6 ms·

Subsidy causing high prices? You're going to have to explain that.

by pjc50 1y ago

isoprophlex 1y ago
- Subsidy starts: prices drop. - Greed kicks in because capitalism: prices rise again, maybe not back to pre-subsidy levels, but they rise. - Subsidy gets axed: prices rise to above pre-subsidy levels. (Note: I'm personally entirely pro "subsidize things you want more of". But that requires a stable, trustworthy government that plans on longer timescales.)
- genericresponse 1y ago
  There are two more steps: - Demand drops due to increased price to buyers. - Prices drop so manufacturers can remain profitable.
- apexalpha 1y ago
  Sounds like a situation where there's not enough competition. the Netherlands had a net-metering subsidiy + good competition + frictionless install and as a result we have 3,5 solar panels per person installed.
  - bdcravens 1y ago
    Or price fixing.
- robertlagrant 1y ago
  > Greed kicks in because capitalism There were no greedy people before capitalism. Of that we can be sure.
  - komali2 1y ago
    Greed is a Bad attribute in basically every ethical system and religion throughout history. Capitalism, on the contrary, rewards it. The best way to be under capitalism is greedy (sneakily so, if necessary). So yes, it is uniquely new to have a value system that rewards greed.
    - robertlagrant 1y ago
      It doesn't reward greed, it rewards value. You could just as well say national borders reward invasions.
      - ty6853 1y ago
        No, greed is a necessary component. Because under capitalism both parties don't execute the trade, rationally at least, unless both are greedily better off. Without greed it goes from a positive sum system to a destructive system because you no longer have the parties being better off from the transaction. From a cursory standpoint that might be ok (the economy won't implode if some small fraction does this like a minority of commercial activity being charity functions) but you basically lose most the information conveyed in prices and cost causing complete loss of productive allocation and it is an economic implosion.
        isoprophlex 1y ago
        Do note that nothing in this system incentivizes behaviour that creates societies that could last, say, several hundred years.
        robertlagrant 1y ago
        You're mischaracterising "not wanting to overpay" and "getting something you need in return for what you have in excess" as "greed". It's a pointless conversation if you're willing to do that. You're just changing definitions before arguing them.
        ty6853 1y ago
        I will allow for sake of argument then trading for needs to be excepted. Under your definition it would also implode, just not fully destruct.
        robertlagrant 1y ago
        Trading for wants is no different to trading for needs from a capitalism perspective. It just removes the need for a central bureaucracy that decides what counts as a need.
  - jagger27 1y ago
    The perpetual existence of greed is not a good enough reason to structure all of society around that singular trait.
    - deleted 1y ago
      [deleted]
matusp 1y ago
Customer is willing to pay 10k. Supplier will charge 10k. Customer is willing to pay 10k, state is willing to pay 5k. Supplier will charge 15k.
- ta1243 1y ago
  That applies with inelastic goods - land for example - where supply can't increase Assuming the base cost is 8k Supplier A and Supplier B charge 15k and have 100 customers between them, making 350k each Supplier B decides to undercut Supplier A, and charge 14k, and get all the customers, making 600k profit Customer might be willing to pay 10k, but if there's two identical quotes, one for 10k and one for 9k they'll go for the 9k
  - robertlagrant 1y ago
    > Customer might be willing to pay 10k, but if there's two identical quotes, one for 10k and one for 9k they'll go for the 9k But you see the point. There's a comfortable cushion where everyone can make more money off the taxpayer and have an easier time of it. Spend a bit of it on better marketing to elevate yourself and justify the higher price in people's minds.
    - ta1243 1y ago
      Only if you believe that the invisible hand of the market doesn't work
      - robertlagrant 1y ago
        I'm not sure government incentives allow the free market to do its work, then. Why would you think it would?
        ta1243 1y ago
        government incentives help to reduce the externalities You seem to think that two companies selling product A will rather sell 50 for $10 per unit profit than 100 for $9 per unit profit because it's easier. I mean, it's a view, sure.
acatton 1y ago
There was a study in France showing that for rent subsidies.[1] In France, the state pays max(rate * rent, cap) for apartments for students, unemployed and poor workers. Usually people don't qualify for ratio of the rent, because it's way over the cap for the subsidy. To keep up with inflation, the state re-evaluate the cap of the subsidy almost every year. A french economist showed that there was a correlation between the cap of the rent subsidy and the rental market prices for small apartments. Of course, correlation is not causation, it could just be that the rental market follows the inflation as much as the cap. But this correlation doesn't happen for bigger and more luxurious appartments. Her explanation is that your poor household is only ready to afford €100 per month, as an example, the subsidy cap is €500, so the rental market prices these apartments to €600 (= 100 + 500). When the state re-evaluate the cap to €550, the rental market goes up to €650. (= 100 + 150) [1] https://www.insee.fr/fr/statistiques/fichier/1376573/es381-382b.pdf https://www.insee.fr/fr/statistiques/fichier/1376573/es381-3...
- genericresponse 1y ago
  The key difference in the markets is that it takes a very long time to build more apartments and houses, especially in France. There also isn't an option to not have housing. (Low elasticity) That keeps the short term supply effectively static. Same amount of supply, increase in money spent, inflation. In a market like solar, there is production of more solar systems. There are also multiple readily available substitutes. (e.g. on-grid power) The effect of the subsidy should drive increased volume from manufacturers, keeping net price stable.

