8 ms·

Surplus Extraction

66 points by luu 6y ago

chordalkeyboard 6y ago
> Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage. The majority of the surplus goes to the consumer, yes. > Gratuitous tunneling instead of above-ground construction. This is usually a demand made of high-speed rail, but there are some gratuitous tunnels in suburban rail as well, for example Crossrail 2. The surplus here is that NIMBYs do not like to see trains from their houses; the emotional value of their views is naturally a fraction of that of the cost of tunneling. I'm not sure how the author puts a value on someone else's preference for a view. This seems paternalistic. The view out the window of your home has a significant impact on your quality of life. > Extortion of community benefits to activists, for example demands for larger stations to act as neighborhood centers. A large degree of the cost explosion of the Green Line Extension in Boston came from the policy of accommodating local demands, leading to oversize stations. But such overbuilding can also occur absent extortion – the surplus can vanish into poor practices, representing incompetence rather than malice, as in the oversize viaducts of California High-Speed Rail. Uselessly oversize aqueducts are wasteful but there's a lot of value in building a new road around an existing useful building rather than using the power of the state to demolish someone's community center because it happens to be where you want to drive cars. > Even more recent attempts to create equity have failed. Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. At least the author doesn't mince words. > What it does say is that the role of the state is to safeguard surplus and keep it socialized, against demands from many special interests, which should be disempowered through legal changes making lawsuits harder and reducing the ability of consultants and unions to drive up costs. Then agents of the state can capture surplus for themselves by autocratically dictating what is to be done and the people from whom the surplus is captured have little to no recourse. > In that sense, the role of the planner is to say no – and moreover, to say no to charismatic groups representing much-romanticized people. No, dear mother with children, we will not build you a noise wall just because you think 140 km/h electric trains will reduce your quality of life. If only politicians were this honest about their true motives. This is a refreshingly honest blog. > No, dear tradesman much-profiled as a non-college white voter, we will not hire you for $110/hour when there exist people who will do your job better than you can at $35/hour. This is actually why markets are better than central planning. > No, dear third-generation business owner, we will not listen to what you think about traffic as we replace parking spots with bus lanes. This is why cities are dying. > No, dear white flight homeowner, we will not build you a tunnel just to avoid taking a few houses through eminent domain. What makes someone so callous about using the power of the state to expropriate people from their homes? > No, dear deindustrialized city leader, we will not require companies to set up factories in your city at high cost when we can get cheaper imports. Which is why people buy plastic crap made by slaves in Asia and toss it in the landfill. > It’s never going to be no, dear criminal, or no, dear Nazi, because criminals and Nazis are not used to making such requests and having people listen. Which is why the criminals and Nazis get jobs as urban planners if they want to, say, evict homeowners and put noisy trains next to daycare centers. Good article, I wish more people were as forthright about their beliefs and values. One last thought: > the role of the state is to safeguard surplus and keep it socialized > Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. Community centers enjoying surplus is socialization of the surplus. When the state extracts surplus from a community its more likely to spend it on noisy trains and oversize aqueducts than distribute it to other needy communities.
- pdonis 6y ago
  > The majority of the surplus goes to the consumer, yes. Which is different from what the author says--and at least it is usually correct, whereas what the author says is simply wrong. It is not true that in a competitive market there is no surplus. What is true is that in a competitive market, price gets driven down to marginal cost, and there is usually no opportunity for the seller to practice price discrimination, so everyone pays the same price for the product--not just the marginal buyer, for whom the product is just worth what it costs, but also all the non-marginal buyers, for whom the product is worth more than what it costs (in the sense that they would still buy the product even if the price were higher). The extra worth of the product to all of those non-marginal buyers is the surplus, and without price discrimination, the seller has no way of capturing any of it, so there is little or no margin for the seller. > I'm not sure how the author puts a value on someone else's preference for a view. He's assuming that those people would be willing to pay some amount to have the tunneling done and thereby avoid having to see rails. That amount, that they would be willing to pay but which the owner of the rail has no way of capturing from them, is the surplus. Here the author is using the concept of "surplus" correctly; unfortunately, in many other places in the article he doesn't. He also, as you point out, has a misguided fondness for central planning.
- AnimalMuppet 6y ago
