*** The Official MAGAposting thread ***

[wufwugy]

You're still not explaining how hunger denies access to the market. Can a hungry person not work, earn money, and buy food?

I didn't say hungry, I said can't eat. If you can't eat, yeah, you have a significant to whole inability to work, earn, etc.. But that doesn't matter. Here's what matters: the assumption in your point is that the food is already available. Okay, why is it available? The private sector has made it available. Since this is the case, does it work for education?

[BananaStand]

I didn't say hungry, I said can't eat. If you can't eat, yeah, you have a significant to whole inability to work, earn, etc.. But that doesn't matter.

Explain what you mean by "can't eat". Exactly what affliction are you referring to? And it DOES matter because you're forcing a completely un-apt analogy. We're talking about access to a fair market place. Education provides that, food doesn't. What are you missing here?

Here's what matters: the assumption in your point is that the food is already available. Okay, why is it available? The private sector has made it available. Since this is the case, does it work for education?

It's a question of risk. The private sector providing food is not as much of a risk since the government is equipped to take emergency measures in cases where the private sector fails. That's what FEMA does when there is a hurricane.

If a private school fails.....what's the government's play then? How does the government fulfill it's responsibility to offer everyone fair access?

[wufwugy]

It's a question of risk. The private sector providing food is not as much of a risk since the government is equipped to take emergency measures in cases where the private sector fails. That's what FEMA does when there is a hurricane.

Where are these market-wide private sector failures? I only know of ones caused by government. The hurricane example is good for showing the economic theory for how the government responds more poorly than the private sector.

[BananaStand]

Where are these market-wide private sector failures?

Once upon a time there was a private enterprise called Central Vermont Public Service. They sell electricity. However, in order to protect consumers, the market must be regulated by the government, otherwise.....this happens....

First, some explanation. CVPS must get it's prices approved by the government. And this example illustrates why. Basically they add up all the capital the company has invested in it's infrastructure to deliver electricity. Then they apply a competitive market rate of return. That amount of dollars is divided by the amount of KW hours they plan to sell and voila....there is your price for electricity.

As you can see, there is a profit-motive to invest capital. Therefore, the managers at CVPS are incentivized through a bonus program that requires them to spend their entire budget. Saving costs is discouraged.

Here's the result....

Let's say you're a project manager charged with building some electrical doo-hickey somewhere in Vermont. You check it out and find that you need a permit from the town in order to construct a building to house your little doo-hickey. Except before you get a permit, you need to submit an environmental impact study. And then you have to get your plan approved by the board of selectman which meets infrequently. So all in all....the red tape you have to navigate means you might get to break ground on your new project in 14 months.

But you were charged with spending your whole budget this year. Otherwise you are considered a failure at your job.

What do you do?

you go into future years and you pull projects that aren't due yet, into the current year so you have something to spend money on. Now those telephone polls that aren't due to be replaced for another five years, get replaced today.

The result, is that CVPS increases it's capital investment, thus increasing the amount of money they require from the public, in order to generate the same return on investment.

So CVPS got busted doing this, and the VT gov't said "WHOA, you can't do that! Your'e charging people for shit they don't need yet!"

So then the gov't basically disqualified huge chunks of capital investment for the purposes of a rate calculation. This left CVPS with terrible cash flow and their bond rating plummetted to 'junk' status overnight.

So then the CVPS shareholders are like....."why the fuck am I doing this?? I could just invest my capital in a mutual fund and make more money with a fraction of the risk"

What's stopping them from pulling out and leaving Vermont in the dark?

It's hard not to imagine this same model would apply to privatized education. the investors in the school-business are going to expect a return on their investment that is competitive with other similar investments, and makes it worth the risk. How do you prevent this from being excessive? How do you prevent a school from adding extraneous amenities like yoga studios and and seaweed buffets in order to drive up capital investment, and therefore increase revenue without actually providing better education?

You can say "the market" but that's not true. If the market rejects that school, and it fails, then what happens??

in the case of the failing CVPS and a failed private school, the government would have to intervene, or at least make concessions in order to help the business stay afloat. And if that's the case, why doesn't the government just run it in the first place??

If you're going to have the goverenment subsidize the risks of private businesses, then those businesses are not taking any risk. And if there is 0 risk, what kind of return should they expect? NONE in my opinion.

