Anti-Capitalist Sentiment (with some morality)

[wufwugy]

Sorry guys I think I'm done debating this stuff. My energies are going elsewhere.

Maybe I'll join the Free State Project at some point.

[Renton]

Obviously a huge percentage of the population is capable of evil depending on your definition of evil. I think setting the line at aggressive violence is about right. Violence when not acting in defense of oneself is wrong. Governments are the only entities with monopolies on violence (thats an Obama quote), and you have to frame any pro-government argument as being a "necessary evil."

The conversation about what is evil or what isn't is a boring one. The relevant conversation should be about how incentives affect aggressive behavior.

[Renton]

Hypothetical Situation

A large U.S. corporation employs thousands of workers, most of whom are around the 25th percentile income. Certainly below middle class. They can probably afford a frugal lifestyle but definitely aren't making enough to be able to save a large percentage of their incomes or have investment portfolios etc. Currently the compensation model of this company is an hourly wage dispensed bi-weekly. Let's say for the sake of argument that the average sub-management employee earns $10/hour, or about $20,000 annually for full time work.

Consider two scenarios:

Scenario A

The company offers an optional deal to each employee. They agree either to the current compensation arrangement OR a new one in which they are paid 80% in cash and 20% in equity. Good news and bad news though. Good news is that for their 20% salary investment they get 1.5 times the market value of the company. In other words a $10/hour wage pays $8 cash and $3 in equity. The bad news is that there's a clause in the agreement that says they cannot sell the equity for some period of time (say 6 months) unless they quit the company.

So as the employees who choose this offer continue to work, they build equity in the company, and will earn quarterly dividends if the company makes a profit, which they can either receive as cash or as equity, same deal as before. However, the value of their equity could also decrease if the company posts losses.

What percentage of employees would take the deal?


Scenario B

Everything is the same as Scenario A, with the following exceptions. Instead of offering a 20% cut in pay that is replaced by the profit sharing / equity program, the employees are allowed to choose between a straight cash raise to 120% of their previous wage, or the same deal as above with 100% of their original wage + 20% equity. Again, they get 1.5 times the value of their investment.

What percentage of employees would choose the equity program over the cash raise?


Bonus question (for either scenario): How much (if at all) do you think you would you need to sweeten the equity deal for a majority of the employees to choose it over the alternative?

[JKDS]

Scenario A

What percentage of employees would take the deal?

Close to none. The cost of living is simply too high, and a $2/hr cut in pay for 6 months would put most of them in the street.

Scenario B

What percentage of employees would choose the equity program over the cash raise?

A lot more would take the deal, but I think most still take the straight up cash raise. Its much easier to understand a 20% raise than it is to understand getting an equity thing and figuring out what to do with it.

Bonus question (for either scenario): How much (if at all) do you think you would you need to sweeten the equity deal for a majority of the employees to choose it over the alternative?

Thats really neat. I think the biggest hurdle is people's need for more money now though. If there was an option for say, 110% pay + 10% equity, I think most would take that over the 100% + 20%. People want to feel like they made the right choice, and seeing the increase in actual pay accomplishes that very well.

[a500lbgorilla]

I'm in line with JKDS on this one on both points + the bonus.

Personally, I would take the investment option in A as, at the time I was working at this sort of job, I was well supported by my parents and would recognize the growing benefit of the equity.

It's funny because this sort of thing could be framed differently, instead of equity in the company, it could be company-bucks where they can spend some of their wages on goods and services provided by the company (and have the company bucks be worth 1.5 normal bucks).

[Renton]

I think the question gets to the root of how wages are determined. It's easy to say things like "companies ought to share the profits with their employees," but when you look more closely at the issue, it becomes clear that mandating this sort of thing would just hurt workers. I personally believe less than 1% would take the deal in the first case, and less than 5% in the second case. I also think that the percentages would be terribly low even up into middle class salaries. I believe a huge majority of people earning 45k a year would rather get the cash instead of 36k + equity.

Similarly, this logic can be extended down to the lowest wages paid in third-world countries. If you offered Cambodian garment workers a proposal where they would make 80% as much, but have air-conditioning, more time off, and nicer working conditions, they would almost always want the extra money instead.

[wufwugy]

Equity means nothing to most people. I don't think peoples' view of equity changes with economic status, but with level of familiarity with finance. With financial familiarity, even the poorest people would choose the equity options because spending can always be shifted on the margins.

[Renton]

I don't agree with that at all. I think its demonstrable that money now is worth more than money later, and that the comparison is the most sharp when you don't have much of it on hand. Rich and upper middle class people invest money because the marginal value of money is much-decreased for them. Basically, people with more wealth are able to ascribe greater value to long term financial security, retirement, etc, than poorer people, who simply do not have the privilege of thinking that far ahead.

[a500lbgorilla]

I don't agree with that at all. I think its demonstrable that money now is worth more than money later, and that the comparison is the most sharp when you don't have much of it on hand. Rich and upper middle class people invest money because the marginal value of money is much-decreased for them. Basically, people with more wealth are able to ascribe greater value to long term financial security, retirement, etc, than poorer people, who simply do not have the privilege of thinking that far ahead.

I invest money because I want to be able to retire. So some of my money now is not worth more to me than more money later. So this explanation is not true.

edit Read your post wrong. I guess I got spun around by "money now is worth more than money later."

[rong]

I don't agree with that at all. I think its demonstrable that money now is worth more than money later, and that the comparison is the most sharp when you don't have much of it on hand. Rich and upper middle class people invest money because the marginal value of money is much-decreased for them. Basically, people with more wealth are able to ascribe greater value to long term financial security, retirement, etc, than poorer people, who simply do not have the privilege of thinking that far ahead.

This. Very much this. Investments are a luxury the poor typically can't afford. And another £50 a week when you are on min wage goes a long way. That's not to say poorer people wouldn't save any of an extra £50, but it would always need to be instantly accessible. It's not saving for retirement, it's saving for an unexpected car break down or broken washing machine.

[a500lbgorilla]

I agree and I disagree. I think at poor levels, where you're investing so much stress into budget management, you probably won't take on the additional burden of stretching it even more. But yeah, the more familiar you are with the boon of equity, the more likely you'll be to try to take advantage. Especially if you're like a once successful financier who went to jail and this is the first job he could find once he got out, you better bet that guy will be living under a bridge for a period to build up the equity and give him a shot at building a business or some shit.

[Renton]

Well it's just possible that its a bad investment for people someone with no bankroll. Someone making only 10 dollars an hour might be better off putting 20% of what he makes in a savings account in case his car breaks down or something. Equity is risky, and putting 20% of your money on one stock probably isn't a great investment.

I invest money because I want to be able to retire. So some of my money now is not worth more to me than more money later. So this explanation is not true.

I guess I got spun around by "money now is worth more than money later."

I mean dollar for dollar, money now is worth more than money later. If you could put money away and be assured that it would be locked to inflation forever, but never actually increase in value, you're probably still taking a loss there, because there are usually ways of putting your money to actual productive use. A poor and unskilled person would be far better off spending 20% of their income on tuition for night classes or on productivity-enhancing measures like a better computer, or on risk-mitigating measures like a better health insurance policy. A retirement fund should usually be pretty far down the list of priorities for someone earning 10 dollars an hour.

[a500lbgorilla]

I agree that dollar for dollar money now is valued more than money later, but my personal preference is for money later, especially when it's usually offered as more money later.

I'd rather just manage my way through today with less and have a money cloud floating over my future...

[Renton]

My point is that the acceptable conversion rate for present money to future money is different for different people, and tends to be higher for people with low incomes. Only the ultra rich would be correct in putting a large amount of money on an investment with a tiny return, even if the risk is nearly zero and the return nearly guaranteed.

[wufwugy]

My point is that the acceptable conversion rate for present money to future money is different for different people, and tends to be higher for people with low incomes. Only the ultra rich would be correct in putting a large amount of money on an investment with a tiny return, even if the risk is nearly zero and the return nearly guaranteed.

When we assume the equity investment has enough ROI for the investor, this doesn't matter, but it looks like you're not assuming that while I am assuming that. Poor people save all the time. They used to far more than they do today, probably mostly due to welfare incentives and probably also lack of education on finance and a cultural shift away from frugality towards current consumption as opposed to future consumption.

[JKDS]

If you think poor people save money now, you're too far removed from the poor.

[Renton]

Actually I'll walk back my claim a little bit. I believe that the value of savings is high for everyone at every level of income, only the value is only high at lower amounts of savings. Let me try to explain.

Suppose you draw a graph where the y-axis is is the amount of "value" in saving, and the x-axis is the amount of money saved.



The red line is the poor person, the blue line is the middle class person, and the green line is the upper middle class person. The benefits of saving for the poor person are in mitigating the risks of minor catastrophes like needing to fix their car or have some money stashed in case they don't get enough hours at work. Past a point though, they just need to be investing their money into increasing their human capital.

So when I said that the poor shouldn't save, what I meant was that they shouldn't save a lot as their need for money in the present is just too great.

[wufwugy]

Actually I'll walk back my claim a little bit. I believe that the value of savings is high for everyone at every level of income, only the value is only high at lower amounts of savings. Let me try to explain.

Suppose you draw a graph where the y-axis is is the amount of "value" in saving, and the x-axis is the amount of money saved.



The red line is the poor person, the blue line is the middle class person, and the green line is the upper middle class person. The benefits of saving for the poor person are in mitigating the risks of minor catastrophes like needing to fix their car or have some money stashed in case they don't get enough hours at work. Past a point though, they just need to be investing their money into increasing their human capital.

So when I said that the poor shouldn't save, what I meant was that they shouldn't save a lot as their need for money in the present is just too great.

I don't think this means the poor shouldn't save, but that they can save less. But also the marginal utility of savings for the poor is way higher than the rich. If you make 20k a year and have 5k in the bank, your choice to save up that 5k was magnitudes better for you than if you make 200k and saved 5k.

One of the best ways for the poor to become rich is merely to engage a frugal enough lifestyle that they can save/invest 5-10% of their incomes. After a lifetime, you've created a pretty big estate. If you teach your kids the same principles, they'll end up being quite rich.

In this country, and many others actually, there has been major generational shifts in income largely because of this. There is also a major age gap in income because the older tend to have accumulated savings.

[Renton]

As far as I can see, the main thing people dislike about capitalism and free markets is the fact that some people will be forced into low wage jobs and that wage will be barely enough to survive and certainly not enough to live a pleasant life by modern western standards. By allowing the competition of labour to reduce its value to the bare minimum, the fact that corporations have huge incentive to ensure this happens, and the imbalance of power between individual supplier of labour and corporation, some people will get stuck here and will probably have little way of getting out of it.

But perhaps it's just a fact of life that some people are too stupid or lazy to deserve any better.

Interesting that lots of evidence points to the fact that min wage increases have little to no effect on employment though.

So it could be argued that it's nothing more than a preference. We could pay people more via min wage laws and reduce poverty with very little negative effect. Or we say tough, you eat what you kill, get on with it.

