomputer existing today could even begin to calculate a way to eliminate the harm caused by externalities for the billions or trillions of goods and services produced in today’s economy.
Second, they are called “variables” because they change. Here is where basic Buddhist principles are astoundingly prescient. Everything is impermanent and changing in human life, including in economics. New products are invented every day. New manufacturing techniques come about with amazing speed. Even if a supercomputer could calculate a way to eliminate the harmful effects of externalities today, tomorrow would be different.
Third, human beings are unpredictable in their behavior. As Bhante Sujato observed in the other discussion:
Economics (the “dismal science”) is not really a “science” in the same way as the physical and natural sciences such as physics and chemistry. The physical and natural sciences such physics and chemistry aim for theories of regularity. They are built on hypotheses, if-then propositions, that yield theories which explain regularity and thus facilitate prediction. The social sciences (economics, political science, sociology, etc.) aim for theories of probability, not regularity. They too begin with hypotheses, but the theories which result from testing those hypotheses explain the probability that an outcome will occur, not a regularly occurring result. This is why prediction in the social sciences is a much dicier endeavor than in the physical and natural sciences.
As a “social scientist” myself, if there is one thing I have learned in the twenty-seven years since earning my doctorate is…humility! I entered graduate school thinking that eventually I would develop a theory of politics that would so revolutionize thinking that it would alter the course of human events. Ha!! Good economists, like all good social scientists, realize the limitations of their “theories.”