If they are making a return, it's because the government put their thumb on the scale. And I have a problem with a private enterprise making profits only by way of the government subsidizing their risk. that's essentially the government picking winners and losers among private businesses.

So in these instances, it's probably better if the government just handles it themselves.

[wufwugy]

Once upon a time there was a private enterprise called Central Vermont Public Service. They sell electricity. However, in order to protect consumers, the market must be regulated by the government, otherwise.....this happens....

First, some explanation. CVPS must get it's prices approved by the government. And this example illustrates why. Basically they add up all the capital the company has invested in it's infrastructure to deliver electricity. Then they apply a competitive market rate of return. That amount of dollars is divided by the amount of KW hours they plan to sell and voila....there is your price for electricity.

As you can see, there is a profit-motive to invest capital. Therefore, the managers at CVPS are incentivized through a bonus program that requires them to spend their entire budget. Saving costs is discouraged.

Here's the result....

Let's say you're a project manager charged with building some electrical doo-hickey somewhere in Vermont. You check it out and find that you need a permit from the town in order to construct a building to house your little doo-hickey. Except before you get a permit, you need to submit an environmental impact study. And then you have to get your plan approved by the board of selectman which meets infrequently. So all in all....the red tape you have to navigate means you might get to break ground on your new project in 14 months.

But you were charged with spending your whole budget this year. Otherwise you are considered a failure at your job.

What do you do?

you go into future years and you pull projects that aren't due yet, into the current year so you have something to spend money on. Now those telephone polls that aren't due to be replaced for another five years, get replaced today.

The result, is that CVPS increases it's capital investment, thus increasing the amount of money they require from the public, in order to generate the same return on investment.

So CVPS got busted doing this, and the VT gov't said "WHOA, you can't do that! Your'e charging people for shit they don't need yet!"

So then the gov't basically disqualified huge chunks of capital investment for the purposes of a rate calculation. This left CVPS with terrible cash flow and their bond rating plummetted to 'junk' status overnight.

So then the CVPS shareholders are like....."why the fuck am I doing this?? I could just invest my capital in a mutual fund and make more money with a fraction of the risk"

What's stopping them from pulling out and leaving Vermont in the dark?

It's hard not to imagine this same model would apply to privatized education. the investors in the school-business are going to expect a return on their investment that is competitive with other similar investments, and makes it worth the risk. How do you prevent this from being excessive? How do you prevent a school from adding extraneous amenities like yoga studios and and seaweed buffets in order to drive up capital investment, and therefore increase revenue without actually providing better education?

You can say "the market" but that's not true. If the market rejects that school, and it fails, then what happens??

in the case of the failing CVPS and a failed private school, the government would have to intervene, or at least make concessions in order to help the business stay afloat. And if that's the case, why doesn't the government just run it in the first place??

If you're going to have the goverenment subsidize the risks of private businesses, then those businesses are not taking any risk. And if there is 0 risk, what kind of return should they expect? NONE in my opinion.

If they are making a return, it's because the government put their thumb on the scale. And I have a problem with a private enterprise making profits only by way of the government subsidizing their risk. that's essentially the government picking winners and losers among private businesses.

So in these instances, it's probably better if the government just handles it themselves.

I know I asked, and thanks for responding. I'm burned out on this so I don't think I have much to respond with. I'll say these two things.

That scenario isn't market failure. And an elimination of the profit incentive is effectively equivalent to elimination of the good/service itself. It sounds nice to have the government step into markets and eliminate the profit incentive, but it doesn't work. It only appears to work for a period of time and because it's being subsidized by something else.

[BananaStand]

That scenario isn't market failure.

You asked for a market-wide failure. If you're contending that it's not market-wide because it doesn't affect people who live without electricity, then I think I have to shake my head and walk away. Can you clarify?

And an elimination of the profit incentive is effectively equivalent to elimination of the good/service itself.

Right. So what happens if a school becomes unprofitable? What will it's shareholders do with their investment instead?

It's certainly plausible. Let's say a school does a massive expansion/remodel with the intention of attracting a larger student body and generating more revenue. Now let's say people don't change to that school enough to cover the additional overhead and the school starts losing money. Why would that school stay in business?

What happens to the students when it shuts down?

It sounds nice to have the government step into markets and eliminate the profit incentive, but it doesn't work

This is not what I'm talking about happening. What I'm talking about is the government stepping into markets and eliminating risk. When the government subsidizes risk, you create a situation where the business is actually encouraged to take higher risks, seeking higher returns, but never feeling exposed because the government has your parachute ready. This is bad for consumers. It means businesses, in this case the very business that controls education, and thus your entitlement to fair access to the market place, is able to take on new risks with impunity.

