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Capitalism: Awesome or Deplorable?


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On 3/9/2021 at 8:56 AM, whoknew said:

I don't believe I'm qualified to determine if a system is better or not. I just don't know enough about the other systems. I also don't even know how we define better.

But, for example, a system where college is free would mean that the parents would not have to work so hard to pay for college. Is that better? That's a loaded question with a lot of variables. 

At the beginning of this thread, there was a lot of talk about maximizing happiness. It seems to me that that should be the way to measure whether a system is "better" than another. MT argued that you need to do that on a long time scale - and it seems that you are arguing something similar. The problem I can see with that is it seems like we are always trying to maximize future happiness without paying attention to current happiness. 

I don't know - maybe I'm wrong. I am definitely pro-capitalism. I just want to keep open the option that maybe I'm wrong and have just been conditioned to think that because I grew up in the US. 

We would all be happier if we could make as much or more money by working less or giving less effort.  Capitalism offers the reward of financial gain for more work.  It's fine if your goal is not to achieve more wealth by working harder.  Not everyone is wired the same and there's nothing wrong with that.  But systematically if you want everyone happy and decide it's fine if work is not the incentive to get to that goal, then who earns the money for everyone to live such tranquil and happy lives?  Capitalism doesn't guarantee it, and it's true you can work hard and not become wealthy, but it affords you that chance better than any other system I see out there.  

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Because maybe the goal in life should be to NOT work very hard, 7 days per week.

If I were going to argue against capitalism (in favor of central planning), it would be along these lines.  In particular, I would point to how capitalism deals with environmental issues as its primar

I've heard some people say that every billionaire is a policy failure. I think that's wrong. Consider Elon Musk. I believe I heard this story regarding Tesla, but it's probably even more tru

On 3/8/2021 at 8:44 AM, IvanKaramazov said:

 

When you introduce externalities into the mix, that changes.  Suppose I own an electric plant.  I have to pay for all the coal I burn, all the workers I hire, all the office supplies I buy, all the electric grid equipment (?) I use, etc.  If those various input markets are functioning well, the price I have to pay for coal should equal its marginal cost to society, so my interests and society's interests in using coal efficiently are aligned.  They're not just sort-of vaguely pointing in the same direction -- they're exactly the same.  That's great, and that's why markets normally work so well in terms of producing stuff as efficiently as possible and generating wealth.  

But when I burn coal to produce electricity, I also emit carbon into the atmosphere and contribute to global warming.  You can think of this as me "using" the atmosphere as an input.  Society places a value on having a clean, low-CO2 atmosphere, but I place no value on that all because there's no price attached to it.  So my interests and society's interests are now totally unaligned in a completely predictable direction.  "The atmosphere" is valuable to society but I can use it for free, so I'll systematically pollute too much.  Multiply that by a bunch of firms, and you end up with way too much carbon in the atmosphere.  It's not that I'm evil and I chose to emit a bunch of carbon just to be a jerk.  I got nudged strongly in that direction by the prices that the market presented to me.  

 

The two bolded items seem to contradict each other to me.  If the markets are functioning well and price is a function of societies interests...wouldn't society drive prices down on coal and create price incentives (willing to pay more) for clean energy.  Eventually if societies interests are truly a healthy environment dirty energy would go away through this cycle.

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More Yglesias. I won't keep posting these because I want to respect the paywall, but this is again too relevant not to share. I do recommend subscribing to his substack. It's the second-best newsletter, IMO, after Astral Codex Ten.    

Quote

Wealth isn't what matters
An idea that makes less sense the closer you look at it    
Matthew Yglesias
Mar 12, 2021

A bad economy promotes wealth equality

Let’s return to the question of monetary policy and the racial wealth gap.

As you’ll recall, a research paper from Federal Reserve staff economists argued:

  • Stimulative monetary policy reduces unemployment.
  • Lower unemployment disproportionately benefits Black workers.
  • Stimulative monetary policy also raises the value of stocks.
  • Higher stock prices disproportionately benefit white people.
  • The mechanical impact of higher stock prices on the racial wealth gap is larger than the mechanical impact of lowering the unemployment gap on the racial wealth gap, and therefore stimulative monetary policy increases the racial wealth gap.

The problem with that paper isn’t that it’s wrong — the analysis seems correct — it’s that the conclusion is ridiculous. The stock market crashed when it became clear that the COVID-19 epidemic was not going to be contained. It surged after the Georgia Senate elections made it clear that a Democratic majority would be in place to pass a fiscal stimulus bill.

There’s nothing special about monetary policy and the wealth gap, or even anything special about the racial wealth gap in particular. Any kind of surprise good news lifts stock prices and therefore disproportionately enriches the people who already own lots of stock. That’s mostly white people, but more to the point, it’s the subset of white people who are rich. Nobody thinks that inventing COVID-19 vaccines was a giveaway to the rich. But it definitely improved the economic outlook and gave share prices a boost.

If you focus on wealth equality, you end up making yourself into a straw-egalitarian who thinks recessions are good and recoveries are bad. Note that while you can certainly do hypothetical scenarios about income inequality that are like this, in the real world, recessions widen income inequality and tight labor markets are disproportionately beneficial for low-wage workers. Wealth, by contrast, is full of anomalies.

Wealth and the poor

Wednesday afternoon, I saw some well-dressed women who looked to be early-20s professionals eating lunch outside at the expensive salad place Sweetgreen on P Street. There was also an unkempt-looking fellow begging on the block.

Common sense says the unhoused are poor, and the people eating $12 salad for lunch are not. But it’s very likely that some of the young professionals have negative net worth due to having recently graduated from college with student loans, whereas nobody is lending money to people who don’t have homes. In wealth terms, a 24-year-old liberal arts grad enjoying a Kale Caesar is poorer than the person who makes the Kale Caesar, poorer than the person sleeping in a homeless shelter, and poorer than a subsistence farmer in Haiti. The only person poorer than the liberal arts grad is someone like a newly minted dentist, who will have even more debt.

That’s ridiculous, obviously, and it’s why conversations about the distributional impact of student loan forgiveness get so crazy so quickly.

What’s missing from the balance sheet is the value of the degree. And that messes things up even within the internal analysis of student debt. A person who graduates from the University of Wisconsin is going to have more debt than someone who did two years at an online college and then dropped out. But the Wisconsin grad is much better off, because a bachelor’s degree from a flagship state university campus is valuable, and an incomplete from an online college is worthless.

“Human capital” isn’t really capital — you can’t trade it to someone else. So it doesn’t count as wealth. But lots of things that aren’t wealth are still valuable.

The value of social insurance

I grew up in Manhattan and was born in 1981, when living in Manhattan was not so fashionable or expensive as it became in the 21st century. So I’m acquainted with a lot of people my parents’ age who made real estate investments in the 1980s that paid off really incredibly well for them. Those people are rich, even if they don’t “feel rich” because so much of the value is tied up in their house.

But I also know people who, due to the vagaries of rent control, just have incredibly sweetheart deals on their apartment.

A sweetheart deal on an apartment is not as good of a thing to have as a very expensive condo, because you can sell the condo and move someplace cheaper if you want, while there’s no legal way to monetize possession of a rent-controlled unit.¹ But it’s not nothing! If you compare to families who are otherwise similarly situated but one has a great deal on rent thanks to rent control, the family with the great deal is clearly better-off. But wealth has no way to know that.

By the same token, if we eliminated Social Security then middle-class people would need to save more, and we would have more middle-class wealth.

