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Topic: Applied Socialism 101: A beer and pizza problem
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Stephen Gordon
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Babbler # 4600
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posted 18 July 2005 02:07 PM
Every now and again, someone will start a thread to the effect that there’s a need to build an alternative to capitalism. These threads never go anywhere - they invariably end up rehashing existing criticisms of capitalism. So as a public service, I’ve constructed a toy economy (economists call them models) that people can use to try and figure out how a socialist (or communist, or whatever) economy would work.In this economy, - There are 100 people in the economy, each of whom supply one unit of labour. - There are 100 units of capital available. For the purposes of this model, it doesn’t matter where they came from. - There are only 2 goods: beer and pizza. - Beer production is labour-intensive, and pizza production is capital-intensive. Both technologies have diminishing returns in their inputs, and both have constant returns to scale. - Individuals like both beer and pizza. If she has more beer than pizza, then she’d prefer another pizza over another beer (and vice-versa). The questions are: - How should we allocate capital and labour to the beer and pizza sectors? - How should we distribute the beer and pizza that gets produced? To give you an idea of what is involved in answering these questions, I’ve worked out four scenarios. These are just summaries; the gory details are available here. 1: The social optimum. 75 people work in the (labour-intensive) beer sector; 25 workers make pizza. 75 units of capital go to the (capital-intensive) pizza sector; 25 are used to make beer. 100 pizzas and 100 beers are produced in all; everyone gets one of each.
2: The capitalist solution. Capital is allocated (not necessarily equally) across households, and property rights are enforced. Households supply capital and labour to firms, receive wages and interest income, and they purchase beer and pizza at market prices. Firms use labour and capital inputs to produce their goods, they pay wages and interest to households, and they sell their goods. Wages are the same in both sectors, as are the rates of return on capital. This scenario reproduces the optimal allocation of capital and labour, even if capital is distributed unequally. If the allocation of capital is equal across individuals (each gets one unit of capital), then we also get the socially optimal distribution of beer and pizza. 3: An inegalitarian socialist solution. Suppose we take the capitalist solution and transfer control of the capital in the pizza and beer sectors to the workers. Since workers own the means of production, they keep all of what they produce. Total production will be the same as the capitalist case and the social optimum: 100 beers and 100 pizzas. Beer and pizza producers will exchange their wares in a free market. This solution allocates 25 workers to the pizza sector and 75 workers to the beer sector, produces 100 beers and 100 pizzas, gives 2 beers and 2 pizzas to each of the 25 pizza sector workers, and gives 2/3 beers and 2/3 pizza to each of the 75 beer workers. (Clearly, the most important problem here will be: who gets to make pizza, and who gets stuck making beer?) 4: An egalitarian socialist solution. Suppose that each worker is allocated one unit of capital, with the proviso that it must be used in the same sector in which she works. If beer and pizza are sold in competitive markets, then 50 workers will choose to work in the pizza sector, and the other 50 will make beer. Total production will be 88 beers and 88 pizzas, so everyone receives 0.88 beers and 0.88 pizzas. Note that individuals in this economy consume 12% less than what the social optimum. (The 1:1 capital:labour ratio in both sectors isn't efficient.) If you have a suggestion for an alternate allocation mechanism, but you're unwilling/unable/afraid to work through the math, I'll be happy to do it for you and add it to the list.
From: . | Registered: Oct 2003
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Dex
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Babbler # 6764
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posted 18 July 2005 04:16 PM
quote: Originally posted by Stephen Gordon: 2: The capitalist solution. Capital is allocated (not necessarily equally) across households, and property rights are enforced. Households supply capital and labour to firms, receive wages and interest income, and they purchase beer and pizza at market prices. Firms use labour and capital inputs to produce their goods, they pay wages and interest to households, and they sell their goods. Wages are the same in both sectors, as are the rates of return on capital. This scenario reproduces the optimal allocation of capital and labour, even if capital is distributed unequally. If the allocation of capital is equal across individuals (each gets one unit of capital), then we also get the socially optimal distribution of beer and pizza.
