Comments on: Let the Market Work http://www.26econ.com/let-the-market-work/ Online economics Fri, 05 Dec 2008 11:00:42 +0000 http://wordpress.org/?v=2.3.2 By: Koyel Mandal http://www.26econ.com/let-the-market-work/#comment-51 Koyel Mandal Fri, 31 Aug 2007 19:20:43 +0000 http://www.26econ.com/let-the-market-work/#comment-51 Thanks. I understand why it is a more efficient (less costly) solution. Economic policies in most countries do not follow a progressive tax structure. Often times middle and high income groups are lumped in the same category. Every time there's an increase in tax rates to transfer wealth, the middle income groups get hurt the most. It also acts as a disincentive to work. Although it achieves the desired economic outcome, it leads to a change in social structure. But that's a different issues I guess. Your point, however, is well taken. Thanks again for the explanation. Thanks. I understand why it is a more efficient (less costly) solution. Economic policies in most countries do not follow a progressive tax structure. Often times middle and high income groups are lumped in the same category. Every time there’s an increase in tax rates to transfer wealth, the middle income groups get hurt the most. It also acts as a disincentive to work. Although it achieves the desired economic outcome, it leads to a change in social structure. But that’s a different issues I guess. Your point, however, is well taken. Thanks again for the explanation.

]]> By: aaron http://www.26econ.com/let-the-market-work/#comment-49 aaron Fri, 31 Aug 2007 10:12:01 +0000 http://www.26econ.com/let-the-market-work/#comment-49 Koyel: Defining "fair" is a difficult task as you said. While money is not a resource by itself (it can't be used to produce things directly like real resources can), if you want to redistribute wealth as I said then it will make rich people worse off, as you correctly pointed out. However, most societies seem to prefer not to have economic outcomes that are extremely skewed in the sense that there is a huge difference between rich and poor. So, without passing judgement on whether this is the right thing to do or not, economic policies are often used to transfer wealth. Your comment also made me realise that my story wasn't quite complete. In the water shortage example, the reason for not letting prices adjust and imposing restrictions on use instead is presumably because of some 'fairness' argument as I tried to explain -- letting the price adjust might hurt poor people much more than it hurts rich people. So the use restrictions are designed to try to prevent that. As I said, an alternative way to achieve a similar outcome is to let prices adjust, but compensate people for being poor. Both of these policies have a cost to someone. Holding prices constant and restricting use prevents the market from working efficiently and allocating scarce water to whoever values it most. Transferring wealth from rich to poor imposes costs on the rich. The point I was trying to make was that the policy of letting prices adjust and using transfers to achieve 'fairness' is a less costly way (overall) of achieving that 'fairness', compared to the other policy of keeping prices constant and restricting use. The difficult thing is to explain exactly why this is without resorting to mathematics. I'll keep thinking about it. Koyel: Defining “fair” is a difficult task as you said. While money is not a resource by itself (it can’t be used to produce things directly like real resources can), if you want to redistribute wealth as I said then it will make rich people worse off, as you correctly pointed out. However, most societies seem to prefer not to have economic outcomes that are extremely skewed in the sense that there is a huge difference between rich and poor. So, without passing judgement on whether this is the right thing to do or not, economic policies are often used to transfer wealth.

Your comment also made me realise that my story wasn’t quite complete. In the water shortage example, the reason for not letting prices adjust and imposing restrictions on use instead is presumably because of some ‘fairness’ argument as I tried to explain — letting the price adjust might hurt poor people much more than it hurts rich people. So the use restrictions are designed to try to prevent that. As I said, an alternative way to achieve a similar outcome is to let prices adjust, but compensate people for being poor. Both of these policies have a cost to someone. Holding prices constant and restricting use prevents the market from working efficiently and allocating scarce water to whoever values it most. Transferring wealth from rich to poor imposes costs on the rich.

The point I was trying to make was that the policy of letting prices adjust and using transfers to achieve ‘fairness’ is a less costly way (overall) of achieving that ‘fairness’, compared to the other policy of keeping prices constant and restricting use. The difficult thing is to explain exactly why this is without resorting to mathematics. I’ll keep thinking about it.

]]> By: Koyel Mandal http://www.26econ.com/let-the-market-work/#comment-48 Koyel Mandal Thu, 30 Aug 2007 21:23:22 +0000 http://www.26econ.com/let-the-market-work/#comment-48 I read with interest your argument for letting markets put resources to their highest value. It all made sense until I reached the taxing the rich part. Why is taxing the rich and distributing that to the poor "fair?" Isn't money a resource as well? May be the marginal value of the last unit of money to the rich person is higher than it is to the poor person. Also, from a non-economics stand point it's not just by chance that a person is rich (at least not all the time). How fair is it to take away his hard earned income and give it to someone else? I read with interest your argument for letting markets put resources to their highest value. It all made sense until I reached the taxing the rich part. Why is taxing the rich and distributing that to the poor “fair?” Isn’t money a resource as well? May be the marginal value of the last unit of money to the rich person is higher than it is to the poor person. Also, from a non-economics stand point it’s not just by chance that a person is rich (at least not all the time). How fair is it to take away his hard earned income and give it to someone else?

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