But would a society with no Social Security actually be more egalitarian? No. It’s just that you would be transmogrifying a valuable form of non-wealth (Social Security) into something worse (brokerage accounts) that happens to qualify as wealth. Now you could change this around if you wanted to. Instead of financing Social Security with taxes, you could endow a Social Security Fund with a huge stash of bonds. Then the Social Security Fund would own a bunch of wealth (bonds) and we the people would collectively own the fund. Taxes would cover the interest on the bonds, and the proceeds would be paid out as Social Security benefits. This doesn’t change anything in terms of how much taxes people pay or benefits they receive. But, through a bit of accounting legerdemain, we’ve conjured up a stash of publicly owned wealth and created a more egalitarian distribution.

The perversity of housing

I often think that on some level, it would be better if we had no homeowners at all, and all the housing stock in the country was owned by, like, a dozen gigantic national landlording franchises. Since these are big companies, all the properties would be very professionally managed. Instead of you desperately seeking a reliable plumber on the basis of no information, the big landlording franchises would employ tradespeople whose job is to make sure the value of their assets doesn’t erode.

And since nobody owns a home in this scenario, the rental market would cater to the needs of grown-### middle-class people who want stability (long-term leases) and single-family homes with yards, etc., etc., etc.

One great thing about this universe is that it would clarify that housing is fundamentally a commodity, and like any commodity, we want it to be cheap and plentiful. Of course, people would still care about the quality of their neighborhood and be bothered by noise and nuisances and so forth. But houses are like cars or boats or tables or laptops — you want to live in a world where there are plenty of new ones being churned out all the time so they are easy to buy.

In the world we have, housing is instead a source of “wealth” for tons of people. The government, in order to help people build wealth, helps you get a subsidized mortgage loan. Then you go buy a house, which itself bundles a depreciating durable good (the house) with a speculative asset (the land the house is built on). Then, you actually need to spend a lot of money fighting the inevitable deterioration of the depreciating durable good, while hoping to recoup your investment through appreciation of the price of land. This creates a perceived incentive to promote housing scarcity in order to boost the value of your leveraged asset. This is how we’re building wealth.

But it’s pretty obvious that the United States of America as a whole cannot become a more prosperous country by making housing scarce. We’re actually impoverishing ourselves with this wealth-building strategy. Instead, you have people in pricey markets inhabiting subpar dwellings that just happen to be valuable.

The two faces of capital

One big issue here is that the “capital” in “capitalism” means two different things.

On the one hand, there’s the variable k in a mathematical production function. This k is stuff that you use to make stuff. A house — as in the physical object — produces housing, a service. A car factory is full of all kinds of specialized machinery that can make a car. A white-collar office has desks and power outlets and computers.

But on the other hand, there’s just money. Or financial value. Disney, the corporation, is worth a lot of money.

Some of that is the tangible capital the company owns. But mostly, it’s the value of the Disney brand, the value of sub-brands like Marvel and Star Wars and ESPN, and even more so the concrete value of specific pieces of intellectual property. Even something like Disney World, which obviously involves a lot of tangible capital goods, is mostly intellectual property. You can’t go build a competing park, because no matter how much money you pour into it, you can’t have Mickey Mouse or Elsa or Han Solo.

There was probably a time when it was defensible to treat financial capital and physical capital as so closely related that it made sense to use the same word for them. But today’s economy doesn’t really work like that. Apple doesn’t own the factories where the iPhone is made. The most valuable company in the world is mostly a cluster of brands, patents, trademarks, and human relationships. The companies like Foxconn and TSMC that own the physical capital used to make Apple gear are decent businesses, but the best businesses are very heavily tilted toward the intangible.

To some extent, that’s great. At least the Apple version seems great. But the Disney version is a mixed bag. The Elsa IP is copyright working as intended, providing financial rewards to people who craft beloved works of art. But the Mickey Mouse IP is the disastrous spawn of retroactive copyright extension. And we are impoverished culturally by copyright terms that last so long that they far outlive any useful incentive. But the public domain, like Social Security, is something that has value without counting as wealth. Enclosing more and more of the intellectual commons and making it “property” conjures up wealth out of thin air.

But that’s bad.

Wealth and real resources

Last and by no means least, a point borrowed from Dean Baker.

The point of taxation, on some level, is that if you want to increase certain types of consumption you may need to constrain other types. Sin taxes work this way — less smoking and boozing, more consumption of wholesome pursuits. So do Pigouvian taxes on pollution — less burning of gasoline and less soot in the air, more consumption of things that don’t create problems for others. But so does redistribution — if you tax the rich to give to the poor, then the poor end up with more stuff and the rich presumably with less.

But the wealth of the super-wealthy isn’t really like that. If you’ve got Jeff Bezos money, then your net worth swings billions of dollars hither and yon based on the fluctuations of the stock market. This can’t possibly be making any difference to what Bezos actually does on a day-to-day basis.

And that’s not just because he’s too rich to notice the difference. It’s because even though his net worth takes these crazy swings, the fact of what he owns — a bunch of Amazon stock — doesn’t change at all. We can look at the current marginal price of buying one share of Amazon, then multiply that price by all the shares Bezos owns and generate his wealth. But obviously, Bezos couldn’t just cash in all his stock tomorrow — it would set off a huge panic. The number is a mathematical fiction. And by the same token, if Amazon shares plunge 5% tomorrow, he hasn’t really lost anything. He still owns what he owns; he has whatever concrete power over the enterprise of Amazon that he actually has.

This is fundamentally what makes the “stimulus is bad for equality” view so dumb. Today, Bezos owns a huge chunk of Amazon and you work at Chipotle. Tomorrow, the economy goes into recession, Amazon stock falls 5%, and Chipotle lays you off. Your life has been turned upside and Jeff Bezos still owns Amazon. It is true that Bezos’ wealth plummeted while yours probably stayed the same because you didn’t have any wealth. But again, that just shows that wealth isn’t really what matters here. Having a job versus not having a job versus being the founder/CEO of a vast corporate behemoth — that’s what matters.

 

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7 hours ago, djmich said:

The two bolded items seem to contradict each other to me.  If the markets are functioning well and price is a function of societies interests...wouldn't society drive prices down on coal and create price incentives (willing to pay more) for clean energy.  Eventually if societies interests are truly a healthy environment dirty energy would go away through this cycle.

Think of it more like "what society thinks is in its interest" rather than "what is actually in society's interest." Or think of it as what society values.

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23 minutes ago, dgreen said:

Think of it more like "what society thinks is in its interest" rather than "what is actually in society's interest." Or think of it as what society values.

So, the problem with capitalism is that society doesn't know what's in its best interest...but IvanKaramazov and dgreen do?

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1 hour ago, Maurile Tremblay said:

More Yglesias. I won't keep posting these because I want to respect the paywall, but this is again too relevant not to share. I do recommend subscribing to his substack. It's the second-best newsletter, IMO, after Astral Codex Ten.    

 

I'm glad you posted "More Yglesias" because somehow I had totally missed the one you posted earlier.  Looking forward to reading and discussing them I'm a fan.

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8 hours ago, djmich said:
On 3/8/2021 at 5:44 AM, IvanKaramazov said:

When you introduce externalities into the mix, that changes.  Suppose I own an electric plant.  I have to pay for all the coal I burn, all the workers I hire, all the office supplies I buy, all the electric grid equipment (?) I use, etc.  If those various input markets are functioning well, the price I have to pay for coal should equal its marginal cost to society, so my interests and society's interests in using coal efficiently are aligned.  They're not just sort-of vaguely pointing in the same direction -- they're exactly the same.  That's great, and that's why markets normally work so well in terms of producing stuff as efficiently as possible and generating wealth.  