Stephen, Thanks, as always, for your thoughtful posts.Personally, I think a big portion of people's misgivings re: capitalism lies not in the initial condition, but rather the conditions that could 'efficiently' prevail over time when left unregulated. Even if capital is equally allocated initially, it certainly doesn't mean that certain injustices will not come to pass at some point in the future. Even in the absence of economies of scale, other gains could be made (via co-production, bundling, price discrimination, etc.) by one industrious person convincing another and still another to give up their control of capital. On top of that, the 'socially optimal' outcome that you describe is particularly prone to problems on an individual level. For example, the economy might be producing 100 beers and 100 pizzas, but 80 people could easily end up sharing 10 pizzas and 10 beers, while the fortunate 20 share 90 of each. These 20 binge drink and puke a lot of it down the drain and leave their pizzas sitting around, or just eat the toppings and throw the rest in the garbage. Which was a pretty convoluted scenario, but I guess my criticism would be the following: the socially optimal constraint-- although simple and pragmatic-- also ignores the problems that arise as a result of inequities that develop over time. Why not make the single optimal outcome be: every person gets at least 1/2 pizza and 1/2 beer? What you've given is arguably an economically optimal and is not necessarily a socially optimal outcome. Note: I do understand what you meant by 'socially optimal', but I'm trying to point out the problem with using mean or aggregate output as the only measure of a typical citizen's well-being.
From: ON then AB then IN now KS. Oh, how I long for a more lefterly location. | Registered: Aug 2004
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Rufus Polson
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Babbler # 3308
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posted 18 July 2005 05:46 PM
On the capitalism option--I'd have to say the final "if" ("If the allocation of capital is equal across individuals (each gets one unit of capital), then we also get the socially optimal distribution of beer and pizza.") is a very big one. And the probable consequences of a more typical distribution of capital would be a fairly problematic distribution of beer and pizza.But, on the initial topic. Other options would include the "centrally planned/nationalized socialism solution". That is, the government owns the capital, allocates the appropriate 75 units to pizza and 25 to beer, decides that 25 people will work in the pizza sector and 75 in the beer sector, and gives everyone 1 unit of pizza and 1 unit of beer. Theoretically, it doesn't matter whether the owner/planner is a benevolent dictatorship, a representative democracy, or a council of every citizen--which I think points to a limitation of the whole exercise. In reality, who gets to decide is at least as important as the theoretical allocation method. Hmmm . . . how about a system where each citizen owns, or controls the allocation of, one unit of capital, and can allocate it to whichever type of production they want irrespective of their employment, but gets no return on it (and they're non-transferrable)? Each citizen also gets a vote at their workplace irrespective of whether they have capital allocated there. These rather idiosyncratic property rules are enforced. So, workers control their workplaces and seek additional workers and additional capital separately. Allocation of capital is based on citizens' perception of who needs the capital, and whether adequate amounts of the goods they're interested in are being produced. However, no markets, goods are just allocated equally--or at least, equally to everyone with a job. Seems to me that, while capital allocation might slosh around for a bit, the equilibrium point would be at the optimum. If the beer- and pizza- producing co-operatives don't hire workers that they don't have the capital to put to use, the labour should do the same. The system might be open to a capitalist critique on incentive-related grounds, but that stuff doesn't figure in this model either--and most capitalist wage labour has similar incentive problems. Incidentally, this latter system might be considered a retarded, naive cousin of Participatory Economics' allocation system. [ 18 July 2005: Message edited by: Rufus Polson ]
From: Caithnard College | Registered: Nov 2002
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Rufus Polson
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Babbler # 3308
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posted 20 July 2005 03:30 PM
quote: Originally posted by Stephen Gordon: Okay. Still thinking - several scenarios/models suggest themselves, and I'm working through them. For now, I'll just say that if we add the assumption that 'no-one knows everything', then the benevolent-omnipotent-omniscient dictator scenario would be excluded.
