A simple economics question:

[tylerdurden]

[ QUOTE ]
Seems to me like you are conflating social goods with market efficiency. The market responds to what is most in demand, not what brings the most benefit.

[/ QUOTE ]

It's the same thing. The reason you don't see it as the same thing is that each individual gets to determine what is to his own benefit, regardless of how many bureaucrats try to tell him what's good for him.

The demand of each consumer is determined by his own definition of satisfaction.

[tylerdurden]

[ QUOTE ]
But a free market society will tend to allocate more of its resources on the goods that richer consumers will buy than is warranted by any reasonable estimation of utility

[/ QUOTE ]

A free market "society" does not allocate anything. The individual traders allocate the resources. This isn't a semantic quibble, it's vital to understanding how things work. Things like "the invisible hand" are interesting metaphors but they mask what's actually happening - people interacting with each other.

[vulturesrow]

I am using the social goods term a bit loosely but its close enough. My only point is that the market doesnt always provide what a majority of people would agree is probably more beneficial to society as a whole. The AIDS drug vs. impotence drug was a good example, any race issues notwithstanding. I think most people agree that it is more important that we find a cure for AIDS rather than the cure of impotence. But yet we have two major drugs on the market now for erectile dysfunction and although we have made strides in the field of AIDs medicine. Granted, its a bit of a forced comparison due to the relative complexity of the two problems. But the basic point is that peoples individual self-interests dont always translate to what might be the best public utility. Note I am not making a value judgement on this point, just pointing out what I see as a possible weakness in the free market system.

[phlup]

[ QUOTE ]
[ QUOTE ]
But a free market society will tend to allocate more of its resources on the goods that richer consumers will buy than is warranted by any reasonable estimation of utility

[/ QUOTE ]

I dissagree, the % of the population that is "rich" isn't huge so I dont believe this to be true.

[/ QUOTE ]

Don't look at it as a micro question, think of it as a macro one. Look at the world, a disproportunate amount of capital is centered in the US. Along with that we consume a disproportunate amount of the worlds resources.

Probably 85% of Americans are "rich" when compaired to the rest of the world so it's hard to see this at work.

So mrgold is correct. Why are we using the world resouces to produce DVD players while people are starving? Simple, because in a free market, people work to benefit themselves and there is no monatary benefit in feeding starving people.

[FishHooks]

A Free Market doesn't really occur in many coutries so I was just using America in my posts. But I do agree in a sence that we are richer than the rest of the world and have much of the capital and resources.

[bobman0330]

[ QUOTE ]

[ QUOTE ]
The market responds to what is most in demand, not what brings the most benefit.

[/ QUOTE ]

But this goes back to the original question: is the market price truly a measure of what is 'most in demand'?


q/q

[/ QUOTE ]

I think that the market price very accurately measures the demand for goods among people who can afford them. E.g., a poor guy may really want a yacht, but the market doesn't really care.

[Darryl_P]

[ QUOTE ]
I think most people agree that it is more important that we find a cure for AIDS rather than the cure of impotence. But yet we have two major drugs on the market now for erectile dysfunction and although we have made strides in the field of AIDs medicine.

[/ QUOTE ]

Conclusion: what people SAY is important to them isn't what's REALLY important to them.

Recommendation: ignore all the jive and just pay attention to peoples' actions because that's where the truth lies.

[mrgold]

[ QUOTE ]
[ QUOTE ]
Seems to me like you are conflating social goods with market efficiency. The market responds to what is most in demand, not what brings the most benefit.

[/ QUOTE ]

It's the same thing. The reason you don't see it as the same thing is that each individual gets to determine what is to his own benefit, regardless of how many bureaucrats try to tell him what's good for him.

The demand of each consumer is determined by his own definition of satisfaction.

[/ QUOTE ]

The abillity of capitalism to allow each individual to identify his own preferences and to then have the economy respond to those preferences is one of the most beautiful features of capitalism. But there is no way you can argue that a capitalist economy takes into account each individuals preferences equally (obviously firms care more about satisfying demand of consumers who can pay more). And failing that it is not possible that the free marktet promotes the maximum social good. We have poor people who dont have healthcare or enough food yet some resources in our economy are still devoted to the production of lawn ornaments (where they undoubtedly produce less utillity).