But when I burn coal to produce electricity, I also emit carbon into the atmosphere and contribute to global warming.  You can think of this as me "using" the atmosphere as an input.  Society places a value on having a clean, low-CO2 atmosphere, but I place no value on that all because there's no price attached to it.  So my interests and society's interests are now totally unaligned in a completely predictable direction.  "The atmosphere" is valuable to society but I can use it for free, so I'll systematically pollute too much.  Multiply that by a bunch of firms, and you end up with way too much carbon in the atmosphere.  It's not that I'm evil and I chose to emit a bunch of carbon just to be a jerk.  I got nudged strongly in that direction by the prices that the market presented to me.

The two bolded items seem to contradict each other to me.  If the markets are functioning well and price is a function of societies interests...wouldn't society drive prices down on coal and create price incentives (willing to pay more) for clean energy.  Eventually if societies interests are truly a healthy environment dirty energy would go away through this cycle.

They don't contradict each other. It's a coordination problem. "Society" values clean air, but "society" doesn't make purchasing decisions. Individual people see that gas costs $2 a gallon, and they buy however much gas they want at that price. They don't think to themselves, "The cost at the pump is $2, but the pollution imposes a cost on society that is reasonably valued at $0.25, so I'm going to buy and use only as much gas as I would if it really cost $2.25."

To get people to act as if gas was really imposing an extra $0.25 per gallon cost on society, you need to actually charge them the extra $0.25, for the most part.

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13 minutes ago, djmich said:

So, the problem with capitalism is that society doesn't know what's in its best interest...but IvanKaramazov and dgreen do?

When you said that the two bold statements seemed to contradict, I didn't see the second bold statement because I didn't expand the quote and, for some reason, assumed you saw a contradiction within just the first bold statement. My bad. Sorry about that.

So, I think I started a tangent here. On that tangent, I think it's obvious that, at times, individuals and societies value things that aren't in their best interest. I also think that, at times, they do value things that are in their best interest. Market prices reflect what buyers and sellers value, what they think is in their interest, whether it is really in their interest or not.

I think that does tend to be a criticism of capitalism. But, no, I wasn't then trying to imply I know what's in someone's best interest.

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32 minutes ago, Maurile Tremblay said:

They don't contradict each other. It's a coordination problem. "Society" values clean air, but "society" doesn't make purchasing decisions. Individual people see that gas costs $2 a gallon, and they buy however much gas they want at that price. They don't think to themselves, "The cost at the pump is $2, but the pollution imposes a cost on society that is reasonably valued at $0.25, so I'm going to buy and use only as much gas as I would if it really cost $2.25."

To get people to act as if gas was really imposing an extra $0.25 per gallon cost on society, you need to actually charge them the extra $0.25, for the most part.

Maybe we have different definitions, need to iron that out first.  For me society is represented by the sum of all individuals in the given population.  When individuals make decisions (voting, purchasing, social norms), the aggregate of those are societies decisions.  If all the individuals in a population are unwilling to purchase clean energy or purchase it for a higher price...then society has spoken...they don't value it.

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10 minutes ago, djmich said:

Maybe we have different definitions, need to iron that out first.  For me society is represented by the sum of all individuals in the given population.  When individuals make decisions (voting, purchasing, social norms), the aggregate of those are societies decisions.  If all the individuals in a population are unwilling to purchase clean energy or purchase it for a higher price...then society has spoken...they don't value it.

It's a tragedy-of-the-commons problem.

The extra pollution from burning a gallon of gas is something that does $0.25 worth of damage to society in general. But "society" is a million people. The harm to each person individually is $0.25 divided by a million, which is effectively zero.

So an individual buying gas doesn't fully take into account the harm to the other 999,999 people unless there is, let's say, a 25-cent tax.

That's "internalizing an externality," bringing the individual's calculus into alignment with society's interests, where it wasn't before.

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42 minutes ago, Maurile Tremblay said:

It's a tragedy-of-the-commons problem.

The extra pollution from burning a gallon of gas is something that does $0.25 worth of damage to society in general. But "society" is a million people. The harm to each person individually is $0.25 divided by a million, which is effectively zero.

So an individual buying gas doesn't fully take into account the harm to the other 999,999 people unless there is, let's say, a 25-cent tax.

That's "internalizing an externality," bringing the individual's calculus into alignment with society's interests, where it wasn't before.

I got that. 

I understand the math in your example of how an individual could "math" their way into burning gas to move my car doesn't impact the environment...but the reality is that individuals are not blind consumption bots and are willing to pay more for clean or willing switch from dirty to clean at the same price (either way, incenting an appropriate level of investment).  Tesla?

Your underlying premise in this example is that society would actually be better off with the resulting "loss" associated with driving less (and for some not driving at all) or heating homes less (and for some not heating at all), etc than the tax would create.  Maybe? 

Who weighs the sum impact of the pluses and minuses and determines the right outcome.  You are expecting that an individual or select group of individuals would do that better than the equilibrium of market interactions.  You're saying the tax would make sense...a decision likely to be made by people not as impacted materially by the tax (like you and me).  If anything I'd say a small group of individuals is more likely to be biased towards an outcome based on their personal situation that is less representative of what society values than the outcome the market derived.  And while we like to bag on the corruptibility of capitalism, we've seen plenty of evidence of the abuses of centralization of this decision making

Sorry, not trying to be belligerent and maybe its going over my head...but good to think it out.  

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So I’ve been thinking about @fatguyinalittlecoat and his comment that I’m trying to have it both ways by being for capitalism and also taxation on the rich. I don’t think that’s an exact criticism. Let me make 3 points: 

1. I’m for capitalism and the free market as the best means to achieve prosperity. 
2. I’m for a safety net to catch those among us who are the least well off or who are unable to succeed for whatever reason. I’m for progressive taxation to pay for this safety net. But I am NOT in favor of the government attempting to solve wealth inequality. 

3. There are items that the free market cannot handle effectively that the government should handle, including, in no particular order: infrastructure, education, healthcare, space exploration, economic emergencies, public health, the environment . These items, and perhaps some others, should be handled by the government and  paid for by progressive taxation. 
 

Does this still make me a capitalist? I think it does. 

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33 minutes ago, timschochet said:

So I’ve been thinking about @fatguyinalittlecoat and his comment that I’m trying to have it both ways by being for capitalism and also taxation on the rich. I don’t think that’s an exact criticism. Let me make 3 points: 

1. I’m for capitalism and the free market as the best means to achieve prosperity. 
2. I’m for a safety net to catch those among us who are the least well off or who are unable to succeed for whatever reason. I’m for progressive taxation to pay for this safety net. But I am NOT in favor of the government attempting to solve wealth inequality.

djmich:  Yes.  My unrealistic starting point is that taxes should be a flat $ amount by individual (yes, burn me).  Everyone wants an underlying functioning government, that's $4,000k/yr...pay the man.  That of course would never work...but it is my north star in that every dollar that I take incremental from someone "because they can pay" needs to pass a high bar of justification and taking it just to make other peoples lives better is not on its own enough justification.  Also I do buy into the idea that higher earners income is of course not enabled without a functioning government.  So I'm bought in on tax progression...but not for progressions sake.

