Most of us really are income satisficers, not income optimizers. That is, if you offered me a $350k/year salary to do my current job (grad-student), I would end up distributing most of that money to charity. Not that charity isn’t great, but you could have just given the money to charity yourself instead of taking the wasteful intermediate step of paying me.
Why is this true? Because we train ourselves to make it true: frugality is a large component of financial responsibility. For instance, I’m so used to living at a grad-student’s standard of living that money above and beyond the cost of that standard of living is pure luxury: I spend it on frivolous bullshit or put it in my retirement account. I’m fairly sure I’m the only 24-year-old grad-student with a Roth IRA topped-up for 2012-2014, and this is because when I got extra money, it went into the retirement account rather than towards consumption, or even towards extra charity.
HOWEVER (yes, the capital letters are justified there), there is an IMMENSE component of class privilege in this whole subject. I am literally the only person I know with this much money at my age who isn’t working for a tech company! Other grad-students have far less money, and everyone who didn’t major in Computer Science from my undergrad is semi-impoverished and has student loans to pay off.
And then we talk about the people who came from such systematic disadvantage that they never even got to the point of a university education in a potentially lucrative upper-middle class field in the first place. There are millions of such people, far more than there are of us computery types, even if we restrict ourselves to only consider First World countries. Income inequality is high, in some places higher than it ever has been, and rising all across the developed capitalist world. Public support for things like medicine, housing, and education is falling, with the result that people are finding themselves having to dip deeper and deeper into their private funds just to make it through life.
If we want to talk about how money is awesome, we should also be talking about how to make sure that people who aren’t like us actually get some of it. I mean it: no amount of Tumblry “checking our privilege” is actually going to make the people who work in, say, our favorite food trucks or hole-in-the-wall falafel joints, anywhere near as wealthy as us. We’ll need to actually exercise our intelligence for that.
I’m fairly sure I’m the only 24-year-old grad-student with a Roth IRA topped-up for 2012-2014, and this is because when I got extra money, it went into the retirement account rather than towards consumption, or even towards extra charity.
This is true for me as well (I’m slightly older), but I also have some sources of income that I expect most graduate students don’t.
If we want to talk about how money is awesome, we should also be talking about how to make sure that people who aren’t like us actually get some of it. I mean it: no amount of Tumblry “checking our privilege” is actually going to make the people who work in, say, our favorite food trucks or hole-in-the-wall falafel joints, anywhere near as wealthy as us. We’ll need to actually exercise our intelligence for that.
But one of the main reasons why money is awesome is because spending money is rivalrous. My primary expensive hobby is art collecting. I have the number of original paintings I have because I put up more money than the other people bidding on them, and if everyone had more money, then the primary effect would be that the prices increase.
When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It’s quite possibly the best barbecue in the US, and they’ve sold out of brisket every day that they’ve been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line.
To the economist in me, this is a terrible setup. They could spend their customers’ extra money; they can’t spend their customers’ wasted time. They should auction off the barbecue, which will raise prices and lower wait times. But it’ll also get rid of the communal experience of waiting in line, and less of their customers will be students and more of them will be engineers. The way to get more money to ‘food trucks’ is to embrace the inequality that makes engineers that will bid on barbecue.
When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It’s quite possibly the best barbecue in the US, and they’ve sold out of brisket every day that they’ve been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line. To the economist in me, this is a terrible setup. They could spend their customers’ extra money; they can’t spend their customers’ wasted time. They should auction off the barbecue, which will raise prices and lower wait times.
The marketer in me suggests you’re off the mark. How do you know that Franklin’s bbq is the best in Austin? Because there is always a line and it sells out. The wait in line IS what differentiates their product, and its how people judge the quality in such a subjective market.
I imagine if you start an auction for the bbq, what you’ll find is that in a few years you are making less money, as instead of being a good bbq experience that people drive in from all over Texas to try and tourists flock to, you’ll be just another good bbq place in Austin.
I’m aware, hence the hedging. I am not a food critic, and am relying on the judgments of food critics.
It’s more complicated than it looks
Yes, people rage at high prices, especially when demand jumps and supply falls. And I’m sure that the status threat of the price rising or being priced out makes it worse than just the scarcity.
But the right answer probably isn’t lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck. The right answer almost certainly is efficiency.
But the right answer probably isn’t lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck.
This confuses me. Surely if people are made less unhappy by a luck-based distribution, that’s an argument in favor of a luck-based distribution?
I’m not sure if you typed that backwards or not. I can think of plausible reasons for people to hate both luck and merit distributions.
So you did mean it as written. I’d kind of like to see the studies, if you have a link. I don’t find it surprising, exactly, but it’s not a question I’d considered before, and it seems like it would be amusing misanthropy fuel.
Maybe people don’t actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.
Distributions based on merit (that we don’t recognize instinctively) simply seem unfair. Distributions based on tranparent luck seem like everyone at least had a fair chance.
Maybe the real problem with money is that it usually belongs to people we personally don’t know, so we don’t know what exactly they did and why exactly should we respect them, so it feels like they really don’t deserve the money. And the rest is rationalization.
Maybe people don’t actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.
This is made worse by money anti-correlating with status when all other variables are controlled for, i.e., given two otherwise comparable jobs, the lower status one will pay more.
The right answer to which problem exactly? Temporary shortages of high-status goods aren’t exactly a burning issue that really needs to be solved externally.
Locally, the Barbecue Distribution Problem. Globally, the Efficiency Problem. Imagine Franklin Barbecue as one of the broken windows of inefficiency; yes, it only wastes tens of years per year, and they’re probably only losing tens or hundreds of thousands of dollars in revenue per year. But efficient markets in barbecue help make efficient markets in other things more reasonable.
I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not “the right answer”. For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.
Globally, the Efficiency Problem.
What is that problem and, again, what does it have to do with temporary shortages of high-status goods? And I’m less than convinced that the broken-windows theory applies to global efficiency. In any case, if so, wouldn’t you want to start with government, instead? X-/
To give a trivial example, creating such a temporary shortage is popular marketing trick (if the company can pull it off, of course).
I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not “the right answer”.
I think that (3) is not a good assumption to make, and I wouldn’t word it that way. I know lots of artists who have never heard of sealed second-bid auctions (also known as Vickrey auctions), despite those auctions being the optimal way to sell artwork or commission slots online. Are they entirely stupid? No; they just have limited knowledge. Similarly, the barbecue auction problem has a potentially nontrivial complication: there are 5 different varieties of meat sold by the pound (and each variety of meat can either go into by-the-pound orders or sandwich or plate orders), and many people would like either their entire order, or none of their order. How do you find the optimal set of orders to fulfill, and what price do you charge people for those orders, in a way that doesn’t skew their bidding incentives?
It’s a solvable problem, of course, but it’s the sort of problem you’d want to hand off to an optimization guy to solve for you, especially if your core competency is barbecuing meat.
For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.
It might- it’s possible that once people could get it by paying more money, instead of more time, it would lose some of the specialness and people would go there less. But it’s not clear to me that they would ever reach the point where they don’t sell out of meat, and maybe they have to be open for dinner too instead of just lunch.
But it could also be that the steady-state long-term price of their brisket is $40 a pound, and they’ve been selling it at $17, and that it is a fantastic thing over the medium term.
(Also, I feel I should mention, since it may not have been obvious: they do allow pre-orders, if you’re willing to pre-order by about a month. The amount of pre-orders they allow is obviously capped, so that there’s still BBQ available day-of. Auctioning off meat should start as a small percentage of their total quantity moved as a test, and then expanded or contracted as desired. So long as some of it is available by waiting, it is unlikely to lose the popularity.)
What is that problem and, again, what does it have to do with temporary shortages of high-status goods?
Basically, not enough people thinking like economists.
Well, then, I see an excellent opportunity for you. You mentioned that they might be “losing tens or hundreds of thousands of dollars in revenue per year”—surely if you go talk to them and point it out, they’ll be glad to pay you some of that surplus that they are leaving on the table.
In the best case you’ll earn a fair chunk of money and make friends in the BBQ business. In the worst case you’ll learn a valuable lesson why theoretical economics doesn’t apply to real life too well :-)
Basically, not enough people thinking like economists.
That’s complicated. I understand what you are trying to say, but “thinking like an economist” is not an unalloyed good. For example, consider that economics (especially macro) is really bad at forecasting.