Actually, capitalism provides every motivation for poor people to be upwardly mobile. The ultra simplified model that capitalism trends society from a equal state to an unequal one is absurd. There is nothing economically attractive about a state of the world where 1% of people have all of the stuff and the other 99% are gutter scum. Sellers need buyers who can afford their products. Employers need quality people who will produce at a high level. Such people are scarce, and the value of their labor can be quite high. The capitalism end-game isn't wealth concentration, but a state of superabundance and near immortality where even relatively less-useful people are able to leverage their productivity to that of 50 or 100 people.

The problem with subsidizing the poor directly is that your idea of a "pleasant life by modern western standards" is not universal. Everyone has a different ideal of their own personal prosperity, and a different perspective of how much effort should be necessary to achieve it. If you subsidized a subsistence farming community in a third world country with a universal income consistent with the minimum wage in the U.S., they wouldn't all go to university and become accountants. They would just let their fields go fallow and have a lot more kids. To them, prosperity is a state where they don't have to work as hard and they're able to have a larger family. This has nothing to do with them being lazy or stupid or anything like that. They're just entrenched in their reality like everyone else. This is what we mean when we say that the welfare state breeds poverty. The best you can hope for with a direct cash subsidy is that the poor people will just multiply and have slightly improved lives, but nowhere near enough improvement to justify the taxpayer load.

More targeted and conditional subsidies (especially education) can have more positive impacts, but can be just as wasteful. I benefitted from financial aid when I went to college, but I squandered a lot of the aid on bullshit. Worse, a vast majority of my peers who got similar state scholarships dropped out somewhere along the 5 years of Architecture school. Billions of dollars wasted. Billions more are wasted on people getting degrees in fields that have practically no job demand.

Interesting that lots of evidence points to the fact that min wage increases have little to no effect on employment though.

I'm skeptical of such evidence, because it seems to be textbook seen vs. unseen fallacy. How can you assess the unseen effects of a minimum wage increase? Companies don't exactly record in their ledger the times that they would have expanded but decided not to because of increased labor costs. Or the times that they sold less of a product than they would have had they been able to offer a cheaper price. Or the times that they would have hired a new person but instead employed a robot.

The evidence just tends to be directly comparing unemployment at time A to unemployment at time B, in a world where a myriad of forces factor into how many jobs there are.

[wufwugy]

JKDS, Ronk, investment is future consumption. The metric of savings being the same thing as consumption in the future doesn't change regardless of current income or current consumption status. The poor definitely do spend a higher percentage of their incomes on current consumption, but this doesn't mean that they cant save because saving is also consumption. Total expenses are not equidistant, and what we find for the perpetual poor is that when they have profits left over, they spend it on non-essentials instead of savings. If, instead, they saved, they would increase the ability to consume in the future, which necessarily means that there isn't any true "paycheck to paycheck" poor.

I feel like I didn't explain that well. Basically, if a person is in a situation where they're at their consumptive limit, savings increases that limit since it accumulates a higher rate of capital and is the same thing as consumption down the road. Obviously still the majority of expenses for the poor are necessary and current. But not all.

It used to be very standard for the poor to save. Also the marginal utility of savings for poor people is substantially higher than for rich people. We live in a society where the poor live paycheck to paycheck unrelated to reasons that they "can't save". That aside, it's definitely far harder to save when you're poor, mostly for cultural reasons, but some for technical reasons.

JKDS going to law school is a great example of this actually. AFAIK he's having to live more frugally than he otherwise would if he was not going to law school and being otherwise productive, but the law school is enough of an investment to increase his future consumption prospects, so he does it.


This stuff is also one of the reasons why the wealthy are taxed far more heavily than we think and why taxes on capital are among the worst you can have in an economy. Some capital taxes end up being taxed double or triple by our current paradigm. Our incentives are setup in such a way that they encourage only the super rich to save or invest, and the poor end up seeing far lower ROI than they should because of these taxes, so the incentive is pushed towards just consuming now.

[rong]

Somewhat going off on a tangent here, and not really sure where I'm headed.

But it's odd that owners of capital and land use labour.

Owners of labour do not use capital or land.

I'm not sure why this is the case.

To produce something you need all 3 and there is an abundance of all 3. Further, the one thing nobody can own originally is land, at least not in the sense that you own your own labour. Yet somehow the one thing you truly own is the thing that other people use.

So say I have land, you have capital and some other guy is not busy so can provide labour, surely the fruits of our joint efforts should be equally owned and distributed. But instead the land owner gains from the growth in value of the land and the rent received. The capital owner gets the profits. Where as the labour provider just gets a wage.

Anyway, like I said, not sure where I'm headed here. Nowhere probably.

[wufwugy]

Somewhat going off on a tangent here, and not really sure where I'm headed.

But it's odd that owners of capital and land use labour.

Owners of labour do not use capital or land.

I'm not sure why this is the case.

To produce something you need all 3 and there is an abundance of all 3. Further, the one thing nobody can own originally is land, at least not in the sense that you own your own labour. Yet somehow the one thing you truly own is the thing that other people use.

So say I have land, you have capital and some other guy is not busy so can provide labour, surely the fruits of our joint efforts should be equally owned and distributed. But instead the land owner gains from the growth in value of the land and the rent received. The capital owner gets the profits. Where as the labour provider just gets a wage.

Anyway, like I said, not sure where I'm headed here. Nowhere probably.

In your hypothetical, each party likely would split it three ways. But it's not wholly analogous to the real economy. Land and capital almost always have more built up value in them than labor. But not always. Sometimes in your hypothetical, labor gets the majority of equity.

Let's say you're a fantastic software programmer. Your labor value is very high, but you don't have any capital or land. There are many places you can go to develop software where you control majority equity. But if you want to take your labor to more effective capital or land developments, the relative value of your labor reduces to where you won't get majority equity anymore. Many (possibly most) successful companies arise from origins where the laborer had more equity than the land and capital.

The laborer still gets the better of it when he's the opposite, unable to speak the language, whose only skill is basic physical labor. Put him in a situation where the land owner is incapable of work and the investor is small-time. The laborer then has a ton of equity.

We could go more into this if you want.


Here's the broken record version: The protection for the parties with the least leverage is the freedom to choose. Imagine if Ong was uninhibited by the government and free to choose. He tells us he would grow pot and be quite productive. But he's not allowed to choose this and the economy is worse because of it. Additionally, the "inherent" value of each person's attributes is determined by supply and demand. Government intervention attempts to discard supply and demand and micromanage the negotiation, but all this has done is anything from making societies poorer to mass starvation.

[wufwugy]

Wuf, it doesn't trickle down.

https://www.imf.org/external/pubs/ca...spx?sk=42986.0

Thank you so much for posting this. It provides a new avenue that we have not discussed here before, and something I didn't have that great of a grasp on just a month or so ago.

Also this post is a monster, but I only made it because it's all new stuff, no repeating of the same old argument.

Before we get started, this study does not find that wealth doesn't trickle down. What it finds is that when wealth goes to the rich and doesn't go to the poor, it is that way because, well, it is that way. There is no determination of causality. My explanation is probably much more confusing than it should be. The paper is looking at situations where capital acts a certain way and then says "hey look it is acting this way". It is essentially saying "when it doesn't trickle down, we don't see effects of trickle-down". Ho Lee Shit Batman!

Now onto the concept for why trickle-down is a thing. First off, "trickle-down" is a dysphemism. Economists talk about policies regarding supply, and the media has attached this misnomer. It doesn't help that a politician favorable to supply expansion reforms first coined the term. It isn't exactly off base, but it is just a metaphor that is honestly very misleading. I will refer to supply-side from now on instead of trickle-down.

Economic growth happens only when the nominal economy increases in size. It doesn't grow when any of just prosperity increases, real GDP increases, inflation increases, money supply increases, productivity increases, production increases, etc. It grows only when any combination and quantity of those things turn the nominal value of the economy into a bigger number than previous. This is important because supply-side reformers are concerned with growth specifically (I'll explain why later). Now, with this understanding of growth, what happens when we redistribute? Well, you could say the middle gets bigger and the top gets smaller. If true, the math still adds up to no growth. It is popular today to claim that this would spur growth by putting more resources into the hands of consumers. But this would only be true if it came from growth. If it didn't come from growth, we have just created magic and the only thing we need to make everybody as prosperous as humanly possible is to spend as much as possible. Clearly there is something wrong with this idea.

Hopefully we can agree that the economics profession agrees that growth is the focus and that we don't really have much mechanism to expand prosperity for any group except through growth. What they want is growth to be made up of is productivity and production (instead of something like hyperinflation), because those are the only known reasonable metrics by which to evaluate prosperity increases.

So let's assume you agree with this. You're probably still confused as to why reducing top tax rates are the preferred mechanism to achieve this growth. I mean, it honestly sounds ridiculous in common sense terms. But regardless of what it sounds like, there are specific technical things in play that entirely change the scenario. It's not unlike how quantum mechanics is as wrong as you can get when it comes to common sense, but it is still technically correct.

The technical concept behind this is margins, more specifically the marginal utility of each new dollar/product (or each tiny piece of new economic growth). Economic growth occurs on the margins. Always, with zero exceptions. Real economic growth also occurs only when production increases. This piece is more complex than that, but the bottom line is that if there is not more supply in an economy, it has not grown in real value.

Trickle-down is a narrow view of a much broader supply-side approach. The theory for it is that by reducing marginal tax rates, increased production is incentivized. This is to say that people who enter the marginal brackets, at lower tax rates, would have a greater incentive to work more, and thus this additional work would create more product and create economic growth. And it all "trickles down" because that's "just" how it works. Economists don't like that they don't better understand growth, but it is universally understood that real growth disperses throughout the entire economy. This is so universally understood that I'm pretty sure they have equations to back it up. I just don't know them.

Now a question may be "why not reduce tax rates for the middle instead". It is a reasonable point. You could technically incentivize the middle brackets to work more by reducing their penalties for production. But there are three problems with this (at least when we discuss trickle-down specifically): (1) the middle already works near or at its peak. Not that many people who already work full-time will choose to work more because of a reduce penalty. The incentive for them to work more at current tax rates is already really high, but also the incentive to not work beyond full-time is much higher. Leisure and family time has higher marginal utility to the middle class worker who already hits full-time.

(2) As a corollary to (1), the marginal utility of work to those in the top bracket is higher than those in the middle brackets because they don't work as much already. The utility of every new dollar achieved by work to the rich is lower than the utility of every new dollar achieved by work to the non-rich. This is sorta similar to what we had discussed a few weeks ago when Renton was looking at investment incentives. It's complex because incentives and utilities are always relative and always moving around. Like, the rich have lower marginal utility with each new dollar than the poor, but the poor have much higher marginal utility of leisure than the rich. All of this means that if we want to grow the economy through tax rates, we won't be able to do it much by increasing the marginal utility of work for the poor/middle, but we can do it by increasing the marginal utility of work of the rich.

Which brings us to (3): the marginal utility policy-wise and politically of reducing top tax rates is much higher than for middle/low rates. When comparing top rate cuts to middle rate cuts, the top rate cuts reduce total taxation by a much smaller percentage and achieve a higher percentage of production. Where middle bracket tax cuts would grow the economy if coupled with govt spending cuts and reduced regulations, they would not incentivize much in more hours worked. But rate cuts at the top spur growth with that one additional technical factor that the middle bracket doesn't have so much: marginal utility of extra production.

