Also, there's a world of difference between 1 cent of consumer surplus and 1 dollar of consumer surplus. The latter is 100 times greater. Learn math and economics.
And it's very natural that discriminatory pricing should produce such bad results. Because discriminatory pricing is exactly what socialism does- charge based on who the buyer is.
We've been through this before. You can't use math in economics that way. The concept of money gives us an approximate way of guessing the "objective worth" of someone's consumer surplus, but it is ultimately a psychic profit that considers non-monetary factors that are ranked on an ordinal and not a numerical scale.
Also, you have to keep in mind that the odds of exchanges regularly occurring at the exact maximum buying price of the buyer is incredibly low. Most consumers aren't even consciously aware of their own maximum buying prices for various products (quick, tell me the exact amount gas must cost for which you would no longer purchase gas). The odds of an average shopkeeper knowing the exact maximum buying price of any one particular buyer is exceedingly low. That is precisely why barter occurs.
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Smuffin, I hate to say this, because generally you try to engage in reasonable discussions, unlike most of your critics, but on this case, you have no idea what you are talking about.
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We've been through this before. You can't use math in economics that way. The concept of money gives us an approximate way of guessing the "objective worth" of someone's consumer surplus, but it is ultimately a psychic profit that considers non-monetary factors that are ranked on an ordinal and not a numerical scale.
No one is making either of those basic errors. Objects don't have objective worths, and obviously preferences are ordinal only. It doesn't change the analysis on discriminatory pricing, where the seller sets the price as close to the buyer's willingness to pay as possible. This destroys the consumer surplus. If you would pay $100 for an object, you're much happier getting it for $50 than getting it for $99.99.
Also, you have to keep in mind that the odds of exchanges regularly occurring at the exact maximum buying price of the buyer is incredibly low. Most consumers aren't even consciously aware of their own maximum buying prices for various products (quick, tell me the exact amount gas must cost for which you would no longer purchase gas). The odds of an average shopkeeper knowing the exact maximum buying price of any one particular buyer is exceedingly low. That is precisely why barter occurs.
We were discussing the theoretical situation of perfect discriminatory pricing. Obviously this is unattainable, but the closer we get to it, the closer we get to its results.
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Hey, don't tell it to me, tell it to Rothbard. Or his heirs. Whatever.
The Economics community has done so already.
Either form an intelligent and reasonable position or move on.
My position is plenty reasonable, don't accuse me of making basic errors that some liberals may subscribe to but no one who's taken an econ class would.
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And just to clarify, my "100 times" statement was an illustration. It could be 99 times, or 102, or even 200 or 20. It doesn't matter. For 99.99% of people, it's a lot lot bigger.
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Err, if you are willing to pay up to $100 for something, you still gain utility from the purchase. Otherwise you wouldn't make the purchase. Consumer Surplus is just a measure of savings the consumer gets at purchasing it under his maximum price. Everybody loves savings. Having $50 and the egg you wanted because you bought it at $50 is obviously better than just having the egg after spending $100, but you obviously still are happy you got the egg.
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The paradox of perfect discriminatory pricing across a whole society is that it also kills the producer's surplus. Why? Sellers get a lot more money now. But the moment they try to buy something with their money- they face a marketplace with perfect discriminatory pricing too. So sellers are left with piles of money that are useless for actually buying anything. The producer's surplus gains are illusory.
Of course, once society realizes this, the whole free market system of prices and trade is likely to break down.* The only way to prop up the illusion will be for the state to fix prices. Which is perhaps one reason why Communism is fundamentally flawed. You can never get to the end-goal of communism- a society with no state and perfect discriminatory pricing.
*Because there is no longer any reason to want more money. From each according to his ability to each according to his need.....
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And where has that gotten them, exactly? Go back and read some articles over the past decade by Bob Murphy and Paul Krugman and tell me who was more consistent AND more correct.
We were discussing the theoretical situation of perfect discriminatory pricing. Obviously this is unattainable, but the closer we get to it, the closer we get to its results.