If the availability of their product to low-income people is a priority for the current owner, it might be possible to maintain that while raising cash prices by offering menial temp work (such as dishwashing) in exchange for store credit. This is a well-known strategy among restaurants looking to settle accounts with someone who has already eaten but proves unable to pay; the innovative part would be offering a more favorable rate of exchange, and work first for food later.
If jobs are scarce, the restaurant should already have enough dishwashers. Since the restaurant can’t temporarily fire one of its existing dishwashers for a week in order to have the nonpaying customer wash dishes, it’s hard for the restaurant to recover the money in free labor from the customer. It only works if the restaurant happens to have a job of the right length available I’d expect that to be pretty unlikely. Better just call the police. As a bonus, if you call the police you don’t create perverse incentives for more people to stiff you on the bill in the future.
I realize your version of the story doesn’t include this, but I’ve often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you’re in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)
Of course it’s less efficient than hiring an equivalent number of professional dishwashers; the point is to extract more value from the customers by having them choose between paying extra or doing marginally useful work, rather than standing in line.
I realize your version of the story doesn’t include this, but I’ve often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you’re in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)
I can’t speak to whether there are any real instances of such a thing happening (the story is only vaguely familiar, I may not even have heard it before,) and I suspect it’s more likely than not apocryphal. But the answer to “if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process?” would be “because a single specimen does not invalidate a selection process that deals in generalities.” The application process is an attempt at sorting prospective workers to select those who are most likely to be valuable to your business, but that’s not to say either that some duds won’t get through (people routinely make it through application processes only to be fired for poor performance, after all,) or that a less stringent selection process cannot induct good workers.
The way to get more money to ‘food trucks’ is to embrace the inequality that makes engineers that will bid on barbecue.
It’s not exactly bidding, but I happened to read an article this morning about the $4 artisan toast available in a certain San Francisco coffeeshop, which seems to largely fit the bill. Yet about half the article was taken up by tedious kvetching about how the Bay Area tech industry is driving up the standard of living.
One could argue (and indeed I largely agree) that this ignores the artisan toastmaster side of that economic equation, or raise any number of other objections, but that’s not the point. The point is that this is a tough political sell.
(Statement of conflicting interest: I am in fact an exploitative Bay Area techie.)
(Statement of conflicting interest: I am in fact an exploitative Bay Area techie.)
The Marxist in me wishes to point out that if you’re part of the tech salariat rather than the VC class or real-estate rentier class, you are not in fact exploitative. The fact that the Bay Area confuses “high productivity worker” with “exploitative capitalist” is one of its larger collective errors of thinking.
In the wage / rent / interest model, the skilled person’s salary should probably be modelled as a mix of wage and rent.
The wage in its pure form is what a completely replaceable employee gets. The fact that the employee is completely replaceable will drive the wage down to the level where it barely covers the expenses to survive. Of course the expenses are different at different places, so the wages will reflect that, but that additional money just goes through you, and at the end you don’t benefit from it.
The rent in its pure form is what you get for auctioning a use of a scarce resource (such as land). An intelligent person with mathematical skills good enough to work in IT is in some sense a scarce resource. They can be replaced (but you can also move from a piece of land to another piece of land), but it’s difficult, and there are not enough skilled people for every employer’s every whim. The employers are competing among themselves, and this creates the rent. -- If you could somehow separate your talent from your person, and send the talent to the work while you stay at home and have fun, that would be a rent in its pure form. But because it doesn’t work this way, your wage and your rent are connected together.
And the interest in its pure form is money making another money. Which you can achieve by investing your rent in an index fund. So a techie can become an evil capitalist, too; it just doesn’t happen automatically and requires some strategic thinking.
Ah, that was a pleasant bit of reminder. Thank you.
(Though I did mention I have a maxed-out Roth IRA. I very much am trying to become an evil capitalist, on grounds that within this system it is my only rational move, should I desire to do anything other than work for a minimum subsistence. I still want the system changed and overthrown.)
The toast is Josey Baker Bread (yes, that’s actually his name; short documentary here) and it really is that good. By which I mean, as another exploitative Bay Area techie, I’ve paid that price at The Mill more than once and I felt it was worth it.
The toast only manages to be worth four dollars to you because four dollars is worth less to you than to poorer people. (At least in the sense of how much you would care if you lost four dollars and what you would be willing to do to get another four dollars).
Some customers don’t have extra money, but do have extra time. (And they can’t easily just convert the extra time into money.)
Yes, but when you have more people who want to be customers than who are customers (as is implied by selling out of stock before you run out of line), the question is “who do you exclude?”
One way is exclude people randomly. This gives everyone involved a sense of fairness, but no sense of control- either they get lucky, or they don’t. Another way is to exclude people by time preference. If they aren’t willing to wait, then they aren’t going to get any. A third way is to exclude people by cash preference. If they aren’t willing to pay the price, then they aren’t going to get any.
Generally, the only option that benefits the supplier is the last one, and thus it’s probably the one that they want to take. There are a few counterexamples; one example that frequently comes up here is concert tickets for young female singers. There are generally two kinds of fans that go to those concerts: young girls who enjoy the music and older men who enjoy the show. The older men are generally willing and able to pay more, but not as willing and able to wait in line. It’s unlikely that the optimal experience for all involved is for all of the tickets to go to the older men, and so they might parcel out tickets to different venues in the hopes that they will go to different people while still increasing revenue.
If they raise the price of the barbecue until the number of buyers is small enough to eliminate the line, their pricing will be seen as unfair and this will have a long term affect on their ability to retain customers. While barbecue could produce more profit being sold to rich customers, other more plentiful items need to be sold to both poor and rich customers to maximize profit. And if you lock poor customers out of the barbecue, they won’t come in for the other items.
Furthermore, it would be rational for poor customers not to buy the other items because of the transaction costs in having to discover which items are priced for rich customers and which aren’t. The store could do slightly better by pricing all items for rich customers rather than just the barbecue, but even that may produce less profit than keeping the price of the barbecue low and having more customers for the other items in the store.
Another possibility is that people get tired of eating barbecue too often and you need to have customer turnover. If you price the barbecue high enough that exactly the number of rich customers arrive that will buy all the barbecue, in a week from now those customers will be tired of barbecue and there won’t be other customers to replace them.
Sure. But consider airlines, and the revenue management they do, as a contrast.
The basic problem is that there is no single price-per-seat at which it is profitable to fly a plane. Imagine the demand curve as something like $1000/x, where x is the number of tickets sold on the plane. Regardless of the price you pick, your total revenue is going to be $1000, and if the plane costs $2000 to fly, you can’t pick a single price for every ticket such that the plane is profitable to fly.
But suppose you could offer different customers different prices. The person willing to pay $1000 is charged $1000; the person willing to pay $500 is charged $500, the person willing to pay $333 is charged $333, and the person willing to pay $250 is charged $250. Now you’ve got a plane in the air, and $83 in profit (and another person paying $200 would get you up to $283 in profit). But this required you knowing which customer was willing to pay what, which is generally done by time-segregation (the amount of time you book the flight in advance, combined with the number of seats left on the plane) which is itself determined by sophisticated modeling.
There doesn’t seem to be a public outcry about revenue management for airline tickets. Perhaps this is just because people don’t understand what’s going on underneath, or adjusting prices with time feels appropriate in a way that adjusting prices with supply doesn’t, or because it’s been this way for ~30 years and people are used to it now.
If you price the barbecue high enough that exactly the number of rich customers arrive that will buy all the barbecue, in a week from now those customers will be tired of barbecue and there won’t be other customers to replace them.
This is not a problem for auctions, because the price drops when the demand drops, so long as the minimum price is set so that the market always clears.
Analogically with the airlines, the current model should be the “economy class” barbecue, and there should be a new “business class” barbecue—extremely expensive, but without having to wait.
Preferably with some additional differences—sitting in a separate room, with pleasant music and paintings on the wall—to make it easy to rationalize (by both kinds of customers) it as “paying extra money for extra luxury” instead of “paying extra money for cutting in line”.
the current model should be the “economy class” barbecue, and there should be a new “business class” barbecue—extremely expensive, but without having to wait.
That model is used by Disneyworld and other theme parks. You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.
You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.
