11 ms·

Or even more succinctly: financial value != value to society. Sometimes there's alignment, but very frequently there is not.

billytetrud 5y ago
When it's out of alignment, usually it's because of regulatory capture.
- triceratops 5y ago
  Not always. Tobacco generated enormous profits even when there was no regulatory heat on it.
  - billytetrud 5y ago
    You're correct, usually is not always. But also, that's not what I meant. I meant that when companies can make profits without creating more value to society than the profits they make, its generally because of regulatory capture that allows them to extract rents from their customers or push costs onto the people as externalities. Regulatory capture is where companies "capture" the regulatory framework and use it to their advantage. So regulatory capture is actually the opposite of "regulatory heat".
    - triceratops 5y ago
      I understood what you meant by "regulatory capture". I was implying that capture often happens when there's regulatory heat.
- tablespoon 5y ago
  > When it's out of alignment, usually it's because of regulatory capture. No. The GGP's examples are a direct counterexample to that idea. Being a little more general: based on past experience, I interpret general complaints about "regulatory capture" without further clarification as complaints about regulation in general and advocacy for "market solutions" as an alternative. However, a poorly regulated market will almost certainly result in a great many monopolies and businesses that convert some negative externality into private profit, which are the apotheosis of the idea that financial value != value to society.
  - billytetrud 5y ago
    Sorry, what is GGP? What counter examples? > a poorly regulated market will almost certainly result in a great many monopolies A market regulated in poorly thought through ways can certainly lead to monopolies. But monopolies specifically are almost entirely due to regulatory capture. Case in point internet service in the US is almost always given either a de facto monpoloy or a straight up legislated monopoly for a particular area. That's why internet service in the US sucks so much. Countless regulatory burdens on businesses are designed to favor large companies, and is one of the many regulatory reasons that companies merge so often and industries in the US are oligopolies. And that's not to mention the actual government run monopolies like utilities and the post office. It was despicable that the post office killed Outbox and prevents people from using their own mailboxes however they want. https://smallbiztrends.com/2014/05/usps-killed-outbox-mail.html https://smallbiztrends.com/2014/05/usps-killed-outbox-mail.h... If the US had good representation, maybe the regulations it creates would generally benefit the consumer rather than entrenched business interests. Unfortuantely, that's not really the case today.
jjoonathan 5y ago
Yeah, the day I realized that the economic notion of value was weighted according to the wealth of those creating the demand, while the colloquial definition generally isn't, a lot of mismatched puzzle pieces fell into place. It was probably the single most successful update to my worldview (measured in terms of predictive power) that I have ever made.
- techbio 5y ago
  Can you expand on this insight about weighting value and its predictive power or share a source?
  - majormajor 5y ago
    I have a similar but different take on the weighting around politics. Our politicians are influence (unavoidably!) by the people who have the most time and money to spend lobbying them. Even if you reformed lobbying, this would still be the case - even if it was all just letter-writing with no money attached. Wealthy people could send way more letters than harried poor ones. So the more you have, the more influence you get. BUT the more you have, the more you can fend for yourself, so also the less you need much of that influence! And then the government being unaligned with the needs of most people starts making a lot of sense, without even needing malicious conspiracies. There's neither profit for businesses nor politicians in giving poor people what they need.
    - nebula8804 5y ago
      That does not seem to account for the wide disparity in outcomes among normal people in America vs many European counties like the Netherlands. There appears to be a real corruption problem in the US that is distorting what politicians can do for poor people.
  - wombatmobile 5y ago
    Economists and markets define the value of something as whatever someone will pay for it today. Successful parents and sage founders define value differently. They don't see dollars. They see sense.
bennysomething 5y ago
Who's "value to society" people's values vary that's why we have markets so people can decide what they value by deciding to buy it.
- tablespoon 5y ago
  > Who's "value to society" people's values vary that's why we have markets so people can decide what they value by deciding to buy it. That's a difficult question to answer generally, however it's also clearly not one that markets "solve." That's easy to see with the example of addictive drugs (which the market shows can be very profitable), unless you're willing to argue there's social value in destroying many people's lives through addiction. That's not to say that financial value and social value aren't sometimes aligned, it just that you can't assume the former implies the latter.
  - bennysomething 5y ago
    The point I'm trying to make is people often use the term "value to society" like it's an answered question. We know it's not answered as that people's values vary. Centrally deciding what is useful has proven to be disastrous (see the Soviet Union and every other centrally planned economy). Free markets allow us to express our values at an individual level rather than having an authority deciding what to value.
    - tablespoon 5y ago
      I know the point you're trying to make; it's ubiquitous. The point I'm making is that "free markets" won't answer the question either, and often result in things that are obviously against "value to society." One little thing I find annoying is that whenever someone points out some issue with free markets, someone always seems to reply with something that amounts to "have you considered free markets?" Whatever the problem, markets are the solution, even if the problem stems from markets themselves. The Soviet Union had serious problems, but it's a mistake to reason from that to the conclusion that markets are in some way ideal. They have their own problems, and we don't have access to an ideal system, so we have to try to deal with individual problems and make tradeoffs.

