4 ms·

Why should it reflect the confluence of supply and demand in the market? What's the axiom upon which you stand to say that is the correct way of things?

tryptophan 7y ago
If wages are not set by a market, ie not supply and demand, they will be mispriced. Mice-pricing represents a loss of efficiency in the economy, and makes everyone worse off over time. If wages were set lower than equilibrium, obviously the workers would be lose out on this. If wages were set above equilibrium, the consumers would lose out due to the higher costs being transferred over to them. The market price represents the balance between the two interests that is the most efficient. Inb4 some smartass posts "but perfect markets are only in textbooks and this is the real world". That isn't an argument that justifies as to why we should try to move away from the efficient equilibrium.
- EliRivers 7y ago
  "makes everyone worse off" Sounds like this axiom then, is some kind of utilitarian functions; the idea is to do whatever makes the most people better off, in aggregate? That it's ok to screw over someone if a greater amount of benefit then goes to someone else. I'm not convinced, however, that an efficient market is the same as this utilitarianism. Do you have any evidence that efficient markets produce the best outcome for the most people overall? Seems to me that an efficient market could easily consist of a large underclass barely staying alive; why would the most efficient market not have everyone in that situation? Surely that would be perfect efficiency; the entire population being paid just enough to keep going? No surplus, no excess; surely that's far more efficient - but that's in direct conflict with the idea of making everyone better off and giving everyone a nicer life.
- LeifCarrotson 7y ago
  The market equilibrium price may be the most efficient, but efficiency doesn't care about morals and ethics and "shoulds". Human beings should be treated humanely, ascribed intrinsic value, and moral considerations should be applied to interactions with them. Neither economics nor physics cares about human rights, but systems can be built to accommodate other value systems than the defaults that stem from raw theory. Maybe wages set above equilibrium will result in consumers losing out. That's inefficient, but not necessarily immoral. I strongly believe that utility functions are not evenly distributed. Giving Jeff Bezos $1B and 100k workers $10,000 each is not as good as an outcome where Jeff gets $500M and workers get $15,000 each; it's not even as good as Jeff getting $400M and workers still getting $15,000 each.
- CuriousSkeptic 7y ago
  The problem here is capitalism though. It has already distorted the market by extracting as much rent as possible from what ever inefficiency and externality it can find to make whatever equilibrium found far below anything a truly efficient market would determine. Couple this with the misguided proposition that cost (market determined price) reflects value, and thus that fellow citizens right to food, shelter and safety should reflect their market determined labor price and you get this result. Capitalism is a failed idea in it’s current incarnation, and does not deliver on the promise even of efficient markets. Attacking Amazon to fix this, or enforcing minimum wages, isn’t more rational than taking pain killers to improve on the situation of hitting your head against a wall repeatedly. If we have nothing better to offer, by all means, but we should feel really ashamed that this is the best we have to offer. We need something new, not that I know what, but it should be pretty obvious that what we have now fails to deliver. I find the ideas of geo-liberalism somewhat inspiring, and I do think some synthesis is in order where market economies are leveraged for the beautiful resource allocators they are.
LanceH 7y ago
The argument would be that they are rational actors and are choosing to be better off when they choose the job.
- EliRivers 7y ago
  Is that an axiom that leads to the principle that their wages should reflect supply and demand? A moral judgement is being made here when someone says this is how things should be, this is what's right.
- ionised 7y ago
  That's the homo-economicus argument and it's fallen flat a great many times. Humans act irrationally all the time.
  - LanceH 7y ago
    It's humans that would be enacting regulations, too. With market pricing, the people involved are responsible for their own irrational behavior.
    - EliRivers 7y ago
      With market pricing, the people involved are responsible for their own irrational behavior. Brilliant. It's all their own choice. They should have chosen to be born into a rich family. They should have chosen an expensive education. They should have chosen good health. They should have chosen a job that pays millions. All this, of course, is commonly believed in the US. I sometimes suspect that actually it's not so much believed as just something that rich people want very much to believe; it means they can feel like they deserve and earned every last penny, and that they don't have to feel bad at all about all the people being screwed over.