How much do you need to know to run the production of beer and pizza? More seriously, while I'm not a fan of central command, especially in the absence of democracy, what happens if we add the assumption that the market doesn't know everything, isn't efficient, doesn't clear or some such, or that it requires spending money on advertising, or . . . yadda yadda. Then the capitalist scenario would be excluded. Tweak the model and it'll give you the answer you want. Leave it unrealistically simple for the sake of easy speculation and evenhandedness and it'll give you answers that are unrealistic and simple. The whole process, while interesting, has some distinct limitations. The "nobody knows everything" limitation is, in the real world, very cogent if control is top-down by an elite (hrm, such as billionaires). But say you have national *ownership*, but fairly democratic *control*. That could work, but it would require hashing out a plausible set of details for widespread input. The objection from a capitalist perspective tends to be that the same signals you could get from highly expensive and longwinded canvassing of opinions and wrangling is furnished by the market pretty much cost-free. I have my doubts about how effective that mechanism really is, but it's probably true that on a large scale democratic input has tended to be prohibitively expensive and cumbersome. Similarly, in medieval times large scale democracy would have been prohibitively expensive and cumbersome. Imagine a national campaign travelling about on horseback, relying on town criers to convey political claims because hardly anyone can read, casting votes using pebbles and twigs and potshards to represent different candidates because people can't read their names on a ballot and anyway there's no printing press for mass ballots, yadda yadda. Mass democracy required the printing press, trains, and ideally fairly widespread literacy and the telegraph or equivalent. Similarly, I think modern communications technology may be bringing us now to the point where an extension of democracy to more economic issues and deeper levels may be practical where it was not before. . . . drifting way off. I'm not really fond of the command-economy model, I'm just signalling that I'm not convinced of the standard orthodoxies about it. Frankly, I'm not even convinced it did such a horrible job in Russia all things considered. Given that Russia came into the command economy starting from Czarist Russia, which wasn't what you'd call an economic utopia, and that it was devastated by WW II, and that it then entered an arms race and devoted a proportion of its production to the military which dwarfed what the US is doing (although the total output was still probably smaller), and that it was a nasty, brutal oligarchy, it's surprising that their economy managed to hold together and provide decent services and jobs as long as it did. I've seen a persuasive analysis that suggests what really nobbled them economically was more the arms race than the command nature of the economy, although the extreme centralization certainly didn't help. And as I mentioned, the beer and pizza model we have here really has no mechanism for making distinctions between a dictatorial "centrally planned" economy and a democracy with crown corporations.
From: Caithnard College | Registered: Nov 2002
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Rufus Polson
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Babbler # 3308
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posted 20 July 2005 03:54 PM
quote: Originally posted by Stephen Gordon: Hmm. I need more clarification. What incentive would firms use to attract workers?
No real direct, payment incentive at all. The only qualification I made was that distribution was equal to everyone *that is working*, so if you chose not to work at all, you wouldn't get anything. In a more nuanced real-worldish scenario, you'd presumably get some kind of welfare and so forth, but you'd still be better off working than not working. But as to working one place rather than another, doesn't matter except in so far as you find one more congenial or there's jobs available in one but not the other. quote: I'm guessing that the idea would be that for a given allocation of capital to a given sector (and given what other workers have already decided), a worker would be offered an equal share of what would be produced if she chose to work there.
We could float a model like that, but that isn't what I said. I said everyone gets an equal share of what's actually produced, irrespective of where they work. The worker's decision would take the form "do I feel like making beer or pizza?"--unless there weren't any jobs on offer in the beer sector. The real decision would get made by the people already working at a beer firm, and it would be basically "Do we have the equipment we need for another worker to be useful? If so, let's put up a job notice." And what determined that would be how many citizens had allocated their capital to beer. And what determined *that* would be whether people were noticing a shortage of beer in their equal allotment. quote: In such a model, the worker's decision would take the form of 'do I take one-tenth of 10 pizzas, or one-fifth of 5 beers?'Is that what you had in mind?
Nope. And it occurs to me that, since the labour intensiveness of the two types of firm is different, the shares from something like that would be of quite different sizes, which is presumably something you were quite ready to point out. And indeed, it's an interesting point which has something to say about the egalitarian or otherwise nature of decentralized co-ops as an economic form. People in worker-run co-ops in capital-intensive industries are presumably going to make more, *if* they can scrape together the capital to make the thing run at all, than people in worker-run co-ops in labour-intensive industries. Worth pondering. I'd still consider it a step up from the current situation. And I wonder if the need to reinvest profits in ongoing improvement of plant and equipment and whatnot would reduce that differential. But still, it seems likely that even in an economy dominated by co-ops, autoworkers will generally make more than garment sewers. But none of this has a direct application to the model I floated, which doesn't work like that.