  > > No, dear white flight homeowner, we will not build you a tunnel just to avoid taking a few houses through eminent domain. > What makes someone so callous about using the power of the state to expropriate people from their homes? First: "Expropriate" is both emotionally loaded and inaccurate. It looks like you're trying to be manipulative here rather than present a sound argument. Second: If we're going to build a road or a rail line, we're either going to spend some money and buy peoples' homes, or we're going to spend more money and create a tunnel. But money doesn't grow on trees for local governments; if they spend it, they have to take it. So either we're going to take money from people to buy houses from people, or we're going to take more money from people to create a tunnel. Why should they take more money from people to save peoples' houses? Why should my taxes go up to save your house? Note that this is a completely separate discussion from whether eminent domain actually pays people market prices for their homes.
around_here 6y ago
That’s a lot of words just to say “Unions are bad, mm’kay”
- jcranmer 6y ago
  Actually, it's not unions are bad, it's contractors are bad. Alon Levy's general thesis is that the Anglosphere (especially the US) stratospheric construction costs are mostly due to the Anglosphere-centric trend of contracting the design and planning of major public works constructions to outside firms, leaving the public agencies inept and incapable of properly evaluating how competent they are at actually managing their budget.
  - chordalkeyboard 6y ago
    Thats a good point, the other side of "regulatory capture" is having regulators who are so distant from the field they regulate that they aren't competent to regulate it effectively.
  - inglor_cz 6y ago
    Anglocentric? Lemme tell you something about the new Berlin airport... This problem happens all over the world. Construction is becoming more complicated per se. Buildings of the 1950s were much simpler to build. A modern "smart" building where doors have their IP addresses is basically an industrial-sized robot with a lot of moving parts.
StanislavPetrov 6y ago
>Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. The community in which the author lives must exist in an alternate universe where the state is efficient and egalitarian. In the community where I live (NYC) the Mayor's incompetent wife has been appointed to run a billion-dollar agency. Central planning is neither useful nor efficient when the planners are stupid and corrupt.
- deleted 6y ago
  [deleted]
- pdonis 6y ago
  > Central planning is neither useful nor efficient when the planners are stupid and corrupt. To make use of David Friedman's observation about a similar remark, unfortunately this sentence remains true if you take out the last seven words. Which makes the author's faith in central planning even more problematic.
  - danielheath 6y ago
    If capital requirements are reasonable, the market will figure it out. However, that’s far less true for capital-intensive problems; there’s few enough actors for them to collude. For that reason, central planning works out passably for predictable problems with high capital requirements like sewerage, roads and electrical grids.
    - pdonis 6y ago
      > there’s few enough actors for them to collude And those who collude become the central planners. So central planning doesn't fix this problem: it worsens it, because now the colluders have government power on their side.
      - afarrell 6y ago
        Regulation makes the central planning explicit so that an anticorruption layer can (hopefully) be designed.
bedobi 6y ago
What is this doing on the front page?
- AnimalMuppet 6y ago
  Some of us like living in functional cities, with functional infrastructure.
  - bedobi 6y ago
    I'm totally on board with making cities greener and more people-friendly, including carbon and congestion charges and outright bans on cars + increased spending on infrastructure and public transport etc. Virtually all economists are too. But that article reads like a 14 year olds' clickbait troll polemic on urban planning and economics. It's low quality content and shouldn't be on the front page.
- chordalkeyboard 6y ago
  the tyranny of the algorithm has been hijacked by news hackers wielding upvotes and comments.
- deleted 6y ago
  [deleted]
peteretep 6y ago
I only did high-school economics, but it seems to me like there's a mix-up here between super-normal/abnormal profit and surplus? > Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage That sounds like a description of abnormal profit, and not surplus, which iirc is the difference between the price of an object and what consumers would be willing to pay / what producers would be willing to produce at? He seems to get into discussing actual surplus further down in the article though.
- Hermel 6y ago
  There are two mistakes in the quoted section: 1. Even under perfect competition, there is still a surplus. But it goes to the consumer. Example: a loaf of bread costs 1$ to produce, is sold for 1$ and delivers 3$ of value (economists call this value “utility”) to the consumer. In that case, the surplus was 2$ and fully went to the consumer. 2. The implied assumption is that perfect competition is “normal”. In reality, perfectly competitive markets are rare and there is a balance between firms constantly trying to find or create new market and competition entering the market. For example, Nike would insist that their sneakers are special and different from all the others. For the consumers that fall for these marketing tactics, Nike has no competition, because it is the only place where you can buy Nike sneakers. Same applies for most other products. It is quite rare to have a situation where two firms offer perfect substitutes. Therefore, perfect competition is not “normal”.
  - zwaps 6y ago
    It actually depends on the elasticity of demand and the (marginal) cost curves how the surplus is distributed. What is true is that in a perfectly competitive market, there is no deadweight loss. The blog post, however, is wrong.

