Why every state should be a welfare state.

The Pigovian tax is a solution, making those 'tax is theft' comments look particularly silly

 

Because 1) it requires stealing money from people and 2) I am not stopping anyone from building anything they want.

 

You do want to coerce a result that destroys economic opportunities. That is worth than theft.

 

No, I don't want to coerce anything. I leave people free to build or not build whatever they wish. '

And stealing money from people destroys economic opportunities too.

 

You may want to pretend otherwise, but there is no debate in it. You want a result that is definitely based on destroying economic opportunities. You're not even very good at hiding it, as shown by your comments over imperfect property rights and public goods (core issues that you cannot dismiss)

 

Nope. I advocate that everybody be left alone to build whatever they want or not build whatever they don't want.

You advocate taking money out of other people's pockets, which destroys economic opportunities.

 

Given your dismissal of externalities that is a clear fib!

Again you fib. I have referred to the protection of property rights and the nature of economic rationality. Market failure exists. Public goods exist. Sticking your head in the sand won't change that. It only shows that you're prepared to coerce an irrational result that, without doubt, destroys economic opportunity

 

But how is that a failure? I think I explained quite well why it is completely unnecessary for a market to have zero free riders. Everyone that benefits does not have to be charged some price for benefiting. In the case of the lighthouse, it can easily be demonstrated that those qualities do not exist. But even granting that they did, the lack of a lighthouse is not necessarily a failure at all. You repeat the same mantra.

He wants a lighthouse, he is willing to pay for it, and he benefits from it. He is not a loser at all. To say he is makes no economic sense whatsoever. Value is subjective. How can you possibly know the full value of the lighthouse to the person who built it? The value is represented by his choice to construct it over other potential choices. Your argument can only hold if there is some objective value to the lighthouse.

Did you even bother to read the examples? The lighthouse builders in case B do not care that there are free riders. So they are a problem to nobody.

Why would someone build one in a poor location? How is that likely at all? You have to explain comments like that. And how can you objectively decide what a poor location is? Your entire premise relies on the assumption that you know what the ship owners value more than they do. Your valuations have nothing to do with the valuations of the ship owners in these examples. Ideology is effecting your economics, not mine. You are trying to impose your ideology (how you value various goods) on others who may not agree with you, and because they prefer different outcomes (given that the means to those outcomes are scarce) than you yourself would, you say the market has failed. The market has only failed if you assume everyone must value the lighthouse as you do relative to everything else. Such an assumption defies economics.

That is purely semantic. It does not change the fact that different disciplines exist within economics with differing vocabulary and theories.

This is the crux of the fallacy here. You say there are less of things that everyone wants. But as you know, the means to produce things will always be scarce. Everything cannot be created at once. I would love to have abundance of every single product, but that is not possible. People must choose between having certain things they want, and not having other things. That choice reveals what things people value over other things. In order to for market failure to exist, you have to posit your own value system on the value system of others. The value system of others values something other than the lighthouse, hence why there is no lighthouse. You value the lighthouse, so you assume they are wrong in not valuing the lighthouse. Thus, there is a market failure, because everyone else does not conform with your value system. The only failure is the lack of understanding that not everyone values things equally. Value is subjective. You have to ignore opportunity costs for market failure to exist.

I've already responded to this same argument. We would all be better of if we had more of everything. But we can't have more of everything all at once. What we end up getting more of first is what we value more to begin with. If we don't have more lighthouses, then people simply do not want more lighthouses relative to the other things they want. If the opportunity cost of a lighthouse is less of something else, and that something else is valued higher than the lighthouse, then the lighthouse will not be built. That is not market failure, that is how markets work in every situation.

It is you who brought in the notion of ideology in the first place. Even if my motivation is some ideology, that is completely irrelevant to the economic points I am making, which you really are not responding to.

Prove how discussing value and opportunity costs is not economics, because essentially those are the things at the base of my argument.