From: Caithnard College | Registered: Nov 2002
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Rufus Polson
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posted 20 July 2005 07:40 PM
quote: Originally posted by Geneva: well, we cannot know everything ... neither how many beer or how many pizzas
No wonder rightwingers drink too much. They don't think they can know how many beer . . . Come to think of it, that would be one of those self-fulfilling prophecies. Once they've had too many beer, their belief becomes true! [ 20 July 2005: Message edited by: Rufus Polson ]
From: Caithnard College | Registered: Nov 2002
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Stephen Gordon
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posted 20 July 2005 10:11 PM
Hmm. Rufus, I'm having trouble getting a handle on your proposal. Is this a valid representation?- Everyone gets an equal share of everything; no markets for consumer goods. - To avoid free-riding, you have to actually work to claim your share. It doesn't matter where. (A possible variation would be that if a worker knew that the beer sector was short of labour, then she might prefer to work there, since she shares in the increased total production. OTOH, if the population is sufficiently large, then her share of that gain is essentially zero, so she may decide to do whatever she feels with, and not worry about how her choice affects what she receives.) - Workers allocate their capital according to how their perceptions of where it would be more effective. (A possible scenario: require firms to announce their estimates of what would happen to production if their capital increased or decreased, so that everyone knows which sector would make best use of capital.)
From: . | Registered: Oct 2003
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Stephen Gordon
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posted 21 July 2005 10:10 PM
Okay, then. At a first pass, it seems hard to predict just what would happen.- If workers get paid the same regardless of where they work, then they’ll do so randomly. There’s little reason to believe that a worker will choose the sector where she’d be most productive. - And to pretty much the same thing would appear to go for capital allocation. Although it’s possible that people could be made aware of which sectors would make better use of their capital, if the population is sufficiently large, then the gains from making a good choice (or losses from making a bad choice) would be vanishingly small. I’d guess that this allocation mechanism would yield – to a rough approximation - purely random outcomes. [ 21 July 2005: Message edited by: Stephen Gordon ]
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thwap
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posted 22 July 2005 02:32 PM
I can see the intent of this exercise, .. I just can't see that it's useful.Certainly I'd appreciate having a trained economist around to figure out relative opportunity costs between different investment decisions. But to decide on an entire system of political-economy on a static, two-product economic model? For what it's worth: quote: 2: The capitalist solution. Capital is allocated (not necessarily equally) across households, and property rights are enforced. Households supply capital and labour to firms, receive wages and interest income, and they purchase beer and pizza at market prices. Firms use labour and capital inputs to produce their goods, they pay wages and interest to households, and they sell their goods. Wages are the same in both sectors, as are the rates of return on capital. This scenario reproduces the optimal allocation of capital and labour, even if capital is distributed unequally. If the allocation of capital is equal across individuals (each gets one unit of capital), then we also get the socially optimal distribution of beer and pizza.
This needs to be spruced up a bit. We need politicians, the unemployed, and "order-keepers." Then it goes something like this: Capital was distributed incredibly unevenly as a result of zillions of historical accidents, granting some people enormous pools of wealth, while others had absolutely nothing. With the development of large breweries, and high-powered pizza ovens, some capital-less individuals were able to establish themselves as "capitalists" but the distribution of wealth has stayed surprisingly inflexible over the years. Nobody has a perfect grasp of the production possibility frontier, so beer and pizza was made at full capacity within the bounds of the majority of the society's low purchasing power, and the inefficiencies of the many small producers. Gradually, through competition, unproductive small producers were replaced by a few large pizzarias and breweries, but they are prevented from final monopolization of their industries by "anti-trust" laws created by the politicians who reflect their society's touching nostalgia for the time of the small producers. The politicians are also around to regulate the workers. The workers are paid below their productivity, allowing their employers to approriate productivity gains, allowing these employers to more pizza and beer than they can humanly consume, while others go hungry. The hungry are the unemployed, who can't work because productivity is below full capacity, and who are required as the reserve army of the unemployed. The long hours and stagnant, low wages of the workers and the desperation of the unemployed have necessitated the creation of "order-keepers" who bust heads whenever the pizzaria owners or the brewery owners feel threatened. Thus, purchasing power remains too low and the system cannot reach full capacity. It is the lack of knowledge, mostly brought about by the lack of democracy under capitalism that is the problem here, ... just as it was the even greater lack of knowledge among the central planners (brought about by the even greater lack of democracy) that hindered the USSR et al.