Tim, you say you are for a safety net but not in favor of the government attempting to solve wealth inequality.  I get it.  But, is education a safety net...or better put is a college education a safety net?  How much infrastructure?  Medical care beyond emergencies?  The more expansive these initiatives get you are essentially not talking a safety net and encroaching on solving for wealth inequality (taking $ from some to buy things that others will use). 

3. There are items that the free market cannot handle effectively that the government should handle, including, in no particular order: infrastructure, education, healthcare, space exploration, economic emergencies, public health, the environment . These items, and perhaps some others, should be handled by the government and  paid for by progressive taxation. 

djmich:  Do you mean should be funded by the government and paid for by progressive taxes?  If so then yes, but I'd argue that we should separate the funding and the "handling".  Should government fund education...yes lets say to at least high school.  Are they the best equipped to take those funds and get an optimal outcome, that is very debatable (this is just an example).

 

Does this still make me a capitalist? I think it does.   Yes, it does although your comfort with governments ability to deliver many services effectively is a tad socialist 😉

I think ownership by citizens is better than by governments (which often ends up being effectively owned/benefited by a small population of citizens any way).  The conversation seems have turned more practical focusing on taxes and to me the focus of that discussion is what is the right amount of redistribution (thats what a progressive tax policy is imo).

Tim, some thoughts on what you said inline above.

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3 hours ago, djmich said:

I understand the math in your example of how an individual could "math" their way into burning gas to move my car doesn't impact the environment...but the reality is that individuals are not blind consumption bots and are willing to pay more for clean or willing switch from dirty to clean at the same price (either way, incenting an appropriate level of investment).  Tesla?

A couple of points here.  First, consumers as a group aren't willing to pay more for clean energy than dirty energy.  Most people don't own Teslas -- that's a niche subset of our population.  Most consumers will opt for dirty electricity if it's one cent less than clean.  

Second, even if you disagree with that argument, that's not a reason not to tax dirty energy.  Might as well provide the correct incentive as opposed to relying on people being good just because.

Third, even if you think that consumers are willing to be 100% clean energy compliant out of the goodness of their hearts, that's definitely not the case for profit-maximizing firms.  

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5 hours ago, djmich said:

I think ownership by citizens is better than by governments (which often ends up being effectively owned/benefited by a small population of citizens any way).  The conversation seems have turned more practical focusing on taxes and to me the focus of that discussion is what is the right amount of redistribution (thats what a progressive tax policy is imo).

Tim, some thoughts on what you said inline above.

It seems like, based on your answers, that you prefer less government than I do, less taxation than I do. In terms of economics, that makes me a liberal and you a conservative. But I don’t regard you as a libertarian (since you accept the idea of the safety net) and you shouldn’t regard me as a socialist. We are both capitalists. 

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And with regard to education, I don’t view it as a redistribution of wealth. Rather, I view it ideally as a means of allowing everyone to be in the same playing field so that everyone has the same opportunity to succeed within the free marketplace. 

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7 hours ago, timschochet said:

It seems like, based on your answers, that you prefer less government than I do, less taxation than I do. In terms of economics, that makes me a liberal and you a conservative. But I don’t regard you as a libertarian (since you accept the idea of the safety net) and you shouldn’t regard me as a socialist. We are both capitalists. 

Pretty much, but I think the liberal vs conservative has too much unrelated noise around it.  I support progressive taxation, but at rates likely to be lower than yours.  At what % tax rate differential does one become liberal or conservative?

7 hours ago, timschochet said:

And with regard to education, I don’t view it as a redistribution of wealth. Rather, I view it ideally as a means of allowing everyone to be in the same playing field so that everyone has the same opportunity to succeed within the free marketplace. 

Laptops, wifi, automobiles, access to housing, tutoring, suits, etc, etc.  All of these create advantage (or differentials in opportunity to succeed)...are you also buying these for everyone?  Free PhD's?  What would you not buy in an effort to create the same playing field?

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On 3/11/2021 at 2:37 PM, Maurile Tremblay said:

[Posted text of Matt Yglesias's anti-wealth tax piece]

So I've finally read the first Yglesias wealth tax article posted, I haven't read the second one yet but I'll hold off on that because it's already too much.  Anyway, it's lengthy so I can't address everything but here are a few of my thoughts:

1) I agree with Yglegias about a lot of the political/judicial stuff, even though I think a wealth tax in the abstract is a good idea.  Whether it's a good idea for Democrats to expend political capital on it right now is a different question, and it mostly seems like it would be a bad idea for Schumer to try to waste time on it right now, because I completely agree with Yglesias that the current Supreme Court will ust strike it down.  With that said, it might still be good for people like Bernie and Elizabeth Warren to talk about it just to get the public on board or at least to shift the Overton Window some.  And I think talking with the American people about wealth is vitally important because I think the public has a lot of misconceptions.

2) I don't know why Yglesias spends so much time figuring out what it's supposed to fund, that seems pretty irrelevant to me.  If anything, it seems the discussion should have been about wealth taxation as compared to other forms of taxation.  Because assuming revenue is constant, then raising some money through a wealth tax might allow the government to raise less money through some other form of taxation.

3) The "should we care a lot about wealth inequality" section is really where we diverge I think.  Yglesias seems to conclude that it isn't actually a big deal because rich donors can't reliably control the government and because "dynastic wealth" hasn't really been an issue that much here in the United States.  I feel like I've talked in this thread already about some reasons why I think wealth inequality is a big deal, I won't rehash now, I just think Yglesias gives short shrift to what I think is the most compelling reason for a wealth tax in the first place.

4) I think he's wrong that we can tax the wealthy as effectively with higher marginal income tax rates or capital gains taxes or estate taxes.  Estate taxes might work OK but they seem very easy.  The other taxes only tax the increases in a person's wealth, not the wealth itself.  In my estimation, taxing amassed wealth is more consistent with the purposes of progressive taxation than just taxing increases in wealth.  And in case, it's not an either/or -- we can increase taxes on the wealthy in a variety of different ways.

Anyway, thanks for posting Maurile, some interesting stuff in there.

 

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On 3/11/2021 at 12:05 PM, fatguyinalittlecoat said:

Yeah, I think you guys are trying to have it both ways by insisting that lots of redistribution is perfectly compatible with what we normally consider to be capitalism.  If capitalism is about private ownership, at some point there's a definitional problem if the government is seizing lots of your private property in the form of taxes every year.  And if one of the compelling reasons in favor of capitalism is that it motivates people to work harder, at some level of redistribution that argument no longer holds water.  

I think it makes more sense to think of a continuum with "pure capitalism" on one end and "pure socialism" on the other end.  We're somewhere in the middle, but in my judgment we're way too far on the "pure capitalism" side.  The more redistribution we do, the further we move along the continuum in the direction of socialism, which is what I've been advocating for.  It doesn't seem fair for you guys to take everything but the purest form of socialism and designate it as "capitalism" just because there is some level of private ownership.

In my world, the opposite happens...if it isn't nearly pure Capitalism, it's evil socialism. 

Most people don't seem to understand that a continuum even exists.

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On 3/13/2021 at 5:03 AM, djmich said:

Pretty much, but I think the liberal vs conservative has too much unrelated noise around it.  I support progressive taxation, but at rates likely to be lower than yours.  At what % tax rate differential does one become liberal or conservative?

Laptops, wifi, automobiles, access to housing, tutoring, suits, etc, etc.  All of these create advantage (or differentials in opportunity to succeed)...are you also buying these for everyone?  Free PhD's?  What would you not buy in an effort to create the same playing field?

