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Market Optimization is a Myth

LETeller
Posts: 47
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5/2/2015 12:06:10 AM
Posted: 1 year ago
Consider a thought experiment. Let's set up a free market in a village of twenty people, but allow only two people to participate. Those two people walk away happy, those excluded from the market aren't happy at all. Nothing was optimized.

So if markets exclude some people, then nothing is optimized other than (at most) the satisfaction of those allowed to participate. Of course, those with money are allowed to participate, those without, aren't.

Let's expand our thought experiment by allowing all twenty people in the village to participate in our market.

A human heart comes up for sale. One man, a poor one, needs that heart to save his ailing six-year old daughter, his only child. Another, with pots of money, thinks the heart would make a yummy treat for his cat.

So the market goes about its mysterious work of allocating scarce resources to where there its the greatest need, based on the subjective values that they place on these items based on their ordinal sorting of all possible uses of their resources.

The poor man says "I'll give everything I have for the heart: what little money I have, my house, my collections of stuff. Everything. I just need that heart to save my little girl, who is the ONLY thing I value!

The rich man says: "hold on, I may need that heart. Wait until after lunch, and I'll be back".

For the rest of the morning, the rich man buys the items on his list, beginning with the most important: A jet plane for $30 mil, then a Caribbean island for $14 mil, then a Bugatti dealership for $8.5 mil, and so on. Having made thirty purchases of more important things, he returns to buy the heart. He slaps down $50,000, which is far more than the poor man's total worth, takes the heart, and tosses it to his cat.
Daktoria
Posts: 497
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5/2/2015 12:52:23 AM
Posted: 1 year ago
a) You're treating wealth as if it spawns out of thin air when in reality, wealth is earned.

I'm not saying all wealth is earned since some people inherit it, but ancestors earned wealth, and it's their right to distribute it as they see fit. People don't earn wealth just for others to distribute it for them.

b) Life is intrinsically meaningless. What makes life meaningful is the fact that we give it meaning. The market enables people to compete in the meanings they give to life. That way, nobody gets to dictate what the meaning of life is.

The real issue of free markets isn't what you've described here.

It's how many people become wealthy by abusing others while manipulating authority to neglect abuse. This is called crony capitalism. It's not the real deal. The solution to that is a reformation of social values, not a revolution of the economic system. We need people to respect each other for who we are as individuals on the inside that counts, not force each other to do things without consent.
Daktoria
Posts: 497
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5/2/2015 12:58:03 AM
Posted: 1 year ago
To explain, you're probably familiar with many "capitalists" accusing you of being useless, dysfunctional, or impractical in their opinion when you were growing up. Therefore, they bullied you into conforming to norms, and you were socially alienated:

a) You weren't free to actualize your potential, and

b) You were disabled from networking into the workforce.

The solution is disciplining those who accused you. What's useful is subjective. How you get things done depends on what you're trying to do. Nobody's entitled to accuse another of being useless by default. People define what's useful.

I'm assuming you're not a lazy bum here by the way who's just trying to get something for nothing. Some people don't bother applying themselves to become successful in the first place. They're just leeches.

On the other hand, crony capitalists are leeches too. They bully others around into doing their dirty work a la, "Do my homework or I'll beat you up and take your lunch money." All capitalists are not bullies though.
Chang29
Posts: 732
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5/2/2015 4:12:24 AM
Posted: 1 year ago
At 5/2/2015 12:06:10 AM, LETeller wrote:
Consider a thought experiment. Let's set up a free market in a village of twenty people, but allow only two people to participate. Those two people walk away happy, those excluded from the market aren't happy at all. Nothing was optimized.

So if markets exclude some people, then nothing is optimized other than (at most) the satisfaction of those allowed to participate. Of course, those with money are allowed to participate, those without, aren't.

Let's expand our thought experiment by allowing all twenty people in the village to participate in our market.

A human heart comes up for sale. One man, a poor one, needs that heart to save his ailing six-year old daughter, his only child. Another, with pots of money, thinks the heart would make a yummy treat for his cat.

So the market goes about its mysterious work of allocating scarce resources to where there its the greatest need, based on the subjective values that they place on these items based on their ordinal sorting of all possible uses of their resources.

The poor man says "I'll give everything I have for the heart: what little money I have, my house, my collections of stuff. Everything. I just need that heart to save my little girl, who is the ONLY thing I value!

The rich man says: "hold on, I may need that heart. Wait until after lunch, and I'll be back".