From: Hamilton | Registered: Feb 2004
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thwap
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posted 22 July 2005 04:08 PM
I'm familiar with the concept of simplifying reality to conduct an experiment. But the assumptions that get built in at the primary levels carry into the later stages of the model.For the life of me, I can't begin to fathom how many steps it will take before this becomes relevant to anything at all. I chose the "capitalist" example because i thought it was the one nearest to your heart. I can see why you don't want another exercise in negativity, ... you are calling for proposals. Give everyone working knowledge of the PPF, for 2 products it should be obvious what allocation of labour and capital is needed for each product, since you haven't included preferences for beer or pizza, or preferences for pizza baking or beer brewing, people will elect to send themselves and their capital to where it's needed. Freedom and equality. That's why i liked the Participatory Economics option. And allow people to share the economic "pie" equally. Since it's assumed that everyone contributed equally.
From: Hamilton | Registered: Feb 2004
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Rufus Polson
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Babbler # 3308
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posted 22 July 2005 04:30 PM
To be fair, a parecon person might be rightly annoyed at my characterization of that model as being much related to parecon. I see some basic concepts in common.Meanwhile, it's true that the direct impact on a given person of their capital-allocation decision would be very small in any normal population size. So, it's pretty much impossible to predict their actions based solely on their status as "homo (micro) economicus"--direct, predictable-short-term personal gain will not push them in any particular direction. Not real fast, anyhow. But then, real people also have other bases for action. Of vague relevance might be the paper "Economists free ride, does anyone else?" by Gerald Marwell and Ruth Ames. All in all, I suspect the outcome of something like this model would not, in fact, be random--but there's no real way of calculating what the outcome would be using economics. It effectively makes the *economic* outcome into a *political* decision. Which in turn means that how things worked out might depend on horribly un-economic issues like culture, for instance.
From: Caithnard College | Registered: Nov 2002
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Michelle
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Babbler # 560
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posted 20 March 2008 11:57 AM
quote: Originally posted by Stephen Gordon: Bumping this. For those of you who missed this (almost three years ago), do spend some time on the OP.
How many of those 100 people are physically or mentally/emotionally disabled and unable to work? How many of those 100 people are retired? How many of them have children that need childcare while they're out making beer and pizza? Just curious.
From: I've got a fever, and the only prescription is more cowbell. | Registered: May 2001
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Stephen Gordon
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posted 20 March 2008 12:06 PM
quote: Originally posted by Michelle: How many of those 100 people are physically or mentally/emotionally disabled and unable to work?How many of those 100 people are retired? How many of them have children that need childcare while they're out making beer and pizza? Just curious.
In this model, none. But we could extend it to take into account those cases and add a public sector that taxes income and redistributes it. But the model then gets complicated: you have to add leisure to the model, and it's not clear how that would affect the question I'm trying to focus on here. FWIW, I blogged on the economics of a GAI a few weeks ago, and set up another toy model on how that would work.
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N.Beltov
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Babbler # 4140
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posted 20 March 2008 12:21 PM
Heh. An anthem from my boyhood. How appropriate.The same band also penned this song ... Goin' Mobile and the key words (today) are ... "I don't care about pollution I'm an air-conditioned gypsy That's my solution Watch the police and the tax man miss me I'm mobile Oooooh, yeah, hee!" Be seeing you.
From: Vancouver Island | Registered: May 2003
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RosaL
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Babbler # 13921
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posted 20 March 2008 12:37 PM
I think comparison with a couple medieval thought experiments might put this one in perspective. I recommend Anselm's ontological argument and Cur Deus Homo as a starting point.I don't find this (i.e., the pizza and beer thought experiment) one any more persuasive than I do Cur Deus Homo or the ontological argument and for essentially the same reason: I don't share the world views they presuppose. [corrected some typos] [ 20 March 2008: Message edited by: RosaL ]
From: the underclass | Registered: Mar 2007
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Stephen Gordon
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posted 20 March 2008 12:48 PM
Um, there was no argument in the OP. There was a question, though:By what principle should productive resources and output be allocated? eta: And you you don't accept the assumptions I made in order to answer that question for the four scenarios I considered, what assumptions would you make? [ 20 March 2008: Message edited by: Stephen Gordon ]
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RosaL
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posted 20 March 2008 02:02 PM
quote: Originally posted by Stephen Gordon: Um, there was no argument in the OP. There was a question, though:
There's an implied argument. Anyway, I don't care what you call it: it's meant to persuade us of something. One of my assumptions is that any system that compels one person to sell her labour(power or her life) to another is flawed from the foundations. [ 20 March 2008: Message edited by: RosaL ]
From: the underclass | Registered: Mar 2007
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Stephen Gordon
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posted 20 March 2008 02:13 PM
quote: Originally posted by Stephen Gordon: And you you don't accept the assumptions I made in order to answer that question for the four scenarios I considered, what assumptions would you make?