billytetrud 5y ago

When it's out of alignment, usually it's because of regulatory capture.

triceratops 5y ago
Not always. Tobacco generated enormous profits even when there was no regulatory heat on it.
- billytetrud 5y ago
  You're correct, usually is not always. But also, that's not what I meant. I meant that when companies can make profits without creating more value to society than the profits they make, its generally because of regulatory capture that allows them to extract rents from their customers or push costs onto the people as externalities. Regulatory capture is where companies "capture" the regulatory framework and use it to their advantage. So regulatory capture is actually the opposite of "regulatory heat".
  - triceratops 5y ago
    I understood what you meant by "regulatory capture". I was implying that capture often happens when there's regulatory heat.
tablespoon 5y ago
> When it's out of alignment, usually it's because of regulatory capture. No. The GGP's examples are a direct counterexample to that idea. Being a little more general: based on past experience, I interpret general complaints about "regulatory capture" without further clarification as complaints about regulation in general and advocacy for "market solutions" as an alternative. However, a poorly regulated market will almost certainly result in a great many monopolies and businesses that convert some negative externality into private profit, which are the apotheosis of the idea that financial value != value to society.
- billytetrud 5y ago
  Sorry, what is GGP? What counter examples? > a poorly regulated market will almost certainly result in a great many monopolies A market regulated in poorly thought through ways can certainly lead to monopolies. But monopolies specifically are almost entirely due to regulatory capture. Case in point internet service in the US is almost always given either a de facto monpoloy or a straight up legislated monopoly for a particular area. That's why internet service in the US sucks so much. Countless regulatory burdens on businesses are designed to favor large companies, and is one of the many regulatory reasons that companies merge so often and industries in the US are oligopolies. And that's not to mention the actual government run monopolies like utilities and the post office. It was despicable that the post office killed Outbox and prevents people from using their own mailboxes however they want. https://smallbiztrends.com/2014/05/usps-killed-outbox-mail.html https://smallbiztrends.com/2014/05/usps-killed-outbox-mail.h... If the US had good representation, maybe the regulations it creates would generally benefit the consumer rather than entrenched business interests. Unfortuantely, that's not really the case today.

jjoonathan 5y ago

Yeah, the day I realized that the economic notion of value was weighted according to the wealth of those creating the demand, while the colloquial definition generally isn't, a lot of mismatched puzzle pieces fell into place. It was probably the single most successful update to my worldview (measured in terms of predictive power) that I have ever made.

techbio 5y ago
Can you expand on this insight about weighting value and its predictive power or share a source?
- majormajor 5y ago
  I have a similar but different take on the weighting around politics. Our politicians are influence (unavoidably!) by the people who have the most time and money to spend lobbying them. Even if you reformed lobbying, this would still be the case - even if it was all just letter-writing with no money attached. Wealthy people could send way more letters than harried poor ones. So the more you have, the more influence you get. BUT the more you have, the more you can fend for yourself, so also the less you need much of that influence! And then the government being unaligned with the needs of most people starts making a lot of sense, without even needing malicious conspiracies. There's neither profit for businesses nor politicians in giving poor people what they need.
  - nebula8804 5y ago
    That does not seem to account for the wide disparity in outcomes among normal people in America vs many European counties like the Netherlands. There appears to be a real corruption problem in the US that is distorting what politicians can do for poor people.
- wombatmobile 5y ago
  Economists and markets define the value of something as whatever someone will pay for it today. Successful parents and sage founders define value differently. They don't see dollars. They see sense.

bennysomething 5y ago

Who's "value to society" people's values vary that's why we have markets so people can decide what they value by deciding to buy it.

tablespoon 5y ago
> Who's "value to society" people's values vary that's why we have markets so people can decide what they value by deciding to buy it. That's a difficult question to answer generally, however it's also clearly not one that markets "solve." That's easy to see with the example of addictive drugs (which the market shows can be very profitable), unless you're willing to argue there's social value in destroying many people's lives through addiction. That's not to say that financial value and social value aren't sometimes aligned, it just that you can't assume the former implies the latter.
- bennysomething 5y ago
  The point I'm trying to make is people often use the term "value to society" like it's an answered question. We know it's not answered as that people's values vary. Centrally deciding what is useful has proven to be disastrous (see the Soviet Union and every other centrally planned economy). Free markets allow us to express our values at an individual level rather than having an authority deciding what to value.
  - tablespoon 5y ago
    I know the point you're trying to make; it's ubiquitous. The point I'm making is that "free markets" won't answer the question either, and often result in things that are obviously against "value to society." One little thing I find annoying is that whenever someone points out some issue with free markets, someone always seems to reply with something that amounts to "have you considered free markets?" Whatever the problem, markets are the solution, even if the problem stems from markets themselves. The Soviet Union had serious problems, but it's a mistake to reason from that to the conclusion that markets are in some way ideal. They have their own problems, and we don't have access to an ideal system, so we have to try to deal with individual problems and make tradeoffs.