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What if the total amount of water available in a region is just slightly above the minimum required in that region? In this case, rich people will not stop buy

What if the total amount of water available in a region is just slightly above the minimum required in that region? In this case, rich people will not stop buying water at the absolute minimum necessary - after all, people (a) like to be more comfortable than just the absolute minimum necessary, and (b) are not very good at estimating what the absolute minimum necessary is. So your argument is wrong: rich people will bid up prices significantly to be able to go through the crisis with less discomfort. [0] As a consequence, it is quite likely that poor people will have to suffer a loss of almost all of their (already few) assets just to survive. That's not a very moral outcome. Besides, you seem to be operating under a false dichotomy. The choice isn't between (a) letting market forces run wild and (b) fixing prices while otherwise pretending as if nothing bad has happened. The choice is between (a) letting market forces run wild and (b) fixing prices while in the meantime implementing explicit rationing and making sure the underlying infrastructure problems are resolved as quickly as possible. Option (b) is what most down-to-earth, clear-thinking humans will come up with in a matter of minutes. It is also the better course of action. [0] In addition to this, consider that an argument that you made yourself can be used against you: Given the uncertainty of the crisis situation, it is quite plausible that rich people will make panic hoarding purchases of more than they need until the crisis is over, thereby bidding prices up even further.

pdonis 12y ago
> What if the total amount of water available in a region is just slightly above the minimum required in that region? Then, as you imply later on, you have an underlying infrastructure problem. This is a different scenario from a natural disaster, which was the original scenario under discussion. A natural disaster is temporary; a shortage of water such as you are describing is not. > fixing prices while in the meantime implementing explicit rationing and making sure the underlying infrastructure problems are resolved as quickly as possible. You can't both fix prices and implement explicit rationing, because explicit rationing replaces the price mechanism; it doesn't supplement it. Explicit rationing and the price mechanism are both resource allocation methods; you can't have the same resources being allocated by two different methods. As for resolving the underlying infrastructure problem, I'm all for that, but it's subject to the same issues: just look at the history of water rights in the southwest U.S. Government intervention hasn't fixed that. > Given the uncertainty of the crisis situation, it is quite plausible that rich people will make panic hoarding purchases of more than they need until the crisis is over Now you're back to the original temporary situation again. Which one do you want to discuss? They're different. Also, you have now added uncertainty to the mix, which makes things more realistic, but also undermines your argument, in both the temporary and the permanent cases. If there is uncertainty about what the resource availability actually is, then a central allocation mechanism, like explicit rationing, can go wrong just as the price mechanism can; no method can guarantee success if the true facts are unknown. So just saying that the price mechanism might not work is pointless; you have to show that the price mechanism must necessarily be worse than explicit rationing.
- nhaehnle 12y ago
  It is very common for natural disasters to temporarily obstruct infrastructure that had previously been working just fine, and which can be restored to working order in a short period of time (under a month, say). Or perhaps you just failed to understand the obvious ellipsis? (total amount of drinkable water available in the region in the aftermath of natural disaster) > You can't both fix prices and implement explicit rationing, because explicit rationing replaces the price mechanism; Step 1: Fix the price of a bottle of water to whatever it was pre-disaster. Step 2: Institute a system whereby each household may buy at most X bottles. It's not exactly rocket science.
  - pdonis 12y ago
    > the obvious ellipsis It wasn't obvious to me before, no, but now I understand what you were getting at. Btw, I did misspeak here: > You can't both fix prices and implement explicit rationing, because explicit rationing replaces the price mechanism I should have said that fixing prices, in and of itself, replaces the price mechanism; the price mechanism only works if you let the market determine the price instead of fixing it. If you intended "fixing prices" to imply that you are replacing the market price mechanism, then we don't actually disagree on that point. Sorry for the confusion on my part. > Step 1: Fix the price of a bottle of water to whatever it was pre-disaster. How do you know that's the right price? If your answer is "because that was the market price pre-disaster", then whence comes this sudden faith in markets? > Step 2: Institute a system whereby each household may buy at most X bottles. How do you determine what X is? What if it varies by household? What if some people need more water per person because of a health condition? What if... You are making the mistake central planners always make: you are assuming that whoever is rationing the water can know all the necessary information in order to ration it correctly. In the real world, this can't happen; there is too much information and no way for the central planner to get it all.
    - nhaehnle 12y ago
      Okay, seems like things are a bit clearer now. I don't think it makes a lot of sense to answer quote-by-quote. At a high level, it seems to me that our disagreement is based on a different understanding of how markets work.[0] Market mechanisms and prices are useful for guiding the long-term structure of production relations in society. In a sense, market mechanisms provide a meta-heuristics-type solution (think genetic algorithms) for problems that are very difficult to solve via other means.[1] Now, two things greatly diminish the usefulness of markets in a natural disaster crisis. First, market mechanisms tend to operate on a very large timescale (when prices rise, it takes months or years for new entrants to the market to appear). Second, the problems created by natural disasters are actually pretty straightforward. You wouldn't use genetic algorithms to solve a minimum spanning tree problem, which is more or less the precise problem you need to solve when re-establishing transportation, for example. On a more meta-note, while markets are obviously extremely useful, I don't think there's a lot of evidence that they work well when there is genuine scarcity for true essentials (such as food, shelter, water). They work well enough to provide those things at a steady rate as long as there are no shortages, but in times of shock (or, actually, if you look at the problem of hunger globally, when there are shortages) they don't seem to work so well (if by work well you mean delivering results that are acceptable to an average person's morality). [0] Naturally, I am arrogant enough to believe that my understanding is more refined ;) [1] Not necessarily because those problems are computationally hard, but because those problems are difficult to model and the input data is difficult to obtain.

