Fri, 28 Dec 2007

Market Failure 2

I pondered earlier why an economist would use the term market failure. A fellow wrote in to tell me that he uses it as a short-hand to describe a "situation in which we would expect the free market to fail to meet the Pareto optimality criterion." He allows as how a better term might be "intractable situation" since it may not be possible to achieve an optimal solution. He is still of the opinion that regulation can come closer to the optimum in most cases of market failure.

I'm less convinced than him for the same reason that people will drive their car in a situation where the total cost is cheaper to use mass transit. A car is effectively a sunk cost. You can sell your current car, but that is almost always followed by the purchase of a new car. Well, a government is a sunk cost. Markets have a problem with sunk costs, because over time a commodity ends up being sold at the marginal cost (the cost to produce the last item sold). But the last item sold doesn't account for the sunk cost.

In the market for services, government services are over-provided.

Sunk Costs

Traditionally, not all of a car's price is considered a sunk cost. Only that which cannot be recovered is "sunk". And yet, in most parts of North America, you need a car to do everything you'd like to do. In some very small parts of America, you can reasonably do without a car: villages where you can walk, or cities which have mass transit. Thus, deciding to live anywhere else requires that you sink the cost of owning a car.

I fear that I'm being too succinct, and waving my hands at things you may not understand. Please send email if I've outrun you.

Posted [10:03] [Filed in: ] [permalink] [Google for the title] economics,marketfailure,freemarket,governmentfailure [digg this]

Thu, 27 Dec 2007

Subsidies are bad for you

John Woolman was a Quaker who counselled other Quakers not to keep Negroes. If you read the wikipedia page, there's no hint that Woolman was concerned about slave owners. If you read his journal, however, you will see a continual appeal to the welfare of the slave owner. "How could you do this, if the circumstances were exchanged?" That's not a concern for the fate of the slave. That's a concern for the fate of the slave owner.

Similarly, I do not believe that subsidies are good for the recipient. Everyone knows that when you build a cost structure into the operation of a business, it's extremely hard to reduce those costs should business conditions change. During the Dot-com boom, companies were renovating offices with frivolities. For example, Xoom.com's network wiring was colored, not for purposes of identification, but because it matched the NBC Peacock, owner of Xoom.

Well, a subsidy is just a profit structure. A subsidy is the equivalent of a single customer. If your business's profitability is dependent upon a single customer, then you aren't running your business. That customer is running your business.

Posted [16:57] [Filed in: ] [permalink] [Google for the title] economics,subsidies [digg this]

Best Blog Comment Ever

Your use of the ad-hominem argument in your criticism of $NAME is proof positive that you are a doo-doo head.

Posted [11:12] [Filed in: ] [permalink] [Google for the title] [digg this]

Sat, 22 Dec 2007

Market Failure?

I can understand why enemies of free markets use the term "market failure" because it presumes that "regulation success" will shortly follow. I don't understand why an economist would use that term, however. Markets don't "fail". Markets sometimes generate results we neither understand nor like. It is an act of hubris, however, to call that a "failure". Do we call an "earthquake" a "geology failure"? Do we call a hurricane a "weather failure"? Of course not -- the idea is ridiculous.

Posted [03:09] [Filed in: ] [permalink] [Google for the title] economics,freemarket,marketfailure [digg this]

Thu, 20 Dec 2007

No solution here

Okay, whenever somebody criticizes "the free market" I always have to wonder how much of the market is free, and how much is ruled by legislation. Leonhardt points out in the article that doctors overtreat because of malpractice laws. So ... how free is that market?

And the second thing to consider is that in a free market, by definition, people are getting their money's worth, otherwise they wouldn't enter into the trade. If they enter into trades which can be predicted to be bad, then they need more information. Where's the Medical Consumer Reports? Could it be that liability laws prevent such a thing from existing?