This isn’t actually the case at the Disney park in California (not familiar with anywhere else). There are different season passes, but the premium ones just let you get in on weekends and holiday days and what not.
They do have “fast passes” but those are available to anyone- you go to a kiosk and get an appointment to come back to the fast-pass line at some later time.
Legoland, for example, sells a Premium Play Pass which gives you “front-line benefits”. Universal sells the Express Pass which allows you to “skip the regular lines”.
Disney, I think, is more wary of PR problems, but still you can buy the (very expensive) “VIP tour” which, as I understand, will allow you to ignore all lines.
Customers prefer constant prices. Aside from the perceived unfairness, there are, again, transaction costs. Any time spent by customers trying to figure out how to get the lowest price is still a loss.
Airlines get away with it because airline seats are in limited supply, making it a seller’s market. The buyers have to take whatever the airlines give them. There’s certainly a fair degree of public outcry about it; the fact that there isn’t more is because of a combination of people not understanding it, the fact that most people only buy airline tickets occasionally, and the fact that there’s nothing the public can do about it.
Customers prefer predictable prices. They don’t have to be constant.
E.g., if tickets for an event are $15 in advance and $25 at the door, and this is stated clearly up front, most customers are OK with that… we can plan early and save $10, or we can keep our options open and pay a premium for that privilege.
Airlines get away with it because airline seats are in limited supply, making it a seller’s market. The buyers have to take whatever the airlines give them
On net, airlines lose money. In recent years, it seems to be mostly because of decreased demand (due to terrorism fears and TSA harrassment of passengers), and for decades it’s been because of price wars between airlines. I don’t think this is a market best described as a “seller’s market.”
That’s a very… incomplete prior. Customers also prefer cheap prices. Customers prefer (a lot!) the feeling that they got a deal and bought something on sale.
I also don’t see what’s special about airlines. Pretty much every business would love to price discriminate. Many do through a variety of methods. For example, supermarket coupons are a classic form of price discrimination.
But one of the main reasons why money is awesome is because spending money is rivalrous. My primary expensive hobby is art collecting. I have the number of original paintings I have because I put up more money than the other people bidding on them, and if everyone had more money, then the primary effect would be that the prices increase.
This assumes that a) there is a fixed supply of original paintings, and b) the demand for original painings is income inelastic. Admittedly, I’m not an expert on the art market, but my intuition is that the opposite is the case on both counts: as incomes rise, I would expect people to spend a larger percentage of their income on luxary goods such as art. If this is the case, then, yes, everyone having more money would indeed cause the price of original paintings to go up, but they would rise at a faster rate than less elastic goods, which would cause production of said paintings to go up, which would drive prices back down; the net effect is that more people have more paintings.
I decided to not elaborate on that because the second-order effects depend on why everyone has more money. If it’s because everyone is more productive, then there’s also lots more art floating around, because the artists are also more productive. I do agree that people who are richer spend more money on luxuries like art, but it’s not clear to me that all ways of giving people more money actually make more rich people.
But even if there’s a bunch more art floating around, there is a fixed supply of the best original paintings, and those will still go to whoever wants to spend the most money at art auctions. (Of course, best is subjective, and so on, but that’s part of the point of using auctions.)
we should also be talking about how to make sure that people who aren’t like us actually get some of it.
“Some” of it they generally do. But if you’re going for equality, do note that people are usually paid for the value they produce and that individuals’ capability to produce value differs GREATLY. Even if you control for things like socio-economic status.
I half-agree. I’m actually starting to believe that factors like trade, industrial policy, and public regulation of economic rents and public goods (take the preceding concepts apolitically, for the moment, please) have more to do with our current economic crises than any notion of individual “merit”. That’s not to say there’s no such thing, merely that in particular, policies regarding trade, industry, and economic rent seem like much stiffer variables than the relatively loose factors of individual work-ethic or education, or even things like national work-hours.
For instance, a country that exports large amounts of capital-intensive goods while strongly regulating its financial sector (say, current day Australia or Germany) seems to be able to afford uneducated individuals, expensive social programs, or short work hours much more easily than a country that theoretically has higher per-hour productivity but suffers a trade deficit and has largely financialized its economy (say, current day America or the UK).
What we end up with is that America and the UK suffer massive income inequality, while Australia and Germany are more equal and stable—even though they’re all First World countries with their own top-level educational institutions, labor expertise, and companies. A theory which treats macroeconomic policy as a stiffer (more strongly predictive) variable than individual/company-level merit therefore seems more likely.
I’m actually starting to believe that factors like trade, industrial policy, and public regulation of economic rents and public goods … have more to do with our current economic crises than any notion of individual “merit”.
I don’t understand what do you mean—I can’t see any connection between “individual merit” (and by “merit” do you mean the productive value of a person?) and current economic crises.
seems to be able to afford uneducated individuals, expensive social programs, or short work hours much more easily
I don’t understand that either. It’s not that, say, Germany can afford a more generous welfare system than the US—after all per-capita GDP is higher in US than in Germany—it’s just that Germany chooses to reallocate more of the wealth produced in this way.
while Australia and Germany are more equal and stable
Equality isn’t a good yardstick—the old USSR had much more equality than any Western country. And I don’t see the stability you’re talking about. Stable in which sense?
Under the conventional economic definition of value, compare how much value is produced e.g. by successful start-up founders compared to a low-IQ guy who is on welfare and will stay there for the rest of his life.
Or, say, compare the value produced by J.K.Rowling to the value produced by an airport TSA agent.
Was this downvoted only due to antipathy for startups*, or for some other reason? It seems true in general. I’d love to hear from whoever downvoted it (or agrees with the downvote).
*Which I somewhat share, so no disparagement intended there.
Individuals are usually paid according to the laws of supply and demand. Value has little to do with it. Medical professionals supply almost infinite value to the people whose lives they save, but are not as well paid as financiers who do not produce anything noticeable.
Eh, probably not what he had in mind, but it’s certainly possible to make money doing things which have negative net value. You just have to do something which some people want enough to pay you for, and other people really want you not to do. As long as the people who want you not to do it can’t prevent you from doing business, you can make money dealing with the people who want you to do it, even if the negative value to the people who want your business to stop is greater than the positive value of the people who want it to continue.
To use an example which was already on my mind, suppose that the people playing drums in the New York subway system (of whom there are many) mostly irritate rather than entertain people. Say that a tenth of the crowd is willing to pay them for their music, four tenths are indifferent, and the other half of the crowd would rather pay them to stop. But the people who want the noise to go away can’t pay them to stop, because even if they could cooperate with each other in order to provide a greater incentive than the people who’re willing to pay for music, it would just encourage people to blackmail them by showing up and getting paid to not play music.
When a business has both negative and positive demand from different people, it generally takes much more difficult coordination for the people with negative demand to influence the business than positive demand, so the two often do not cancel properly.
it’s certainly possible to make money doing things which have negative net value.
Negative net value aggregated over a sufficiently large number of people, e.g. the whole humanity? Sure, it’s easy and very widespread. Basically you’re talking about anything with a large enough negative externality. A favorite theme of environmentalists, by the way.
Haven’t the examples I have given covered that? There can be moderate demand for high-value givers and moderate demand for no-value givers. Also, value doesn’t tell you much about supply.
People who are consistently mistaken about what they are getting for their money tend to lose over time if not their willingness then their ability to pay.
No, they have not. I agree that, of course, supply and demand matter. What I don’t agree with is your claim that “Value has little to do with it”. Not to mention that “financiers” not producing “anything noticeable” isn’t really relevant to anything.
If you want to find examples of situations where people’s income is not dependent on the value they provide, the easiest direction to look is direct power, for example government power.
Surely the easiest would be to look at someone with measurable economic value that happens to be negative.
Also, if TheAncientGeek is a pure though concealed troll—as another recent comment would in fact suggest—then people should stop responding and just downvote.
Also, if TheAncientGeek is a pure though concealed troll—as another recent comment would in fact suggest—then people should stop responding and just downvote.
I don’t have an opinion on whether TheAncientGeek is a troll, but speaking generally, outed trolls are pretty harmless and can be countertrolled for fun.