It is the use of resources to maximize the output of wealth. In other words, goods and services people value. If people value something else more than a lighthouse, then something else other than the lighthouse should be built.

That was my point exactly! You are failing to consider opportunity costs. Your notion of market failure is just as absurd as my notion that robbery grows the economy. For market failure can only exist if you ignore the opportunity costs of building a lighthouse.

The solution is providing what people want. There will always be trade offs in a world with scarce means. People have unlimited wants that cannot all be fulfilled instantaneously. Every single human action involves a trade off. You cannot ignore those trade offs when discussing public goods.

The lighthouse costs resources. The opportunity cost of building a lighthouse (the trade off) is that those resources cannot be used to produce something else. That opportunity cost will always exist in the real world where resources are scarce. All of the benefits of the lighthouse, no matter who builds it, will exist instead of all the benefits of whatever else could have been made with those scarce resources. If actors in the economy do not build the lighthouse, then the opportunity costs are too great. The market has not failed precisely because people are getting something that they value more than the lighthouse.

I redefine nothing. I accept your notion of a public good and of market failure. I am simply rejecting them as invalid and uneconomical. You have failed to respond to my examples, you merely say they are wrong and repeat the same arguments the examples refuted.

In order for market failure to exist, you must assume all or some of the following:
1. Value is not subjective to the individual.
2. The value of public goods is objective.
3. Opportunity costs do not apply to public goods.
4. The means of production (what can be produced at any one given time) are not scarce.

 

The lighthouse case is continuously abused. As already mentioned, the whole point is that our understanding of government changes: from one of coercion to one of provision of the social good. Can the private sector provide public goods? Certainly! Will they underprovide them? Also certainly. Crikey, we still expect underprovision with government because of the nature of the median voter

 

Because it is vocabulary with a very particular meaning. Outside of economics it may mean something else entirely, but within the discipline it's the notion that the market has generated an outcome and that outcome can be made better with anyone else being made worse off. Optimality is not achieved, and therefore BY DEFINITION that is market failure.

The standard economic answer that follows is: Ok, the market has failed to achieve an optimal solution therefore we need government to provide it.

^^That, I don't agree with to a very large extent. Which is why I keep saying, stop banging your head against vocabulary with strict defintions, instead let's have a smart debate about what to do to fix it... if anything.

Also, before I go any further I have to reiterate, the lighthouse example is one that is meant to punch holes in, it's something you'd see in text books. It's not the best example of a public good or market failure.

I'm sorry. In my effort to be clear I attempted to extrapolate on an example that was a poor one and as you pointed out, one that is easily attacked. I do however insist that we stop quibbling over a vocabulary word. The definition is set in stone, that some goods exhibit market failure isn't something to debate because by definition some things do. Again, the argument to be had here is : Is government going to provide a solution that is better than the sub-optimal solution the market is offering?

Nonsense, unless your going to also quibble with physicist over what inertia or force mean. As mentioned above, Market Failure has a definition.

It's not a fallacy and I retort with another example of market failure that I think we'll agree upon:

Monopoly. Natural monopolies (though rare) do exist, their existence, that they're able to generate abnormal economic profits as a result of their sole possession of a resource, prices and profits that do not respond whatsoever to demand and thus failing to achieve equilibrium is another example of market failure.

Collusion and price fixing can also been seen as market failure. Again, we can't dispute that they are market failure, what we can dispute is whether government can correct them.

Another example of where I think we're talking past one another. I'm going based on a strict definition of efficiency (Pareto Optimality) where it's possible to make every single person better off without making anyone worse off.

You can't shrug your shoulders at standard definitions and then pretend to be talking economics. Again, it'd be like disputing with a biologist what mitosis is.

Misusing a vocabulary term. I just want us all playing by the same rules when we can get to arguing about the meat of this topic. You'll likely be surprised how much we agree on.