And the third thing is that for the most part, medicine in the US is NOT fee-for-service. In New York State, if you try to buy medical treatment on a fee-for-service basis, the state government imposes a surcharge on you! Most medicine is done like automobile repair. The mechanic (doctor) tells the owner (insurance company) what repairs the car (person) needs, and the owner decides whether it will pay for the repair or not.

Fee-for-service would require a free market in health care, which is something we have too little of, and too much criticism of.

Posted [02:56] [Filed in: ] [permalink] [Google for the title] healthcare,economics,freemarket,feeforservice [digg this]

Sun, 16 Dec 2007

Money is not a sign of poverty

Iain M. Banks wrote, in his science fiction book _Consider Phlebas_, "The Culture is an abundant society, with no scarcity economy. One Culture adage is, Money is a sign of poverty, meaning that money only has a function in a scarcity economy, and therefore its existence betrays a pre-abundant (poor) society."

All science fiction works as a story-telling milieu by changing a very small number of constants from our current society. If it changes none, then it's not science fiction, it's just fiction. Cryptonomicon is science fiction because of the Root's magical life-restoring cigars. If it changes more constants, then it's fantasy. If it changes too many constants, it's unreadable garbage because people can't relate to it.

One of the constants that Banks changes in his book is the idea that people are satiable. In his story, people in The Culture are satisfied with a certain amount of possessions, with a certain amount of experiences. This amount is presumably very large because of the abundance of goods and services. We can relate to this because in our experience, we think we would be satisfied with some amount of stuff and fun.

Back in the real world, that doesn't happen. I have a friend who would love to buy a $22,000,000 dive boat. He can't afford it. I mean, he could afford it in the sense that his net worth is greater than $22M. But what he means is that it would consume too large a percentage of his net worth. I have trouble relating to even considering the purchase of something so expensive. But what if we were members of Banks' Culture? All of us could afford such a thing, because it's a culture of abundance.

Human desire is insatiable. Now, some think this is a bad thing, blaming it on greed and consumerism. But think about Mother Theresa -- a saint if ever there was one. Was she greedy? Insatiable? Well, yes, she was. If she could have helped one more person, she would have.

Human desire is no more or less the ability to dream of accomplishing something currently undone. Everyone but everyone counsels people to dream big. Once you've achieved your dream, to what end do you put your efforts? To avoid ennui, you can only find another dream. I sat next to Danny Snider in high school choir. His deep-seated dream was to become a rock star. As Dee Snider, he has. He shows no sign of slowing down, and you can see from visiting his website that he still dreams big.

So, no, money is not a sign of poverty. Money is a sign of humanity. At least, outside of science fiction books it is.

Posted [19:18] [Filed in: ] [permalink] [Google for the title] economics,reprap,scarcity,abundance [digg this]

Sat, 15 Dec 2007

Democracy is not the goal

Democracy is not what people want. Democracy is not the cause of prosperity. Freedom (of speech, religion, the press, and yes, TRADE) is the cause of prosperity and frankly, prosperity and freedom is what people want.

Democracy is not freedom; democracy is the tyranny of the majority. When the majority is free to oppress the minority, nobody is free, because in some aspect of their life, everybody is a minority.

Posted [14:15] [Filed in: ] [permalink] [Google for the title] economics,politics,mythoftherationalvoter,irrationalvoters [digg this]

Fri, 14 Dec 2007

Long Term View?

A correspondant writes in to say "I worry that free markets do not generally take a long-term view into account,...". I've often heard this view expressed. I wish we could suggest this to Mythbusters, but I think that Bullshit! would be a better show to tackle it.

Just as my correspondant worries about free markets, I worry that governments do not generally take a long-term view into account. What politician thinks beyond his next election? How *could* a politician think beyond their next election? Obviously taking a long-term view means doing things which hurt in the short run. If it didn't -- if taking a long-term view were free -- then everybody would do it. So, the politician who takes a long-term view at a short-term cost will be excoriated by his opposition.

That leaves individuals to take a long-term view. If individuals do it, then free markets will do it just as reliably as governments.