Demand has to do with value to whoever’s paying. This can be very different from value to society overall. If a doctor saves your life then (aside from the effort and cost of doing it) that’s a substantial gain to the world as a whole. If a hedge fund manager in charge of your money makes you $10M richer without adding anything to the overall size of the economy, then the value to you may be comparable to that of saving your life (kinda) but the value to the world is rather close to zero.
Value to employers is surely correlated somewhat with value to society, but they’re far from the same.
Demand has to do with value to whoever’s paying. This can be very different from value to society overall.
I don’t think I understand your point. Society is perfectly capable of paying for the “value to society overall”, theoretically that’s what the government budget is for.
Yes, sure, I can imagine the creation of some value that’s so widely distributed in so tiny pieces that no single entity wants to pay for it, but so what?
I may have misunderstood the thrust of your argument (beginning “if you’re going for equality, do note...”) but it looks to me as if at least part of what you’re saying is that much of the inequality we presently see is just and right and good, because what’s happening is that people are being rewarded in proportion to the value they create. (Which might be just and right and good (1) because that means people are getting what they deserve, and/or (2) because it’s a good thing for there to be strong incentives to create value.)
I agree that there’s a lot to be said for inequality proportional to created value. But if, as seems to me to be the case (and as I think TheAncientGeek was arguing, albeit somewhat trollishly), (a) people get rewarded not for actual value created but for value delivered to the people who pay them, and (b) these two can (and often do) diverge sharply—well, then, I think the argument becomes very much weaker: the existing inequality is less in accordance with actual good done, and less something that we want to incentivize more of.
Now, we should still expect some correlation between value to society and value to employers. And, indeed, society is capable of paying for value-to-society, and that that’s something governments can and should and sometimes do do. But if you look around at who gets paid most and who least, I have to say the correlation between value created and reward received seems to me … not that great.
I accordingly suggest giving this particular argument against trying to reduce inequality less weight than one might otherwise be inclined to give it. (Still some, for sure, and in particular this still seems like a decent argument against outright communism. But, e.g., Scandinavia seems to be doing well enough to suggest that having somewhat less inequality than eli_sennesh encounters in California might work just fine.)
Incidentally, if whoever downvoted my earlier comment (whether Lumifer or someone else) would like to explain why they found it worthy of downvoting rather than (only?) counterargument, I’d be interested and grateful.
much of the inequality we presently see is just and right and good, because what’s happening is that people are being rewarded in proportion to the value they create.
My position is weaker: I don’t make claims about what is “right and good”. It’s really an observation that different abilities of people to create value will “naturally” lead to inequality unless someone (like a government) takes explicit active measures to counteract this.
people get rewarded not for actual value created but for value delivered to the people who pay them
I don’t know what “actual value” is. I treat value as subjective—different people can and do assign different value to the same thing. For the same reason I find “value to society” a suspect concept.
whoever downvoted my earlier comment (whether Lumifer or someone else)
I generally don’t up- or down-vote comments in threads in which I participate. Specifically, I didn’t vote on any comments in this thread.
It’s really an observation that different abilities [...] will “naturally” lead to inequality
Then yes, I agree with that.
I treat value as subjective
Me too. What I wrote should be regarded as shorthand for something like this: “net value to society, which of course different people will assess in different ways; I have mine, Eli has his, Lumifer has his or hers, etc. I expect these different assessments to be similar enough that it isn’t worth filling this discussion with metaethical digressions about how different people have different values”. Perhaps there’s some way I could have put it that wouldn’t have given the impression I was talking about magical Objective Real Moral Value without filling the thread with metaethical digressions, but I didn’t happen to spot one :-).
For the same reason I find “value to society” a suspect concept.
I’m not sure I understand this. It looks to me as if the following two questions are basically independent: (1) Is there one true way of assessing value, that isn’t dependent on any particular valuer’s values? (2) Is there, for typical ways of assessing value, a meaningful way to aggregate costs and benefits to lots of different people into an overall “value to society”? I answer “almost certainly no” to #1 but “yes, at least roughly” to #2.
I generally don’t up- or down-vote comments in threads in which I participate.
The obvious answer is: Make as much money as you can, retire early, and then spend your time solving this problem.
For example, you could start giving poor people free programming lesssons. Or even donate them computers. Or think about something smarter and more effective than this.
For example, you could start giving poor people free programming lessons.
I’ve seen this suggestion elsewhere. I’m all in favor of it, but it kind of bugs me anyway. The assumption is that most people can learn to program (or do other forms of IT) if taught. I don’t think that’s the case. Programming well is hard. IT pays reasonably well because good IT people are hard to come by, and I don’t think lack of access to training or facilities is the reason. Certainly not since OSS became widespread.
Any widespread solution to poverty has to work for people that don’t have hacker-natures or Mensa-class IQs.
Yeah, it’s a solution of type “pick a few people who are easiest to save, and save them, ignoring the rest”.
It’s worse than solving the problem globally; and it’s better than doing nothing—which is what most people will do; including most of those who like to think about global solutions. It’s far from optimal. It’s also something that one can do as an individual—so it can be used as a backup plan is case no better idea comes around.
I don’t think lack of access to training or facilities is the reason
Assume that 1% of people could become good programmers. If we trained (or offered training to) 10x as many people, we would still end up with 10x as many programmers.
I grew up with computers in my home; I had a programmable calculator in middle school; my high school offered programming courses; my family could pay for me to go to a very strong CS university. Not everyone has those opportunities.
That assumes a random distribution of potential programmers. Isn’t IQ highly correlated with both familial wealth and programming ability? I doubt anyone’s compared the programmer-nature with wealth directly, but if the two are also highly correlated, that 1% could mostly already have access to the training they need. Offering to 10x more would just get you (slightly less than) 10x more bad programmers.
I actually tried to donate to them, and they claimed my card was declined. So does NewEgg. I think some of these processors aren’t equipped to handle debit cards, apparently, since both Amazon.com and CareerVillage have proven capable of “shutting up and taking my money”.
Further pity, the Rolling Jubilee had stopped taking funds for the year. They’re a favorite of mine: they buy up defaulted, second-hand debts of the housing and medical kinds that cripple people so damn hard, and then just abolish them. People who were being hounded by collectors get a call and find out their catastrophic debts are just gone.
Perhaps you should get an actual credit card as well as your debit card, for use with vendors and charities that can’t handle debit cards.
(I appreciate that there are a number of possible reasons why you might be unwilling or unable to do that. They may be very good reasons. It’s probably worth spending a few minutes, if you haven’t already, considering whether they are good enough to outweigh being unable to donate to entities you would like to donate to, etc.)
I had no problems donating to GiveDirectly with my debit card; OTOH now I’m having trouble giving to CFAR via PayPal using the same card, which had never happened before to me. (I guess I exceeded my daily quota for Internet purchases.)
The thing is that it’s supposed to function as a Check Card, able to be swiped as both credit or debit. This is actually the first time I’ve ever found anyone who won’t take it.
That sounds like it might be a frequently asked question! Let’s check Rolling Jubilee’s FAQ… yup!
Will a gift from Rolling Jubilee create a tax burden for debtors?
The Rolling Jubilee was created in consultation with a team of attorneys. They have thoroughly researched the tax implications and do not believe that beneficiaries are obligated to pay taxes on debts the Rolling Jubilee abolishes in this manner. It is the Rolling Jubilee’s position that it is making a tax-free gift to the people whose debt it is abolishing. See strikedebt.org/taxanalyst for an interview about Rolling Jubilee with the USA’s top-ranked tax lawyer.
Point being, if you can think of a difficulty in the solution of a problem in two seconds, then the people actually working to solve the problem have almost certainly either anticipated or run into the difficulty and have dealt with it.
Point being, it’s not up to the Rolling Jubilee to decide. It’s up to the IRS to decide.
If the Rolling Jubilee wants to be serious about it, it needs to get a Determination Letter from the IRS stating that yes, IRS will treat these debt cancellations as tax-free gifts.
Yup. Have a look at that interview with the top tax lawyer to see how that will likely play out. (Short version: 1. Medical debt is likely much easier to forgive tax-free than mortgage debt. 2. The debt forgiveness is currently so small that it will probably be lost in the shuffle without the IRS wanting to devote resources to making a determination.)
The point of my comment was really that if James_Miller had posed the question out of genuine curiosity instead of as a rhetorical side-swipe, he could have found the answer.
