4 ms·

Is your point that wealthy people subsidize air travel by paying relatively more for the space on the plane? That's a perfect example of when inequality biases

Is your point that wealthy people subsidize air travel by paying relatively more for the space on the plane? That's a perfect example of when inequality biases a market to produce suboptimal outcomes. Why? Because if people wouldn't be willing to spend to pay the cost of an airplane ticket in perfect market conditions, then them not buying a ticket is the optimal allocation of resources. If they then buy a ticket in current market conditions, that's an example of a suboptimal allocation of resources. Same goes for the car example.

robertlagrant 4y ago
> Because if people wouldn't be willing to spend to pay the cost of an airplane ticket in perfect market conditions, then them not buying a ticket is the optimal allocation of resources. Sorry, you've lost me. How do you define perfect market conditions?
- geysersam 4y ago
  It's a common concept in economic theory: https://en.m.wikipedia.org/wiki/Perfect_competition https://en.m.wikipedia.org/wiki/Perfect_competition It requires a bunch of idealizing conditions that never holds in practice. But it's still useful to study what effects deviations from perfect competition has on efficiency. Think about it like this: subsidies lets you buy something you don't actually want, that's inefficient. For subsidies to make sense, they need to compensate some other deviation from perfect competition. For example, it can make sense to subsidize green energy because fossile fuels has external costs not accounted for by the market. But the fact that a rich individual is willing to pay your air ticket is not a good reason to subsidize something. An intuitive example: A rich guy enters a bar and yells "free ice cream for everyone!". That's nice. But if the same cash were distributed among the guests, some would've gotten beers and some wine. But when faced with the choice "pay for beer or get free ice cream" everyone choose ice cream despite that being a suboptimal allocation of resources.
  - robertlagrant 4y ago
    Thanks for elaborating. It seems now I don't understand your definition of efficiency. People choosing free ice cream over costly beer doesn't strike me as a loss of efficiency.
    - geysersam 4y ago
      "Efficiency" is total Utility produced with the available resources. > People choosing free ice cream over expensive beer doesn't strike me as inefficient. But it is! With the total available resources we have two options: All get beer. Or all get ice cream. Total utility (value/happiness/whatever) is maximized when everyone gets beer. When resources are unevenly distributed, ice cream is subsidized, and all get ice cream. When resources are evenly distributed everyone can make the choice themselves, and they get beer. Clearly "resources evenly distributed" had the better outcome.
      - robertlagrant 4y ago
        Ah! I understand. I agree that if you do that once, it works one time. But as soon as you take the money they all gave to the bartender and redistribute it, to maximise happiness, and they all buy more beer, you might start to spot where this falls down as a useful model, mightn't you?
        geysersam 4y ago
        I haven't said anything about redistributing wealth. The point is not that redistribution is a good idea. The point is that wealth inequality makes the economy less efficient, and that it is something we should take into consideration. Redistributing wealth might also make the economy less efficient, that's an argument that can be made. From where I stand, it seems the inefficiency caused by wealth inequality is too rarely discussed relative to its harmful impact. The problems caused by redistribution/taxes etc. are otoh extremely often raised.
        4y ago

robertlagrant 4y ago

> Because if people wouldn't be willing to spend to pay the cost of an airplane ticket in perfect market conditions, then them not buying a ticket is the optimal allocation of resources. Sorry, you've lost me. How do you define perfect market conditions?

geysersam 4y ago
It's a common concept in economic theory: https://en.m.wikipedia.org/wiki/Perfect_competition https://en.m.wikipedia.org/wiki/Perfect_competition It requires a bunch of idealizing conditions that never holds in practice. But it's still useful to study what effects deviations from perfect competition has on efficiency. Think about it like this: subsidies lets you buy something you don't actually want, that's inefficient. For subsidies to make sense, they need to compensate some other deviation from perfect competition. For example, it can make sense to subsidize green energy because fossile fuels has external costs not accounted for by the market. But the fact that a rich individual is willing to pay your air ticket is not a good reason to subsidize something. An intuitive example: A rich guy enters a bar and yells "free ice cream for everyone!". That's nice. But if the same cash were distributed among the guests, some would've gotten beers and some wine. But when faced with the choice "pay for beer or get free ice cream" everyone choose ice cream despite that being a suboptimal allocation of resources.
- robertlagrant 4y ago
  Thanks for elaborating. It seems now I don't understand your definition of efficiency. People choosing free ice cream over costly beer doesn't strike me as a loss of efficiency.
  - geysersam 4y ago
    "Efficiency" is total Utility produced with the available resources. > People choosing free ice cream over expensive beer doesn't strike me as inefficient. But it is! With the total available resources we have two options: All get beer. Or all get ice cream. Total utility (value/happiness/whatever) is maximized when everyone gets beer. When resources are unevenly distributed, ice cream is subsidized, and all get ice cream. When resources are evenly distributed everyone can make the choice themselves, and they get beer. Clearly "resources evenly distributed" had the better outcome.
    - robertlagrant 4y ago
      Ah! I understand. I agree that if you do that once, it works one time. But as soon as you take the money they all gave to the bartender and redistribute it, to maximise happiness, and they all buy more beer, you might start to spot where this falls down as a useful model, mightn't you?
      - geysersam 4y ago
        I haven't said anything about redistributing wealth. The point is not that redistribution is a good idea. The point is that wealth inequality makes the economy less efficient, and that it is something we should take into consideration. Redistributing wealth might also make the economy less efficient, that's an argument that can be made. From where I stand, it seems the inefficiency caused by wealth inequality is too rarely discussed relative to its harmful impact. The problems caused by redistribution/taxes etc. are otoh extremely often raised.
        4y ago