66 points by luu 6y ago

> Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage. The majority of the surplus goes to the consumer, yes. > Gratuitous tunneling instead of above-ground construction. This is usually a demand made of high-speed rail, but there are some gratuitous tunnels in suburban rail as well, for example Crossrail 2. The surplus here is that NIMBYs do not like to see trains from their houses; the emotional value of their views is naturally a fraction of that of the cost of tunneling. I'm not sure how the author puts a value on someone else's preference for a view. This seems paternalistic. The view out the window of your home has a significant impact on your quality of life. > Extortion of community benefits to activists, for example demands for larger stations to act as neighborhood centers. A large degree of the cost explosion of the Green Line Extension in Boston came from the policy of accommodating local demands, leading to oversize stations. But such overbuilding can also occur absent extortion – the surplus can vanish into poor practices, representing incompetence rather than malice, as in the oversize viaducts of California High-Speed Rail. Uselessly oversize aqueducts are wasteful but there's a lot of value in building a new road around an existing useful building rather than using the power of the state to demolish someone's community center because it happens to be where you want to drive cars. > Even more recent attempts to create equity have failed. Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. At least the author doesn't mince words. > What it does say is that the role of the state is to safeguard surplus and keep it socialized, against demands from many special interests, which should be disempowered through legal changes making lawsuits harder and reducing the ability of consultants and unions to drive up costs. Then agents of the state can capture surplus for themselves by autocratically dictating what is to be done and the people from whom the surplus is captured have little to no recourse. > In that sense, the role of the planner is to say no – and moreover, to say no to charismatic groups representing much-romanticized people. No, dear mother with children, we will not build you a noise wall just because you think 140 km/h electric trains will reduce your quality of life. If only politicians were this honest about their true motives. This is a refreshingly honest blog. > No, dear tradesman much-profiled as a non-college white voter, we will not hire you for $110/hour when there exist people who will do your job better than you can at $35/hour. This is actually why markets are better than central planning. > No, dear third-generation business owner, we will not listen to what you think about traffic as we replace parking spots with bus lanes. This is why cities are dying. > No, dear white flight homeowner, we will not build you a tunnel just to avoid taking a few houses through eminent domain. What makes someone so callous about using the power of the state to expropriate people from their homes? > No, dear deindustrialized city leader, we will not require companies to set up factories in your city at high cost when we can get cheaper imports. Which is why people buy plastic crap made by slaves in Asia and toss it in the landfill. > It’s never going to be no, dear criminal, or no, dear Nazi, because criminals and Nazis are not used to making such requests and having people listen. Which is why the criminals and Nazis get jobs as urban planners if they want to, say, evict homeowners and put noisy trains next to daycare centers. Good article, I wish more people were as forthright about their beliefs and values. One last thought: > the role of the state is to safeguard surplus and keep it socialized > Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. Community centers enjoying surplus is socialization of the surplus. When the state extracts surplus from a community its more likely to spend it on noisy trains and oversize aqueducts than distribute it to other needy communities.

pdonis 6y ago
> The majority of the surplus goes to the consumer, yes. Which is different from what the author says--and at least it is usually correct, whereas what the author says is simply wrong. It is not true that in a competitive market there is no surplus. What is true is that in a competitive market, price gets driven down to marginal cost, and there is usually no opportunity for the seller to practice price discrimination, so everyone pays the same price for the product--not just the marginal buyer, for whom the product is just worth what it costs, but also all the non-marginal buyers, for whom the product is worth more than what it costs (in the sense that they would still buy the product even if the price were higher). The extra worth of the product to all of those non-marginal buyers is the surplus, and without price discrimination, the seller has no way of capturing any of it, so there is little or no margin for the seller. > I'm not sure how the author puts a value on someone else's preference for a view. He's assuming that those people would be willing to pay some amount to have the tunneling done and thereby avoid having to see rails. That amount, that they would be willing to pay but which the owner of the rail has no way of capturing from them, is the surplus. Here the author is using the concept of "surplus" correctly; unfortunately, in many other places in the article he doesn't. He also, as you point out, has a misguided fondness for central planning.
AnimalMuppet 6y ago
> > No, dear white flight homeowner, we will not build you a tunnel just to avoid taking a few houses through eminent domain. > What makes someone so callous about using the power of the state to expropriate people from their homes? First: "Expropriate" is both emotionally loaded and inaccurate. It looks like you're trying to be manipulative here rather than present a sound argument. Second: If we're going to build a road or a rail line, we're either going to spend some money and buy peoples' homes, or we're going to spend more money and create a tunnel. But money doesn't grow on trees for local governments; if they spend it, they have to take it. So either we're going to take money from people to buy houses from people, or we're going to take more money from people to create a tunnel. Why should they take more money from people to save peoples' houses? Why should my taxes go up to save your house? Note that this is a completely separate discussion from whether eminent domain actually pays people market prices for their homes.