Subsidy causing high prices? You're going to have to explain that.

by pjc50 1y ago

Subsidy causing high prices? You're going to have to explain that.

- Subsidy starts: prices drop. - Greed kicks in because capitalism: prices rise again, maybe not back to pre-subsidy levels, but they rise. - Subsidy gets axed: prices rise to above pre-subsidy levels. (Note: I'm personally entirely pro "subsidize things you want more of". But that requires a stable, trustworthy government that plans on longer timescales.)

genericresponse 1y ago
There are two more steps: - Demand drops due to increased price to buyers. - Prices drop so manufacturers can remain profitable.
apexalpha 1y ago
Sounds like a situation where there's not enough competition. the Netherlands had a net-metering subsidiy + good competition + frictionless install and as a result we have 3,5 solar panels per person installed.
- bdcravens 1y ago
  Or price fixing.
robertlagrant 1y ago
> Greed kicks in because capitalism There were no greedy people before capitalism. Of that we can be sure.
- komali2 1y ago
  Greed is a Bad attribute in basically every ethical system and religion throughout history. Capitalism, on the contrary, rewards it. The best way to be under capitalism is greedy (sneakily so, if necessary). So yes, it is uniquely new to have a value system that rewards greed.
  - robertlagrant 1y ago
    It doesn't reward greed, it rewards value. You could just as well say national borders reward invasions.
    - ty6853 1y ago
      No, greed is a necessary component. Because under capitalism both parties don't execute the trade, rationally at least, unless both are greedily better off. Without greed it goes from a positive sum system to a destructive system because you no longer have the parties being better off from the transaction. From a cursory standpoint that might be ok (the economy won't implode if some small fraction does this like a minority of commercial activity being charity functions) but you basically lose most the information conveyed in prices and cost causing complete loss of productive allocation and it is an economic implosion.
      - isoprophlex 1y ago
        Do note that nothing in this system incentivizes behaviour that creates societies that could last, say, several hundred years.
      - robertlagrant 1y ago
        You're mischaracterising "not wanting to overpay" and "getting something you need in return for what you have in excess" as "greed". It's a pointless conversation if you're willing to do that. You're just changing definitions before arguing them.
        ty6853 1y ago
        I will allow for sake of argument then trading for needs to be excepted. Under your definition it would also implode, just not fully destruct.
        robertlagrant 1y ago
        Trading for wants is no different to trading for needs from a capitalism perspective. It just removes the need for a central bureaucracy that decides what counts as a need.
- jagger27 1y ago
  The perpetual existence of greed is not a good enough reason to structure all of society around that singular trait.
  - deleted 1y ago
    [deleted]

matusp 1y ago

Customer is willing to pay 10k. Supplier will charge 10k. Customer is willing to pay 10k, state is willing to pay 5k. Supplier will charge 15k.

ta1243 1y ago
That applies with inelastic goods - land for example - where supply can't increase Assuming the base cost is 8k Supplier A and Supplier B charge 15k and have 100 customers between them, making 350k each Supplier B decides to undercut Supplier A, and charge 14k, and get all the customers, making 600k profit Customer might be willing to pay 10k, but if there's two identical quotes, one for 10k and one for 9k they'll go for the 9k
- robertlagrant 1y ago
  > Customer might be willing to pay 10k, but if there's two identical quotes, one for 10k and one for 9k they'll go for the 9k But you see the point. There's a comfortable cushion where everyone can make more money off the taxpayer and have an easier time of it. Spend a bit of it on better marketing to elevate yourself and justify the higher price in people's minds.
  - ta1243 1y ago
    Only if you believe that the invisible hand of the market doesn't work
    - robertlagrant 1y ago
      I'm not sure government incentives allow the free market to do its work, then. Why would you think it would?
      - ta1243 1y ago
        government incentives help to reduce the externalities You seem to think that two companies selling product A will rather sell 50 for $10 per unit profit than 100 for $9 per unit profit because it's easier. I mean, it's a view, sure.

acatton 1y ago

There was a study in France showing that for rent subsidies.[1] In France, the state pays max(rate * rent, cap) for apartments for students, unemployed and poor workers. Usually people don't qualify for ratio of the rent, because it's way over the cap for the subsidy. To keep up with inflation, the state re-evaluate the cap of the subsidy almost every year. A french economist showed that there was a correlation between the cap of the rent subsidy and the rental market prices for small apartments. Of course, correlation is not causation, it could just be that the rental market follows the inflation as much as the cap. But this correlation doesn't happen for bigger and more luxurious appartments. Her explanation is that your poor household is only ready to afford €100 per month, as an example, the subsidy cap is €500, so the rental market prices these apartments to €600 (= 100 + 500). When the state re-evaluate the cap to €550, the rental market goes up to €650. (= 100 + 150) [1] https://www.insee.fr/fr/statistiques/fichier/1376573/es381-382b.pdf https://www.insee.fr/fr/statistiques/fichier/1376573/es381-3...

genericresponse 1y ago
The key difference in the markets is that it takes a very long time to build more apartments and houses, especially in France. There also isn't an option to not have housing. (Low elasticity) That keeps the short term supply effectively static. Same amount of supply, increase in money spent, inflation. In a market like solar, there is production of more solar systems. There are also multiple readily available substitutes. (e.g. on-grid power) The effect of the subsidy should drive increased volume from manufacturers, keeping net price stable.