I think I'm the only one considering them... that'd you prefer an outcome that where everyone is worse off imposes a cost on others. A rising tide lifts all ships, if there is some other arrangement of resources, in which we can all be better off an no one is worse off, why would we not want to do that?

Best sentence you wrote in this entire post and a great stopping point since I think I've repeated myself a great deal and likely made a great deal of grammatical mistakes.

 

Technically a natural monopoly isn't a market failure. Its purely an example of how economies of scale ensures that the standard market conditions cannot exist. I don't like it as it shows a basic error in neoclassical thought: an over-reliance on economies of scale as an explanation for the capitalist tendency towards market concentration

 

I erred. Add technical mistakes to the grammatical ones.

Economies of scale clearly matters when we look at trade, why then does it not serve as a good explanation for market concentration?

 

The problem is that its used to suggest a technical relationship with regards the boundaries of the firm. New institutionalism throws that in the bin!

 

You miss the point. You cannot possibly know what the optimal supply of anything is, because what is optimal is entirely subjective to the individuals in an economy. The government cannot determine the optimal supply of lighthouses or any other so called public good any more than it can determine the optimal supply of food, cars, or whatever else.

Again, why is the solution not optimal? In order for government to provide it, it must override the values already conveyed by the market participants. Market participants may have decided that the opportunity cost of the lighthouse is too great to justify it being built. Yet government comes in and ignores those opportunity costs, and you call that a solution?

There is nothing that needs to be fixed, that is my point. I only clarify vocabulary to make sure we are not equivocating.

If the lighthouse was a bad example, then it was your mistake to use it as an example in the first place. Give a good example, and see how the notion of public goods holds.

Demonstrating that the example does not validate market failure is not an attack.

It is you who keep bringing up such quibbles. You are hiding behind an absurd definition that is unfalsifiable to prevent the debate from happening. If my argument is that there can be no such thing as market failure, then by definition I am saying there can be no such thing as a public good.

A public good, by definition, is a good that is nonrivalrous and nonexcludeable, and also results in market failure. I am not debating that definition, I am debating the very existence of something that has all of those qualities. I acknowledge that goods can be nonrivalrous and nonexcludeable to various degrees. What this debate is all about is whether or not such characteristics result in market failure. I already provided many reasons why they do not. All this talk about vocabulary is an attempt to justify your lack of an actual response to such arguments.

No, because according to the market participants, the solution is optimal. Again, for me the most optimal solution of my small house would be to have a bigger house. But because resources are scarce, there is no way to give me a bigger house without foregoing something else. That is the nature of every economic problem. The reason I do not have a bigger house is because I would rather spend my money on something else other than a bigger house. The opportunity costs I face in having a bigger house are too great, in my opinion. The market has not failed, despite the fact that I would be better off with a bigger house. Because I cannot just magically have a bigger house without me or someone else foregoing something else.

Discussing the optimal supply of one good without discussing the optimal supply of one good relative to all other goods misses the point when you live in a world of scarcity.

My point was that the difference between between discipline and ideology in the sense they are being used in this conversation is semantic. The above does not address that point at all.

I can argue why those things do not result in market failure all day long, but they are completely irrelevant to the main point we have been discussing this entire time: public goods. My argument is that something that is nonexcludeable and nonrivalrous does not ever cause market failure. You are not addressing those points at all. You aren't even bothering to quote everything I have said.

I accept that definition. What you are not grasping is that what makes an individual better or worse off is entirely subjective to that individual. The only way to say that something is being underproduced in the market is to introduce your own value-judgments into the analysis, which is completely uneconomical and unscientific.

The only one shrugging shoulders is you, because not only do you fail to address what I am saying but you additionally respond to arguments that I never made at all.

Respond to my arguments, not this irrelevant rant about vocabulary.