And if you object to the notion of workers' selling their labour, how would you propose to persuade them to work in the sector where you think they should? [ 20 March 2008: Message edited by: Stephen Gordon ]
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RosaL
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posted 20 March 2008 02:22 PM
quote: Originally posted by Stephen Gordon: And while I was editing as well...
heh. Some form of democratic decision-making in which people's gifts and aspirations would play a large role. Perhaps extra benefits for jobs that have unappealing features. But it's amazing what kinds of things interest people when they're given the freedom to develop their abilities. Perhaps some rotation so that everyone has to take the jobs no one (or few people) want, for awhile. (That's an exceedingly brief answer, because I promised to call someone and I should do it now.) Excuse me for a bit .... [ 20 March 2008: Message edited by: RosaL ]
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Fidel
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posted 20 March 2008 02:42 PM
quote: Originally posted by Stephen Gordon:
And if you object to the notion of workers' selling their labour, how would you propose to persuade them to work in the sector where you think they should? [ 20 March 2008: Message edited by: Stephen Gordon ]
In Michael Moore's Sicko, it was apparent that doctor's in France were willing to heal the lame and the sick for considerably less remuneration than their counterparts in North America receive. In Cuba, a country with more doctors per capita than any other in the western hemisphere, money doesn't seem to be a contributing factor in deciding on a medical career. There were complaints in Ottawa during the roaring 90's-early 2000's that the feds couldn't attract enough high tech talent to public service, and it was because salaries in the private sector were more attractive to young people than for dull old government jobs. They're not saying that anymore. I like your idea for GAI, Stephen. Of course, GAI would have very little to do with free markets.
From: Viva La Revolución | Registered: Apr 2004
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Stephen Gordon
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posted 20 March 2008 02:47 PM
quote: Originally posted by RosaL: Some form of democratic decision-making in which people's gifts and aspirations would play a large role. Perhaps extra benefits for jobs that have unappealing features. But it's amazing what kinds of things interest people when they're given the freedom to develop their abilities. Perhaps some rotation so that everyone has to take the jobs no one (or few people) want, for awhile. (That's an exceedingly brief answer, because I promised to call someone and I should do it now.)
That's a very, very long way from being anything close to an answer. In a market economy, the signal that someone should work in a given sector is a higher wage. In a command economy, the signal is the take-it-or-starve diktat of the central planner. Essentially, you're hoping that people will, by some amazing coincidence, freely choose to implement the social optimum without any external signals. [ 20 March 2008: Message edited by: Stephen Gordon ]
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PB66
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posted 20 March 2008 04:36 PM
I'm not convinced that your objections to plan (5) central-planning and (6) everything is allocated equally are adequate. The beer and pizza model contains only two goods, no information cost and no leisure. If these factors are some how incorporated into the model, perhaps the capitalist model would fall short of the social optimal, and perhaps everyone sitting in a cave making beer and pizza alone is the social optimal since information and transaction costs are too high. Who knows? With respect to central-planning, if the total cost of the central-planner to conduct research is lower than aggregate cost of the entire population taking part in the labour force, it seems like (5) would do better than (2). Taking into account real world data, it seems like interest rates, for example, are determined more by central-planning than by individual research. In (6), there's a marginal benefit, if small, to allocating labour and capital in the optimal manor. It's changing the model to say that when the marginal benefit is too small, resources are allocated randomly. In particular, if this rule is given in terms of the ratio of marginal benefit to total benefit being too small, then in (2), with one capitalist controlling all the capital, then the capitalist will allocate capital randomly, also falling beneath the social optimal. Anyway, here's another model for you to compute through. (4a) Egalitarian socialist model: Suppose that each worker is allocated one unit of capital, with the proviso that it must NOT be used in the same sector in which she works. [ 21 March 2008: Message edited by: PB66 ]
From: the far left | Registered: Aug 2007
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Stephen Gordon
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posted 20 March 2008 04:50 PM
quote: Originally posted by PB66: I'm not convinced that your objections to plan (5) central-planning and (6) everything is allocated equally are adequate.