To wrap it up, economists, the wealthy, most politicians, and market-oriented voters do not support marginal tax rate cuts just because they want the rich to get richer. They want the economy to grow, and marginal rate cuts are among the easiest way to achieve them. Additionally, we have the last several decades of evidence to show that they're probably right. I'm sorry that I couldn't find it again (it's buried in Sumner's blog), but there is a ton of data showing that the US has outperformed Europe for the last approximately four decades. The primary correlation discovered is *cough* Reaganomics *cough* (also known for its primary focus of reducing marginal rates).

Thanks for listening. I hope this helps.

[rong]

Thank you so much for posting this. It provides a new avenue that we have not discussed here before, and something I didn't have that great of a grasp on just a month or so ago.

Also this post is a monster, but I only made it because it's all new stuff, no repeating of the same old argument.

Before we get started, this study does not find that wealth doesn't trickle down. What it finds is that when wealth goes to the rich and doesn't go to the poor, it is that way because, well, it is that way. There is no determination of causality. My explanation is probably much more confusing than it should be. The paper is looking at situations where capital acts a certain way and then says "hey look it is acting this way". It is essentially saying "when it doesn't trickle down, we don't see effects of trickle-down". Ho Lee Shit Batman!

Now onto the concept for why trickle-down is a thing. First off, "trickle-down" is a dysphemism. Economists talk about policies regarding supply, and the media has attached this misnomer. It doesn't help that a politician favorable to supply expansion reforms first coined the term. It isn't exactly off base, but it is just a metaphor that is honestly very misleading. I will refer to supply-side from now on instead of trickle-down.

Economic growth happens only when the nominal economy increases in size. It doesn't grow when any of just prosperity increases, real GDP increases, inflation increases, money supply increases, productivity increases, production increases, etc. It grows only when any combination and quantity of those things turn the nominal value of the economy into a bigger number than previous. This is important because supply-side reformers are concerned with growth specifically (I'll explain why later). Now, with this understanding of growth, what happens when we redistribute? Well, you could say the middle gets bigger and the top gets smaller. If true, the math still adds up to no growth. It is popular today to claim that this would spur growth by putting more resources into the hands of consumers. But this would only be true if it came from growth. If it didn't come from growth, we have just created magic and the only thing we need to make everybody as prosperous as humanly possible is to spend as much as possible. Clearly there is something wrong with this idea.

Hopefully we can agree that the economics profession agrees that growth is the focus and that we don't really have much mechanism to expand prosperity for any group except through growth. What they want is growth to be made up of is productivity and production (instead of something like hyperinflation), because those are the only known reasonable metrics by which to evaluate prosperity increases.

So let's assume you agree with this. You're probably still confused as to why reducing top tax rates are the preferred mechanism to achieve this growth. I mean, it honestly sounds ridiculous in common sense terms. But regardless of what it sounds like, there are specific technical things in play that entirely change the scenario. It's not unlike how quantum mechanics is as wrong as you can get when it comes to common sense, but it is still technically correct.

The technical concept behind this is margins, more specifically the marginal utility of each new dollar/product (or each tiny piece of new economic growth). Economic growth occurs on the margins. Always, with zero exceptions. Real economic growth also occurs only when production increases. This piece is more complex than that, but the bottom line is that if there is not more supply in an economy, it has not grown in real value.

Trickle-down is a narrow view of a much broader supply-side approach. The theory for it is that by reducing marginal tax rates, increased production is incentivized. This is to say that people who enter the marginal brackets, at lower tax rates, would have a greater incentive to work more, and thus this additional work would create more product and create economic growth. And it all "trickles down" because that's "just" how it works. Economists don't like that they don't better understand growth, but it is universally understood that real growth disperses throughout the entire economy. This is so universally understood that I'm pretty sure they have equations to back it up. I just don't know them.

Now a question may be "why not reduce tax rates for the middle instead". It is a reasonable point. You could technically incentivize the middle brackets to work more by reducing their penalties for production. But there are three problems with this (at least when we discuss trickle-down specifically): (1) the middle already works near or at its peak. Not that many people who already work full-time will choose to work more because of a reduce penalty. The incentive for them to work more at current tax rates is already really high, but also the incentive to not work beyond full-time is much higher. Leisure and family time has higher marginal utility to the middle class worker who already hits full-time.

(2) As a corollary to (1), the marginal utility of work to those in the top bracket is higher than those in the middle brackets because they don't work as much already. The utility of every new dollar achieved by work to the rich is lower than the utility of every new dollar achieved by work to the non-rich. This is sorta similar to what we had discussed a few weeks ago when Renton was looking at investment incentives. It's complex because incentives and utilities are always relative and always moving around. Like, the rich have lower marginal utility with each new dollar than the poor, but the poor have much higher marginal utility of leisure than the rich. All of this means that if we want to grow the economy through tax rates, we won't be able to do it much by increasing the marginal utility of work for the poor/middle, but we can do it by increasing the marginal utility of work of the rich.

Which brings us to (3): the marginal utility policy-wise and politically of reducing top tax rates is much higher than for middle/low rates. When comparing top rate cuts to middle rate cuts, the top rate cuts reduce total taxation by a much smaller percentage and achieve a higher percentage of production. Where middle bracket tax cuts would grow the economy if coupled with govt spending cuts and reduced regulations, they would not incentivize much in more hours worked. But rate cuts at the top spur growth with that one additional technical factor that the middle bracket doesn't have so much: marginal utility of extra production.

To wrap it up, economists, the wealthy, most politicians, and market-oriented voters do not support marginal tax rate cuts just because they want the rich to get richer. They want the economy to grow, and marginal rate cuts are among the easiest way to achieve them. Additionally, we have the last several decades of evidence to show that they're probably right. I'm sorry that I couldn't find it again (it's buried in Sumner's blog), but there is a ton of data showing that the US has outperformed Europe for the last approximately four decades. The primary correlation discovered is *cough* Reaganomics *cough* (also known for its primary focus of reducing marginal rates).

Thanks for listening. I hope this helps.

I haven't had time to read the paper, just an article on it in the guardian, but I find it interesting that it seems we all use it to confirm our polarised views.

[CoccoBill]

Now a question may be "why not reduce tax rates for the middle instead". It is a reasonable point. You could technically incentivize the middle brackets to work more by reducing their penalties for production. But there are three problems with this

I don't think anyone expects people to work more if taxes are lowered, they expect them to spend more. The poor and a large part of the middle class would immediately spend every extra dollar they get, unlike the 1-percenters.

[wufwugy]

I don't think anyone expects people to work more if taxes are lowered, they expect them to spend more. The poor and a large part of the middle class would immediately spend every extra dollar they get, unlike the 1-percenters.

I covered this. The reason decreased marginal tax rates are favored by many economists is because it is expected to increase work; whereas, decreasing the lower brackets would not. Also no economists think that there would be more immediate spending with lowered taxes. The government already spends that money. What economists think is that private spenders are more productive than government spenders.

The wealthy do spend all of their money. Savings and investment ARE consumption. They are much more productive forms of consumption.

Without a government (legislative, judiciary etc. branches), what laws exactly would there be?

Lots. Have you ever even heard of businesses doing anything without contracts? People would choose to pay for their laws instead of their laws being paid for them by force.

Keep in mind that we already do this, just with horribly ineffective tools. Pro-democracy people love saying how they have the ultimate power because of their vote (which they technically do), so I find it incredibly frustrating when they deride a far more effective method to give people the same kind of power that their vote does.

For some reason the first thing that popped in my mind was Alabama overturning the Voting Rights Act, since you know, racism doesn't exist anymore so it isn't needed. Again, history knows a lot of examples of times when there was no government or organized police, and those times mostly aren't known for their lack of crime. Why is that? Wild west would have been a lot less wild without those damn sheriffs?

You've misunderstood my argument. Nobody proposes a lack of security. I propose that we more effectively use one of the things you value the most (the ability to choose) in order to get another thing you most value (security). This isn't about order vs chaos, it's one level of order vs a much more effective level of order.

Also, my understanding is that the US already is pretty much run by lawyers and accountants, sounds awesome that in the future the need for them would skyrocket.

That's really just a guess by me. I don't guess that often, but I did that for JKDS, who may like the idea of more lawyers, or at least more experts. Regardless, I don't want to go down this route because I don't like arguing for things based on a relatively weak guess.

"First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work
has shown that income inequality matters for growth and its sustainability. Our analysis suggests
that the income distribution itself matters for growth as well. Specifically, if the income share of the
top 20 percent (the rich) increases, then GDP growth actually declines over the medium term,
suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the
bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class
matter the most for growth via a number of interrelated economic, social, and political channels."

I already addressed this. The study just shows that when distribution is a certain way, it is that way. No economist argues that the reasons behind why certain distributions happen don't matter.

[CoccoBill]

I covered this. The reason decreased marginal tax rates are favored by many economists is because it is expected to increase work; whereas, decreasing the lower brackets would not. Also no economists think that there would be more immediate spending with lowered taxes. The government already spends that money. What economists think is that private spenders are more productive than government spenders.

The wealthy do spend all of their money. Savings and investment ARE consumption. They are much more productive forms of consumption.

That's assuming that building a luxury yacht is better for the society than shopping groceries for the same amount. It also assumes that the highest economic growth rate, regardless of who directly reaps the benefits of it, is the most favorable option. There is no evidence of a trickle-down. Savings by definition is income minus consumption.

You've misunderstood my argument. Nobody proposes a lack of security. I propose that we more effectively use one of the things you value the most (the ability to choose) in order to get another thing you most value (security). This isn't about order vs chaos, it's one level of order vs a much more effective level of order.

Not really a misunderstanding, more like my personal opinion of the outcome. Not everyone has equal ability to choose due to lack of resources. Security works a bit like vaccinations, there's herd immunity if you live among people with high security. The opposite is true for lower security areas, which would lead to ghettofication. I'll leave out the whole conversation of knowing on a personal level what the most practical and cost-effective security measures to invest in are, and assume all people would become security experts.

I already addressed this. The study just shows that when distribution is a certain way, it is that way. No economist argues that the reasons behind why certain distributions happen don't matter.

Then why is the distribution that way, which regulation is cockblocking the trickle-down?

[wufwugy]

That's assuming that building a luxury yacht is better for the society than shopping groceries for the same amount. It also assumes that the highest economic growth rate, regardless of who directly reaps the benefits of it, is the most favorable option. There is no evidence of a trickle-down. Savings by definition is income minus consumption.



Not really a misunderstanding, more like my personal opinion of the outcome. Not everyone has equal ability to choose due to lack of resources. Security works a bit like vaccinations, there's herd immunity if you live among people with high security. The opposite is true for lower security areas, which would lead to ghettofication. I'll leave out the whole conversation of knowing on a personal level what the most practical and cost-effective security measures to invest in are, and assume all people would become security experts.



Then why is the distribution that way, which regulation is cockblocking the trickle-down?

When you say things like "there is no evidence of trickle-down", you're rewriting economics by your own parameters. Earlier I tried explaining why the misnomer "trickle-down" has been pulled out of consensus economic theory of growth.