You cannot say that everyone is worse off. How can you possibly look into their minds and know that they are worse off? If the lighthouse is not built, then the opportunity costs must not have justified it. Thus people are not made worse off, and have explicitly decided that they are better off without the lighthouse and with the goods or resources they would have to forego to create it. They have demonstrated they would rather use resources in a different way.

The economic choice is the lighthouse minus the production/consumption of something else (the opportunity cost) or the production/consumption of something else minus the lighthouse (which in this case becomes the opportunity cost).

You are assuming to know which option is best for a group of individuals, something you cannot possibly know because what is best for those individuals is entirely subjective and determined by those individuals themselves.

Again, how do you know objectively what makes people better or worse off? Should the lighthouse be built if people have decided they are made better off with something else instead? If a magic fairy could drop a lighthouse from the sky, then your argument would hold. But all production on earth requires the use of scarce means to achieve. The production of a lighthouse necessarily means there will be an opportunity cost of the next best thing that could have been produced. And if there is no lighthouse, it simply means that people prefer to forego the lighthouse in favor of what could have been the opportunity cost had the lighthouse been built.

You have repeated yourself without saying anything. You have responded to nothing I have put forth. And now you choose to ignore the rest. If you think that proves you right, you are mistaken.

The reality is that the notion of a public good is a complete myth. Basic economic analysis reveals the fallacies in assuming such a good exists. At the heart, the public good's advocate must presume to know how to run the lives of others better than they do themselves. Such an assumption will never be scientific, and will never result in good economic policy.

 

A low brow attempt. That pure public goods do not exist has been acknowledged yonks back. Market failure was never reliant on the good being a pure public good. The concept is merely used to aid textbook analysis. Its just a shame that you fellows haven't bothered with the basics. The conversation wouldn't be so poor

 

True! But we can test whether more of a thing can lead to better outcomes for all those involved. It's a exercise in mathematics though.

Not here. The definition of efficiency is fixed, that we could rearrange the same resources to arrive at a better outcome. If any such arrangement exists, there is market failure.

No they can't. Never suggested they could, only that public goods by definition exhibit market failure. It's why I keep saying the better argument is "Ok, now what?"

Because a better outcome with the same mix of resources exists.

You avoid the definitions of vocabulary to continue this debate.

It's the text book example and one that Coase wrote about. It serves its purpose in the classroom, national defense is (in my opinion) the best example.

No way! I just want to start on a level playing field and I'd love to have the RIGHT argument, instead of the stupid one that tries to deny the existence of terminology.

Holy (*)(*)(*)(*)! We've arrived at the promise land.

They do, again, by definition. We can take the same inputs and recombine them in a way that results in a better outcome, without making anyone else worse off. Once again, whether government can accomplish that task is what I wish we were discussing... =\

Can't be, all of them still want the good, all of them are also willing to pay for it.

You can argue against anything, it just wouldn't make any sense to do so since their both (aside from the natural monopoly) examples of market failure, again... by definition, but you've made clear you ignoring that so... yea, not sure why we're talking if we both don't agree the sky is blue.

It can be measured objectively (cost/benefit analysis), you may disagree with that measurement (I do to some extent) but that's the metric used.

I try, obviously not to your satisfaction, but if we don't agree on what words mean how can any discussion be had?

You can, you may not like the way it's measured, but that's another argument entirely.

I may not know their preferences, but I can know if they had more of X and that they want X and are willing to pay for X that they'd be better off. That's the entire point, it's a good that is demanded that isn't provided or provided in amounts lower than what the actual preferences are.

Because the entire concept is based on the idea that it is demanded and that the participants are willing to pay for it. They desperately want it but it isn't being provided because of the features. I feel like a broken record on that point.

If you don't want to do economics i don't know why you're in this subforum.

Basic economic analysis incorporates the ideas of market failure and public goods into their understanding, that you choose instead to avoid them or redefine them is just an advertisement for your desire to avoid economics in lieu of ideology and political rants.