There are also many other reasons that market efficiency is not equivalent to social good...and I am especialy curious how you would fit externalities (pollution, traffic, etc...) into that veiwpoint.

[tylerdurden]

[ QUOTE ]
But there is no way you can argue that a capitalist economy takes into account each individuals preferences equally (obviously firms care more about satisfying demand of consumers who can pay more). And failing that it is not possible that the free marktet promotes the maximum social good.

[/ QUOTE ]

Free market capitalism meets a higher portion individuals' personal satisfaction goals (and does so more efficiently) than any other allocation system. No economic allocation system is magically going to create more resources. Resources are scarce, and have to be allocated somehow.


[ QUOTE ]
We have poor people who dont have healthcare or enough food yet some resources in our economy are still devoted to the production of lawn ornaments (where they undoubtedly produce less utillity).

[/ QUOTE ]

Can you come up with a system that allocates resources in such a way that will fix this problem? Many busybody economic tinkerers have tried, and so far they've all failed. I won't even stipulate that your method preserve individual freedom. Let me know when you come up with something.

[ QUOTE ]
There are also many other reasons that market efficiency is not equivalent to social good...and I am especialy curious how you would fit externalities (pollution, traffic, etc...) into that veiwpoint.

[/ QUOTE ]

"Externalities" is an arbitrary concept that is brought up to discredit free markets and support government intervention in all sorts of things. Pollution is just like any other liability - sue the pants off of the offenders, voila, it's instantly internalized. It becomes an "externality" when you have bogus corporate welfare scams that give "pollution credits" and other legalized free passes to polluters. Water pollution is only an externality because nobody owns rivers in the US (note that the biggest water polluters in the US are municipal water treatment systems).

Traffic is a *government-caused* problem, not an externality. If roads were privately owned (or even if the government ran its own road system but didn't artifically cripple private road projects), you'd see much, much smoother traffic flow. Government undersupplies road infrastructure, then you want to blame the market, in order to justify further government intervention?

[Triumph36]

[ QUOTE ]
[ QUOTE ]
But there is no way you can argue that a capitalist economy takes into account each individuals preferences equally (obviously firms care more about satisfying demand of consumers who can pay more). And failing that it is not possible that the free marktet promotes the maximum social good.

[/ QUOTE ]

Free market capitalism meets a higher portion individuals' personal satisfaction goals (and does so more efficiently) than any other allocation system. No economic allocation system is magically going to create more resources. Resources are scarce, and have to be allocated somehow.


[ QUOTE ]
We have poor people who dont have healthcare or enough food yet some resources in our economy are still devoted to the production of lawn ornaments (where they undoubtedly produce less utillity).

[/ QUOTE ]

Can you come up with a system that allocates resources in such a way that will fix this problem? Many busybody economic tinkerers have tried, and so far they've all failed. I won't even stipulate that your method preserve individual freedom. Let me know when you come up with something.

[ QUOTE ]
There are also many other reasons that market efficiency is not equivalent to social good...and I am especialy curious how you would fit externalities (pollution, traffic, etc...) into that veiwpoint.

[/ QUOTE ]

"Externalities" is an arbitrary concept that is brought up to discredit free markets and support government intervention in all sorts of things. Pollution is just like any other liability - sue the pants off of the offenders, voila, it's instantly internalized. It becomes an "externality" when you have bogus corporate welfare scams that give "pollution credits" and other legalized free passes to polluters. Water pollution is only an externality because nobody owns rivers in the US (note that the biggest water polluters in the US are municipal water treatment systems).

Traffic is a *government-caused* problem, not an externality. If roads were privately owned (or even if the government ran its own road system but didn't artifically cripple private road projects), you'd see much, much smoother traffic flow. Government undersupplies road infrastructure, then you want to blame the market, in order to justify further government intervention?

[/ QUOTE ]

You're delusional, right? Just a few months ago you were arguing eminent domain is government theft, now you want there to be more roads, somehow? I'd like to hear a well thought out explanation of this - it appears completely impossible, unless said private roads were so expensive that demand went way down, and consequently so would supply.