Fantastic! Now I can escape the tax liability on my paycheck by having my employer pay my debts rather than directly paying me a salary. Or, rather than contribute to MIRI and have some of this money go to salaries which are taxed I could instead payoff some of the debt of MIRI employees.
Sorry for the sarcasm, but for someone who has studied a bit of U.S. tax law it’s obvious that the IRS can’t allow Person A to payoff the debt of Person B without there being any tax consequences. Doing so would just create too massive a loophole for tax avoidance.
I think Rolling Jubilee has a better case for forgiving debt as an “exempt purpose” than you’re giving them credit for. In any event, EY noted recently (on Facebook, possibly?) that the legal system is made of people, not words. An obvious cheat won’t cut it.
(I can hardly complain about the sarcasm, having dished some snark of my own. It’s all good.)
It seems that (1) in practice, so far they apparently don’t, but (2) no one is quite sure whether they should. (Or, rather, a few people are sure they shouldn’t, a few more are sure they should, and lots of people aren’t sure.)
I’ve got a couple things to say here.
Most of us really are income satisficers, not income optimizers. That is, if you offered me a $350k/year salary to do my current job (grad-student), I would end up distributing most of that money to charity. Not that charity isn’t great, but you could have just given the money to charity yourself instead of taking the wasteful intermediate step of paying me.
Why is this true? Because we train ourselves to make it true: frugality is a large component of financial responsibility. For instance, I’m so used to living at a grad-student’s standard of living that money above and beyond the cost of that standard of living is pure luxury: I spend it on frivolous bullshit or put it in my retirement account. I’m fairly sure I’m the only 24-year-old grad-student with a Roth IRA topped-up for 2012-2014, and this is because when I got extra money, it went into the retirement account rather than towards consumption, or even towards extra charity.
HOWEVER (yes, the capital letters are justified there), there is an IMMENSE component of class privilege in this whole subject. I am literally the only person I know with this much money at my age who isn’t working for a tech company! Other grad-students have far less money, and everyone who didn’t major in Computer Science from my undergrad is semi-impoverished and has student loans to pay off.
And then we talk about the people who came from such systematic disadvantage that they never even got to the point of a university education in a potentially lucrative upper-middle class field in the first place. There are millions of such people, far more than there are of us computery types, even if we restrict ourselves to only consider First World countries. Income inequality is high, in some places higher than it ever has been, and rising all across the developed capitalist world. Public support for things like medicine, housing, and education is falling, with the result that people are finding themselves having to dip deeper and deeper into their private funds just to make it through life.
If we want to talk about how money is awesome, we should also be talking about how to make sure that people who aren’t like us actually get some of it. I mean it: no amount of Tumblry “checking our privilege” is actually going to make the people who work in, say, our favorite food trucks or hole-in-the-wall falafel joints, anywhere near as wealthy as us. We’ll need to actually exercise our intelligence for that.
This is true for me as well (I’m slightly older), but I also have some sources of income that I expect most graduate students don’t.
But one of the main reasons why money is awesome is because spending money is rivalrous. My primary expensive hobby is art collecting. I have the number of original paintings I have because I put up more money than the other people bidding on them, and if everyone had more money, then the primary effect would be that the prices increase.
When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It’s quite possibly the best barbecue in the US, and they’ve sold out of brisket every day that they’ve been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line.
To the economist in me, this is a terrible setup. They could spend their customers’ extra money; they can’t spend their customers’ wasted time. They should auction off the barbecue, which will raise prices and lower wait times. But it’ll also get rid of the communal experience of waiting in line, and less of their customers will be students and more of them will be engineers. The way to get more money to ‘food trucks’ is to embrace the inequality that makes engineers that will bid on barbecue.
The marketer in me suggests you’re off the mark. How do you know that Franklin’s bbq is the best in Austin? Because there is always a line and it sells out. The wait in line IS what differentiates their product, and its how people judge the quality in such a subjective market.
I imagine if you start an auction for the bbq, what you’ll find is that in a few years you are making less money, as instead of being a good bbq experience that people drive in from all over Texas to try and tourists flock to, you’ll be just another good bbq place in Austin.
Them are fightin’ words, y’know… :-D
It’s more complicated than it looks
I’m aware, hence the hedging. I am not a food critic, and am relying on the judgments of food critics.
Yes, people rage at high prices, especially when demand jumps and supply falls. And I’m sure that the status threat of the price rising or being priced out makes it worse than just the scarcity.
But the right answer probably isn’t lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck. The right answer almost certainly is efficiency.
This confuses me. Surely if people are made less unhappy by a luck-based distribution, that’s an argument in favor of a luck-based distribution?
I’m not sure if you typed that backwards or not. I can think of plausible reasons for people to hate both luck and merit distributions.
I view it as an argument against the preferences of people.
So you did mean it as written. I’d kind of like to see the studies, if you have a link. I don’t find it surprising, exactly, but it’s not a question I’d considered before, and it seems like it would be amusing misanthropy fuel.
Maybe people don’t actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.
Distributions based on merit (that we don’t recognize instinctively) simply seem unfair. Distributions based on tranparent luck seem like everyone at least had a fair chance.
Maybe the real problem with money is that it usually belongs to people we personally don’t know, so we don’t know what exactly they did and why exactly should we respect them, so it feels like they really don’t deserve the money. And the rest is rationalization.
This is made worse by money anti-correlating with status when all other variables are controlled for, i.e., given two otherwise comparable jobs, the lower status one will pay more.
The right answer to which problem exactly? Temporary shortages of high-status goods aren’t exactly a burning issue that really needs to be solved externally.
Locally, the Barbecue Distribution Problem. Globally, the Efficiency Problem. Imagine Franklin Barbecue as one of the broken windows of inefficiency; yes, it only wastes tens of years per year, and they’re probably only losing tens or hundreds of thousands of dollars in revenue per year. But efficient markets in barbecue help make efficient markets in other things more reasonable.
I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not “the right answer”. For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.
What is that problem and, again, what does it have to do with temporary shortages of high-status goods? And I’m less than convinced that the broken-windows theory applies to global efficiency. In any case, if so, wouldn’t you want to start with government, instead? X-/
To give a trivial example, creating such a temporary shortage is popular marketing trick (if the company can pull it off, of course).
I think that (3) is not a good assumption to make, and I wouldn’t word it that way. I know lots of artists who have never heard of sealed second-bid auctions (also known as Vickrey auctions), despite those auctions being the optimal way to sell artwork or commission slots online. Are they entirely stupid? No; they just have limited knowledge. Similarly, the barbecue auction problem has a potentially nontrivial complication: there are 5 different varieties of meat sold by the pound (and each variety of meat can either go into by-the-pound orders or sandwich or plate orders), and many people would like either their entire order, or none of their order. How do you find the optimal set of orders to fulfill, and what price do you charge people for those orders, in a way that doesn’t skew their bidding incentives?
It’s a solvable problem, of course, but it’s the sort of problem you’d want to hand off to an optimization guy to solve for you, especially if your core competency is barbecuing meat.
It might- it’s possible that once people could get it by paying more money, instead of more time, it would lose some of the specialness and people would go there less. But it’s not clear to me that they would ever reach the point where they don’t sell out of meat, and maybe they have to be open for dinner too instead of just lunch.
But it could also be that the steady-state long-term price of their brisket is $40 a pound, and they’ve been selling it at $17, and that it is a fantastic thing over the medium term.
(Also, I feel I should mention, since it may not have been obvious: they do allow pre-orders, if you’re willing to pre-order by about a month. The amount of pre-orders they allow is obviously capped, so that there’s still BBQ available day-of. Auctioning off meat should start as a small percentage of their total quantity moved as a test, and then expanded or contracted as desired. So long as some of it is available by waiting, it is unlikely to lose the popularity.)
Basically, not enough people thinking like economists.
Well, then, I see an excellent opportunity for you. You mentioned that they might be “losing tens or hundreds of thousands of dollars in revenue per year”—surely if you go talk to them and point it out, they’ll be glad to pay you some of that surplus that they are leaving on the table.
In the best case you’ll earn a fair chunk of money and make friends in the BBQ business. In the worst case you’ll learn a valuable lesson why theoretical economics doesn’t apply to real life too well :-)
That’s complicated. I understand what you are trying to say, but “thinking like an economist” is not an unalloyed good. For example, consider that economics (especially macro) is really bad at forecasting.