around_here 6y ago

That’s a lot of words just to say “Unions are bad, mm’kay”

jcranmer 6y ago
Actually, it's not unions are bad, it's contractors are bad. Alon Levy's general thesis is that the Anglosphere (especially the US) stratospheric construction costs are mostly due to the Anglosphere-centric trend of contracting the design and planning of major public works constructions to outside firms, leaving the public agencies inept and incapable of properly evaluating how competent they are at actually managing their budget.
- chordalkeyboard 6y ago
  Thats a good point, the other side of "regulatory capture" is having regulators who are so distant from the field they regulate that they aren't competent to regulate it effectively.
- inglor_cz 6y ago
  Anglocentric? Lemme tell you something about the new Berlin airport... This problem happens all over the world. Construction is becoming more complicated per se. Buildings of the 1950s were much simpler to build. A modern "smart" building where doors have their IP addresses is basically an industrial-sized robot with a lot of moving parts.

StanislavPetrov 6y ago

>Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. The community in which the author lives must exist in an alternate universe where the state is efficient and egalitarian. In the community where I live (NYC) the Mayor's incompetent wife has been appointed to run a billion-dollar agency. Central planning is neither useful nor efficient when the planners are stupid and corrupt.

deleted 6y ago
[deleted]
pdonis 6y ago
> Central planning is neither useful nor efficient when the planners are stupid and corrupt. To make use of David Friedman's observation about a similar remark, unfortunately this sentence remains true if you take out the last seven words. Which makes the author's faith in central planning even more problematic.
- danielheath 6y ago
  If capital requirements are reasonable, the market will figure it out. However, that’s far less true for capital-intensive problems; there’s few enough actors for them to collude. For that reason, central planning works out passably for predictable problems with high capital requirements like sewerage, roads and electrical grids.
  - pdonis 6y ago
    > there’s few enough actors for them to collude And those who collude become the central planners. So central planning doesn't fix this problem: it worsens it, because now the colluders have government power on their side.
    - afarrell 6y ago
      Regulation makes the central planning explicit so that an anticorruption layer can (hopefully) be designed.

bedobi 6y ago

What is this doing on the front page?

AnimalMuppet 6y ago
Some of us like living in functional cities, with functional infrastructure.
- bedobi 6y ago
  I'm totally on board with making cities greener and more people-friendly, including carbon and congestion charges and outright bans on cars + increased spending on infrastructure and public transport etc. Virtually all economists are too. But that article reads like a 14 year olds' clickbait troll polemic on urban planning and economics. It's low quality content and shouldn't be on the front page.
chordalkeyboard 6y ago
the tyranny of the algorithm has been hijacked by news hackers wielding upvotes and comments.
deleted 6y ago
[deleted]

peteretep 6y ago

I only did high-school economics, but it seems to me like there's a mix-up here between super-normal/abnormal profit and surplus? > Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage That sounds like a description of abnormal profit, and not surplus, which iirc is the difference between the price of an object and what consumers would be willing to pay / what producers would be willing to produce at? He seems to get into discussing actual surplus further down in the article though.

Hermel 6y ago
There are two mistakes in the quoted section: 1. Even under perfect competition, there is still a surplus. But it goes to the consumer. Example: a loaf of bread costs 1$ to produce, is sold for 1$ and delivers 3$ of value (economists call this value “utility”) to the consumer. In that case, the surplus was 2$ and fully went to the consumer. 2. The implied assumption is that perfect competition is “normal”. In reality, perfectly competitive markets are rare and there is a balance between firms constantly trying to find or create new market and competition entering the market. For example, Nike would insist that their sneakers are special and different from all the others. For the consumers that fall for these marketing tactics, Nike has no competition, because it is the only place where you can buy Nike sneakers. Same applies for most other products. It is quite rare to have a situation where two firms offer perfect substitutes. Therefore, perfect competition is not “normal”.
- zwaps 6y ago
  It actually depends on the elasticity of demand and the (marginal) cost curves how the surplus is distributed. What is true is that in a perfectly competitive market, there is no deadweight loss. The blog post, however, is wrong.