The intuitive idea that appeals to socialists is that Capitalism wastes resources because it creates useless products for the comfort and satisfaction of petty wants for those who have money while there are people in the streets who do not even get their basic needs satisfied. So therefore, the government should control the means of production so that resources will be allocated to fulfill basic needs of everybody before going into wants.
Now I am somewhat already familiar with the calculation problem so I don’t need to be told socialism doesn’t work. But how do you counter the particular socialist perspective the capitalism satisfies petty wants instead of providing for everybodies needs first?
What’s a “petty” want? A mansion? A house? A boat? A car? Central heating? A fireplace? Food?
Valuation is absolutely subjective. If people want stuff, they’ll do what they can to express demand for it and to acquire it. A good way of doing this is working for money and spending money on the things they want.
If there is a demand for “essentials”, they will be produced.
And if we were to give the government the means of production for these goods so that the state can co-ordinate production, how much of what do we produce?
First of all in a truly free market individuals will only axquire the capital to do this by providing more essential services somwhere down the line. Secondly these new and diverse industries will almost certianly provide more employment than industries simply focusing upon existing wants. Finally why aren’t they entitled to voluntarily statisfy the wants they would like, and the socialist allowed to voluntarily strive to end poverty?
The argument doesn’t make any economic sense. Money itself is only valuable due to its purchasing power of real goods. People don’t work for money but for the stuff that money can buy. Therefore, it is precisely because the market is producing all those things that are most urgent in the eyes of the public that they value money and are willing to work for it. The argument that the market doesn’t produce for use because people only work for money is a self-refuting statement.
Anyhow, as far as calculation is concerned, the protest against production for profit instead of production for use objects to what makes production for use possible in the first place, especially in a modern complex society where we do not know all the facts and the people we serve. Profits is the signal that tells entrepreneurs what to produce and what not to produce.
I think Kenneth’s question is meant a bit differently than how people are responding to it.
First, I would note that very few people that members of this board would label as socialists are actually in favor of state control of this or that because they think the state is more “efficient” in the economic sense. They are typically fully aware that the state does not have the information available to ensure that resources allocated to those uses where they are most valued. But they are willing to accept these economic inefficiencies if it means everyone in America gets this or that.
For example, suppose you are talking to someone that supports socializing health care along the lines of what you see in Canada. You can say “well, if you are not going to directly charge people for health care, it is going to be impossible for you to decide how to allocate our scarce health care resources to those individuals where they would generate the most value because that value is subjective and unobservable. You need market-prices to achieve efficiency!”
The socialized health care advocate would simply respond “I am not interested in allocating resources to those uses where they will generate the most subjective value. What could be less important? I am interested in making sure everyone has access to health care because it is the right thing to do.”
An economic response to this argument would simply be irrelevant. You can keep insisting that value is subjective and the health care advocate will insist right back that he doesn’t care about value, he cares about this or that moral principal.
Kenneth, in answer to your question, the only real way to answer it is with a detailed philosophical argument for why you think market outcomes are ethically preferable to whatever outcomes they have in mind. This usually pops up when people defend why movie stars make millions each year and even the best Medical Doctors or Teachers only make a few hundred thousand dollars. But there is really no economic answer for it. So I think you might want to move the thread to the Political Theory or Philosophy sections.
The question as posted by Kenneth is an economic question and not political.
The socialists claims that he presents in the question are deeply rooted in economic fallacies. Equating money to wealth, production for use instead of production for profit, etc… these are all fallacies that can be exposed and replied to only by resorting to economics. If the socialist rejects economics altogether, what are we to do? Play along and pretend this is a political question? It’s not.
This response by the socialist is indicative of his economic ignorance and not political ignorance. It is true that the socialist may be unwilling to consider any attempts to understand the problem by applying economics, but this doesn’t make the problem solvable in any other way. The only possible way to examine whether his socialists methods can attain their alleged end goals is by applying economics. There is no other way.
But the problem itself is a political construction. You would only be interested in how to allocating resources to the uses where they generate the most value if you thought that was actually something “we” (whoever that is) should try to do. If you don’t care about allocating resources in that fashion, then there is no “problem” at all (though that doesn’t mean there won’t be consequences).