Us going back and forth isn't going to yield any fruit. Your points are reasonable from several logical perspectives, but that doesn't mean they are reasonable from an economics perspective. For example, you say "That's assuming that building a luxury yacht is better for the society than shopping groceries for the same amount." The answer to this statement is that the incentives behind this spending is what makes one better or worse. To the non-economist, groceries obviously look more productive than yachts, but because the behavior is economic in nature, groceries aren't always more productive than yachts, and the non-economist perspective is simply wrong. This is why I have often said "economics doesn't care about our morals". Economics is a science just like physics. Physics doesn't give a fuck what we think it should do. It does what it does and that's the bottom line and we just have to conform. Economics is no different.

Physics is a more obvious experimental science than economics, so it's easier to not disagree with physics and economics has more unknown holes than it otherwise would. But they're both still sciences dependent on the same type of methods of discovery and theory development.

[wufwugy]

To piggyback some on what Spoon said about minimum wage


Studies evaluating minimum wage/employment effects are basically a joke. They're like studying the ocean by evaluating waves on a beach. The vastness and depth that studies would require to demonstrate wage floor and employment effects is several magnitudes greater than any study has done.

What we do have is theory and models. We also have tons of data, but as with lots in economics, it's tangential and marginal. The value in economics comes mostly from engaging its concepts. Studies are great but they are hard as shit to conduct properly. Economics is a field of rigorous logic more than a field of experimentation, even though experimentation is great for it.

To conceptually see why the minimum wage negatively affects employment, all we have to do is conduct a simple thought experiment: make the minimum wage $1000 and evaluate what you think is going to happen. The sensible will say "prices will increase by that dollar amount and that's it". Which is true in a vacuum, and it shows that wages by themselves should not be expected to increase prosperity.

I'll try to get brief here on out (fat chance): the short of the effects of relatively small minimum wage increases do include price increases as an offset and a reduction in new hiring and higher structural unemployment. But I want to hit more deeply on how minimum wage harms the several different groups it tries to help. The two groups are the poor-poor and the "well-off" poor, so to speak.

The poor-poor are typically minorities with low skills. Think: large percentages of black or Hispanic. The well-off poor are typically white and educated. Think: liberal arts graduate baristas. The latter is the less egregiously affected group.

As was pointed out by Renton and Spoon, the most valuable tool any laborer has is the value employers find of their skills and their ability to negotiate. If a laborer produces $7 in value, he won't have a job if his skills only produce $6 in value. A minimum wage forces him out of the labor force and makes him perpetually dependent on the taxes taken from people in the labor force. Additionally, the most effective method for a low-skill laborer to increase his skills is on-the-job work. Not allowing low-skilled individuals to work for whatever they can get, no matter how low, is the poverty trap. Wage floor and barrier-to-entry regulations is a system of productive laborers being forced to subsidize maintenance of non-labor.

But what about for laborers with low-skill who still have their jobs even with increased wage floors? Well, guess what, their jobs just got worse. Take a laborer who creates $11/hr and is paid $9/hr. Bump his minimum wage up to $15/hr. Now he is losing money for his company and either has to get fired or increase productivity. So now instead of making 20 burgers/hr he makes 30. But wait, the sales don't call for 30 burgers/hr, so instead he has to do other stuff to justify his employment. Those 20 burgers he makes now must achieve specs better. No more leeway on tiny portion discrepancies. The managers install a new ridiculous measurement technique to keep costs down. He now has to keep the kitchen cleaner. The dishwasher's hours now have to be cut and the cook now is responsible for two jobs during non-peak hours. The fry cook no longer works in non-peak hours, so our protagonist now works grill and fry simultaneously from 1-4PM. Our protagonist making $15/hr now has three jobs when he previously had just one job. His stress is through the roof and he hates his fucking job now. He blows all his extra money on needless consumer goods to keep him from going insane. He wishes he could go back to a time when the government didn't force his employer to pay him more money than he wants to work for.

Enter: the well-off poor. He got his degree. He can think critically and he has a work ethic, but his skills are not terribly effective for well-paying business, and honestly he doesn't want to wear a button up shirt to work or sit in a cubicle. His productivity is double that of the low-skill employees in his sector. A minimum wage boost to $15 doesn't hurt him much since he was already pretty good at his job and his employer was already paying him accordingly. But now, all of a sudden, nobody named Jose or Tyrone seems to get hired anymore. Every new employee is another college educated hipster. He rooms with three of them. Together they make just enough to "live the dream" in the most vibrant city in the region.

Nevermind that this sounds to me like that "institutional racism" that the left-wing falsely blames the market for creating. Here we have a scenario that vastly subsidizes one group of people. The group that that isn't wealthy or terribly poor, but isn't that interested in using all their tools. Their education is subsidized, their culture is indirectly subsidized, and they're inadvertently locked into their income bracket. They're the only beneficiaries of minimum wage, at the cost of the poor non-majority groups and the productive business/labor classes. But the benefits they receive from the wage floor is the worst thing for them. They may not be stuck in a poverty trap, but they're certainly stuck in a trap of what one of my friends called "baristas who want to maintain the lifestyle one would normally only get if not a barista".

[a500lbgorilla]

Actually, capitalism provides every motivation for poor people to be upwardly mobile.

"This is how it'll be."

How every explanation of capitalism/economics/whatever has always gone. This is how it will be. Well, it's never been like that, but that's just because we never really did it/gov't/outside forces/whatever kept it from being. But this is how it will be.

[Renton]

"This is how it'll be."

How every explanation of capitalism/economics/whatever has always gone. This is how it will be. Well, it's never been like that, but that's just because we never really did it/gov't/outside forces/whatever kept it from being. But this is how it will be.

The past is filled with examples that agree with my point of view. Let's disregard the theory-crafting that has been going on in here, because obviously that stuff was for intellectual curiosity. Socialism can be dismantled entirely with the terms set about by the socialist himself. There's no need for me to make grand suppositions about alternative reality to prove it.

The policies do not work. They don't reduce poverty, they increase it. And its not just a splash of socialism that all of your success stories countries have. The tax burdens hover around the 40-50% area in those countries, and that's not even considering all of the land the state owns and the currency manipulation they get away with. And the debt, let's not forget about the debt.

[a500lbgorilla]

The past is filled with examples that agree with my point of view.

Great. Show 'em. It's all I've ever wanted. Some explanation that doesn't trace back to first principles or the geometry of human action. Some explanation where you show, "it's this way because look, we can show it's this way."

Let's disregard the theory-crafting that has been going on in here

I fully disregard it.

[Renton]

Great. Show 'em. It's all I've ever wanted. Some explanation that doesn't trace back to first principles or the geometry of human action. Some explanation where you show, "it's this way because look, we can show it's this way."



I fully disregard it.

The problem is that my views are unprovable because every modern society is a capitalism/socialism hybrid, and your views are unfalsifiable because it's never been any other way.

We can prove on a really basic level that certain things about capitalism's positive effect on world poverty are true by noting that each shithole third world country perpetually remains a shithole until free (or freer) trade is allowed to take place. After that, the poverty always gets better, and this is especially impressive when you realize that its taking place in the most corrupt nations in the world. The single party governments of places like Cambodia are doing everything they can to rob their citizens blind and yet their lives are still improving. Double digit economic growth is taking place. Middle class amenities like gyms and malls are cropping up everywhere.

But me telling you that is pointless because you already agree that capitalism is a good thing, you're just filled with paranoia that too much of a good thing can be a bad thing. You're asking me to explain why capitalism doesn't concentrates wealth, or doesn't allow monopolistic mega-corporation-states to form, or whatever other dystopian idea. My response would be to put the ball in your court and ask you to tell me about one case of anything like that ever happening*.

* that wasn't aided/enabled by a state.

[a500lbgorilla]

As far as I can see, the main thing people dislike about capitalism and free markets is the fact that some people will be forced into low wage jobs and that wage will be barely enough to survive and certainly not enough to live a pleasant life by modern western standards. By allowing the competition of labour to reduce its value to the bare minimum, the fact that corporations have huge incentive to ensure this happens, and the imbalance of power between individual supplier of labour and corporation, some people will get stuck here and will probably have little way of getting out of it.

But perhaps it's just a fact of life that some people are too stupid or lazy to deserve any better.

Interesting that lots of evidence points to the fact that min wage increases have little to no effect on employment though.

So it could be argued that it's nothing more than a preference. We could pay people more via min wage laws and reduce poverty with very little negative effect. Or we say tough, you eat what you kill, get on with it.

Yup, every successful model of capitalism splashes in some socialism somewhere to prevent stuff like this.

[wufwugy]

Yup, every successful model of capitalism splashes in some socialism somewhere to prevent stuff like this.

That's the narrative at least. I'd like to see any compelling reason to think it's true.

[a500lbgorilla]

Hong Kong, Singapore, America, Canada, Germany...

[wufwugy]

Hong Kong, Singapore, America, Canada, Germany...

This narrative which every modern country has adopted aside, let's think more critically about this.

Most serious economists claim the Federal Reserve caused the Great Recession. They also claim the Fed caused the Great Depression. The Fed itself about a decade ago apologized for having caused the Great Depression. The short of how this central bank caused these problems is that their policies deviated from stable monetary regimes.

AFAIK, the best estimate in political science for how socialism gained traction in the US was as a response to the Great Depression. The short of it is in that when society runs downhill, the populace gravitates towards centralized solutions. They seek government to solve the problems. The Great Depression ushered in a new era of US socialism, starting with the New Deal. The entitlement programs of a couple decades later are thought to be of the same mold. The Great Recession has shown the same type of circling of the wagons and declaring government the champion, the ACA being the biggest example. In between these two calamitous economies, we have an era of mild supply-side, anti-government reforms (very mild ones), and the data suggests they caused a boom greater than similar economies that did not reform.

So here we have a situation where the government creates a huge recession with its own incompetence. Then the populace gives the government more power to ward off the misdiagnosed symptoms in the future. But this new power doesn't have the intended effect. Instead it has a detrimental effect. Then the government creates another major recession, and the populace leaps back into the mode of giving government more power to "fix" the problem.

The narrative is wrong. Socialism is not adopted because it helps people. It's adopted because people think it helps them, when the reality is that macroeconomics operates on a scale that isn't perceived experientially. The market is so powerful that even when large sections of it are socialized and subsequently function horribly, our society is still getting better.

[a500lbgorilla]

Hong Kong, Singapore, America, Canada, Germany...

All of them capitalist in practice but with distinct social flavorings. All of them work.

[a500lbgorilla]

Once again, Renton, me saying you're wrong isn't me saying the polar opposite of your position is right.

When I raised those concerns, we were playing imagination with a world of no-states and only corporations, and in that imagination-land they were perfectly coherent critisms.

Now that we're talking about this world, I think it's clear that Capitalism is awesome, but that pure Capitalism very likely is not more awesome than some modified form of Capitalism.

I don't think this because I'm afraid of capitalism, or because I can't conceive of the infinitude of wealth/jobs/resources, or because I'm tripping over fallacies I can't see, or don't believe in true freedom, or whatever reason you have to believe of me to believe that you are right and for some reason I can't get there.