pdonis 12y ago

> What if the total amount of water available in a region is just slightly above the minimum required in that region? Then, as you imply later on, you have an underlying infrastructure problem. This is a different scenario from a natural disaster, which was the original scenario under discussion. A natural disaster is temporary; a shortage of water such as you are describing is not. > fixing prices while in the meantime implementing explicit rationing and making sure the underlying infrastructure problems are resolved as quickly as possible. You can't both fix prices and implement explicit rationing, because explicit rationing replaces the price mechanism; it doesn't supplement it. Explicit rationing and the price mechanism are both resource allocation methods; you can't have the same resources being allocated by two different methods. As for resolving the underlying infrastructure problem, I'm all for that, but it's subject to the same issues: just look at the history of water rights in the southwest U.S. Government intervention hasn't fixed that. > Given the uncertainty of the crisis situation, it is quite plausible that rich people will make panic hoarding purchases of more than they need until the crisis is over Now you're back to the original temporary situation again. Which one do you want to discuss? They're different. Also, you have now added uncertainty to the mix, which makes things more realistic, but also undermines your argument, in both the temporary and the permanent cases. If there is uncertainty about what the resource availability actually is, then a central allocation mechanism, like explicit rationing, can go wrong just as the price mechanism can; no method can guarantee success if the true facts are unknown. So just saying that the price mechanism might not work is pointless; you have to show that the price mechanism must necessarily be worse than explicit rationing.

nhaehnle 12y ago
It is very common for natural disasters to temporarily obstruct infrastructure that had previously been working just fine, and which can be restored to working order in a short period of time (under a month, say). Or perhaps you just failed to understand the obvious ellipsis? (total amount of drinkable water available in the region in the aftermath of natural disaster) > You can't both fix prices and implement explicit rationing, because explicit rationing replaces the price mechanism; Step 1: Fix the price of a bottle of water to whatever it was pre-disaster. Step 2: Institute a system whereby each household may buy at most X bottles. It's not exactly rocket science.
- pdonis 12y ago
  > the obvious ellipsis It wasn't obvious to me before, no, but now I understand what you were getting at. Btw, I did misspeak here: > You can't both fix prices and implement explicit rationing, because explicit rationing replaces the price mechanism I should have said that fixing prices, in and of itself, replaces the price mechanism; the price mechanism only works if you let the market determine the price instead of fixing it. If you intended "fixing prices" to imply that you are replacing the market price mechanism, then we don't actually disagree on that point. Sorry for the confusion on my part. > Step 1: Fix the price of a bottle of water to whatever it was pre-disaster. How do you know that's the right price? If your answer is "because that was the market price pre-disaster", then whence comes this sudden faith in markets? > Step 2: Institute a system whereby each household may buy at most X bottles. How do you determine what X is? What if it varies by household? What if some people need more water per person because of a health condition? What if... You are making the mistake central planners always make: you are assuming that whoever is rationing the water can know all the necessary information in order to ration it correctly. In the real world, this can't happen; there is too much information and no way for the central planner to get it all.
  - nhaehnle 12y ago
    Okay, seems like things are a bit clearer now. I don't think it makes a lot of sense to answer quote-by-quote. At a high level, it seems to me that our disagreement is based on a different understanding of how markets work.[0] Market mechanisms and prices are useful for guiding the long-term structure of production relations in society. In a sense, market mechanisms provide a meta-heuristics-type solution (think genetic algorithms) for problems that are very difficult to solve via other means.[1] Now, two things greatly diminish the usefulness of markets in a natural disaster crisis. First, market mechanisms tend to operate on a very large timescale (when prices rise, it takes months or years for new entrants to the market to appear). Second, the problems created by natural disasters are actually pretty straightforward. You wouldn't use genetic algorithms to solve a minimum spanning tree problem, which is more or less the precise problem you need to solve when re-establishing transportation, for example. On a more meta-note, while markets are obviously extremely useful, I don't think there's a lot of evidence that they work well when there is genuine scarcity for true essentials (such as food, shelter, water). They work well enough to provide those things at a steady rate as long as there are no shortages, but in times of shock (or, actually, if you look at the problem of hunger globally, when there are shortages) they don't seem to work so well (if by work well you mean delivering results that are acceptable to an average person's morality). [0] Naturally, I am arrogant enough to believe that my understanding is more refined ;) [1] Not necessarily because those problems are computationally hard, but because those problems are difficult to model and the input data is difficult to obtain.