Posted [01:26] [Filed in: ] [permalink] [Google for the title] economics,government,longtermview [digg this]

Wed, 12 Dec 2007

Kyoto will be the death of them

The problem with Kyoto is simple: global warming is caused by a combination of higher solar activity in this century plus the burning of fossil fuels. See this page on global warming, written by a Quaker.

There is a limited amount of fossil fuels. The problem of global warming will go away when the competing uses for fossil fuels and competing sources of energy out-bid the burning of them.

Kyoto leaves out China and India, who have greatly stepped up their burning of fossil fuels. Basically, the fossil fuels WILL be burned until it's not economic for anyone; the only question is whether we will burn them or if they will burn them. Kyoto will have NO EFFECT ON GLOBAL WARMING. It will, on the other hand, make the industrialized countries much poorer, making it harder for them to help mitigate the INEVITABLE effects of global warming on third-world countries.

This is completely independent of the fact that Kyoto doesn't stop the burning of fossil fuels. It doesn't decrease the burning of fossil fuels. It only slows down the INCREASE (at huge cost) by three years. If we implement Kyoto, then 50 years from now we will have the same amount of warming we would have had in 47 years.

When you stack up global warming against all the other problems in the world, there's a dozen problems more serious. For example, solving global sanitation would save MANY MORE LIVES than solving global warming, at a hundredth the cost -- yes, people are still drinking water contaminated with shit in the year 2007.

We are being led into a hysterical overreaction to a problem which is simply not all that serious. Back in the 1600's we would have gone looking for a witch to burn. We laugh at their foolishness now; in four hundred years they will laugh at our foolishness now.

I would laugh at Gore, except that what he's doing is killing people. There are a limited amount of resources in the world. If you do one thing, you give up doing another. By addressing global warming as a higher priority, we are condemning people to preventable deaths. And as ludicrous as Al Gore's campaign is, it's not at all funny.

Posted [14:28] [Filed in: ] [permalink] [Google for the title] [digg this]

Sun, 09 Dec 2007

Beads not Teeth

This is my first reprap post. I've established a new category for reprap posts, so expect further posts there. I plan to build a reprap, in spite of their foolish motto: "Wealth without Money". Wealth has nothing to do with money, so a motto of "Wealth without Money" is as meaningful as "A Fish Without a Bicycle". Money facilitates trade, not wealth, so if you don't like money, it's trade you don't like. And yet trade is 100% responsible for our standard of living exceeding that of a subsistance farmer.

Each of the three axes that make up the reprap 3D printer require a tooth belt, in the current reprap design. I gather that they are expensive. I grabbed 14 feet of Christmas bead garland at the dollar store. The beads are 8mm in diameter, and are spaced 2.3mm apart. That's big enough that the gear which drives them could be fabbed. In the meantime, we could use a technique like Vik's to create a gear.

The cord that holds the beads is quite inelastic. Over a 15cm section, a 5kg load only stretches it by 1mm.

Using polycapralone (capa for short), I fashioned a drive gear, to see if it could drive the beads. Glued up a circle of beads. I buried the beads about halfway (up to the string) in the capa. That turned out to be too deep. The beads need to cam in and out of their holes. When they're too deep they can't do that. I also learned how to make it into a proper pulley. Use a hole saw on some plastic. That leaves you with a small hole centered around a bigger hole. Then use the capa as the rim of the gear, burying the beads only slightly.

I'll try driving one shaft from another next.

Oops, I forgot to include the photos, so I'll let this get re-posted with the photos:

http://blog.russnelson.com/images/kif_4895.jpg(Beads forming the gear)[300,300] http://blog.russnelson.com/images/kif_4896.jpg(The empty gear)[300,300] http://blog.russnelson.com/images/kif_4897.jpg(Beads in the gear)[300,300]

Posted [19:02] [Filed in: ] [permalink] [Google for the title] fdm,reprap,economics [digg this]