Theoretical situations are only relevant to the extent that they can be used to increase understanding of real ones. In this case, "perfect discriminatory pricing" is so ridiculously unattainable that it fails to be a relevant model. It's an incredibly simple fact that every exchange in a free market includes a consumer surplus and a producer surplus. Economics can tell us nothing about exactly how much each surplus should be in any particular exchange. That is for the buyers and sellers to decide for themselves.
Let me ask you this. You describe any scenario where a seller charges different prices per buyer "discriminatory pricing." Which you seem to oppose because it limits the consumer surplus. Well, what about when a seller gives a particular buyer a special discount. In that case, it increases the consumer surplus. Is that inherently good?
You're falling into the trap that I originally started this topic with in the first place, and that even the admitted Communists and trolls didn't fall for. It's the same action either way. Neither is inherently wrong (or right for that matter).
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Well, what about when a seller gives a particular buyer a special discount. In that case, it increases the consumer surplus. Is that inherently good?
What is particular about the buyer? If the answer is that he is buying more of the product, that's fine and good. He has not revealed any more about himself than any buyer does by buying the product. If the answer is because he is poor and needs the money, that is socialism and that does not work. The problem is not something do with consumer surplus only, it could easily be producer surplus. The problem is that violating anonymity of the buyer leads to inefficiency. This is exactly what socialism does- we could even say this is what real socialism is. From each according to his ability to each according to his need. And it does not work.
You're falling into the trap that I originally started this topic with in the first place, and that even the admitted Communists and trolls didn't fall for. It's the same action either way. Neither is inherently wrong (or right for that matter).
Neither is wrong morally. There's a good argument that both are inefficient.
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The problem is that violating anonymity of the buyer leads to inefficiency.
And? When we're talking about psychic profit and loss, you cannot measure inefficiency in money alone. How about this scenario. Instead of the merchant making the first offer to sell a good at a ridiculously over-inflated price, say the tourist makes the first offer to buy at what he knows to be a over-inflated price because he feels sympathy for the poor impoverished foreign shopkeeper. In this case, he is choosing inefficiency by purchasing the psychic good of philanthropy. Can you make a value judgment on that?
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From: red sox 777 | #066 And given how much you rail against socialism/communism, you should really recognize it better when it appears in front of you!
It's only Communism/Socialism when the government enforces it with a gun. If I choose to sell my used games to someone on Board 8 for less than the "market value" because I like people on Board 8 and feel like giving them a break, that's not socialism, that's philanthropy. One of the few areas where I diverge from the Rand school of thought is that I don't see philanthropy as morally wrong.
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How about this scenario. Instead of the merchant making the first offer to sell a good at a ridiculously over-inflated price, say the tourist makes the first offer to buy at what he knows to be a over-inflated price because he feels sympathy for the poor impoverished foreign shopkeeper. In this case, he is choosing inefficiency by purchasing the psychic good of philanthropy. Can you make a value judgment on that?
The tourist could get the same result by paying a normal price and just giving the merchant money as a gift. Nothing wrong with charity, and it is superior to socialism.
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It's only Communism/Socialism when the government enforces it with a gun. If I choose to sell my used games to someone on Board 8 for less than the "market value" because I like people on Board 8 and feel like giving them a break, that's not socialism, that's philanthropy. One of the few areas where I diverge from the Rand school of thought is that I don't see philanthropy as morally wrong.
According to Marx and Communist/Socialist apologists, in real communism, eventually the state will wither away. But Communism is not only flawed because it has been corrupted by governments and people like Stalin. Communism is inherently flawed, and cannot work.
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The tourist could get the same result by paying a normal price and just giving the merchant money as a gift.
Maybe. Although if people are particularly prideful, they may reject such blatant forms of charity. Knowingly overpaying for a good or service is a great way to give someone a break without damaging their pride quite as much.
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Well you don't expect ME to argue with that, do you?
Anyway, nothing I have described in this topic is Communism OR Socialism because I have yet to make any reference to the state compelling any action upon any individual. In a free market, there are only two ways that goods or services can sell at a non-market price. The first is philanthropy (knowingly overpaying or undercharging for something) and the second is ignorance of the market (unknowingly overpaying or undercharging for something).
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Maybe. Although if people are particularly prideful, they may reject such blatant forms of charity. Knowingly overpaying for a good or service is a great way to give someone a break without damaging their pride quite as much.