 

You are not reading what I wrote. I never assumed a pure public good had to exist. I even specifically said that they are nonexcludeable and nonrivalrous to various degrees. My point was that no degree of those qualities will result in market failure, and thus public goods do not exist if by definition they must result in market failure. Not only did you miss the point, you created one that was never made.

 

You came out, deliberately, with a red herring. We know that non-excludability and non-rivalry in consumption have various degrees. It was a low brow attempt to suggest some knowledge. That you don't realise those qualities deliver market failure merely informs me that you don't understand profit maximisation (and how, with those qualities, there will undoubtedly be destroyed economic opportunity)

The point is that you don't have one. Its a pathetic attempt to hide from the characteristics of goods and how it impacts on market result. We've seen that with your abuse of the lighthouse example (itself used to show that non-pure public goods change our very understanding of the/one motivation behind government intervention)

 

But how can you arrange resources for people you don't even know better than they can do for themselves? You say it will make everyone better off, but you would be reducing people's satisfaction by taking resources from them. They are already allocating their scarce resources in accordance with their preferences. How can you claim to know their preferences better than they themselves do?

 

In terms of public goods, you're continuing to show terrible innocence. Its not a private good. The usual analysis into preferences (with the use of the demand curve to demonstrate how the price mechanism manages to ensure allocative efficiency) doesn't work.

 

Value is subjective. By extension, the value of any good, "public" or not, is subjective. Therefore, the optimal supply of any goods will always be entirely subjective. The only way to suggest otherwise is to argue that value is not subjective.

That is not the better argument, because I reject that public goods can ever exist. Which I have explained.

By choosing not to build the lighthouse, it has been decided that something other than the lighthouse is valued higher than the lighthouse itself. If someone comes and forces the ship owners to pay money to build a lighthouse, they must forego what it is they valued higher for the lighthouse which they valued less. Thus, they are made worse off, because now they are forced to live with what they saw as the second best option.

You say I have avoided definitions only because you have utterly failed to grasp the point being made.

The lighthouse is still a bad example. But you still don't respond to the point...I granted you the best case scenario for your argument.

I am denying the existence of a public good, because it is pointless to have a debate about what should be done about public goods if I do not concede they exist. You have to prove they exist before that debate happens. Santa Claus is a term with a definition. That does not mean he exists, nor does it mean we should be discussing whether or not to prevent him from climbing down our chimneys.

We've been there all along, you just haven't had the sense to realize it.

No. "nonexcludeable" does not rely on market failure by definition, nor does "nonrivalrous." public good does. Something that is nonrivalrous and nonexcludeable but does not cause market failure would not be a public good, by definition. I am the latter can exist, but the former cannot. Continually saying "they do" or "they don't" by definition is simply dodging the argument.

Nobody can accomplish that task, because according to the individuals on the market the existing outcome is the best outcome. I went into detail about why that is the case, but you have not responded at all. You just repeat the same statements ad nauseum.

The fact they don't pay for it proves that they are not willing to pay for it because of the opportunity costs of doing so.

If one of us says the sky is blue and the other says the sky is red, then one of us is wrong. A debate is necessary to determine who is correct. That public goods exist is not nearly as obvious as the notion that the sky is blue. You say public goods exist. I say they do not. I am doing my part to explain my position, yet all you do is ignore my arguments or simply say they are wrong with no reason as to why.

No it cannot. Value is not objective.

What words do we disagree on? I have agreed with your definition of public good, market failure, and efficiency.

If the existence of public goods can only be proven by objectively measuring value, then you absolutely must provide and explain that measurement. So tell me, how does one objectively measure value?

If they were willing and able to pay for X, then they would. If they do not, then they are not actually willing to pay for X because the benefit X will confer is judged to be too small to justify the opportunity costs. You know there preferences through the choices they make. If they don't build a lighthouse, they prefer something else. Again, they would prefer to have something else as well as the lighthouse, but that is impossible.

I have repeated this point a number of times, yet you do not respond to it.

