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Market equilibrm is not in the benefit of all

tbsp
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9/21/2016 11:27:20 AM
Posted: 2 months ago
The efficiency measure defined, for instance, in Gregory Mankiw's Principles of Economics is biased towards those with more purchasing and selling power. Therefore, market equilibrium does not result in the benefit of society as a whole.
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On page 12 of his Principles of Economics Greg Mankiw cites Adam Smith:

"Every individual"neither intends to promote the public interest, nor knows how much he is promoting it" He intends only his own gain, and he is in this"led by an invisible
hand to promote an end which was no part of his intention. Nor is it always the worse
for the society that it was no part of it. By pursuing his own interest he frequently
promotes that of the society more effectually than when he really intends to promote it"
[Pag.12, Mankiw cites Adam Smith].

Let"s see this assertion in Mankiw"s own words. In his conclusions to chapter 7,

"We showed that the forces of supply and demand allocate resources efficiently. That is,
even though each buyer and seller in a market is concerned only about his or her own
welfare, they are together led by an invisible hand to an equilibrium that maximizes
the total benefits to buyers and sellers" [pag.150].

"Smith"s great insight was that prices adjust to guide these individual buyers and
sellers to reach outcomes that, in many cases, maximize the well-being of society as a
whole" [pag.11].

"The planner wants to maximize the economic well-being of everyone in society"
[pag.145].

Isn"t this a paradox? If each one is concerned only about their own welfare, how can it
be that the well-being of society as a whole is maximized?
The answer is easy: it is not a paradox, it is false.

Mankiw"s measure of economic well-being (that is, Mankiw"s efficiency measure) does not reflect the well-being of everyone in society, but only the well-being of those with greater purchasing and selling power.
Market equilibrium is reached because buyers and sellers are concerned
only about their own benefit. Equilibrium is a dead-lock situation that divides the market
participants into winners and losers, and it generates market scarcity because it allocates
resources to winners only. Equilibrium maximizes the surplus of the winners and the
shortage of the losers. Therefore, equilibrium maximizes inequality.
As an alternative to markets and equilibrium, we propose a new target allocation of
resources where the surplus of the winners makes up for the shortage of the losers.
sdavio
Posts: 1,798
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9/21/2016 2:17:34 PM
Posted: 2 months ago
At 9/21/2016 11:27:20 AM, tbsp wrote:
The efficiency measure defined, for instance, in Gregory Mankiw's Principles of Economics is biased towards those with more purchasing and selling power. Therefore, market equilibrium does not result in the benefit of society as a whole.

If people have buying or selling power, they already have something that many others want. It's not the analysis that is biased toward them, but rather the actual power distribution in society is tilted in their favor. To formulate an analysis which recognizes the existence of something, is different from saying that it ought to remain that way forever. Charging a lower price than the equilibrium does not at all benefit the lower classes, it just creates a shortage. In other words, it artificially lowers the amount of goods produced. Likewise, it would be absurd to presume that the plight of the proletariat could be solved by manufacturing excess, unwanted goods. In this sense, the supply / demand analysis is not biased whatsoever regarding power distributions, since it merely describes a state in which there is no excess or shortage in manufactured goods.

If we could convince people to produce goods for no profit, then perhaps there would be a point in this criticism - the "supply" side of the curve would be flat. But outside of slavery, we haven't found a way to convince anyone to provide their goods or services for free unquestioningly, so economic analysis is required in order to maximize the efficiency of the transaction.
"Logic is the money of the mind." - Karl Marx
sdavio
Posts: 1,798
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9/21/2016 2:29:47 PM
Posted: 2 months ago
In a sense, the S/D equilibrium is just a "definition" of efficiency in the transactions in any system of rational actors. Thus, the only reason to reject the equilibrium is if you believe that, all other factors being equal, an inefficient system is preferable over an efficient one. There is nothing about an inefficient method of transaction which forces the power distribution to change.
"Logic is the money of the mind." - Karl Marx
Chang29
Posts: 732
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9/24/2016 9:56:59 AM
Posted: 2 months ago
Both participants in a free market exchange benefit, if there was no benefit the exchange would not occur.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
tbsp
Posts: 4
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9/26/2016 1:06:12 PM
Posted: 2 months ago
At 9/21/2016 2:29:47 PM, sdavio wrote:
In a sense, the S/D equilibrium is just a "definition" of efficiency in the transactions in any system of rational actors. Thus, the only reason to reject the equilibrium is if you believe that, all other factors being equal, an inefficient system is preferable over an efficient one. There is nothing about an inefficient method of transaction which forces the power distribution to change.