That is why Welfare Economics is a normative branch of economics and in my opinion is essentially applied philosophy. And once you start asking questions about comparing metric for measuring market outcomes and asking “which one is ‘right’”, then I personally feel you have officially crossed the line into philosophy because there is really nothing in economics that can help you decide between which metric is “more right” than another.
Part of the issue is your definition of waste is wrong. Waste is any resource consumed for a purpose other than to satisfy consumer demand. The socialists create tons of waste as they have no interest in satisfying consumer desires and every interest in satisfying the desires of their employers. Look at the US Government Department of Labor, they create volumes of statistics with billions of hours of work and never satisfy any consumer demands as no consumer VOLUNTARILY pays for their output.
So any somewhat free market where suppliers do not have political barriers to market entry will be more efficient than the most well run bureaucracy.
Assume efficiency does not matter and results do. Well the free market is vastly superior to government provided services as entrepreneurs will find ways to satisfy any demands even from the poorest consumers. Look at Walmart, they made their money selling goods at low prices. How about Southwest Air Lines or Jet Blue? Look at the TV makers, they make the most complex products imaginable at increasing levels of quality and functionality for year in and year out lower prices. Contrast these folks with the Post Office who never seems to lower prices. Contrast these people with the ever increasing cost of healthcare services. Contrast these folks with public education and the teachers unions.
There is also another truth hidden in all of this. That is: No bureaucracy no matter how motivated or well intentioned that can keep 6billion humans alive. Only the decentralized free market can use the incredible amount of information required to deliver the products and services demanded by consumers.
Only to the extent that the socialists and interventionists are rejecting the field of economic science entirely.
You entirely misunderstand the problem at hand. We are examining the problem from the point of view of those socialists who advocate planning or interventions. We examine their plans and analyze their results according to their own goals that they set out to achieve. We are not making up these goals.
To solve this type of a problem is different from what is “right” or what is “wrong”. Of course I cannot use economics to say what is right or wrong. I can only assume what the goals are and then put the economic analysis to use.
Economic science can inform you about the efficiency impacts of given government policies. It cannot tell you whether these efficiencies mean the policy “should not” be pursued. That is my point.
I don’t see anyone doing that here. The OP wanted to know how you respond to a person advocating:
The first thing everyone jumped on was the fact that value is subjective and yadda yadda yadda. Yet, I don’t see anything in that initial post that suggests the hypothetical socialist cares at all about allocating resources to where they are most valued. So why would they care about whether value is subjective or not?
Now, you could say that basic needs is not defined (what needs are he talking about and what makes them “basic”). But that seems like the OPs fault for not elaborating on the imaginery opponents goals. So, I elaborated myself with an example I believe falls squarely under the realm of this topic—universal health care. Advocates of universal health care, like say Paul Krugman, recognize that there will be economic efficiency losses if the government were to control medical care. However, they believe those losses are acceptable because each individual has a “right” to medical care.
And boom we are in the philosophical weeds, trying to define “rights” and the like. This is simply NOT an economic question. The hypothetical socialist is rejecting economic efficiency as the primary criteria for policy evaluation and substituting some moral principals.
First of all, value is subjective vs. value is objective (there is no 3rd possibility) is indeed a valid dichotomy in the field of economics.
Second, my original reply in this thread had no mention of the term subjective value. I think I managed to address the issue without it.
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The socialist in the original post is talking about use. He is talking about utility whether he is using the word or not. Look at the question again.
Value and utility are practically interchangeable terms in economics. Utility is derived from the valuation of the individual. If he doesn’t care about value, then he can’t claim to care about utility. He then begins to engage in nonsensical and illogical statements, at which point, there is no sense in addressing the problem any longer. The person is no more reasonable then your typical 3yr old.
But I don’t think that most socialists would disapprove of addressing utility in terms of value. That is usually not the problem. You are emphasizing a non-issue.
Paul Krugman is actually not a good example for you. Krugman does advocate socialized healthcare but on the basis of economics. Read his blogs. He is strictly basing his arguments on market failures.
By “right” to healthcare they still presume access to actual medical services. You don’t believe me? Ask them. Therefore, examining their plans according to their own end goals is a problem of economics.
