Thoughts on Standard Economics

I’ve been looking through Paul Krugman’s textbook Macroeconomics (Krugman and Wells, 4th edition, 2015) and came on Principle #2 – “The opportunity cost of an item—what you must give up in order to get it—is its true cost….The concept of opportunity cost is crucial to understanding individual choice because, in the end, all costs are opportunity costs. That’s because every choice you make means forgoing some other alternative.”

In this standard economics model, a central feature of capitalism gets swept under the rug or simply not mentioned, external costs. Many of the total costs of capitalist products are hidden from the pricing system, yet we all live with the consequences of the fact that capitalist markets require producers to socialize (externalize) as many costs as possible. Much of the history of the capitalist era is a struggle over who pays for these external costs. The capitalists wanted to continue to have someone else pay. Others began to push back. Continue reading