The point is the definition of efficiency. Market equilibrium divides traders into two: those who actually manage to buy and sell (successful traders) and those who do not (unsuccessful traders). Mankiw's definition of efficiency is the surplus of successful traders only. Yet, unsuccessful traders get "worse-off" because they don't get to buy or sell. Mankiw's efficiency does not take into account their "ill-being".

Thus, the outcome of the market (equilibrium) is intrinsically inequalitarian.

At equilibrium, the market is also intrinsically scarce, because it does not produce goods for the needs of unsuccessful buyers.
sdavio
Posts: 1,798
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9/26/2016 2:18:44 PM
Posted: 2 months ago
At 9/26/2016 1:06:12 PM, tbsp wrote:
At 9/21/2016 2:29:47 PM, sdavio wrote:
In a sense, the S/D equilibrium is just a "definition" of efficiency in the transactions in any system of rational actors. Thus, the only reason to reject the equilibrium is if you believe that, all other factors being equal, an inefficient system is preferable over an efficient one. There is nothing about an inefficient method of transaction which forces the power distribution to change.

The point is the definition of efficiency. Market equilibrium divides traders into two: those who actually manage to buy and sell (successful traders) and those who do not (unsuccessful traders). Mankiw's definition of efficiency is the surplus of successful traders only. Yet, unsuccessful traders get "worse-off" because they don't get to buy or sell. Mankiw's efficiency does not take into account their "ill-being".

Thus, the outcome of the market (equilibrium) is intrinsically inequalitarian.

At equilibrium, the market is also intrinsically scarce, because it does not produce goods for the needs of unsuccessful buyers.

An ideal metric of efficiency will be where the reward is equal to the amount of utility provided. So, the existence of "unsuccessful traders" is necessary - if we rewarded all actions equally, then efficient actions would not prevail over inefficient ones. If someone's engagement is "unsuccessful" or, in other words, they don't receive as much profit as they would like (or enough to justify to the work put in) then this means they need to adjust the kind of service they are selling, to one with a higher demand. The efficient market is "inequalitarian" only in the obvious sense that efficiency is preferred over inefficiency.
"Logic is the money of the mind." - Karl Marx
tbsp
Posts: 4
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9/28/2016 8:08:17 AM
Posted: 2 months ago
At 9/26/2016 2:18:44 PM, sdavio wrote:
An ideal metric of efficiency will be where the reward is equal to the amount of utility provided. So, the existence of "unsuccessful traders" is necessary - if we rewarded all actions equally, then efficient actions would not prevail over inefficient ones. If someone's engagement is "unsuccessful" or, in other words, they don't receive as much profit as they would like (or enough to justify to the work put in) then this means they need to adjust the kind of service they are selling, to one with a higher demand. The efficient market is "inequalitarian" only in the obvious sense that efficiency is preferred over inefficiency.

There is a self-reference in the utilitarian definition of efficiency.
If
efficiency is the amount of utility
and
efficiency is preferred over inefficiency
then
those who get more utility are preferred over those who get no utility at all

As I said, successful traders get profit, while unsuccessful traders get shortage. This is why the market is inequalitarian. Successful sellers get profit because their purchasing power is larger. Successful sellers get profit because their selling power is larger.
ptarkington
Posts: 17
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10/3/2016 9:50:13 AM
Posted: 2 months ago
At 9/28/2016 8:08:17 AM, tbsp wrote:
At 9/26/2016 2:18:44 PM, sdavio wrote:
An ideal metric of efficiency will be where the reward is equal to the amount of utility provided. So, the existence of "unsuccessful traders" is necessary - if we rewarded all actions equally, then efficient actions would not prevail over inefficient ones. If someone's engagement is "unsuccessful" or, in other words, they don't receive as much profit as they would like (or enough to justify to the work put in) then this means they need to adjust the kind of service they are selling, to one with a higher demand. The efficient market is "inequalitarian" only in the obvious sense that efficiency is preferred over inefficiency.

There is a self-reference in the utilitarian definition of efficiency.
If
efficiency is the amount of utility
and
efficiency is preferred over inefficiency
then
those who get more utility are preferred over those who get no utility at all

As I said, successful traders get profit, while unsuccessful traders get shortage. This is why the market is inequalitarian. Successful sellers get profit because their purchasing power is larger. Successful sellers get profit because their selling power is larger.

The benefit to society, known as the social welfare effect, is the total of the buyer and seller's profit. So, your initial statement that markets do not benefit society as a whole is flawed. The size of the seller has no effect what ever on social welfare. The idea is merely that both sides of the exchange benefit.