I believe the method you use to come to the sort of absolute statements about capitalism is obviously flawed. It's great for a lot, but it can not tell you the future. It isn't predictive without error.

So when you say things like

"We can prove on a really basic level that certain things about capitalism's positive effect on world poverty are true by noting that each shithole third world country perpetually remains a shithole until free (or freer) trade is allowed to take place."

Prove is absolutely the wrong word. You can demonstrate that given certain simplifying assumptions and constraints not prove. Or that's what you meant about 'basic level' but in Economics, the things that hold for basic-levels do not necessarily hold when you scale up.

I found a great site that seems to have pretty level headed people chipping in their thoughts and on it, one great comment I found that helps make my point.

http://economics.stackexchange.com/q...igor/6141#6141

A brilliant overview on the flaw of Economic thinking. A weakness that is inherent in EVERY statement you make about Capitalism or people or whatever that is informed by your understandings.

"Results in Economics can be fully rigorously argued, ever since Economics adopted mathematical symbolism to express itself. The issue is not with the process of argumentation, but with the premises one starts from."

This is the absolute rub. The one thing I can give to you that I know is right. Everything you think you know is balanced on where you start. And if you start somewhere that isn't reality, well, you're overwhelmingly likely to be wrong. So you always have to keep an open mind and let in the fact that the future you imagine probably won't pan out for reasons you're completely unaware of.

http://economics.stackexchange.com/q...-loses-correct

Bonus thread where people argue that economics isn't a zero-sum game. A premise I accept in the large blurry view, but that I don't accept as definitively true of every corner of an economy as it could ever exist between people. One commenter mentions the existence of lose-lose trades, I still believe in win-lose trades, but all of this, as another commenter mentions, is built on a world where people don't take forcibly, don't steal, don't find anyway to play the game of free-trade with an advantage outside the rules. Which I believe they will, because we are selfish creatures developed by a mechanism that drives for selfish gains.

Bonus post for inspiration on that selfishness.

https://www.reddit.com/r/askscience/...e_many/cs8poh5

Natural selection doesn't care about specieis, it cares about individuals. When you say stuff like "Well, we all see the value in police/justice system/lack of violence/whatever, so we value these things, so we'll invest that value to maintain them." I think you have to consider that "we" would need to selfishly value these things for them to exist, and I don't suspect that'll ever happen.

Bonus bonus on selfishness

http://econlog.econlib.org/archives/...d_economi.html

[a500lbgorilla]

http://economics.stackexchange.com/q...igor/6141#6141

And, I would say on the social sciences right now, Economics could learn a lot from psychology and history. Pay attention to what is observed, and be highly skeptical of the guy telling you what is observed*.

*Especially when it's you. #goddamnImdeep

[wufwugy]

And, I would say on the social sciences right now, Economics could learn a lot from psychology and history. Pay attention to what is observed, and be highly skeptical of the guy telling you what is observed*.

Textbook economics pays attention to what is observed, but sadly consensus among professional economists doesn't always. Scott Sumner created his blog in 09 because he was baffled at how the economics profession had swiftly discarded its own teachings during 07-09. This isn't the first time the profession has done this. I think the reason is because of how political the field becomes when outside academia. Even brilliant people like Paul Krugman often lose their better judgment when engaging in punditry. At least that's my guess as to why academic economics and political economics are not always the same.

[a500lbgorilla]

And that selfishness scales up from people who will try to game each other, to corporations that'll try to establish faux-competition/effective monopolies etc etc. And for all the innovation you can imagine driven by the perfect incentive of capitalism within the rules, this selfishness can match it to circumvent those rules.

[a500lbgorilla]

I'm looking for skeptical economists and pragmatic economists and applied economists and experimental economists right now. Someone knows what I know and also studies economics. I wanna find 'em.

[Renton]

Selfish people are going to cause mayhem regardless of the economic system. I don't want to give the idea that an unfettered free market world would be devoid of evil. I just don't think private evil can go unchecked nearly as easily as public evil can. It's something I've brought up before. The state attracts sociopaths to positions where they could cause vastly more damage than would even be imaginable in the private sector.

Pretty much any time I make an economic argument, I'm doing so from a purely comparative perspective. For strategy A to be preferable to strategy B, it needs only to improve expected value. It does not need to maximize it. That's why I really hate the word "utopia" that is often pejoratively ascribed to my arguments. I spend a lot of time in this thread talking about far-future hypothetical free states, but that is mainly to plant seeds of doubt about statist principles in general. I'm in no way advocating the wholesale dismantlement of governments overnight. I believe incremental is the way to go, and that should be consistent with the rillian worldview of not over-relying on basic economic theory. I believe the feedback of incrementally weakening the state will lead the human race in the right direction. To that end, I believe it is quite likely that representative democracies were a necessary stepping stone from monarchies to whatever comes next.

I rail hard against socialism because I believe it to be oddly reactionary. Oddly because reactionary is a typical pejorative that is ascribed to libertarian views. Socialism has already been tried many times and it failed at nearly every conceivable scale. And yet we continue to see the tired-bordering-on-desperate claims that maybe this time it will be good. "The problem is we need better leaders." "We need campaign finance reform." "We have to eliminate the corruption in our democracy." Blah blah blah. I've never seen a decent economic argument for socialism. I'm not talking about the 'it's debatable' type stuff. The arguments fail on the most basic accepted axioms.

I'm rambling but here's an example:

http://forumserver.twoplustwo.com/41...forum-1539134/

Starting with post #22, a guy thinks everyone should have free drinking water and it is barbaric to think otherwise. I reply with the most basic economic argument and I get this absurd response on post #24:

You should at least realise that subjecting everything on earth, especially things we need to survive, to 'basic economics' is a contentious viewpoint, and not present it as if it's common sense. You really think that all the people who don't want a price on water don't understand the econ101 benefits of the idea?

This is the type of completely-missing-the-point idea that has infected the left. Claims to know basic economics, doesn't care because feelings.

[wufwugy]

This is the type of completely-missing-the-point idea that has infected the left. Claims to know basic economics, doesn't care because feelings.

They believe the desire to build a car is the same thing as the building of a car. They believe that if we all just agreed that cars should be built and distributed to all, they would be. Meanwhile, science is telling them it doesn't work that way.

[OngBonga]

They believe that if we all just agreed that cars should be built and distributed to all, they would be.

Huh? I think we should be making less cars. Find another bad analogy.

It should be noted that probably the biggest reason for horrible traffic is zoning.

Wrong. A few days ago I had to go out with a friend to get some weed. Like idiots, we left at 5.30pm and hit the rush hour traffic. It gets a nightmare here in Kidderminster because we have two very close smaller towns, and the three bascially form a mini city. People work in Kidderminster but live in Bewdley or Stourport. Of course, there's plenty of busses, but people insist on driving. Even though it takes just as long as the bus in rush hour. Even though finding a parking space in Kiddy is difficult. As we were waiting, we were noting that nearly every car had one stressed looking person in it.

The reason that traffic is so stupid is because people refuse to use public transport.

So... make driving more expensive, while making public transport either free, or at the very least much cheaper and easier than driving during rush hour.

[Renton]

The reason that traffic is so stupid is because people refuse to use public transport.

And because people insist on driving to work alone, there are significantly more cars on the roads than needs be.

These are both true because there isn't enough motivation for people to deviate from their behavior. This is a classic consequence of a freely-shared public good. If people had to pay to use roads, they would obviously be a lot less likely to commute alone, and they would be a lot more likely to use mass transit.

[rong]

These are both true because there isn't enough motivation for people to deviate from their behavior. This is a classic consequence of a freely-shared public good. If people had to pay to use roads, they would obviously be a lot less likely to commute alone, and they would be a lot more likely to use mass transit.

Bare in mind in the UK they already have to pay for the car(+ tax), MOT costs(+ tax), plus road tax (tax for having a car) regardless of whether they use the car , but even when they use it they pay for fuel (++++++ tax), parking (+ tax) and wear and tear costs/ servicing (+ tax). So in the current tax environment there is a large additional cost to deciding to drive to work. Yet still tonnes of people do it.

Why is that? Clearly it really matters to people and they find it important. As someone who has both used public transport and a personal car for commuting I for one fucking hate using public transport.

So we have ths something that loads of people really hate, and your argument is to increase the price of the solution so they hate that financial cost even more than they hate public transport. Way to make the masses happy.

[a500lbgorilla]

Selfish people are going to cause mayhem regardless of the economic system. I don't want to give the idea that an unfettered free market world would be devoid of evil. I just don't think private evil can go unchecked nearly as easily as public evil can. It's something I've brought up before. The state attracts sociopaths to positions where they could cause vastly more damage than would even be imaginable in the private sector.

It's not evil. It's human. And that's why more capitalism is not comparatively better than less capitalism in all cases in my mind. There's something missing in the analysis that's baked into the solutions that 'work' but don't work as well as we could imagine them to.

[a500lbgorilla]

I rail hard against socialism because I believe it to be oddly reactionary. Oddly because reactionary is a typical pejorative that is ascribed to libertarian views. Socialism has already been tried many times and it failed at nearly every conceivable scale. And yet we continue to see the tired-bordering-on-desperate claims that maybe this time it will be good. "The problem is we need better leaders." "We need campaign finance reform." "We have to eliminate the corruption in our democracy." Blah blah blah. I've never seen a decent economic argument for socialism. I'm not talking about the 'it's debatable' type stuff. The arguments fail on the most basic accepted axioms.

I'm rambling but here's an example:

http://forumserver.twoplustwo.com/41...forum-1539134/

Starting with post #22, a guy thinks everyone should have free drinking water and it is barbaric to think otherwise. I reply with the most basic economic argument and I get this absurd response on post #24:



This is the type of completely-missing-the-point idea that has infected the left. Claims to know basic economics, doesn't care because feelings.

That's the game. People are trying to nudge and push and hope and windge for whatever they think will benefit them, will empower them or keep them safe. Free water or priced water? Free sounds easy to me! You try to play the game of "first principles and argumentative rigor are more robust methods of guessing than whatever you're doing". You want to win the argument, you've got to make it so they'll feel like your system is better for specifically them.

[wufwugy]

It should be noted that probably the biggest reason for horrible traffic is zoning. The main reason people don't live in the city near where they work is that housing is through the roof expensive. The main reason housing is through the roof expensive is zoning and other things like rent ceilings. Making a profit by building homes in cities is one of the hardest things to do, despite that the demand for affordable housing is through the roof. The regulations are higher than the roof and it's virtually illegal for companies to build affordable housing.

The government tries to build affordable housing by ignoring the profit incentive. The irony is that affordable housing is a product of the profit incentive. If only there was some way to disabuse ourselves of the anti-scientific dogma that profits are the root of evil. More irony in that a whole bunch of atheist lefties are hook, line, sinker deep into this Biblical dogma.

[wufwugy]

The framing of "progressive tax" is backwards. The wealthy use the least amount of government services and entitlements (by a lot), yet per capita they pay the most for those (by a lot). A mere flat tax is progressive in nature for this reason. Additionally, since everybody moralizes that since the wealthy can spare more money they should pay the most, maybe people should moralize fairly and also say that since the non-wealthy use most of the proceeds of taxes, they should pay the most.