This is, in fact, my plan.
Cool!
Do report on success.
If the availability of their product to low-income people is a priority for the current owner, it might be possible to maintain that while raising cash prices by offering menial temp work (such as dishwashing) in exchange for store credit. This is a well-known strategy among restaurants looking to settle accounts with someone who has already eaten but proves unable to pay; the innovative part would be offering a more favorable rate of exchange, and work first for food later.
If jobs are scarce, the restaurant should already have enough dishwashers. Since the restaurant can’t temporarily fire one of its existing dishwashers for a week in order to have the nonpaying customer wash dishes, it’s hard for the restaurant to recover the money in free labor from the customer. It only works if the restaurant happens to have a job of the right length available I’d expect that to be pretty unlikely. Better just call the police. As a bonus, if you call the police you don’t create perverse incentives for more people to stiff you on the bill in the future.
I realize your version of the story doesn’t include this, but I’ve often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you’re in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)
Of course it’s less efficient than hiring an equivalent number of professional dishwashers; the point is to extract more value from the customers by having them choose between paying extra or doing marginally useful work, rather than standing in line.
I can’t speak to whether there are any real instances of such a thing happening (the story is only vaguely familiar, I may not even have heard it before,) and I suspect it’s more likely than not apocryphal. But the answer to “if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process?” would be “because a single specimen does not invalidate a selection process that deals in generalities.” The application process is an attempt at sorting prospective workers to select those who are most likely to be valuable to your business, but that’s not to say either that some duds won’t get through (people routinely make it through application processes only to be fired for poor performance, after all,) or that a less stringent selection process cannot induct good workers.
thanks for the link. I wonder if it would be feasible for companies to run lotteries for highly demanded goods.
In our economy most shortages are temporary—the market takes care of them.
But lotteries for things in very limited supply certainly exist, see e.g. this
It’s not exactly bidding, but I happened to read an article this morning about the $4 artisan toast available in a certain San Francisco coffeeshop, which seems to largely fit the bill. Yet about half the article was taken up by tedious kvetching about how the Bay Area tech industry is driving up the standard of living.
One could argue (and indeed I largely agree) that this ignores the artisan toastmaster side of that economic equation, or raise any number of other objections, but that’s not the point. The point is that this is a tough political sell.
(Statement of conflicting interest: I am in fact an exploitative Bay Area techie.)
The Marxist in me wishes to point out that if you’re part of the tech salariat rather than the VC class or real-estate rentier class, you are not in fact exploitative. The fact that the Bay Area confuses “high productivity worker” with “exploitative capitalist” is one of its larger collective errors of thinking.
In the wage / rent / interest model, the skilled person’s salary should probably be modelled as a mix of wage and rent.
The wage in its pure form is what a completely replaceable employee gets. The fact that the employee is completely replaceable will drive the wage down to the level where it barely covers the expenses to survive. Of course the expenses are different at different places, so the wages will reflect that, but that additional money just goes through you, and at the end you don’t benefit from it.
The rent in its pure form is what you get for auctioning a use of a scarce resource (such as land). An intelligent person with mathematical skills good enough to work in IT is in some sense a scarce resource. They can be replaced (but you can also move from a piece of land to another piece of land), but it’s difficult, and there are not enough skilled people for every employer’s every whim. The employers are competing among themselves, and this creates the rent. -- If you could somehow separate your talent from your person, and send the talent to the work while you stay at home and have fun, that would be a rent in its pure form. But because it doesn’t work this way, your wage and your rent are connected together.
And the interest in its pure form is money making another money. Which you can achieve by investing your rent in an index fund. So a techie can become an evil capitalist, too; it just doesn’t happen automatically and requires some strategic thinking.
Ah, that was a pleasant bit of reminder. Thank you.
(Though I did mention I have a maxed-out Roth IRA. I very much am trying to become an evil capitalist, on grounds that within this system it is my only rational move, should I desire to do anything other than work for a minimum subsistence. I still want the system changed and overthrown.)
The toast is Josey Baker Bread (yes, that’s actually his name; short documentary here) and it really is that good. By which I mean, as another exploitative Bay Area techie, I’ve paid that price at The Mill more than once and I felt it was worth it.
The toast only manages to be worth four dollars to you because four dollars is worth less to you than to poorer people. (At least in the sense of how much you would care if you lost four dollars and what you would be willing to do to get another four dollars).
Some customers don’t have extra money, but do have extra time. (And they can’t easily just convert the extra time into money.)
Yes, but when you have more people who want to be customers than who are customers (as is implied by selling out of stock before you run out of line), the question is “who do you exclude?”
One way is exclude people randomly. This gives everyone involved a sense of fairness, but no sense of control- either they get lucky, or they don’t. Another way is to exclude people by time preference. If they aren’t willing to wait, then they aren’t going to get any. A third way is to exclude people by cash preference. If they aren’t willing to pay the price, then they aren’t going to get any.
Generally, the only option that benefits the supplier is the last one, and thus it’s probably the one that they want to take. There are a few counterexamples; one example that frequently comes up here is concert tickets for young female singers. There are generally two kinds of fans that go to those concerts: young girls who enjoy the music and older men who enjoy the show. The older men are generally willing and able to pay more, but not as willing and able to wait in line. It’s unlikely that the optimal experience for all involved is for all of the tickets to go to the older men, and so they might parcel out tickets to different venues in the hopes that they will go to different people while still increasing revenue.
If they raise the price of the barbecue until the number of buyers is small enough to eliminate the line, their pricing will be seen as unfair and this will have a long term affect on their ability to retain customers. While barbecue could produce more profit being sold to rich customers, other more plentiful items need to be sold to both poor and rich customers to maximize profit. And if you lock poor customers out of the barbecue, they won’t come in for the other items.
Furthermore, it would be rational for poor customers not to buy the other items because of the transaction costs in having to discover which items are priced for rich customers and which aren’t. The store could do slightly better by pricing all items for rich customers rather than just the barbecue, but even that may produce less profit than keeping the price of the barbecue low and having more customers for the other items in the store.
Another possibility is that people get tired of eating barbecue too often and you need to have customer turnover. If you price the barbecue high enough that exactly the number of rich customers arrive that will buy all the barbecue, in a week from now those customers will be tired of barbecue and there won’t be other customers to replace them.
Sure. But consider airlines, and the revenue management they do, as a contrast.
The basic problem is that there is no single price-per-seat at which it is profitable to fly a plane. Imagine the demand curve as something like $1000/x, where x is the number of tickets sold on the plane. Regardless of the price you pick, your total revenue is going to be $1000, and if the plane costs $2000 to fly, you can’t pick a single price for every ticket such that the plane is profitable to fly.
But suppose you could offer different customers different prices. The person willing to pay $1000 is charged $1000; the person willing to pay $500 is charged $500, the person willing to pay $333 is charged $333, and the person willing to pay $250 is charged $250. Now you’ve got a plane in the air, and $83 in profit (and another person paying $200 would get you up to $283 in profit). But this required you knowing which customer was willing to pay what, which is generally done by time-segregation (the amount of time you book the flight in advance, combined with the number of seats left on the plane) which is itself determined by sophisticated modeling.
There doesn’t seem to be a public outcry about revenue management for airline tickets. Perhaps this is just because people don’t understand what’s going on underneath, or adjusting prices with time feels appropriate in a way that adjusting prices with supply doesn’t, or because it’s been this way for ~30 years and people are used to it now.
This is not a problem for auctions, because the price drops when the demand drops, so long as the minimum price is set so that the market always clears.
Analogically with the airlines, the current model should be the “economy class” barbecue, and there should be a new “business class” barbecue—extremely expensive, but without having to wait.
Preferably with some additional differences—sitting in a separate room, with pleasant music and paintings on the wall—to make it easy to rationalize (by both kinds of customers) it as “paying extra money for extra luxury” instead of “paying extra money for cutting in line”.
That model is used by Disneyworld and other theme parks. You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.
This isn’t actually the case at the Disney park in California (not familiar with anywhere else). There are different season passes, but the premium ones just let you get in on weekends and holiday days and what not.
They do have “fast passes” but those are available to anyone- you go to a kiosk and get an appointment to come back to the fast-pass line at some later time.