Economically speaking, there is no difference here.
Thinking about it, the Communist utopia could work if everyone placed a really really high value on equality. If everyone would rather have a Communist utopia than running water, cars, computers, the internet, enough food to live on, greater lifespans, medical care, space travel, hovercars, and every other material thing people could want- then a Communist utopia could make everyone better off.
If everyone was perfectly charitable (=perfect price discrimination, just think about why), the Communist utopia would be achieved. The difference between this and state-run Communism is that everyone is happy in the charitable utopia because they want this result. But measuring by material wealth, the result would be the same. So the utopia would not work because most people do not really value charity so much more than material wealth.
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Anyway, nothing I have described in this topic is Communism OR Socialism because I have yet to make any reference to the state compelling any action upon any individual.
The heart of Communism is not state action but dividing resources according to need. The state action is what produces totalitarian governments, but the dividing resources according to need part is also destructive of an economy.
In a free market, there are only two ways that goods or services can sell at a non-market price. The first is philanthropy (knowingly overpaying or undercharging for something) and the second is ignorance of the market (unknowingly overpaying or undercharging for something).
Perfect price discrimination is neither. Under it, there is no market price, because the price is different for each buyer. This should suggest to you that it is not a free market.
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From: red sox 777 | #070 But Communism is not only flawed because it has been corrupted by governments and people like Stalin. Communism is inherently flawed, and cannot work.
I've only taken Econ 101. I'm curious why communism "cannot" work. Can someone explain this to me?
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The heart of Communism is not state action but dividing resources according to need
And how is this division to take place without state action? I mean, theoretically if literally 100% of the population supported said Communist action it could happen, but once again, that scenario is so unrealistic that it does not even merit serious discussion.
Thinking about it, the Communist utopia could work if everyone placed a really really high value on equality. If everyone would rather have a Communist utopia than running water, cars, computers, the internet, enough food to live on, greater lifespans, medical care, space travel, hovercars, and every other material thing people could want- then a Communist utopia could make everyone better off.
Agreed. I think plenty of progressives, leftists, statists, etc. actually do believe this, although they might not consciously admit it. Dennis Prager talks about it a lot and calls it "equality uber alles"
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I've only taken Econ 101. I'm curious why communism "cannot" work. Can someone explain this to me?
Communism destroys incentives. People are not motivated to work or especially to innovate, because there is no possible gain from it. All the gains from the fruit of your labor will be shared equally among all members of society, so you will end up with a tiny tiny gain from whatever you do, no matter how great. You get things based on your need, and your need alone, which you cannot change through any work you do.
Thus, people will not work/innovate. And the economy will not grow. Indeed, it will probably shrink pretty fast. The new Communist government will likely express puzzlement at this point and wonder why the people are not producing anything. In desperation, unable to understand that Communism itself is the problem, they will start forcing people to work.
Now, Communism could work with totally selfless people. If you only cared about society and not yourself, you could derive happiness from working/innovating in a Communist country and watching society benefit. But most people are not like that.
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And how is this division to take place without state action? I mean, theoretically if literally 100% of the population supported said Communist action it could happen, but once again, that scenario is so unrealistic that it does not even merit serious discussion.
Well, perfect price discrimination is not likely to happen anytime soon, so I'm not too worried about this extreme either. But if everyone did the things you talked about in the first post- it would be achieved. And you asked for opinions about it. My argument is that it is probably inefficient because taken to an extreme, it is definitely inefficient.
Of course, it's possible that in small doses, this actually is efficient, and only when it gets to large doses is it bad. You might also think that government socialist action can be good in small doses and is only destructive in large doses.
Either way, asking whether an act is moral or efficient naturally invites us to generalize. If it's efficient for you to do something, surely it's efficient for me to do the same thing, or for anyone else. And if it's efficient for everyone to do it individually, but everyone doing it leads to disaster- we should question whether it was ever efficient for anyone to do it in the first place.
Also, the entire population just up and embracing Communism is just how Marx envisioned it happening, and how many people continue to envision it today. When you bring up Stalin and Mao, very often, even on this board, people respond by saying that isn't real Communism. So I'd say it's pretty relevant.
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