Laptops yes, WiFi yes, automobiles no, access to housing limited, tutoring yes, suits no, Free PHDs no. 
There’s no etc etc. 

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On 3/13/2021 at 12:50 AM, timschochet said:

And with regard to education, I don’t view it as a redistribution of wealth. Rather, I view it ideally as a means of allowing everyone to be in the same playing field so that everyone has the same opportunity to succeed within the free marketplace. 

Judging by the people who want to come over from other countries, I would say we do it better than everyone else (warts and all).

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On 3/12/2021 at 3:09 PM, Maurile Tremblay said:

More Yglesias. I won't keep posting these because I want to respect the paywall, but this is again too relevant not to share. I do recommend subscribing to his substack. It's the second-best newsletter, IMO, after Astral Codex Ten.    

 

OK, I've now read Yglesias #2.  Some interesting stuff although it felt a bit meandering and sometimes I had trouble understanding exactly the point he wanted to make. 

Anyway, I guess I'll just respond to this final section, because it seems like that's where he's trying to make his larger point:

On 3/12/2021 at 3:09 PM, Maurile Tremblay said:

Wealth and real resources

Last and by no means least, a point borrowed from Dean Baker.

The point of taxation, on some level, is that if you want to increase certain types of consumption you may need to constrain other types. Sin taxes work this way — less smoking and boozing, more consumption of wholesome pursuits. So do Pigouvian taxes on pollution — less burning of gasoline and less soot in the air, more consumption of things that don’t create problems for others. But so does redistribution — if you tax the rich to give to the poor, then the poor end up with more stuff and the rich presumably with less.

But the wealth of the super-wealthy isn’t really like that. If you’ve got Jeff Bezos money, then your net worth swings billions of dollars hither and yon based on the fluctuations of the stock market. This can’t possibly be making any difference to what Bezos actually does on a day-to-day basis.

And that’s not just because he’s too rich to notice the difference. It’s because even though his net worth takes these crazy swings, the fact of what he owns — a bunch of Amazon stock — doesn’t change at all. We can look at the current marginal price of buying one share of Amazon, then multiply that price by all the shares Bezos owns and generate his wealth. But obviously, Bezos couldn’t just cash in all his stock tomorrow — it would set off a huge panic. The number is a mathematical fiction. And by the same token, if Amazon shares plunge 5% tomorrow, he hasn’t really lost anything. He still owns what he owns; he has whatever concrete power over the enterprise of Amazon that he actually has.

This is fundamentally what makes the “stimulus is bad for equality” view so dumb. Today, Bezos owns a huge chunk of Amazon and you work at Chipotle. Tomorrow, the economy goes into recession, Amazon stock falls 5%, and Chipotle lays you off. Your life has been turned upside and Jeff Bezos still owns Amazon. It is true that Bezos’ wealth plummeted while yours probably stayed the same because you didn’t have any wealth. But again, that just shows that wealth isn’t really what matters here. Having a job versus not having a job versus being the founder/CEO of a vast corporate behemoth — that’s what matters.

1) Yglesias seems to be arguing that the fact that Bezos owns billions in Amazon stock that he's not using for consumption or anything else as a reason that we shouldn't tax it.  I feel like the exact opposite.  The fact that Bezos has billions of dollars of assets that he doesn't actually use to make his life better is a huge reason that it SHOULD be taxed heavily.  Because those billions of dollars in assets could be used to dramatically improve the lives of many, many other people, but they're not really improving Bezos's life at all.  From an "overall happiness" standpoint this seems like the ultimate no brainer.  But maybe I'm missing something here because he and I see this so differently, if so, somebody explain to me what Yglesias's argument is here.

2) Yglesias says that if Bezos started selling off his stock it would "set off a huge panic."  That's true in the world that we live in right now, because if Bezos did that, people would assume that he knew something negative about Amazon that wasn't public information.  But if we had a world with wealth taxes and Bezos made a public statement that "I'll be selling 10% of my shares in Amazon this year to pay my wealth taxes" I don't see why that would cause any kind of panic.  An interesting question is whether the federal government should allow people to pay their wealth taxes in publicly-traded stock rather than in cash.  I haven't thought about it very much but that would seem to have some benefits to me.

3) Yglesias also says Bezos's wealth is a "mathematical fiction" because it's made up of Amazon shares that could go down.  But that also seems silly to me.  The Amazon shares have value right now.  The fact that someone could lose their wealth in the future doesn't mean that they aren't wealthy now.  I don't see anything fictional about it, so again maybe I'm missing the point.  

4) Lastly, Yglesias's hypo about the laid-off Chipotle worker v. Bezos also strikes me as reaching the exact opposite conclusion tan the one I would reach.  Yglesias notes that Bezos can lose 5% of his wealth without any impact on his life, whereas some guy working at Chipotle can suffer greatly from a loss of income even without a change in wealth.  Yglesias uses this to conclude "wealth isn't really what matters here."  But of course wealth matters.  The reason Bezos can lose 5% of his wealth without blinking an eye is because he has so much wealth that 5% doesn't even matter.  The reason the Chipotle guy suffers mightily when he loses his job is because he doesn't have any wealth at all.  If we redistributed some of Bezos's wealth to the Chipotle guy, then the Chipotle guy's life wouldn't be "turned upside down" by temporarily losing employment.    Rather than Yglegias's example convincing me that "wealth isn't really what matters" it seems like evidence that it matters a lot.

 

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7 minutes ago, fatguyinalittlecoat said:

Anyway, I guess I'll just respond to this final section, because it seems like that's where he's trying to make his larger point:

Lots of issues there for discussion.

:bookmarked: for later.

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Much like most of the world's problems its about the concentration of wealth.  Capitalism works great when there are many small businesses competing against each other on a daily basis.  What we have now in most industries is so much consolidation it's pretty much a monopoly and so much concentrated wealth they can crush any competition

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This thread seems to be slowing down a little so I'll post a recent editorial that, to me, makes a solid criticism of capitalism.  It's Paul Krugman so I know a lot of you will instinctively be opposed but I'd be more interested in discussing the merits of his arguments.  Anyway here it is:

Too Much Choice is Hurting America

Quote

Dan Patrick, the lieutenant governor of Texas, is clearly what my father would have called a piece of work.

Early in the pandemic he made headlines by saying that older Americans should be willing to risk death so that younger people could “get back to work.” More recently, he suggested that Texans who found themselves with $17,000 electricity bills after the February freeze had only themselves to blame, because they didn’t “read the fine print.”

Funny, isn’t it, how politicians who denounce liberal elitists sneer when ordinary Americans get into trouble?

But something else struck me about Patrick’s take on supersize power bills: How did we become a country where families can face ruin unless they carefully study something as mundane, as normally routine, as their electricity contract?

And electricity isn’t a unique example.

As The Times’s Margot Sanger-Katz has documented, many people end up with heavy financial burdens because they chose the wrong health insurance plan — yet even experts have a very hard time figuring out which plan is best. Using an out-of-network health care provider can also lead to huge medical bills.

Wait, there’s more. One cause of the 2008 financial crisis was the proliferation of novel financial arrangements, like interest-only loans, that looked like good deals but exposed borrowers to huge risks.

What these stories have in common is that they’re snapshots of a country in which many of us are actually offered too many choices, in ways that can do a lot of harm.