For the rest of the morning, the rich man buys the items on his list, beginning with the most important: A jet plane for $30 mil, then a Caribbean island for $14 mil, then a Bugatti dealership for $8.5 mil, and so on. Having made thirty purchases of more important things, he returns to buy the heart. He slaps down $50,000, which is far more than the poor man's total worth, takes the heart, and tosses it to his cat.

Maybe, a group of wise thinkers that have a monopoly of force, could take this heart at the tip of a bayonet. The heart could go to the person with the most connects to the wise thinkers, but for transparency, a long and expensive application process is required. Months of work by lawyers assisting with the paperwork so that the most deserving will get the precious heart. Then, the controller of the bayonet gives the heart to a cowardly lion, instead. The lion had pictures of a political ally in a compromising situation.

Or, maybe a foot race would be better.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Diqiucun_Cunmin
Posts: 2,710
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5/2/2015 11:56:38 AM
Posted: 1 year ago
At 5/2/2015 12:06:10 AM, LETeller wrote:
Consider a thought experiment. Let's set up a free market in a village of twenty people, but allow only two people to participate. Those two people walk away happy, those excluded from the market aren't happy at all. Nothing was optimized.

So if markets exclude some people, then nothing is optimized other than (at most) the satisfaction of those allowed to participate. Of course, those with money are allowed to participate, those without, aren't.

Let's expand our thought experiment by allowing all twenty people in the village to participate in our market.

A human heart comes up for sale. One man, a poor one, needs that heart to save his ailing six-year old daughter, his only child. Another, with pots of money, thinks the heart would make a yummy treat for his cat.

So the market goes about its mysterious work of allocating scarce resources to where there its the greatest need, based on the subjective values that they place on these items based on their ordinal sorting of all possible uses of their resources.

The poor man says "I'll give everything I have for the heart: what little money I have, my house, my collections of stuff. Everything. I just need that heart to save my little girl, who is the ONLY thing I value!

The rich man says: "hold on, I may need that heart. Wait until after lunch, and I'll be back".

For the rest of the morning, the rich man buys the items on his list, beginning with the most important: A jet plane for $30 mil, then a Caribbean island for $14 mil, then a Bugatti dealership for $8.5 mil, and so on. Having made thirty purchases of more important things, he returns to buy the heart. He slaps down $50,000, which is far more than the poor man's total worth, takes the heart, and tosses it to his cat.

I agree with you wholeheartedly (no pun intended).

After all, the thing with markets is that the rationing price of function gives resources to the highest-valued user. Value, or marginal benefit, is measured as the maximum amount willing to pay. Obviously, this maximum depends on income - positively for normal goods, negatively for inferior goods.

Unfortunately, tragedies like this will happen as an inevitable result. From the viewpoint of efficiency, allocating the resource to the rich man is the most efficient because it maximises total social surplus. Assuming the price structure is 1st degree price discrimination for simplicity's sake, the gains derived from transacting with the rich man was $50000 - the marginal cost of producing that unit of heart. Had it been allocated to the poor man instead, the gains would simply be The total worth of that man - marginal cost of producing that unit of heart, and the market would be considered inefficient as the total gains are not fully captured. With exceptions (externalities, public goods...), markets always operate efficiently, which also means the poor man can never save his daughter.

Efficiency overriding equity is the problem with this market, and many markets IRL, I think.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

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LETeller
Posts: 47
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5/2/2015 4:01:04 PM
Posted: 1 year ago
At 5/2/2015 12:58:03 AM, Daktoria wrote:
To explain, you're probably familiar with many "capitalists" accusing you of being useless, dysfunctional, or impractical in their opinion when you were growing up. Therefore, they bullied you into conforming to norms, and you were socially alienated:

a) You weren't free to actualize your potential, and

b) You were disabled from networking into the workforce.

The solution is disciplining those who accused you. What's useful is subjective. How you get things done depends on what you're trying to do. Nobody's entitled to accuse another of being useless by default. People define what's useful.

I'm assuming you're not a lazy bum here by the way who's just trying to get something for nothing. Some people don't bother applying themselves to become successful in the first place. They're just leeches.

On the other hand, crony capitalists are leeches too. They bully others around into doing their dirty work a la, "Do my homework or I'll beat you up and take your lunch money." All capitalists are not bullies though.

- I think you're misunderstanding the meaning here.

Markets don't assure outcomes that are essentially beneficial in any way, by any standard.

Markets, like all distribution systems, are flawed.

This isn't personal angst, I was never "abused by capitalists". The point is that we are, politically, faced with choices regarding management of the economy, in which a large number of people seem to believe that markets will create outcomes that are just.

They don't.