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Price signals are an important part of ensuring that resources go where they're needed, but this also sort of assumes that everyone has an equal capacity to pay

Price signals are an important part of ensuring that resources go where they're needed, but this also sort of assumes that everyone has an equal capacity to pay. There's an extent to which, yes, in a gas shortage I'll pay 4x to drive my wife to the hospital but not to drive my kids to the pool, so the gas goes where it's needed. But if I'm very poor, I can't pay 4x even if my wife is in labour, and if I'm very rich, I'll pay whatever to drive my kids to the pool because I don't even notice gas prices.

gruez 5y ago
> Price signals are an important part of ensuring that resources go where they're needed, but this also sort of assumes that everyone has an equal capacity to pay. Right, but it's not claimed that price signals is some all-powerful force to drive behavior. It just ensures "resources go where they're needed" in aggregate. Well resourced individuals can still use their money to override that as they see fit.
- chii 5y ago
  They're not overriding anything - those with the money pays more to obtain the right to decide where the resources go. But they _can_ pay more because they've produced the wealth in the past (and did not consume it). If their will could be overridden at a moment's notice, then this stored wealth means less, and thus people would choose to consume more and not invest, and thus, the overall aggregate wealth would be reduced.
  - jbay808 5y ago
    Perhaps! I think some of us are nonetheless born with a lot more wealth than others, and that compounds a heck of a lot.
xapata 5y ago
But then the money keeps flowing. It doesn't disappear just because you drove to the pool. The gasoline supplier uses the cash to crank up supply, the price goes down, etc.
amanaplanacanal 5y ago
Yes. Keep the price signals. Redistribute more of the wealth. It's a win win.
- mr_toad 5y ago
  You’ll need to come up with a way of redistributing wealth without impacting price signals. Peoples net pay rate is a price signal. I’m not aware of any method of taxation that doesn’t affect price signals.
  - mdavis6890 5y ago
    An equal, universal, non-means-tested UBI will accomplish this. https://m-davis.com/blog/?p=43 https://m-davis.com/blog/?p=43
    - deleted 5y ago
      [deleted]
    - adultSwim 5y ago
      If you ask for reform, you will wait forever. Reform is possible when there is a credible threat of a much greater shake up. Reform are concession that demonstrate what more is possible in a given moment. Without further progress it will be withdrawn after the threat dissipates.
  - savanaly 5y ago
    Land value tax
  - dragonwriter 5y ago
    > I’m not aware of any method of taxation that doesn’t affect price signals. Well, you could distort price signals less by: (1) Not selectively favoring capital income in taxation via a reduced rate for long-term gains, and (2) Not selectively disfavoring labor income (beyond #1) in taxation via payroll taxes. This would also, on a revenue-neutral basis, effect an upward shift of tax burden (downward shift in after-tax income) compared to the status quo, given where labor and capital income dominate.
mr_toad 5y ago
> Price signals are an important part of ensuring that resources go where they're needed, but this also sort of assumes that everyone has an equal capacity to pay. Technically, neither of those things are true. An efficient market only ensures that resources aren’t wasted - that they won’t be allocated in ways that are worse for everyone. There are still (infinitely) many efficient outcomes where some people could be better off at the expense of others. Defining ‘need’, especially when it comes to trade offs between individuals is an extremely fraught and unsolved (and demonstrably unsolvable) problem in economics.
ComputerGuru 5y ago
It's not a perfect system, but it generally works. Yes, some people will be too poor to afford the gas to get the hospital at 4x the price. But some people are already too poor to afford the gas at 1x the price - and it similarly sucks. The price going up means that there is gas for someone that can afford to pay 4x to take their wife to the hospital. If it didn't go up, the gas would still be hoarded only moreso and there wouldn't be gas for you to take your wife to the hospital at any price.
- ouid 5y ago
  Wealth inequality renders many of the assumptions about social utility being maximized by free markets invalid. That is, I believe, the parent commenter's point. Furthermore, your example is exactly wrong. Restrictions are both on price and on the quantity that can be purchased. Without both controls, in shortages, the earliest speculator is free to create shortages by hoarding, and is in fact incentivized to.
  - andriesm 5y ago
    Wait, HOW does inequality render assumptions about free markers maximising social utility invalid? You cannot just make such a profound statement without fleshing out the argument for it at least a little bit. (I'm ignoring the 2nd part about restricting both quantity and price simultaneously - as I am more interested in how you quantity and substantiate your first claim)
    - jbay808 5y ago
      Not the GP, but it's an easily defended view along several avenues. First, I could point out that the marginal utility of money must decline at least logarithmically with quantity*, which means that egalitarian resource distributions tend to have a higher net utility. Second, I could point out that the Pareto principle only guarantees an outcome for which, locally, no individual actor can do marginally better without another doing marginally worse, not an outcome in which the total utility of all actors even approaches a local maximum, let alone a global one. We can easily end up in a scenario where a beggar can starve to death while a baron gorges on food whose loss would go unnoticed to him. I could go on but I think the above is already enough of a basis to support the claim. * The proof of this is not short enough to type on my phone.
WalterBright 5y ago
> assumes that everyone has an equal capacity to pay No, it does not. Nor does it assume equal willingness to pay, or equal utility to the buyer, or perfect information.
spoonjim 5y ago
What about an emergency credits system? In an emergency, the government issues 100 credits to every person, each equal to $x. Prices for essentials are shifted to credits for the duration of the emergency (but remain floating) and shopkeepers can exchange credits for cash with the government.
- skt5 5y ago
  This credit system sounds like another form of currency.
  - spoonjim 5y ago
    It is. But it’s equally distributed.
    - skt5 5y ago
      What would stop someone from operating a currency exchange system? Ex: a market to buy and sell credits using USD
      - spoonjim 5y ago
        Nothing. But if you needed water to stay alive and it was $1,000 a bottle you may have no way of getting it. If you needed water to say alive and it was 100 credits a bottle you would at least have the option of getting the water or selling your credits.