The public's misunderstanding of this is partly rooted in the media's ignorance on income data. Notice that they never reference a multitude of relevant factors, like benefits or age. Or that the vast majority of the wealthy's capital is in investment form, which is another way of saying making-cheaper-products form.

I'm amazed by two things: (1) at how extreme socialist so much of the West is, and (2) how I used to be an extreme socialist. I think the reason I talk economics a lot is that reading what economists think is the only real reason why I'm no longer a Marxist Leninist Fascist Communist. Yes those are all the same thing. All are collectivism and centralization. The only differences are window dressing.

[wufwugy]

I wanted to point out that the reason I'm so sick of the media's coverage on taxes is that it always follows this formula: "does the poor or middle class pay a larger percentage of direct taxes? If yes, it hurts them, if no, it helps them." This is wrong wrong wrong. No economist would say something so stupid (Krugman might, but he checks his econ badge at the door some days). It could be emphatic textbook economic theory that reducing corporate tax rates helps the poor the most even though the rate isn't directly paid by the poor, yet the media would still blare its horns of perpetual ignorance.

[OngBonga]

It's probably different in particularly well designed modern cities, in fairness. Most of England is old, and the local roads are not designed for heavy traffic, which results in multiple bottlenecks. As the population has increased, the transport infrastucture has struggled to keep pace. And because people insist on driving to work alone, there are significantly more cars on the roads than needs be.

People are stupid, lazy and selfish, that's why there's so much traffic.

[OngBonga]

If there was a cap on the profit that a road management company could rake in, and if it was a fair process when it comes to handing out contracts, I could support the idea of privatising the roads. But the contracts will go to the companies with the most powerful shareholders, and it will slowly become more and more expensive because there is no competition, and it is an essential service, meaning the shareholders will not need to worry about losing their customers.

Why do the roads need to be privatised in order to charge people for using them? We already charge people for using the roads during the day in London. It would probably suffice to merely have a rush hour charge in other towns and cities, with the money being used to offset the reduction in public transport income and improvements to local infrastructure.

[Renton]

If there was a cap on the profit that a road management company could rake in, and if it was a fair process when it comes to handing out contracts, I could support the idea of privatising the roads. But the contracts will go to the companies with the most powerful shareholders, and it will slowly become more and more expensive because there is no competition, and it is an essential service, meaning the shareholders will not need to worry about losing their customers.

This type of crony privatization never works. The state would actually need to sell the roads on the open market. There's simply no non-corrupt way of awarding contracts. If the roads were made to literally be private property, there would be a very real cap on profits, thanks to competition.

Why do the roads need to be privatised in order to charge people for using them? We already charge people for using the roads during the day in London. It would probably suffice to merely have a rush hour charge in other towns and cities, with the money being used to offset the reduction in public transport income and improvements to local infrastructure.

Merely charging people for using the roads isn't enough to cause the level of benefit that true privatization would. States fine and charge people for things all the time and it's a terribly weak motivator of behavior. Look, people already are perfectly willing to commute 2 hours to work in bumper to bumper traffic if it enables them to have a nice suburban home where the land values aren't as high. Only by making people totally accountable for the resources they use, can you motivate conservation to take place.

The other thing is that the government isn't guaranteed to invest the fees into better infrastructure. The money most often gets thrown right into the same budget that pays for wars, healthcare, and interest on the state debt. Profits get recapitalized into innovation and expansion. Profits create an incentive for competitors to build up alternative routes.

[wufwugy]

If there was a cap on the profit that a road management company could rake in, and if it was a fair process when it comes to handing out contracts, I could support the idea of privatising the roads.

This would be the worst of both worlds. Profit caps destroy industries because they eliminate the reward for new entrants or any innovation and R&D. Profit caps on rents are one of the main regulations that keeps the supply of city housing much below the demand, and thus prices way too high and ultimately less population and productivity in the cities.

But the contracts will go to the companies with the most powerful shareholders, and it will slowly become more and more expensive because there is no competition, and it is an essential service, meaning the shareholders will not need to worry about losing their customers.

There are lots of roads and tons of competitive space. There would be a tremendous amount of competition for the most valuable roads, and if prices didn't reflect the environment, they would lose customers. There would be more restructuring, but it would also be easier to restructure and what would come out on top would be far better than the current system.

Why do the roads need to be privatised in order to charge people for using them? We already charge people for using the roads during the day in London. It would probably suffice to merely have a rush hour charge in other towns and cities, with the money being used to offset the reduction in public transport income and improvements to local infrastructure.

It's just much harder for governments to do. It is widely accepted for businesses to charge what they believe is best for their profits, but when a government charges anything, because people intuitively understand government is not a business, we get up in arms. The incentive for government to optimize roads is non-existent, but the incentives for businesses to optimize roads when privately owned is, well, optimized.

[rong]

Also wouldn't roads create quite a natural monopoly? I mean once a company owns a bunch, there isn't much you can do to compete with them. There's only so much space to build competing roads. Also say building another big road connecting 2 cities, knowing there is only really enough traffic to support one (albeit with investment required to the existing one) isn't particularly smart either.

[JKDS]

@Renton/Wuf: Should society (through business or government) provide free resources to anyone? Of these, I include the physically disabled, the mentally impaired, the permanently hospitalized, the homeless, the unemployed, the uneducated, and the poor.

I ask, because I strongly believe in a "No man is an island" kind of mentality, where we are all part of a larger whole and have an obligation to help our fellow man. However, I know full well that this is unsound economically. It makes little sense to invest resources into something that wont provide a return, and its tempting to say 'not my problem' and leave it to them to get help (through family, friends, or begging).

----

On another note, is physical labor long for this world? If it isnt (seems like it), what is to become of people who's only value is in hard labor?

[Renton]

@Renton/Wuf: Should society (through business or government) provide free resources to anyone? Of these, I include the physically disabled, the mentally impaired, the permanently hospitalized, the homeless, the unemployed, the uneducated, and the poor.


I ask, because I strongly believe in a "No man is an island" kind of mentality, where we are all part of a larger whole and have an obligation to help our fellow man. However, I know full well that this is unsound economically. It makes little sense to invest resources into something that wont provide a return, and its tempting to say 'not my problem' and leave it to them to get help (through family, friends, or begging).

The short answer is that people shouldn't be expropriated against their will to give resources to those people. The most basic reason for this is that it is wrong to steal. There are economic reasons why this is bad practice that go beyond morality, though. The dispensation mechanism is always flawed, wasting a large percentage of the displaced money in transit from the rich person to the poor person. It also creates messed up incentives, like making it very profitable for poor people to have children, who of course will be predisposed to poverty and crime. These issues don't particularly apply to the disabled, who are easily the most sympathetic beneficiaries of the welfare state (other than children perhaps), but that doesn't make stealing any less wrong, nor does it make the state any less ineffective at distributing resources. And by the way, disability welfare gets gamed all the time by people who are perfectly able to get jobs.


Now, there are many situations in which it is correct to give resources to someone where it will provide a return. Retail examples include free trial products, or computer software that is free and fully-functional with the option of paying for a feature-packed premium version. Turbo-tax does my taxes for free every year in order to advertise its more personalized services. There is also old-school apprenticeship, where one learns a trade from a master craftsman for a very low wage, but builds human capital. In a similar vein, a company could offer a contract where you agree to work for X amount of time after being trained. I'm pretty sure "worker's rights" have banned all such similar practices in most countries.


And after all of that there are plenty of people with your outlook who are perfectly willing to donate to causes that they're passionate about. I suspect if the state stopped taking 50% of what people make, you would see a lot more such charity.

On another note, is physical labor long for this world? If it isnt (seems like it), what is to become of people who's only value is in hard labor?

People who are unprepared for whatever's on the economic horizon will struggle. This has always been a constant. The bright side of things is that a world with no physical labor is also a world with incredibly abundant life supporting goods. The poor almost certainly would not starve. It is otherwise hard to imagine what the not so distant future will bring. It might be that the human race will be so extravagantly prosperous that the basics of sustenance/shelter/security will be practically free to all.

[wufwugy]

@Renton/Wuf: Should society (through business or government) provide free resources to anyone? Of these, I include the physically disabled, the mentally impaired, the permanently hospitalized, the homeless, the unemployed, the uneducated, and the poor.

I don't think the government should exist. The easiest case here is the unemployed. We know that unemployment insurance hurts job growth. The hardest case is the disabled. Since I don't think the government should exist, obviously I don't think it should pay for disability. I think in a private market, it would be the most common thing in the world for people to have insurance that covers disability. Insurance, and probably even law, would become HUGE in a non-government world. The need for actuaries and accountants and lawyers would skyrocket since basically everything would be insured and backed by contracts between parties.

It may help to view the government through its insurance lens. In many ways it behaves like insurance, with anything from healthcare to security. It's just that instead of people choosing to purchase the insurances they feel they need, we're all forced to pay for certain ones regardless of how much they help.

I ask, because I strongly believe in a "No man is an island" kind of mentality, where we are all part of a larger whole and have an obligation to help our fellow man.

If every man is an island, markets would fail too.

I think people really care about themselves, their families, their friends, and their communities. And I think we see that when it comes to things were the government isn't involved. Wear a Packers cap in Wisconsin and walk into a bar during a game and people who have never met you will treat you like family. I think one of the main reasons we don't see people take responsibility for bettering their lives and their communities is because the government is the one who claims responsibility. This is really subtle and indirect: I think one of the main reasons for our consumer culture is Social Security. In the back of our minds, we know we don't have to be frugal with our lives because the government has already told us it will pick up the slack.

Another example is I think we are far less security savvy because we live with an assumption that the government is taking care of many of our security needs. We know if our home gets broken into, we can call the police and they will take over investigation without us having to do more. Despite this being relatively fruitless, I think it's psychologically strong. Contrast this to if security was private. We would see people choosing between a wide variety of security strategies and insurance options. They would range from people buying no direct security insurance and just taking their own responsibility, to some people paying a fuckload for high quality service. In the middle would be a variety of options that could include, say, a company insures investigation of any stolen goods but only does so at its relatively low cost in conjunction with advising and approving certain security strategies of the household. We already have this sort of stuff, just not to its fullest extent since the security and law aspects are not insured on the same market.

On another note, is physical labor long for this world? If it isnt (seems like it), what is to become of people who's only value is in hard labor?

I think physical labor is long for the world. It's just more robotic, menial labor that is not. The nitty-gritty details are many, but history has shown us that mechanization doesn't reduce employment. I think the overarching picture of mechanization on the labor side is that it reduces labor costs for one specific task which allows funds to pay for a new kind of labor that creates an even better product. The food industry is a good example of this. Everybody used to be a farmer and there were no restaurants. But all the mechanization in the economy we've had over the last 150 years have made it so that people can now get waited on hand and foot and eat specialized meals for cheap. Pretty much all innovations are "job stealing" mechanizations. Cars, grills, plows, pesticides, computers, printers: all things that "stole" lots of jobs, yet also created even more jobs and increased prosperity for all. All the time not reducing need for human input.