Legoland, for example, sells a Premium Play Pass which gives you “front-line benefits”. Universal sells the Express Pass which allows you to “skip the regular lines”.
Disney, I think, is more wary of PR problems, but still you can buy the (very expensive) “VIP tour” which, as I understand, will allow you to ignore all lines.
Customers prefer constant prices. Aside from the perceived unfairness, there are, again, transaction costs. Any time spent by customers trying to figure out how to get the lowest price is still a loss.
Airlines get away with it because airline seats are in limited supply, making it a seller’s market. The buyers have to take whatever the airlines give them. There’s certainly a fair degree of public outcry about it; the fact that there isn’t more is because of a combination of people not understanding it, the fact that most people only buy airline tickets occasionally, and the fact that there’s nothing the public can do about it.
Customers prefer predictable prices. They don’t have to be constant.
E.g., if tickets for an event are $15 in advance and $25 at the door, and this is stated clearly up front, most customers are OK with that… we can plan early and save $10, or we can keep our options open and pay a premium for that privilege.
On net, airlines lose money. In recent years, it seems to be mostly because of decreased demand (due to terrorism fears and TSA harrassment of passengers), and for decades it’s been because of price wars between airlines. I don’t think this is a market best described as a “seller’s market.”
That’s a very… incomplete prior. Customers also prefer cheap prices. Customers prefer (a lot!) the feeling that they got a deal and bought something on sale.
I also don’t see what’s special about airlines. Pretty much every business would love to price discriminate. Many do through a variety of methods. For example, supermarket coupons are a classic form of price discrimination.
This assumes that a) there is a fixed supply of original paintings, and b) the demand for original painings is income inelastic. Admittedly, I’m not an expert on the art market, but my intuition is that the opposite is the case on both counts: as incomes rise, I would expect people to spend a larger percentage of their income on luxary goods such as art. If this is the case, then, yes, everyone having more money would indeed cause the price of original paintings to go up, but they would rise at a faster rate than less elastic goods, which would cause production of said paintings to go up, which would drive prices back down; the net effect is that more people have more paintings.
I decided to not elaborate on that because the second-order effects depend on why everyone has more money. If it’s because everyone is more productive, then there’s also lots more art floating around, because the artists are also more productive. I do agree that people who are richer spend more money on luxuries like art, but it’s not clear to me that all ways of giving people more money actually make more rich people.
But even if there’s a bunch more art floating around, there is a fixed supply of the best original paintings, and those will still go to whoever wants to spend the most money at art auctions. (Of course, best is subjective, and so on, but that’s part of the point of using auctions.)
“Some” of it they generally do. But if you’re going for equality, do note that people are usually paid for the value they produce and that individuals’ capability to produce value differs GREATLY. Even if you control for things like socio-economic status.
I half-agree. I’m actually starting to believe that factors like trade, industrial policy, and public regulation of economic rents and public goods (take the preceding concepts apolitically, for the moment, please) have more to do with our current economic crises than any notion of individual “merit”. That’s not to say there’s no such thing, merely that in particular, policies regarding trade, industry, and economic rent seem like much stiffer variables than the relatively loose factors of individual work-ethic or education, or even things like national work-hours.
For instance, a country that exports large amounts of capital-intensive goods while strongly regulating its financial sector (say, current day Australia or Germany) seems to be able to afford uneducated individuals, expensive social programs, or short work hours much more easily than a country that theoretically has higher per-hour productivity but suffers a trade deficit and has largely financialized its economy (say, current day America or the UK).
What we end up with is that America and the UK suffer massive income inequality, while Australia and Germany are more equal and stable—even though they’re all First World countries with their own top-level educational institutions, labor expertise, and companies. A theory which treats macroeconomic policy as a stiffer (more strongly predictive) variable than individual/company-level merit therefore seems more likely.
I don’t understand what do you mean—I can’t see any connection between “individual merit” (and by “merit” do you mean the productive value of a person?) and current economic crises.
I don’t understand that either. It’s not that, say, Germany can afford a more generous welfare system than the US—after all per-capita GDP is higher in US than in Germany—it’s just that Germany chooses to reallocate more of the wealth produced in this way.
Equality isn’t a good yardstick—the old USSR had much more equality than any Western country. And I don’t see the stability you’re talking about. Stable in which sense?
do note that people are usually paid for the value they produce and that individuals’ capability to produce value differs GREATLY
That’s true, but I still care about people who don’t produce much value, and I don’t like to see them being impoverished and miserable.
Sure. Nobody says you have to not care about less productive people.
So redistribute some of your value to them.
Some might say that exactly that is the problem. (Not necessarily myself.)
To these people I would point out the difference between reality and various imaginary universes one can construct.
Is that a new version of the is-ought fallacy?
Kinda. It’s really more of a confusion between what the world is and what you would like it to be.
I have heard this claim repeated many times; I would love to see some evidence for it.
As a trivial example, severely mentally retarded people are unable to produce almost any value. A surgeon is able to save lives routinely.
Under the conventional economic definition of value, compare how much value is produced e.g. by successful start-up founders compared to a low-IQ guy who is on welfare and will stay there for the rest of his life.
Or, say, compare the value produced by J.K.Rowling to the value produced by an airport TSA agent.
Was this downvoted only due to antipathy for startups*, or for some other reason? It seems true in general. I’d love to hear from whoever downvoted it (or agrees with the downvote).
*Which I somewhat share, so no disparagement intended there.
Think this post was just an innocent bystander in some downvote machinegunning.
Individuals are usually paid according to the laws of supply and demand. Value has little to do with it. Medical professionals supply almost infinite value to the people whose lives they save, but are not as well paid as financiers who do not produce anything noticeable.
You don’t think that the ‘demand’ part has anything to do with value? That’s a novel idea.
Eh, probably not what he had in mind, but it’s certainly possible to make money doing things which have negative net value. You just have to do something which some people want enough to pay you for, and other people really want you not to do. As long as the people who want you not to do it can’t prevent you from doing business, you can make money dealing with the people who want you to do it, even if the negative value to the people who want your business to stop is greater than the positive value of the people who want it to continue.
To use an example which was already on my mind, suppose that the people playing drums in the New York subway system (of whom there are many) mostly irritate rather than entertain people. Say that a tenth of the crowd is willing to pay them for their music, four tenths are indifferent, and the other half of the crowd would rather pay them to stop. But the people who want the noise to go away can’t pay them to stop, because even if they could cooperate with each other in order to provide a greater incentive than the people who’re willing to pay for music, it would just encourage people to blackmail them by showing up and getting paid to not play music.
When a business has both negative and positive demand from different people, it generally takes much more difficult coordination for the people with negative demand to influence the business than positive demand, so the two often do not cancel properly.
Negative net value aggregated over a sufficiently large number of people, e.g. the whole humanity? Sure, it’s easy and very widespread. Basically you’re talking about anything with a large enough negative externality. A favorite theme of environmentalists, by the way.
Haven’t the examples I have given covered that? There can be moderate demand for high-value givers and moderate demand for no-value givers. Also, value doesn’t tell you much about supply.
What does “value” mean if it’s not what’s determined by demand?
In the employment market, demand is whatever someone is willing to pay for, howver mistaken they are about what they are getting for their money.
People who are consistently mistaken about what they are getting for their money tend to lose over time if not their willingness then their ability to pay.
No, they have not. I agree that, of course, supply and demand matter. What I don’t agree with is your claim that “Value has little to do with it”. Not to mention that “financiers” not producing “anything noticeable” isn’t really relevant to anything.
If you want to find examples of situations where people’s income is not dependent on the value they provide, the easiest direction to look is direct power, for example government power.
Surely the easiest would be to look at someone with measurable economic value that happens to be negative.
Also, if TheAncientGeek is a pure though concealed troll—as another recent comment would in fact suggest—then people should stop responding and just downvote.
I don’t have an opinion on whether TheAncientGeek is a troll, but speaking generally, outed trolls are pretty harmless and can be countertrolled for fun.
Demand has to do with value to whoever’s paying. This can be very different from value to society overall. If a doctor saves your life then (aside from the effort and cost of doing it) that’s a substantial gain to the world as a whole. If a hedge fund manager in charge of your money makes you $10M richer without adding anything to the overall size of the economy, then the value to you may be comparable to that of saving your life (kinda) but the value to the world is rather close to zero.