gruez 5y ago

> Price signals are an important part of ensuring that resources go where they're needed, but this also sort of assumes that everyone has an equal capacity to pay. Right, but it's not claimed that price signals is some all-powerful force to drive behavior. It just ensures "resources go where they're needed" in aggregate. Well resourced individuals can still use their money to override that as they see fit.

chii 5y ago
They're not overriding anything - those with the money pays more to obtain the right to decide where the resources go. But they _can_ pay more because they've produced the wealth in the past (and did not consume it). If their will could be overridden at a moment's notice, then this stored wealth means less, and thus people would choose to consume more and not invest, and thus, the overall aggregate wealth would be reduced.
- jbay808 5y ago
  Perhaps! I think some of us are nonetheless born with a lot more wealth than others, and that compounds a heck of a lot.

xapata 5y ago

But then the money keeps flowing. It doesn't disappear just because you drove to the pool. The gasoline supplier uses the cash to crank up supply, the price goes down, etc.

amanaplanacanal 5y ago

Yes. Keep the price signals. Redistribute more of the wealth. It's a win win.

mr_toad 5y ago
You’ll need to come up with a way of redistributing wealth without impacting price signals. Peoples net pay rate is a price signal. I’m not aware of any method of taxation that doesn’t affect price signals.
- mdavis6890 5y ago
  An equal, universal, non-means-tested UBI will accomplish this. https://m-davis.com/blog/?p=43 https://m-davis.com/blog/?p=43
  - deleted 5y ago
    [deleted]
  - adultSwim 5y ago
    If you ask for reform, you will wait forever. Reform is possible when there is a credible threat of a much greater shake up. Reform are concession that demonstrate what more is possible in a given moment. Without further progress it will be withdrawn after the threat dissipates.
- savanaly 5y ago
  Land value tax
- dragonwriter 5y ago
  > I’m not aware of any method of taxation that doesn’t affect price signals. Well, you could distort price signals less by: (1) Not selectively favoring capital income in taxation via a reduced rate for long-term gains, and (2) Not selectively disfavoring labor income (beyond #1) in taxation via payroll taxes. This would also, on a revenue-neutral basis, effect an upward shift of tax burden (downward shift in after-tax income) compared to the status quo, given where labor and capital income dominate.

mr_toad 5y ago

> Price signals are an important part of ensuring that resources go where they're needed, but this also sort of assumes that everyone has an equal capacity to pay. Technically, neither of those things are true. An efficient market only ensures that resources aren’t wasted - that they won’t be allocated in ways that are worse for everyone. There are still (infinitely) many efficient outcomes where some people could be better off at the expense of others. Defining ‘need’, especially when it comes to trade offs between individuals is an extremely fraught and unsolved (and demonstrably unsolvable) problem in economics.

ComputerGuru 5y ago

It's not a perfect system, but it generally works. Yes, some people will be too poor to afford the gas to get the hospital at 4x the price. But some people are already too poor to afford the gas at 1x the price - and it similarly sucks. The price going up means that there is gas for someone that can afford to pay 4x to take their wife to the hospital. If it didn't go up, the gas would still be hoarded only moreso and there wouldn't be gas for you to take your wife to the hospital at any price.

ouid 5y ago
Wealth inequality renders many of the assumptions about social utility being maximized by free markets invalid. That is, I believe, the parent commenter's point. Furthermore, your example is exactly wrong. Restrictions are both on price and on the quantity that can be purchased. Without both controls, in shortages, the earliest speculator is free to create shortages by hoarding, and is in fact incentivized to.
- andriesm 5y ago
  Wait, HOW does inequality render assumptions about free markers maximising social utility invalid? You cannot just make such a profound statement without fleshing out the argument for it at least a little bit. (I'm ignoring the 2nd part about restricting both quantity and price simultaneously - as I am more interested in how you quantity and substantiate your first claim)
  - jbay808 5y ago
    Not the GP, but it's an easily defended view along several avenues. First, I could point out that the marginal utility of money must decline at least logarithmically with quantity*, which means that egalitarian resource distributions tend to have a higher net utility. Second, I could point out that the Pareto principle only guarantees an outcome for which, locally, no individual actor can do marginally better without another doing marginally worse, not an outcome in which the total utility of all actors even approaches a local maximum, let alone a global one. We can easily end up in a scenario where a beggar can starve to death while a baron gorges on food whose loss would go unnoticed to him. I could go on but I think the above is already enough of a basis to support the claim. * The proof of this is not short enough to type on my phone.

WalterBright 5y ago

> assumes that everyone has an equal capacity to pay No, it does not. Nor does it assume equal willingness to pay, or equal utility to the buyer, or perfect information.

spoonjim 5y ago

What about an emergency credits system? In an emergency, the government issues 100 credits to every person, each equal to $x. Prices for essentials are shifted to credits for the duration of the emergency (but remain floating) and shopkeepers can exchange credits for cash with the government.

skt5 5y ago
This credit system sounds like another form of currency.
- spoonjim 5y ago
  It is. But it’s equally distributed.
  - skt5 5y ago
    What would stop someone from operating a currency exchange system? Ex: a market to buy and sell credits using USD
    - spoonjim 5y ago
      Nothing. But if you needed water to stay alive and it was $1,000 a bottle you may have no way of getting it. If you needed water to say alive and it was 100 credits a bottle you would at least have the option of getting the water or selling your credits.