Capitalism first allocates resources towards the most warranted and urgent needs via the price mechanism. Once capitalism (usually in its very early stages) creates enough food to sustain the population comfortably (large output), prices decline and people are made wealthier. This frees up additional resources (land, labor and capital) for other things–call them luxury goods. The fact that capitalism produces BMW’s, flat screen TV’s, and computers, for example, a fortiori demonstrates capitalism’s superiority. Food is made so cheap, that even the poor don’t starve (indeed, the poorest people in America tend, on average, to be the heaviest). So essentially, socialist nations are stuck at phase one (food and simple clothing), while Capitalism rapidly progresses towards other stages (more developed and complicated), making everyone wealthier (measured subjectively). When a politician criticizes the market, he’s really just criticizing the wants/desires of a wealthy society (not questioning why that society is so wealthy).
Incorrect. The answer is extremely obvious once one thinks about it. The movie star satiates the desires of a greater number/portion of society–thus his remunerations are higher. The highschool teacher, or the doctor, at the margin, satiates the demand of a lower portion of society. This is why the steel producer, who has little to no education, is that much wealthier than, say, Noam Chomsky (even though Dr. Chomsky is a very educated man). People are more interested in steel than they are in Chomsky’s ideas (who can blame them?). But this situation arises, that is, the demand for luxury goods, only when absolutely essential items, like food and water, are already produced at extremely plentiful levels. This is why you don’t have movie stars in Somalia, for example.
Again, capitalism takes care of the important stuff first. (A man will spend his income on bread, when he is starving, before he spends it on Hillary Duff tickets–a universal axiom, namely that individuals employ their goods towards their most urgent needs first). Subjective marginalism solves all riddles.
The end goal of the hypothetical socialist, as stated by the op, is to ensure that each person has access to resources to fill their “basic needs” (though the OP neglected to mention what those needs were). You actually did not do that. You responded to the hypothetical socialists argument about market waste with an odd line of reasoning trying to show the argument was self-refuting. That doesn’t sound like you were examining their plans according to their end goals, it sounds like you were arguing about the definition of waste (and even though you didn’t use the word subjective, your argument rests on the market producing the goods that people deem most ‘urgent’ in “their own eyes”, do we really want to play semantics here?).
Now, you are right that if one rejects using value as a criteria, they are also rejecting utility as a criteria. But so what? Not everyone believes that primarily goal of public policy is to maximize value/utility. indeed, I am surprised I am getting so much resistance on this notion. I always thought most Austrians were staunch anti-utilitarians.
In any case, I think I made my explaination pretty clear in my previous post and I am not sure how to re-explain it without copying and pasting. If you still can’t see why the socialist’s argument is about how we evaluate market outcomes in general and not how we use economic principals to evaluate parts of his plans, then I can only suggest you re-read the original post and then re-read my previous post.
If that still doesn’t help, we’ll have to agree to disagree.
I can see why you would think this was respoding to my post if you only read a fraction of the second sentence in the paragraph you quoted. Of course, if you read the whole paragraph (or better yet the whole post), you would see that I was not talking about “why” movie stars make more than teachers, I was talking about arguments people use to DEFEND the fact that movie stars make more than teachers on moral/philosophical grounds.
I am more than familiar with mechanics underlying the marginal revenue productivity of wages. I am glad to see you mostly understand it as well. I would like to think my corrections of your post on this subject last year have something to do with your grasp of the subject. Yet I wouldn’t want to flatter myself too much to suggest that was the case.
That’s great, but you said economics can’t answer this question, which is wrong. The very job of economics is to answer such questions, or solve such “riddles.” (Like the so-called water-diamond paradox).
You remember a conversation you had with me a year ago?! I’m flattered [8-|]. Yes, I’ve come a long way since then.
If you read that sentence along with all the other ones in the post it should be apparent that I was saying there is no economic answer as to why market outcomes are ethically preferable to whatever outcomes the hypothetical socialist had in mind.
Or, similarly, there is no economic argument for defending why movie stars make more than teacher on ethical grounds.
I’m sorry if this wasn’t clear.
PS* It wasn’t too hard to remember. It was only December.