Value to employers is surely correlated somewhat with value to society, but they’re far from the same.
I don’t think I understand your point. Society is perfectly capable of paying for the “value to society overall”, theoretically that’s what the government budget is for.
Yes, sure, I can imagine the creation of some value that’s so widely distributed in so tiny pieces that no single entity wants to pay for it, but so what?
I may have misunderstood the thrust of your argument (beginning “if you’re going for equality, do note...”) but it looks to me as if at least part of what you’re saying is that much of the inequality we presently see is just and right and good, because what’s happening is that people are being rewarded in proportion to the value they create. (Which might be just and right and good (1) because that means people are getting what they deserve, and/or (2) because it’s a good thing for there to be strong incentives to create value.)
I agree that there’s a lot to be said for inequality proportional to created value. But if, as seems to me to be the case (and as I think TheAncientGeek was arguing, albeit somewhat trollishly), (a) people get rewarded not for actual value created but for value delivered to the people who pay them, and (b) these two can (and often do) diverge sharply—well, then, I think the argument becomes very much weaker: the existing inequality is less in accordance with actual good done, and less something that we want to incentivize more of.
Now, we should still expect some correlation between value to society and value to employers. And, indeed, society is capable of paying for value-to-society, and that that’s something governments can and should and sometimes do do. But if you look around at who gets paid most and who least, I have to say the correlation between value created and reward received seems to me … not that great.
I accordingly suggest giving this particular argument against trying to reduce inequality less weight than one might otherwise be inclined to give it. (Still some, for sure, and in particular this still seems like a decent argument against outright communism. But, e.g., Scandinavia seems to be doing well enough to suggest that having somewhat less inequality than eli_sennesh encounters in California might work just fine.)
Incidentally, if whoever downvoted my earlier comment (whether Lumifer or someone else) would like to explain why they found it worthy of downvoting rather than (only?) counterargument, I’d be interested and grateful.
My position is weaker: I don’t make claims about what is “right and good”. It’s really an observation that different abilities of people to create value will “naturally” lead to inequality unless someone (like a government) takes explicit active measures to counteract this.
I don’t know what “actual value” is. I treat value as subjective—different people can and do assign different value to the same thing. For the same reason I find “value to society” a suspect concept.
I generally don’t up- or down-vote comments in threads in which I participate. Specifically, I didn’t vote on any comments in this thread.
Then yes, I agree with that.
Me too. What I wrote should be regarded as shorthand for something like this: “net value to society, which of course different people will assess in different ways; I have mine, Eli has his, Lumifer has his or hers, etc. I expect these different assessments to be similar enough that it isn’t worth filling this discussion with metaethical digressions about how different people have different values”. Perhaps there’s some way I could have put it that wouldn’t have given the impression I was talking about magical Objective Real Moral Value without filling the thread with metaethical digressions, but I didn’t happen to spot one :-).
I’m not sure I understand this. It looks to me as if the following two questions are basically independent: (1) Is there one true way of assessing value, that isn’t dependent on any particular valuer’s values? (2) Is there, for typical ways of assessing value, a meaningful way to aggregate costs and benefits to lots of different people into an overall “value to society”? I answer “almost certainly no” to #1 but “yes, at least roughly” to #2.
Useful to know. (Neither do I, FWIW.)
The obvious answer is: Make as much money as you can, retire early, and then spend your time solving this problem.
For example, you could start giving poor people free programming lesssons. Or even donate them computers. Or think about something smarter and more effective than this.
I’ve seen this suggestion elsewhere. I’m all in favor of it, but it kind of bugs me anyway. The assumption is that most people can learn to program (or do other forms of IT) if taught. I don’t think that’s the case. Programming well is hard. IT pays reasonably well because good IT people are hard to come by, and I don’t think lack of access to training or facilities is the reason. Certainly not since OSS became widespread.
Any widespread solution to poverty has to work for people that don’t have hacker-natures or Mensa-class IQs.
Yeah, it’s a solution of type “pick a few people who are easiest to save, and save them, ignoring the rest”.
It’s worse than solving the problem globally; and it’s better than doing nothing—which is what most people will do; including most of those who like to think about global solutions. It’s far from optimal. It’s also something that one can do as an individual—so it can be used as a backup plan is case no better idea comes around.
Assume that 1% of people could become good programmers. If we trained (or offered training to) 10x as many people, we would still end up with 10x as many programmers.
I grew up with computers in my home; I had a programmable calculator in middle school; my high school offered programming courses; my family could pay for me to go to a very strong CS university. Not everyone has those opportunities.
That assumes a random distribution of potential programmers. Isn’t IQ highly correlated with both familial wealth and programming ability? I doubt anyone’s compared the programmer-nature with wealth directly, but if the two are also highly correlated, that 1% could mostly already have access to the training they need. Offering to 10x more would just get you (slightly less than) 10x more bad programmers.
Or make as much money as you can and then spend your money solving this problem.
I actually tried to donate to them, and they claimed my card was declined. So does NewEgg. I think some of these processors aren’t equipped to handle debit cards, apparently, since both Amazon.com and CareerVillage have proven capable of “shutting up and taking my money”.
Further pity, the Rolling Jubilee had stopped taking funds for the year. They’re a favorite of mine: they buy up defaulted, second-hand debts of the housing and medical kinds that cripple people so damn hard, and then just abolish them. People who were being hounded by collectors get a call and find out their catastrophic debts are just gone.
A potentially easy way around the problem is to donate through GiveWell. Failing that, you could try via Venmo.
Damn!
Bloody hell!
Perhaps you should get an actual credit card as well as your debit card, for use with vendors and charities that can’t handle debit cards.
(I appreciate that there are a number of possible reasons why you might be unwilling or unable to do that. They may be very good reasons. It’s probably worth spending a few minutes, if you haven’t already, considering whether they are good enough to outweigh being unable to donate to entities you would like to donate to, etc.)
I had no problems donating to GiveDirectly with my debit card; OTOH now I’m having trouble giving to CFAR via PayPal using the same card, which had never happened before to me. (I guess I exceeded my daily quota for Internet purchases.)
The thing is that it’s supposed to function as a Check Card, able to be swiped as both credit or debit. This is actually the first time I’ve ever found anyone who won’t take it.
http://i.imgur.com/ByU9iq0.jpg
Don’t they then get a call from the IRS saying they have to pay taxes on this gift?
That sounds like it might be a frequently asked question! Let’s check Rolling Jubilee’s FAQ… yup!
Point being, if you can think of a difficulty in the solution of a problem in two seconds, then the people actually working to solve the problem have almost certainly either anticipated or run into the difficulty and have dealt with it.
Point being, it’s not up to the Rolling Jubilee to decide. It’s up to the IRS to decide.
If the Rolling Jubilee wants to be serious about it, it needs to get a Determination Letter from the IRS stating that yes, IRS will treat these debt cancellations as tax-free gifts.
Yup. Have a look at that interview with the top tax lawyer to see how that will likely play out. (Short version: 1. Medical debt is likely much easier to forgive tax-free than mortgage debt. 2. The debt forgiveness is currently so small that it will probably be lost in the shuffle without the IRS wanting to devote resources to making a determination.)
The point of my comment was really that if James_Miller had posed the question out of genuine curiosity instead of as a rhetorical side-swipe, he could have found the answer.
Fantastic! Now I can escape the tax liability on my paycheck by having my employer pay my debts rather than directly paying me a salary. Or, rather than contribute to MIRI and have some of this money go to salaries which are taxed I could instead payoff some of the debt of MIRI employees.
Sorry for the sarcasm, but for someone who has studied a bit of U.S. tax law it’s obvious that the IRS can’t allow Person A to payoff the debt of Person B without there being any tax consequences. Doing so would just create too massive a loophole for tax avoidance.
I think Rolling Jubilee has a better case for forgiving debt as an “exempt purpose” than you’re giving them credit for. In any event, EY noted recently (on Facebook, possibly?) that the legal system is made of people, not words. An obvious cheat won’t cut it.
(I can hardly complain about the sarcasm, having dished some snark of my own. It’s all good.)
It seems that (1) in practice, so far they apparently don’t, but (2) no one is quite sure whether they should. (Or, rather, a few people are sure they shouldn’t, a few more are sure they should, and lots of people aren’t sure.)