It’s true that both Economics 101 and conservative ideology say that more choice is always a good thing. Milton Friedman’s famous and influential 1980 TV series extolling the wonders of capitalism was titled “Free to Choose.”

The spread of this ideology has turned America into a land where many aspects of life that used to be just part of the background now require potentially fateful decisions. You don’t get a company pension, you have to decide how to invest your 401(k). When you turn 65, you don’t just get put on Medicare, you also decide which of many Medicare Advantage plans to sign up for. You don’t just get power and phone service, you also have to choose from a wide variety of options.

Some, maybe even most, of this expansion of choice was good. I don’t miss the days when all home phones were owned by AT&T and customers weren’t allowed to substitute their own handsets.

But the argument that more choice is always good rests on the assumption that people have more or less unlimited capacity to do due diligence on every aspect of their lives — and the real world isn’t like that. People have children to raise, jobs to do, lives to live and limited ability to process information.

And in the real world, too much choice can be a big problem.

The lesson of subprime mortgages, health insurance and now Texas electricity is that sometimes people offered too much choice will make bigger mistakes than they imagined possible. But that’s not all. Too much choice creates space for predators who exploit our all-too-human limitations.

Before the subprime mortgage crisis, Edward Gramlich, a Federal Reserve official who warned in vain about the potential for disaster, asked, “Why are the most risky loan products sold to the least sophisticated borrowers?” The question, he suggested, “answers itself — the least sophisticated borrowers are probably duped into taking these products.”

Similarly, there’s clearly a lot of profiteering in medical billing, with the victims disproportionately those least able to understand what’s happening.

Beyond all that, I’d suggest that an excess of choice is taking a psychological toll on many Americans, even when they don’t end up experiencing disaster.

There’s a growing body of research suggesting that the costs of poverty go beyond the trouble low-income families have in affording necessities. The poor also face a heavy “cognitive burden” — the constant need to make difficult choices that the affluent don’t confront, like whether to buy food or pay the rent. Because people have limited “bandwidth” for processing complex issues, the financial burdens placed on the poor all too often degrade their ability to make good decisions on other issues, sometimes leading to self-destructive life choices.

What I’m suggesting is that a society that turns what should be routine concerns into make-or-break decisions — a society in which you can ruin your life by choosing the wrong electric company or health insurer — imposes poverty-like cognitive burdens even on the middle class.

And it’s all unnecessary. We’re a rich country — and citizens of other rich countries don’t worry about being bankrupted by medical expenses. It wouldn’t take much to protect Americans against being scammed by mortgage lenders or losing their life savings to fluctuations in the wholesale price of electricity.

So the next time some politician tries to sell a new policy — typically deregulation — by claiming that it will increase choice, be skeptical. Having more options isn’t automatically good, and in America we probably have more choices than we should.

 

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17 minutes ago, fatguyinalittlecoat said:

 It's Paul Krugman so I know a lot of you will instinctively be opposed

I just simultaneously threw up and sharted at the mere sight of his name. I wouldn't say I'm biased, but without reading a single word I can honestly say with 100% certainty that he is completely wrong. I don't think any less of you though. You're cool.

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1 hour ago, fatguyinalittlecoat said:

This thread seems to be slowing down a little so I'll post a recent editorial that, to me, makes a solid criticism of capitalism.  It's Paul Krugman so I know a lot of you will instinctively be opposed but I'd be more interested in discussing the merits of his arguments.  Anyway here it is:

Too Much Choice is Hurting America

 

Not sure its a article that makes any sort of case against capitalism as much as additional regulation / oversight.

I think most capitalists support regulation and oversight.  Maybe not exactly what Krugman wants.

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3 minutes ago, djmich said:

Not sure its a article that makes any sort of case against capitalism as much as additional regulation / oversight.

I think most capitalists support regulation and oversight.  Maybe not exactly what Krugman wants.

Hmmm, to me it makes a pretty solid counter argument to capitalism’s big selling point of “choice.”  If it turns out that more choices don’t always make our lives better, then promoting capitalism based on “more choices!” is a lot harder.

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1 minute ago, fatguyinalittlecoat said:

Hmmm, to me it makes a pretty solid counter argument to capitalism’s big selling point of “choice.”  If it turns out that more choices don’t always make our lives better, then promoting capitalism based on “more choices!” is a lot harder.

eh, to me Krugman is cherry picking some examples (and an extreme one in the electricity billing clusterF).  I mean if you want black and white then I guess communism is the way to go...I'll take my rainbow with regulations to make sure everything doesn't turn out tie-dye (lol)

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20 hours ago, fatguyinalittlecoat said:

This thread seems to be slowing down a little so I'll post a recent editorial that, to me, makes a solid criticism of capitalism.  It's Paul Krugman so I know a lot of you will instinctively be opposed but I'd be more interested in discussing the merits of his arguments.  Anyway here it is:

Too Much Choice is Hurting America

 

Practically speaking, I would say we do a horrible job of teaching people how to live in our system.  I have had employees that have initially turned down our profit sharing program because they didn't want to pay the taxes if they took it as cash and didn't want to take this money I was trying to give them and invest it.  He didn't understand even the basics of investing money and what happens to it when you do invest it. Come to find out the guy didn't even have a bank account .   My own kid is going away to college this year.  In desperate need of basic financial education.   I don't believe most people couldn't make good choices but they are so severely under educated on financial issues they are completely inept.  Its like never potty training a child and then wondering why your bathroom, and your child, is covered in filth.  

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18 hours ago, djmich said:

eh, to me Krugman is cherry picking some examples (and an extreme one in the electricity billing clusterF).  I mean if you want black and white then I guess communism is the way to go...I'll take my rainbow with regulations to make sure everything doesn't turn out tie-dye (lol)

You know it's kind of interesting here too in that, in my experience, this is something that a lot of people no matter the party generally seem to rally around.  We all like the free market with regulations and i would bet a good portion of people agree that when they see something that needs different or new regulations.

Again in my experience normal average D's aren't 'regulate more for the sake of regulation' nor are the average R's 'we must strip every regulation.'   Most people i think realize there is balance no matter the party

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36 minutes ago, Hot Diggity Dog said:

Practically speaking, I would say we do a horrible job of teaching people how to live in our system.  I have had employees that have initially turned down our profit sharing program because they didn't want to pay the taxes if they took it as cash and didn't want to take this money I was trying to give them and invest it.  He didn't understand even the basics of investing money and what happens to it when you do invest it. Come to find out the guy didn't even have a bank account .   My own kid is going away to college this year.  In desperate need of basic financial education.   I don't believe most people couldn't make good choices but they are so severely under educated on financial issues they are completely inept.  Its like never potty training a child and then wondering why your bathroom, and your child, is covered in filth.  

Why do you think your company gives people a choice whether or not to participate in the program and whether to take it in cash or invest it?  Why don't they just give all eligible employees cash or stock automatically?  Do you think that these choices are intended to benefit the employee or the employer?

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1 minute ago, fatguyinalittlecoat said:

Why do you think your company gives people a choice whether or not to participate in the program and whether to take it in cash or invest it?  Why don't they just give all eligible employees cash or stock automatically?  Do you think that these choices are intended to benefit the employee or the employer?