I do see your side of the argument. I myself do oppose oligopoly, as it does reduce the consumer surplus relative to the producer's profit in terms of social welfare.

If what we are talking about is the seller's market power, and there is a highly inelastic demand curve for their product, that is altogether different. Monopoly, in all societies minimizes consumer surplus to the greatest degree, and despite the increase in social welfare it provides through producer profit, should be extracted from the market by the dark hand of the government to ensure the game is being played fairly.
"Capitalism is the belief the wickedest of men, will engage in the wickedest of dealings, for the greater good of all of us." -Keynes
tbsp
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10/3/2016 11:23:44 AM
Posted: 2 months ago
At 10/3/2016 9:50:13 AM, ptarkington wrote:
The benefit to society, known as the social welfare effect, is the total of the buyer and seller's profit. So, your initial statement that markets do not benefit society as a whole is flawed.

No, the statement is not flawed. What is flowed is the social welfare effect :-)

The point is that in a market there are buyers who cannot buy because the price is too high. Rather than profit, those unsuccessful buyers get into starvation and shortage. They have to go without the good they wanted (starvation) by an ammount equal the price minus their ability to pay (an ammount equal to the extra money they lack to get the good).

Also, there are sellers who cannot sell, because the price is two low for their ability to sell (the costs they need to afford). Therefore, unsuccesful sellers incurr into unemployment and shortage by an ammount equal to the profit they fail to make (their ability to sell minus the price), and they cannot offer their service (unemployment).

The welfare effect takes only into account the benefits of successful buyers and sellers, those who were already better off before the market took place, but it does not take into account the shortage of the unsuccessful traders. The profit ot the successful is not the benefit of all!

We have a detailed report on the lines above at thebenevolentsocialplanner.wordpress.com
ptarkington
Posts: 17
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10/4/2016 12:03:57 AM
Posted: 2 months ago
At 10/3/2016 11:23:44 AM, tbsp wrote:
At 10/3/2016 9:50:13 AM, ptarkington wrote:
The benefit to society, known as the social welfare effect, is the total of the buyer and seller's profit. So, your initial statement that markets do not benefit society as a whole is flawed.

No, the statement is not flawed. What is flowed is the social welfare effect :-)

The point is that in a market there are buyers who cannot buy because the price is too high. Rather than profit, those unsuccessful buyers get into starvation and shortage. They have to go without the good they wanted (starvation) by an ammount equal the price minus their ability to pay (an ammount equal to the extra money they lack to get the good).

If there existed such a market, the goal of the seller would be to reduce his costs lower to increase the size of his market, and increase his profit as he is indifferent to who buys the product, he merely seeks to increase profit.

Also, there are sellers who cannot sell, because the price is two low for their ability to sell (the costs they need to afford). Therefore, unsuccesful sellers incurr into unemployment and shortage by an ammount equal to the profit they fail to make (their ability to sell minus the price), and they cannot offer their service (unemployment).

There will never exist such a seller because if a good cannot be produced at a cost below what buyers are willing to pay, the seller will choose not to produce the good. In that case, the inefficiency comes from society's loss of that good. However, society will not lose that good if it is a need because the government will provide it to everyone and we will all pay for it, called a public good.

The welfare effect takes only into account the benefits of successful buyers and sellers, those who were already better off before the market took place, but it does not take into account the shortage of the unsuccessful traders. The profit ot the successful is not the benefit of all!

If a market exists, it is because there are successful buyers and sellers. Unsuccessful traders cannot exist. Which may seem extreme on first glance, but if there is a group of people who have any willingness to pay at all, a rational agent will move to provide them with goods they seek by producing them for a lower cost than the market is willing to pay, and in doing so the rational agent will make himself better off at the same time of making the market for cheap goods better off.

We have a detailed report on the lines above at thebenevolentsocialplanner.wordpress.com

If your aim is to discredit competitive markets as an inferior way to allocate resources, you will be faced with possibly the most difficult task in all economics. Which is to say that you will have to refute centuries of proof that suggests otherwise. Even the most liberal of economists acknowledge competitive markets as the best way to allocate resources, however they do tend to be less hesitant to call for government intervention.

Now, don't get me wrong, I'm by no means a supply-sider. In fact, your belief that unsuccessful buyers exist is something I agree with. My above arguments are on grounds of pure economics with fictional players. You'll notice my Keynes quote in my signature suggests I believe greedy capitalists will not act in a way that is best for society.
"Capitalism is the belief the wickedest of men, will engage in the wickedest of dealings, for the greater good of all of us." -Keynes