4 ms·

Deadweight loss doesn't affect things that are already obviously good ideas or obviously bad ones. It only affects things on the margin - the least profitable u

Deadweight loss doesn't affect things that are already obviously good ideas or obviously bad ones. It only affects things on the margin - the least profitable units that developers would still be interested in building. Suppose a developer can build as tall as they wanted to, but each additional floor is more expensive: the break-even point is that each extra floor needs $100/month additional rent per unit. If you use law to force prices $100/mo lower, then the tallest floor doesn't get built anymore, because now it's not worth building. (And if rent controls don't actually reduce the rents that people pay, then the controls aren't actually doing anything, so why have the overhead of the law? If you're reducing prices by law, things that people want to buy at or above the reduced price and sell at or below the market price don't get traded.)

candiodari 10y ago
Here's a lesson from a finance course that I thought was thoroughly non-obvious: all change happens at the margin. For instance, interest rate changes cause real estate appreciation or crashes by changing the decision of buyers that are just on the cusp of being able to afford a home or not. This is not a 100% rule, just 5 or 6 nines.
- WalterBright 10y ago
  Such as with the $15 minimum wage - it's the marginal businesses that will shut down, and the people with marginal job skills who will be shut out of the job market.
  - kvb 10y ago
    In a toy economy that's definitely true, but the empirical results are mixed in the real world, where there are lots of complicated dynamics.
    - JoeAltmaier 10y ago
      Thanks for saying that! Its common for folks to play what I call 'dot to dot' where they draw a thin line from one action to some chain of results. They say "I proved its a bad idea!" Its like sketching in 3 or four lines in a dot-to-dot puzzle and saying "See! Its a dog!" when it might be the Sistine chapel. Thinks are complicated. All the dot-to-dot statements are somewhat true, but they're all going on at the same time. Higher minimum wage means more spendable cash, which means more small businesses see an uptick in sales, so more profit. See! I can do it too.
      - paulddraper 10y ago
        Uh huh. There are multiple lines to be drawn. Deadweight losses are the inevitable leftovers of decreased efficiency after they have been drawn. https://en.m.wikipedia.org/wiki/Deadweight_loss https://en.m.wikipedia.org/wiki/Deadweight_loss
    - WalterBright 10y ago
      Any business that buys inventory at $15 and sells it for $10 is going to go out of business. What complicated dynamic would change that? (Yes, I know that often businesses miscalculate the value of an employee, and it may have other sources of profit that cover the losses, etc., but it doesn't change the reality that the profit motive will squeeze such things out.)
      - ArkyBeagle 10y ago
        People are not inventory.

candiodari 10y ago

Here's a lesson from a finance course that I thought was thoroughly non-obvious: all change happens at the margin. For instance, interest rate changes cause real estate appreciation or crashes by changing the decision of buyers that are just on the cusp of being able to afford a home or not. This is not a 100% rule, just 5 or 6 nines.

WalterBright 10y ago
Such as with the $15 minimum wage - it's the marginal businesses that will shut down, and the people with marginal job skills who will be shut out of the job market.
- kvb 10y ago
  In a toy economy that's definitely true, but the empirical results are mixed in the real world, where there are lots of complicated dynamics.
  - JoeAltmaier 10y ago
    Thanks for saying that! Its common for folks to play what I call 'dot to dot' where they draw a thin line from one action to some chain of results. They say "I proved its a bad idea!" Its like sketching in 3 or four lines in a dot-to-dot puzzle and saying "See! Its a dog!" when it might be the Sistine chapel. Thinks are complicated. All the dot-to-dot statements are somewhat true, but they're all going on at the same time. Higher minimum wage means more spendable cash, which means more small businesses see an uptick in sales, so more profit. See! I can do it too.
    - paulddraper 10y ago
      Uh huh. There are multiple lines to be drawn. Deadweight losses are the inevitable leftovers of decreased efficiency after they have been drawn. https://en.m.wikipedia.org/wiki/Deadweight_loss https://en.m.wikipedia.org/wiki/Deadweight_loss
  - WalterBright 10y ago
    Any business that buys inventory at $15 and sells it for $10 is going to go out of business. What complicated dynamic would change that? (Yes, I know that often businesses miscalculate the value of an employee, and it may have other sources of profit that cover the losses, etc., but it doesn't change the reality that the profit motive will squeeze such things out.)
    - ArkyBeagle 10y ago
      People are not inventory.