Well i own the company so i know why.  It is a tax free or deferred tax way for me and my employees to invest money off of the profits i and the employees earned for the company.   In our program if you want to opt out or get the profit sharing in cash it is a form to fill out.  I have to offer the program to every employee who has worked for us for over a year i think it is. I can not pick and choose who to give money to or how much except we determine the amount of the total pool everyone will draw from.  It is an equal distribution among participants.  We are a small business so stock in the company is not a great option.  My intention is to give the employees and myself a way to start or add to a retirement plan.  We pay our employees twice what is defined as a living wage so it can be a nice year end bonus if you want to pay taxes on it.  And since all my employees and the vast majority of people in my possible employee pool do not have a college education and likely come out of a working poor household, I try to use it as a tool to teach them how to build wealth and not consume their entire income week to week.   I  hope it helps produce happy productive employees that helps myself and them earn more money than the average for the industry.   So far it has worked. 

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15 minutes ago, Hot Diggity Dog said:

Well i own the company so i know why.  It is a tax free or deferred tax way for me and my employees to invest money off of the profits i and the employees earned for the company.   In our program if you want to opt out or get the profit sharing in cash it is a form to fill out.  I have to offer the program to every employee who has worked for us for over a year i think it is. I can not pick and choose who to give money to or how much except we determine the amount of the total pool everyone will draw from.  It is an equal distribution among participants.  We are a small business so stock in the company is not a great option.  My intention is to give the employees and myself a way to start or add to a retirement plan.  We pay our employees twice what is defined as a living wage so it can be a nice year end bonus if you want to pay taxes on it.  And since all my employees and the vast majority of people in my possible employee pool do not have a college education and likely come out of a working poor household, I try to use it as a tool to teach them how to build wealth and not consume their entire income week to week.   I  hope it helps produce happy productive employees that helps myself and them earn more money than the average for the industry.   So far it has worked. 

You sound like a great boss you should be proud.

Is there any rational reason that someone would want to opt out?

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The whole Krugman/choices thing reminds me of another feature of capitalism that sucks and that's the practices of price discrimination and differentiation.  For example, a supermarket will sell me the same item for different prices depending upon whether I have a coupon.  This makes sense for the supermarket, because they can get extra profits from people like me that don't cut coupons while still getting profits (though a little smaller) from the coupon cutters.  That's a way for them to maximize their profits -- if they charged everyone the coupon price they wouldn't get as much profit from me, if they charged everyone the non-coupon price then the price-savvy coupon cutters would take their business elsewhere.   Lots of business do similar things like rebates, special secret deals, etc. whereby people who are willing to jump through a bunch of hoops can get a lower price than people who don't jump through the hoops.  We're all used to it most of us don't think anything of it because it is all so commonplace.

But I think about it ALL THE TIME.  The hoops that are being jumped through aren't beneficial to society or even to the company that's forcing the hoop jumping.  It's not like companies are like "go work in a soup kitchen for a day and we'll knock $50 off the price!"  Companies are literally incentivizing millions of actual adult humans to do all kinds of silly time wasting tasks like cutting out coupons and scouring the internet for secret deals and filling out rebate forms.  These are humans that have better things to do like sleep and work and raise their kids and have sex.  And the only people do it is to prove to some company that they're willing to do it.  So that the company can say "OK, we can see this person is really willing to work to get a lower price so we'll give him a lower price or else he'll go somewhere else."

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1 hour ago, fatguyinalittlecoat said:

The whole Krugman/choices thing reminds me of another feature of capitalism that sucks and that's the practices of price discrimination and differentiation.  For example, a supermarket will sell me the same item for different prices depending upon whether I have a coupon.  This makes sense for the supermarket, because they can get extra profits from people like me that don't cut coupons while still getting profits (though a little smaller) from the coupon cutters.  That's a way for them to maximize their profits -- if they charged everyone the coupon price they wouldn't get as much profit from me, if they charged everyone the non-coupon price then the price-savvy coupon cutters would take their business elsewhere.   Lots of business do similar things like rebates, special secret deals, etc. whereby people who are willing to jump through a bunch of hoops can get a lower price than people who don't jump through the hoops.  We're all used to it most of us don't think anything of it because it is all so commonplace.

But I think about it ALL THE TIME.  The hoops that are being jumped through aren't beneficial to society or even to the company that's forcing the hoop jumping.  It's not like companies are like "go work in a soup kitchen for a day and we'll knock $50 off the price!"  Companies are literally incentivizing millions of actual adult humans to do all kinds of silly time wasting tasks like cutting out coupons and scouring the internet for secret deals and filling out rebate forms.  These are humans that have better things to do like sleep and work and raise their kids and have sex.  And the only people do it is to prove to some company that they're willing to do it.  So that the company can say "OK, we can see this person is really willing to work to get a lower price so we'll give him a lower price or else he'll go somewhere else."

Price discrimination is one of my favorite things to teach mainly because of something that you're hinting at -- once you're aware of it, you see it everywhere. 

That doesn't answer your objection of course.  Just opining.

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1 hour ago, fatguyinalittlecoat said:

The whole Krugman/choices thing reminds me of another feature of capitalism that sucks and that's the practices of price discrimination and differentiation.  For example, a supermarket will sell me the same item for different prices depending upon whether I have a coupon.  This makes sense for the supermarket, because they can get extra profits from people like me that don't cut coupons while still getting profits (though a little smaller) from the coupon cutters.  That's a way for them to maximize their profits -- if they charged everyone the coupon price they wouldn't get as much profit from me, if they charged everyone the non-coupon price then the price-savvy coupon cutters would take their business elsewhere.   Lots of business do similar things like rebates, special secret deals, etc. whereby people who are willing to jump through a bunch of hoops can get a lower price than people who don't jump through the hoops.  We're all used to it most of us don't think anything of it because it is all so commonplace.

But I think about it ALL THE TIME.  The hoops that are being jumped through aren't beneficial to society or even to the company that's forcing the hoop jumping.  It's not like companies are like "go work in a soup kitchen for a day and we'll knock $50 off the price!"  Companies are literally incentivizing millions of actual adult humans to do all kinds of silly time wasting tasks like cutting out coupons and scouring the internet for secret deals and filling out rebate forms.  These are humans that have better things to do like sleep and work and raise their kids and have sex.  And the only people do it is to prove to some company that they're willing to do it.  So that the company can say "OK, we can see this person is really willing to work to get a lower price so we'll give him a lower price or else he'll go somewhere else."

I'd think its actually progressive.  Company is willing to sell at 20% average margin for the entire business.  Set standard price at 30%, folks who don't give a #### about coupons pay 30%, folks that do give a #### clip coupons and pay 15%.  Market efficiency.

Communism:  Everyone pays 20% margin?  (On an inefficient expense base 20% higher)

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1 minute ago, djmich said:

I'd think its actually progressive.  Company is willing to sell at 20% average margin for the entire business.  Set standard price at 30%, folks who don't give a #### about coupons pay 30%, folks that do give a #### clip coupons and pay 15%.  Market efficiency.

Communism:  Everyone pays 20% margin?  (On an inefficient expense base 20% higher)

This isn't really "capitalism vs. communism" as much as "capitalism with legal price discrimination vs. capitalism with laws against price discrimination."  

Without price discrimination, firms have to treat their consumers as one big undifferentiated mass and they solve a single profit-maximization problem.  With price discrimination, they get to break up their consumers into little groups (in fatguy's example -- there are other types of price discrimination) and solve multiple profit-maximization problems.  When you relax the "you have to charge everybody the same price" constraint, firms should always do at least as well as they would if that constraint were binding, and at least some of the deadweight loss associated with market power goes away. 