tryptophan 7y ago

If wages are not set by a market, ie not supply and demand, they will be mispriced. Mice-pricing represents a loss of efficiency in the economy, and makes everyone worse off over time. If wages were set lower than equilibrium, obviously the workers would be lose out on this. If wages were set above equilibrium, the consumers would lose out due to the higher costs being transferred over to them. The market price represents the balance between the two interests that is the most efficient. Inb4 some smartass posts "but perfect markets are only in textbooks and this is the real world". That isn't an argument that justifies as to why we should try to move away from the efficient equilibrium.

EliRivers 7y ago
"makes everyone worse off" Sounds like this axiom then, is some kind of utilitarian functions; the idea is to do whatever makes the most people better off, in aggregate? That it's ok to screw over someone if a greater amount of benefit then goes to someone else. I'm not convinced, however, that an efficient market is the same as this utilitarianism. Do you have any evidence that efficient markets produce the best outcome for the most people overall? Seems to me that an efficient market could easily consist of a large underclass barely staying alive; why would the most efficient market not have everyone in that situation? Surely that would be perfect efficiency; the entire population being paid just enough to keep going? No surplus, no excess; surely that's far more efficient - but that's in direct conflict with the idea of making everyone better off and giving everyone a nicer life.
LeifCarrotson 7y ago
The market equilibrium price may be the most efficient, but efficiency doesn't care about morals and ethics and "shoulds". Human beings should be treated humanely, ascribed intrinsic value, and moral considerations should be applied to interactions with them. Neither economics nor physics cares about human rights, but systems can be built to accommodate other value systems than the defaults that stem from raw theory. Maybe wages set above equilibrium will result in consumers losing out. That's inefficient, but not necessarily immoral. I strongly believe that utility functions are not evenly distributed. Giving Jeff Bezos $1B and 100k workers $10,000 each is not as good as an outcome where Jeff gets $500M and workers get $15,000 each; it's not even as good as Jeff getting $400M and workers still getting $15,000 each.
CuriousSkeptic 7y ago
The problem here is capitalism though. It has already distorted the market by extracting as much rent as possible from what ever inefficiency and externality it can find to make whatever equilibrium found far below anything a truly efficient market would determine. Couple this with the misguided proposition that cost (market determined price) reflects value, and thus that fellow citizens right to food, shelter and safety should reflect their market determined labor price and you get this result. Capitalism is a failed idea in it’s current incarnation, and does not deliver on the promise even of efficient markets. Attacking Amazon to fix this, or enforcing minimum wages, isn’t more rational than taking pain killers to improve on the situation of hitting your head against a wall repeatedly. If we have nothing better to offer, by all means, but we should feel really ashamed that this is the best we have to offer. We need something new, not that I know what, but it should be pretty obvious that what we have now fails to deliver. I find the ideas of geo-liberalism somewhat inspiring, and I do think some synthesis is in order where market economies are leveraged for the beautiful resource allocators they are.

LanceH 7y ago

The argument would be that they are rational actors and are choosing to be better off when they choose the job.

EliRivers 7y ago
Is that an axiom that leads to the principle that their wages should reflect supply and demand? A moral judgement is being made here when someone says this is how things should be, this is what's right.
ionised 7y ago
That's the homo-economicus argument and it's fallen flat a great many times. Humans act irrationally all the time.
- LanceH 7y ago
  It's humans that would be enacting regulations, too. With market pricing, the people involved are responsible for their own irrational behavior.
  - EliRivers 7y ago
    With market pricing, the people involved are responsible for their own irrational behavior. Brilliant. It's all their own choice. They should have chosen to be born into a rich family. They should have chosen an expensive education. They should have chosen good health. They should have chosen a job that pays millions. All this, of course, is commonly believed in the US. I sometimes suspect that actually it's not so much believed as just something that rich people want very much to believe; it means they can feel like they deserve and earned every last penny, and that they don't have to feel bad at all about all the people being screwed over.