13 ms·
That analysis is contrary to a mainstream understanding of economics in a way that is a little like violating the second law of thermodynamics. Because all tra
by rz2k 14y ago
That analysis is contrary to a mainstream understanding of economics in a way that is a little like violating the second law of thermodynamics.
Because all transactions incur a transfer of wealth from one party to another there is no implicit creation of value unless the purchaser ultimately derives more utility from the product than the producer expended in effort and resources in order to produce it.
Because the definition of waste is the purchaser not getting any utility from the product, the economy has a net loss in wealth equivalent to what the producer expended in making the unused product. If there were a magical way to convert consumers into people who only get what they want, the max price they'd pay for a satisfying meal wouldn't decrease, because they wouldn't be receiving any less utility. The farmers on the other hand would have a lower minimum price for providing a satisfying meal, because they'd have to spend fewer hours and less water producing it.
The larger difference between the min selling price and max purchasing price is made up of producer surplus and consumer surplus.
Efficient conversion of inputs into outputs really is one of the primary concerns of the economy, and this is not a velocity of money issue.
However, any plan intended to minimize this waste is likely to create more problems than it solves, but that is because it is difficult and expensive to attempt to control people's behavior.
- photorized 14y agoYou wrote: "Because the definition of waste is the purchaser not getting any utility from the product, the economy has a net loss in wealth equivalent to what the producer expended in making the unused product." Would you consider unused cell phone minutes (that don't roll over) waste? What about any other monthly-commit-type product or service, where network/CPU/storage capacity is provisioned (expended by the provider), purchased by the customer, but unused - is that waste by your definition?
- rz2k 14y agoIf you'd get something out of talking on the phone more, then you are forgoing utility that you've already paid for. However, if you place a call to a recording to a recording just to insure that you "use" all of your minutes, you get no more utility, but the phone company uses more electricity and a little more of its infrastructure is used up. Ultimately, if everyone did this, prices would increase to cover the greater expenditure of resources and labor required to supply the growth in the service being used. There is nothing wrong with that if customers are getting something out of the greater consumption, but it is a deadweight loss on the economy if they aren't. In fact, if they gain enough pleasure out of being spiteful, that is a justifiable reason, I merely suspect that they wouldn't actually enjoy it that much. As for monthly commit services, providers choose them over usage billing because it smooths out their capacity projection needs. If you're writing random numbers to /dev/null you probably don't get much out of it. On the other hand if you process bitcoins with unused capacity maybe you are better off, though providers may decide to drop you. Or, if you donate cpu cycles to folding@home you may (or may not) contribute more to the public good than the harm of the extra electricity consumption.
- photorized 14y ago> not getting any utility from the product My emergency food supply, that perishes/expires/gets thrown out periodically - am I getting any utility from it?
- rz2k 14y agoYes, and the same goes for overstocking the regular pipeline of food distribution, such that some is thrown out due to spoilage, but shortages are rare. If it were possible to have as few shortages with less spoilage, that would be a pareto efficient improvement that did not entail a tradeoff. If you could have an emergency food supply without throwing out as much food, you'd have less waste, but if you stop stocking up for emergencies then you lose the utility of the security you get from having an emergency supply. You could forgo this security, but it isn't possible to analyze whether this would be better without good information on the exposure to risks and perfect insight into your own preferences, and how you might rank the security in comparison to the next best thing you'd purchase. It is a parallel situation to the main purpose\* of insurance. In the general case, the odds of a bad event occurring multiplied by the cost of paying for that event will always be less than the cost of purchasing insurance to cover that event. However, buying insurance is not implicitly an inefficient decision, because you are buying with insurance is some of the insurer's higher risk tolerance, obtained by pooling together all of its clients' risk. \* There are some other dynamics at play. Information asymmetries mean that the insurance companies actuaries may have a better idea of your actual risk than you do, and you may privately know that you will do something more risky than you lead them to believe. Furthermore, in the case of health insurance you are also purchasing the insurer's bargaining expertise which can dramatically lower how much is paid for a procedure.