Bottom line. If you're going to privatize education, then you must either
A) have the government subsidize the risk. Essentially declaring schools "too big to fail". This is bad.
B) accept the risk that a school, or district, might fail and essentially leave those citizens without access to education. This is also bad.

Honestly wuf, if you're going to advocate to privatize anything, even if it works, the final resolution is probably going to be some slow, complicated, unweildy monster made up of a hybrid of private business and government. Why bother??? Wouldn't your efforts be better spent using the political tools at your disposal in order to drive effective management of education by the government?

If you're just gonna say "government sucks at everything, so why bother trying to fix it", then you're guilty of the same cynicism that drives black youths to drop out of high school.

[wufwugy]

You asked for a market-wide failure. If you're contending that it's not market-wide because it doesn't affect people who live without electricity, then I think I have to shake my head and walk away. Can you clarify?

One firm collapsing at one point in time is not a market failure. A market failure would be if those people in Vermont had an electricity market in which government didn't intervene and the private sector also didn't find a solution, both within reasonable time.

Note that we should be saying "free market" in this case instead of "market". But we're generally using "market" to mean "free market" so let's leave it as is. That's normal.

Right. So what happens if a school becomes unprofitable? What will it's shareholders do with their investment instead?

It's certainly plausible. Let's say a school does a massive expansion/remodel with the intention of attracting a larger student body and generating more revenue. Now let's say people don't change to that school enough to cover the additional overhead and the school starts losing money. Why would that school stay in business?

What happens to the students when it shuts down?

Use your imagination. Markets correct for this sort of shit constantly in all sorts of other markets.

This is not what I'm talking about happening. What I'm talking about is the government stepping into markets and eliminating risk.

Two things: (1) this has the frequent effect of creating other risk. The concept is called moral hazard. (2) The risk has a cost, so the cost of the attempt to eliminate it should be balanced with that cost. Government tends to adjust for this risk/cost dynamic less well than the private sector. We end up with a situation where a specific risk is eliminated at a higher cost than the people affected value it.

When the government subsidizes risk, you create a situation where the business is actually encouraged to take higher risks, seeking higher returns, but never feeling exposed because the government has your parachute ready. This is bad for consumers. It means businesses, in this case the very business that controls education, and thus your entitlement to fair access to the market place, is able to take on new risks with impunity.

The first part is correct and shines of the moral hazard issue. I'm confused on how you go from there to the second part. In a free market, the government isn't subsidizing risk nor do businesses control education. Consumers control it more than anything in that case. There is not taking on of risk with impunity in the marketplace free from government intervention. It's the intervention that causes the impunity.

Bottom line. If you're going to privatize education, then you must either
A) have the government subsidize the risk. Essentially declaring schools "too big to fail". This is bad.

It's awful and it's not free market capitalism. It's crony capitalism.

B) accept the risk that a school, or district, might fail and essentially leave those citizens without access to education. This is also bad.

This is a screenshot. Economics discusses what happens over more than a screenshot. In the situation you described, the incentive for others to fill the gap increases. But that's still not the right way to look at it because there are millions of moving parts. We see the millions of moving parts in action in other markets, where firms fail all the damn time yet quality and quantity of goods/services keep increasing.

Honestly wuf, if you're going to advocate to privatize anything, even if it works, the final resolution is probably going to be some slow, complicated, unweildy monster made up of a hybrid of private business and government. Why bother??? Wouldn't your efforts be better spent using the political tools at your disposal in order to drive effective management of education by the government?

The reason for not focusing on better management by government is because by nature it is not possible (over time, on average, in aggregation). That is, unless you can show in theory that the government has an information advantage over the private sector. To be more specific, a government education system simply cannot undergo the same level of trial and error to progress that a private system can. I want to put my efforts where they matter.

If you're just gonna say "government sucks at everything, so why bother trying to fix it", then you're guilty of the same cynicism that drives black youths to drop out of high school.

I don't say that. I say government sucks relative to the private sector because it does not have as robust structural incentives regarding bettering peoples' lives as the private sector does.

[spoonitnow]

So what happens if a school becomes unprofitable?

The same thing that happens now: It gets shut down.