You are a broken record, because you aren't responding to the counterarguments I continually put forth against that point. First of all, a good is only said to be demanded once it is actually consumed/produced. That is the difference between demand and want. So if the lighthouse is not produced, it is not demanded by definition of demand. Perhaps you mean people want the lighthouse. If that is the case, they obviously want something else more, because they did not construct a lighthouse.

Simply wanting something does not mean you are willing to endure the opportunity costs of having it.

Debating the existence of public goods is a valid economic point of discussion. Avoiding that discussion by saying otherwise demonstrates the weakness of your own arguments.

Oh please. It is you who continually ignores half of what I say and then either misunderstands or fails to respond to the other half.

It is clear to all that you cannot validate your belief, so you predictably are resorting to red herrings, ad hominem, and all the other ways of trying to save face. You have done absolutely nothing to prove that public goods exist other than say they do ad nauseum.

 

It's a macro concept, that some people are made worse off and then compensated+ for their sacrifice is part of the understanding.

It's just a conceptual framework, which is why I wish we weren't spending so much time discussing.

 

So the government takes their money but gives them a lighthouse. How do we know whether they are made better off or worse off?

 

Earlier I offered various possibilities regarding the lighthouse example. Perhaps I should have, by extension, shown what the result would be if government stepped in and built the lighthouse in case C (where the lighthouse was not built because of its nature as a public good). I will try to do that now, only to try and explain the argument in a different manner.

Here is Case C:

The counter argument goes that the above outcome is less efficient than another possible outcome, which is almost always another way of saying government needs to intervene. The outcome is not efficient if another outcome is available that provides more benefits without harming anyone. To prove public goods exist, one only needs to prove a more efficient outcome exists. To prove they do not exist, one must simply do the opposite.

Let us assume the ship owners are food merchants (the specifics don't matter, they could do anything else with their money). Instead of building a lighthouse, they have decided to ship more food. The opportunity cost of building the lighthouse would be the food they would not be able to ship, so by not building the lighthouse clearly they value the food over the lighthouse.

Now say the government comes in and decides to build a lighthouse. To do so, it taxes the ship owners. The lighthouse is built. But harm has been done, and saying it has not would be a rejection of opportunity costs. For rather than ship more food, as was preferred, the ship owners had to forego doing so and fund a lighthouse, which was not the preference at all. They are harmed in that they would have benefited more from the additional food shipments, but now have a lighthouse instead. In addition, all of the customers of the food are harmed because there will be less food to buy. The producer of the food is harmed because he can not ship as much food to be sold on the market as before. Clearly this is not more efficient, because have been harmed. And the alleged benefit (the lighthouse) is hardly a true benefit at all, because it was a secondary want, the primary want being the food shipments. Every ship owner is harmed in that they are forced to make a choice they already deemed less valuable than other choices.

There is clear harm in this situation, and even the benefits are pseudo-benefits at best. Clearly, then, by the definition of efficiency given, the solution is not more efficient at all. Nor was there a market failure, for the market provided the most efficient solution.

 

What is the evidence that coercive monopolies are preferable at providing services than competing firms? And why are they for medical services but not for many other services?

To use a term like "optimal provision" is to suggest there is some way to calculate the "optimal" quantity of a good or service, despite the fact that it's rooted in the subjective, unknowable, and ever-changing desires of consumers. What is the "optimal" number of lighthouses on the planet at this very moment? Give me the number.

It's an absurd exercise. The optimal amount of anything is whatever consumers demand. And reference to "public goods" to be given by the state is merely to suggest that the state knows better than consumers what the "optimal" number is. Consumer demand brings about five lighthouses, but, somehow, the state knows the seven lighthouses is the truly optimal number. I would say that if the market says five and the state says seven, the state is over-providing them.

How? You're just blankly asserting this. Again. All the figures show is that you are wrong when you say that empirical shows that poverty is improved by welfarism.