[CoccoBill]

I don't think the government should exist.[...] Insurance, and probably even law, would become HUGE in a non-government world. The need for actuaries and accountants and lawyers would skyrocket since basically everything would be insured and backed by contracts between parties.

Without a government (legislative, judiciary etc. branches), what laws exactly would there be?

For some reason the first thing that popped in my mind was Alabama overturning the Voting Rights Act, since you know, racism doesn't exist anymore so it isn't needed. Again, history knows a lot of examples of times when there was no government or organized police, and those times mostly aren't known for their lack of crime. Why is that? Wild west would have been a lot less wild without those damn sheriffs?

Also, my understanding is that the US already is pretty much run by lawyers and accountants, sounds awesome that in the future the need for them would skyrocket.

Another example is I think we are far less security savvy because we live with an assumption that the government is taking care of many of our security needs. We know if our home gets broken into, we can call the police and they will take over investigation without us having to do more. Despite this being relatively fruitless, I think it's psychologically strong. Contrast this to if security was private. We would see people choosing between a wide variety of security strategies and insurance options. They would range from people buying no direct security insurance and just taking their own responsibility, to some people paying a fuckload for high quality service. In the middle would be a variety of options that could include, say, a company insures investigation of any stolen goods but only does so at its relatively low cost in conjunction with advising and approving certain security strategies of the household. We already have this sort of stuff, just not to its fullest extent since the security and law aspects are not insured on the same market.

So essentially things would be almost exactly as they are now, but people would be on average a lot more scared (read: triggerhappy) and a lot of people would have no protections whatsoever.

[rong]

A short version, ignoring math and graphs, the monopoly version of a road prices itself to max profit which typically is at a higher price and lower supply than perfect competition. This economic profit (profit beyond that received at free market price) is what you're saying is the incentive for a new supplier.

But 2 things effect this. Firstly the entry barrier of massive costs to enter the market ie build a new Road. Secondly the road has a maximum supply which the incumbent can take advantage of whenever it sees fit. This excess is pretty much the same as a factory increasing production capacity and not using it as a message to competition that it is willing to compete on price if required, thereby instantly removing the economic profit that exists in the status quo that is the incentive for a new entrant. And it's a very credible threat because the incumbent wants to maximise profits, hence it's current monopolistic pricing strategy. So a natural move for the incumbent upon realisation of a new entrant is one of 2 things. Either reduce price to competitive market points which will be standard profit maximisation or alternatively use the excess supply it has and reduce price below the competitive price at the cost of short term profit with the intention of crippling new entrant and then once new entrant fails increasing price back to monopoly profit maximisation point.

So with roads this is built in to the basic set up which is why it creates a quite natural monopoly.

[wufwugy]

A short version, ignoring math and graphs, the monopoly version of a road prices itself to max profit which typically is at a higher price and lower supply than perfect competition. This economic profit (profit beyond that received at free market price) is what you're saying is the incentive for a new supplier.

But 2 things effect this. Firstly the entry barrier of massive costs to enter the market ie build a new Road. Secondly the road has a maximum supply which the incumbent can take advantage of whenever it sees fit. This excess is pretty much the same as a factory increasing production capacity and not using it as a message to competition that it is willing to compete on price if required, thereby instantly removing the economic profit that exists in the status quo that is the incentive for a new entrant. And it's a very credible threat because the incumbent wants to maximise profits, hence it's current monopolistic pricing strategy. So a natural move for the incumbent upon realisation of a new entrant is one of 2 things. Either reduce price to competitive market points which will be standard profit maximisation or alternatively use the excess supply it has and reduce price below the competitive price at the cost of short term profit with the intention of crippling new entrant and then once new entrant fails increasing price back to monopoly profit maximisation point.

So with roads this is built in to the basic set up which is why it creates a quite natural monopoly.

I'm going to skip arguing your points. There is something else I want to address.

So with roads this is built in to the basic set up which is why it creates a quite natural monopoly.

If I'm hearing you correctly, you're arguing that the reason a market is bad in this scenario is because it can create a monopoly, and your solution is to have a different monopoly instead? To be clear, you're saying a private company could have a monopoly, the bad part of this scenario is the monopoly factor, and therefore we need the state monopoly instead.

I don't know if this type of thing helps you, but this sort of contradiction in my own logic is what led me to reevaluate my views.

[Renton]

A short version, ignoring math and graphs, the monopoly version of a road prices itself to max profit which typically is at a higher price and lower supply than perfect competition. This economic profit (profit beyond that received at free market price) is what you're saying is the incentive for a new supplier.

I agree with this, I just wanted to establish that the price is still limited by a min-maxing algorithm that attempts to sell the most tolls for a moderately high (albeit likely too-high) amount. I would only caution against the use of the term "free market price." It is extremely difficult (impossible) to know what that would be, so it is merely a theoretical construct that is of limited use in these discussions. One which we hope is less than the monopolist's price.

But 2 things effect this. Firstly the entry barrier of massive costs to enter the market ie build a new Road. Secondly the road has a maximum supply which the incumbent can take advantage of whenever it sees fit. This excess is pretty much the same as a factory increasing production capacity and not using it as a message to competition that it is willing to compete on price if required, thereby instantly removing the economic profit that exists in the status quo that is the incentive for a new entrant. And it's a very credible threat because the incumbent wants to maximise profits, hence it's current monopolistic pricing strategy. So a natural move for the incumbent upon realisation of a new entrant is one of 2 things. Either reduce price to competitive market points which will be standard profit maximisation or alternatively use the excess supply it has and reduce price below the competitive price at the cost of short term profit with the intention of crippling new entrant and then once new entrant fails increasing price back to monopoly profit maximisation point.

So with roads this is built in to the basic set up which is why it creates a quite natural monopoly.

So if I'm understanding you, your point is the following:

1. Monopolist owns the only reasonable route between A and B. His costs are $10,000 per day. He charges an extravagant toll that allows him to gross $40,000 per day in revenue. The price is set at a rate that will min-max his price*volume.

2. Would-Be Competitor considers building up an alternate route which might cost him $15,000 per day, at least initially.

3. Would-Be Competitor decides not to risk it for fear that Monopolist will simply lower his revenues to $14,000 per day (or $10,000 or $2,000), which will make it impossible for him to recoup his investment in a reasonable amount of time.

This is challenging, but I don't think its necessarily a market failure yet. For one thing, if Would-Be Competitor assesses the market value of the route at $20,000 per day (which is greater than $15,000), he may still choose to take the hit and weather the storm of price manipulation by the Monopolist, with the expectation that eventually the price will stabilize at around $20,000, and he will begin earning a $5,000/day profit. Monopolist cannot manipulate the market forever, he pays dearly every day. Would-Be Competitor can be capable of playing the long game if the profit potential is there.

The other thing is that while there may be no similar alternate, there are very likely to be inferior routes unless it's a single bridge to an island or something. The monopolist can only gouge his price to a height that will get people to grudgingly choose his route over inferior alternatives. Basically, that's one of a lot of fail-safes that prevent such blatant gouging from being practical.

Finally, lets be real. The state is going to stick its nose in and bust up suspected monopolies. It has a hair trigger for that sort of thing, often when there's actually no monopoly at all, so I wouldn't be that worried about it.

[wufwugy]

1. Monopolist owns the only reasonable route between A and B. His costs are $10,000 per day. He charges an extravagant toll that allows him to gross $40,000 per day in revenue. The price is set at a rate that will min-max his price*volume.

2. Would-Be Competitor considers building up an alternate route which might cost him $15,000 per day, at least initially.

3. Would-Be Competitor decides not to risk it for fear that Monopolist will simply lower his revenues to $14,000 per day (or $10,000 or $2,000), which will make it impossible for him to recoup his investment in a reasonable amount of time.

Given 1 and 2, 3 doesn't happen. Monopolist Company would be in shambles if it lowered revenues so much. I'm not technically savvy on economics enough to explain why, but we see the dynamic in play all the time.

Also, 1 and 2 are not assumptions representative of how the economy would have worked up to this point. There is continual competition at every stage, and we wouldn't see one company get so far ahead. The perfect analogy in this is tech. Apple very quickly got lots of competition and it's probably only like 20% chance it will lead in smart phones in 15 years. Microsoft has even gone so far as to "lose" tons of money in Bing because it knows it has to in order to compete in the market on a broader stage. Microsoft was once considered a great case for a monopoly. The government stepped in, which did basically nothing to change their status, but now, by market forces, a couple decades later it is the underdog and overhauling much of its business model in order to survive.

I'm sure you know this, I just wanted to point out that the framework that creates this private road monopoly is not sound. Sadly, I would need a bit better economics understanding to give the exact details for why.

[rong]

I agree with this, I just wanted to establish that the price is still limited by a min-maxing algorithm that attempts to sell the most tolls for a moderately high (albeit likely too-high) amount. I would only caution against the use of the term "free market price." It is extremely difficult (impossible) to know what that would be, so it is merely a theoretical construct that is of limited use in these discussions. One which we hope is less than the monopolist's price.



So if I'm understanding you, your point is the following:

1. Monopolist owns the only reasonable route between A and B. His costs are $10,000 per day. He charges an extravagant toll that allows him to gross $40,000 per day in revenue. The price is set at a rate that will min-max his price*volume.

2. Would-Be Competitor considers building up an alternate route which might cost him $15,000 per day, at least initially.

3. Would-Be Competitor decides not to risk it for fear that Monopolist will simply lower his revenues to $14,000 per day (or $10,000 or $2,000), which will make it impossible for him to recoup his investment in a reasonable amount of time.

This is challenging, but I don't think its necessarily a market failure yet. For one thing, if Would-Be Competitor assesses the market value of the route at $20,000 per day (which is greater than $15,000), he may still choose to take the hit and weather the storm of price manipulation by the Monopolist, with the expectation that eventually the price will stabilize at around $20,000, and he will begin earning a $5,000/day profit. Monopolist cannot manipulate the market forever, he pays dearly every day. Would-Be Competitor can be capable of playing the long game if the profit potential is there.

The other thing is that while there may be no similar alternate, there are very likely to be inferior routes unless it's a single bridge to an island or something. The monopolist can only gouge his price to a height that will get people to grudgingly choose his route over inferior alternatives. Basically, that's one of a lot of fail-safes that prevent such blatant gouging from being practical.

Finally, lets be real. The state is going to stick its nose in and bust up suspected monopolies. It has a hair trigger for that sort of thing, often when there's actually no monopoly at all, so I wouldn't be that worried about it.

We'll not really. And central to this is that it's selling off existing Road networks as opposed to starting from scratch as I said in the post following the one you quoted.

But let's say there is a road between a and b. Let's say it's a trunk road connecting to towns or whatever. There are currently shittier routes through the country or though neighbourhoods or whatever but the big main road is considerably quicker.

The state sells the roads and company A gets this big one.

It is already big enough to handle all traffic as it stands with quiet times and very busy times.

Let's say the going rate in a competitive market is £5 per car. He charges £8 per car and due to the lack of real alternatives there is some reduction in demand due to car pooling and maybe people don't always make the journey they otherwise might have but there is enough demand still for it to be an optimal price.