Of course, that surplus is mostly captured by firms, not consumers.  The extreme, limiting textbook case is perfect first-degree price discrimination, where firms charge each consumer their exact maximum willingness-to-pay.  In that case, the market operates "efficiently" in the sense that total surplus is maximized, but consumers get no consumer surplus whatsoever.  (That's basically what car salesmen are trying to do when you haggle over the price of a new car).  This one serves as a nice reminder that "efficient" doesn't necessarily mean "good for consumers."  If you're a consumer, you'd rather be in a market with a regular monopolist than a firm that can engage in first-degree price discrimination.    

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6 minutes ago, IvanKaramazov said:

This isn't really "capitalism vs. communism" as much as "capitalism with legal price discrimination vs. capitalism with laws against price discrimination."  

Without price discrimination, firms have to treat their consumers as one big undifferentiated mass and they solve a single profit-maximization problem.  With price discrimination, they get to break up their consumers into little groups (in fatguy's example -- there are other types of price discrimination) and solve multiple profit-maximization problems.  When you relax the "you have to charge everybody the same price" constraint, firms should always do at least as well as they would if that constraint were binding, and at least some of the deadweight loss associated with market power goes away. 

Of course, that surplus is mostly captured by firms, not consumers.  The extreme, limiting textbook case is perfect first-degree price discrimination, where firms charge each consumer their exact maximum willingness-to-pay.  In that case, the market operates "efficiently" in the sense that total surplus is maximized, but consumers get no consumer surplus whatsoever.  (That's basically what car salesmen are trying to do when you haggle over the price of a new car).  This one serves as a nice reminder that "efficient" doesn't necessarily mean "good for consumers."  If you're a consumer, you'd rather be in a market with a regular monopolist than a firm that can engage in first-degree price discrimination.    

Generally aren't only monopolies able to engage in complete first degree price discrimination?

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3 hours ago, fatguyinalittlecoat said:

The whole Krugman/choices thing reminds me of another feature of capitalism that sucks and that's the practices of price discrimination and differentiation.  For example, a supermarket will sell me the same item for different prices depending upon whether I have a coupon.  This makes sense for the supermarket, because they can get extra profits from people like me that don't cut coupons while still getting profits (though a little smaller) from the coupon cutters.  That's a way for them to maximize their profits -- if they charged everyone the coupon price they wouldn't get as much profit from me, if they charged everyone the non-coupon price then the price-savvy coupon cutters would take their business elsewhere.   Lots of business do similar things like rebates, special secret deals, etc. whereby people who are willing to jump through a bunch of hoops can get a lower price than people who don't jump through the hoops.  We're all used to it most of us don't think anything of it because it is all so commonplace.

But I think about it ALL THE TIME.  The hoops that are being jumped through aren't beneficial to society or even to the company that's forcing the hoop jumping.  It's not like companies are like "go work in a soup kitchen for a day and we'll knock $50 off the price!"  Companies are literally incentivizing millions of actual adult humans to do all kinds of silly time wasting tasks like cutting out coupons and scouring the internet for secret deals and filling out rebate forms.  These are humans that have better things to do like sleep and work and raise their kids and have sex.  And the only people do it is to prove to some company that they're willing to do it.  So that the company can say "OK, we can see this person is really willing to work to get a lower price so we'll give him a lower price or else he'll go somewhere else."

I'm a wholesaler - why would I reward a customer who buys a case from me as someone who buys 100?  The one who buys 100 gets a preferred price, thus the price is passed on to the customer.   Also, not everyone is focused on price.  I would say it's pretty close to 50/50 between price and service/selection.  

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13 hours ago, djmich said:

Generally aren't only monopolies able to engage in complete first degree price discrimination?

No.  Your local Ford dealer isn't a monopolist -- he's competing against other Ford dealers, and other Chevy, GM, Honda, Toyota, etc. dealers in the region -- but the whole point of auto sales is to figure out how much the customer is willing to pay and to sell them a car at that price.  Obviously salespeople can't do that perfectly because they aren't mind-readers, but that's the intent.

Universities do this too, especially private schools that are tuition dependent.  They set a super-high sticker price like $70,000 a year or something, but hardly anybody actually pays that price.  Instead, the school offers "scholarships" that reduce to the price down to something close to your willingness to pay.  The school can do this because it has awesome information about your family's ability to pay thanks to the FAFSA, and your academic record gives the school a pretty good idea of what other colleges it's competing against.  (A kid who scored 26 on the ACT may be happy to attend your school even if the price is a little high, whereas a kid who put up a 35 is going to have a lot more options and figures to be weighing offers).  And of course none of these schools are monopolists.    

Firms do need to have market power to do this sort of thing, but that's not the same as being a monopolist.  "Market power" just means that you have the ability to unilaterally raise your price without losing all of your sales -- that's incredibly common and nearly all firms have this except for people like soybean farmers and bond traders.  True monopolies, where there's only seller in the market, are extremely rare.  

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3 hours ago, IvanKaramazov said:

No.  Your local Ford dealer isn't a monopolist -- he's competing against other Ford dealers, and other Chevy, GM, Honda, Toyota, etc. dealers in the region -- but the whole point of auto sales is to figure out how much the customer is willing to pay and to sell them a car at that price.  Obviously salespeople can't do that perfectly because they aren't mind-readers, but that's the intent.

Universities do this too, especially private schools that are tuition dependent.  They set a super-high sticker price like $70,000 a year or something, but hardly anybody actually pays that price.  Instead, the school offers "scholarships" that reduce to the price down to something close to your willingness to pay.  The school can do this because it has awesome information about your family's ability to pay thanks to the FAFSA, and your academic record gives the school a pretty good idea of what other colleges it's competing against.  (A kid who scored 26 on the ACT may be happy to attend your school even if the price is a little high, whereas a kid who put up a 35 is going to have a lot more options and figures to be weighing offers).  And of course none of these schools are monopolists.    

Firms do need to have market power to do this sort of thing, but that's not the same as being a monopolist.  "Market power" just means that you have the ability to unilaterally raise your price without losing all of your sales -- that's incredibly common and nearly all firms have this except for people like soybean farmers and bond traders.  True monopolies, where there's only seller in the market, are extremely rare.  

Yah, think we're largely aligned and in my comparison I compared monopolist to complete first degree price discrimination.  And by complete I meant that you are always able to capture your attempt at first degree price discrimination.

The car salesman can attempt to charge $10k for the used Honda and I might be willing to pay $10k for the used Honda if I had to...but if I can get it for $5k elsewhere (proxy for not a monopoly) then his tactics are only successful if I'm unaware of alternatives.  To the extent there are people unaware of alternatives or unwilling to pursue them and he sells the car for more than $5k you would call that market power (which I'm not disagreeing with).

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20 hours ago, fatguyinalittlecoat said:

You sound like a great boss you should be proud.

Is there any rational reason that someone would want to opt out?

Thanks I try but it is not always easy. 

 

There is no rational reason to opt out, even uf the peofit sharing pushed you into another tax bracket it should still pay for irself. 

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On 3/8/2021 at 3:45 AM, fatguyinalittlecoat said:

I have a ton of stuff to say but I want to keep my posts pretty short otherwise it'll feel like work and I'll get tired of it.

That's how I'm feeling. There's been a lot of stuff posted over the past few pages that I've wanted to comment on, but not as badly as I've wanted to go to the beach or take a nap or both.

In any case, I'll park this here as something for the "capitalism is bad" side of the ledger.

ETA: I got that from this Yglesias post, which is open to the public.

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