If company b wants to enter that market, he's never getting that economic profit of £3 per car, because it ceases to exist once he enters. Now to compete it's not a case of a cost of £10k per day it's upfront investment of maybe £30 Mil (estimated cost to build one mile of motorway so probably a lot more but whatever) and then a cost of £10k per day (or whatever). Now the road that already exists could handle all the traffic that exists at competitive market prices anyway (the excess capacity I referred to earlier) so there isn't a need for another Road and the increase in supply would reduce prices further in the new competitive market.

So company b would need to be willing to invest a huge sum upfront (the entry barrier) when he knows the incumbent has the excess capacity which will force prices down as well as the financial muscle to enter a price war if required.

That's a perfect setup for a monopoly, surely?

And did your last line say the government would step in? Well ok glad we agree the government has some value, but I thought we didn't have one of them in your world.

[Renton]

We'll not really. And central to this is that it's selling off existing Road networks as opposed to starting from scratch as I said in the post following the one you quoted.

But let's say there is a road between a and b. Let's say it's a trunk road connecting to towns or whatever. There are currently shittier routes through the country or though neighbourhoods or whatever but the big main road is considerably quicker.

The state sells the roads and company A gets this big one.

It is already big enough to handle all traffic as it stands with quiet times and very busy times.

Let's say the going rate in a competitive market is £5 per car. He charges £8 per car and due to the lack of real alternatives there is some reduction in demand due to car pooling and maybe people don't always make the journey they otherwise might have but there is enough demand still for it to be an optimal price.

If company b wants to enter that market, he's never getting that economic profit of £3 per car, because it ceases to exist once he enters. Now to compete it's not a case of a cost of £10k per day it's upfront investment of maybe £30 Mil (estimated cost to build one mile of motorway so probably a lot more but whatever) and then a cost of £10k per day (or whatever). Now the road that already exists could handle all the traffic that exists at competitive market prices anyway (the excess capacity I referred to earlier) so there isn't a need for another Road and the increase in supply would reduce prices further in the new competitive market.

So company b would need to be willing to invest a huge sum upfront (the entry barrier) when he knows the incumbent has the excess capacity which will force prices down as well as the financial muscle to enter a price war if required.

That's a perfect setup for a monopoly, surely?

My point was that (using your example, not mine) if the Would-Be Competitor's overhead is less than the estimated competitive market value of £5, then he could still enter, even though he won't get the additional £3. If you're claiming that by merely entering the market, he would lower the market value from £5 to even lower, that sort of invalidates idea of a £5 "competitive market value," doesn't it? This harks back to what I was saying about being careful with that term. If there is only one reasonable route between point A and point B, then necessarily that is a very valuable road. It isn't gouging to attempt to sell your product for as much as you can if its a legitimately invaluable product. The "monopolist" is well within his right to charge a high price, and a high price is a merely a problem for the market to solve.

There's only a monopoly if the incumbent is actively sabotaging alternatives from emerging. It is quite difficult to do this without the use of force or state influence, both of which are morally wrong and hopefully illegal.

And did your last line say the government would step in? Well ok glad we agree the government has some value, but I thought we didn't have one of them in your world.

I'm a realist. If there's a stateless world in our future, I'm sure it is hundreds or thousands of years away. I prefer to apply free-market sensibilities to expected reality. My personal opinion is that anti-monopoly laws do more harm than good, and that true monopolies are nearly impossible to form. I can safely assume that a minimally-corrupt state will squash anything that even comes remotely close to the type of monopoly you're imagining here, for better or worse.

[rong]

My point was that (using your example, not mine) if the Would-Be Competitor's overhead is less than the estimated competitive market value of £5, then he could still enter, even though he won't get the additional £3. If you're claiming that by merely entering the market, he would lower the market value from £5 to even lower, that sort of invalidates idea of a £5 "competitive market value," doesn't it? This harks back to what I was saying about being careful with that term. If there is only one reasonable route between point A and point B, then necessarily that is a very valuable road. It isn't gouging to attempt to sell your product for as much as you can if its a legitimately invaluable product. The "monopolist" is well within his right to charge a high price, and a high price is a merely a problem for the market to solve.

There's only a monopoly if the incumbent is actively sabotaging alternatives from emerging. It is quite difficult to do this without the use of force or state influence, both of which are morally wrong and hopefully illegal.



I'm a realist. If there's a stateless world in our future, I'm sure it is hundreds or thousands of years away. I prefer to apply free-market sensibilities to expected reality. My personal opinion is that anti-monopoly laws do more harm than good, and that true monopolies are nearly impossible to form. I can safely assume that a minimally-corrupt state will squash anything that even comes remotely close to the type of monopoly you're imagining here, for better or worse.

I worded that badly. It would still be £5 per car. However demand receives at £5 per car, which would have to be the minimum profitable price, would be split between 2 roads. So your return on investment would be much lower than normal which means you'd be likely to seek alternative investments instead.

[rong]

That said, a new town starting from scratch with no roads and lots of new suppliers looking to enter the market might not have this problem, and certainly not in all cases with all roads. But an existing Road network would have this problem for anywhere with one big trunk road.

[CoccoBill]

https://www.imf.org/external/pubs/ft...15/sdn1513.pdf

"First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work
has shown that income inequality matters for growth and its sustainability. Our analysis suggests
that the income distribution itself matters for growth as well. Specifically, if the income share of the
top 20 percent (the rich) increases, then GDP growth actually declines over the medium term,
suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the
bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class
matter the most for growth via a number of interrelated economic, social, and political channels."

Also:

http://www.bbc.com/news/blogs-magazine-monitor-31847943
http://www.oecd.org/social/income-di...n-database.htm

[rong]

That's a pretty statement but the two lack equivalence because one sets to maximise profits where as the other sets to..... Well, that what it intends and achieves could be debated, but they are very clearly different and have different outcomes.

The point I was making us that with roads, privatising them won't necessarily give the assumed benefits of competition and optimal benefit to society.

Which is my point with all we discuss. It's not capitalism bad, government good. I just feel some things should remain in public control.

[wufwugy]

That's a pretty statement but the two lack equivalence because one sets to maximise profits where as the other sets to..... Well, that what it intends and achieves could be debated, but they are very clearly different and have different outcomes.

The point I was making us that with roads, privatising them won't necessarily give the assumed benefits of competition and optimal benefit to society.

Which is my point with all we discuss. It's not capitalism bad, government good. I just feel some things should remain in public control.

Since you think some things should be monopolized, why is it bad for those things to be monopolized?

I'm not trying to be cute here. It looks to me like you're saying a private monopoly is bad but a government monopoly is not.

To be clear, I'm not addressing the veracity of that claim. I disagree that a private monopoly would exist in your scenario, but that isn't relevant now since it seems like you're saying it would exist and it's bad which is why you think we should have a good government monopoly.

[rong]

Since you think some things should be monopolized, why is it bad for those things to be monopolized?

I'm not trying to be cute here. It looks to me like you're saying a private monopoly is bad but a government monopoly is not.

To be clear, I'm not addressing the veracity of that claim. I disagree that a private monopoly would exist in your scenario, but that isn't relevant now since it seems like you're saying it would exist and it's bad which is why you think we should have a good government monopoly.

I'm not saying specifically that a private monopoly is bad or that a government monopoly is good. I'm saying that a free market doesn't necessarily give the benefits which it is claimed it does.

I also disapprove of referring to state control as a monopoly. The term monopoly brings all sorts of feelings with it which I don't think help the conversation. And it's not like saying state run doesn't have its own set of negative associations (inefficiency, wastefulness, slow reaction to change etc).

I don't think wealth should automatically entitle you to the best of everything. Just because you are rich, why should your trip to work be easier than mine? Why should you get access to better health care while maybe I have practically none? Why should you have access to justice which I don't?

I like to think that certain things are worthwhile giving up some form of profit for. And what we are essentially saying is a reduction on growth rate and perhaps marginally higher indirect cost. I agree with lots of the stated benefits of free trade, I just don't think the sacrifices required to obtain those benefits are worthwhile in every case.

So as I've stated before, basic infrastructure, utilities, health care, education, policing, justice and defence, should all be state run or at least heavily regulates by the state. This ensures certain freedoms exist for all. ie the freedom to travel around, to access a good quality of health care, to be safe and be protected and expect justice, to receive a decent level of education. To be free from being held to ransom over basic needs like electricity.

These freedoms are enough of a platform to be able to build something from and I think ensuring these has an effect on social mobility and opportunity.

So it's not about one monopoly over another, it's about the implications of private ownership and state ownership.

In terms of disagreeing with me about the monopoly in the road example above, I'll respond to Rentons comment below.

[wufwugy]

I also disapprove of referring to state control as a monopoly. The term monopoly brings all sorts of feelings with it which I don't think help the conversation. And it's not like saying state run doesn't have its own set of negative associations (inefficiency, wastefulness, slow reaction to change etc).

It technically is a monopoly. The monopoly on violence. The government uses this monopoly to structure everything else how it sees fit, so when the government owns the highway, it has a monopoly on the highway.

I don't think wealth should automatically entitle you to the best of everything. Just because you are rich, why should your trip to work be easier than mine? Why should you get access to better health care while maybe I have practically none? Why should you have access to justice which I don't?

Morally: because you're the one with the resources. The guy who kills the meat gets to do with the meat what he chooses. If it isn't structured like this, civilization falls apart. You use your resources to support your family. Why would it better for you to not have that option?

Socially and economically: because it makes the world a better place. Meritocracy drives abundance and prosperity, regardless of if you "earned" the merits or "just have" the merits. Macroeconomics is counter-intuitive. We may think that helping the poor with things like wage floors or price caps on goods helps them, but macroeconomics says otherwise. It isn't even that macro says it doesn't help them, but that it actually hurts them. I don't really even understand it that well, but I'm not going to tell economists at large that they're wrong about economics. Maybe an easy way to visualize it is that when regulations make it hard to have a job without a car (which ours very much do), it undercuts the poor since they have to waste so much of their resources on a car.

It is important that people pay for what they have with the resources they have. Not doing this is what the Soviet Union tried to do. Socialism in the West is not any different whatsoever. We are just lucky that only some aspects of our society have embraced the ideology; whereas the USSR embraced it for all aspects of its society.

I like to think that certain things are worthwhile giving up some form of profit for. And what we are essentially saying is a reduction on growth rate and perhaps marginally higher indirect cost. I agree with lots of the stated benefits of free trade, I just don't think the sacrifices required to obtain those benefits are worthwhile in every case.

Profit is essential to driving abundance and innovation. There are no known exceptions.

So as I've stated before, basic infrastructure, utilities, health care, education, policing, justice and defence, should all be state run or at least heavily regulates by the state. This ensures certain freedoms exist for all. ie the freedom to travel around, to access a good quality of health care, to be safe and be protected and expect justice, to receive a decent level of education. To be free from being held to ransom over basic needs like electricity.

The reason I keep mentioning food is because it is equally as essential to life as the other things you mentioned (more than most of them, actually), yet it is not heavily influenced by the state and it works better than every one of your examples. So the question is "what gives?" How can it be that government ownership is better for essentials when the facts show that markets are better?