I'm not sure what you mean by (5) and (6). Central planning usually means a command economy that implements the social optimum. And three of the four scenarios I worked through yield equal allocations of output.
quote:
The beer and pizza model contains only two goods, no information cost and no leisure. If these factors are some how incorporated into the model, perhaps the capitalist model would fall short of the social optimal, and perhaps everyone sitting in a cave making beer and pizza alone is the social optimal since information and transaction costs are too high. Who knows?
Who knows, indeed. But the object of the exercise is to try to add to our understanding, not to make things incomprehensible. quote:
Anyway, here's another model for you to compute through. (4a) Egalitarian socialist model: Suppose that each worker is allocated one unit of capital, with the proviso that it must NOT be used in the same sector in which she works.
How would that be socialist? Workers wouldn't own the means of production at their place of work.
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PB66
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posted 20 March 2008 05:20 PM
quote: [QUOTE]I'm not convinced that your objections to plan (5) central-planning and (6) everything is allocated equally are adequate. The beer and pizza model contains only two goods, no information cost and no leisure. If these factors are some how incorporated into the model, perhaps the capitalist model would fall short of the social optimal, and perhaps everyone sitting in a cave making beer and pizza alone is the social optimal since information and transaction costs are too high. Who knows?
Who knows, indeed. But the object of the exercise is to try to add to our understanding, not to make things incomprehensible. [/QUOTE] Well, that was my point in objecting to you adding new rules, for example on 19 July 2005 08:04 PM. You asked people to provide possible models for socialism. Someone suggested a command economy/ central-planning. In the model under consideration, it provides the socially optimal outcome.
quote:
[QUOTE]Anyway, here's another model for you to compute through. (4a) Egalitarian socialist model: Suppose that each worker is allocated one unit of capital, with the proviso that it must NOT be used in the same sector in which she works.
How would that be socialist? Workers wouldn't own the means of production at their place of work. [/QUOTE] Marx summarises communism as "from each according to ability, to each according to need". What's wrong with the state redistributing all capital so that people can not monopolise involvement in one sector and allowing all people to benefit from production in all sectors? Even if it is an unusual model, you said that these are the sort of intellectual exercises that need to be done to create an alternative. Consider this a new alternative. I am currently unwilling to work through the math. You said you'd be happy to. So, What's the outcome of egalitarianism with all people sharing in all sectors of the economy?
From: the far left | Registered: Aug 2007
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PB66
rabble-rouser
Babbler # 14465
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posted 21 March 2008 03:25 AM
Let's revisit these models. (1) Social optimal: 100 beers and 100 pizzas. Everybody gets one. (Now, to be fair, most models don't have a social optimum. Normally choices have to be made about whether to weigh pizzas as more valuable than beers or your income as more important than mine.) (2) Capitalism: The model given has no growth, no future, and no rules for trading capital, so we have no way to determine how the capital is distributed. You would think that the distribution of capital would be of central importance in discussing the merits of capitalism relative to possible models of socialism. As a surrogate, I'll use data from the real world. I recently read an article in Dissent which said that the bottom 50% of people in the US get 12.8% of national consumption expenditure. I'm going to call model (2a) actually existing capitalism, and give the bottom 50% of people 12.8% of production. I'm going to call model (2b) model capitalism and allow wages and return on investment to be dictated by the model, but the distribution of capital, which is not given by the model, to be distributed using this figure. What do we get: (2a) Actually existing capitalism: 100 pizzas and 100 beers produced. The bottom 50% of people get .256 beers and pizzas each. (2b) Model capitalism: 100 pizzas and 100 beers produced. The bottom 50% of people get .628 beers and pizzas each. (Unless I made an error.) (3) SG's inegalitarian socialism: (Workers get what they produce. Market for goods.) 100 pizzas and 100 beers produced. The bottom 50% of people get .666... beers and pizza each.
(These are the calculations according to SG, although, at the moment, I'm failing to see why, if the labour and product markets are flexible, the beer producers don't switch to pizza, reducing aggragate production, but increasing personal production.) (4a) SG's egalitarian socialism: (Workers allocated capital. Keep what they produce. Get the benefits from the capital they use. Market for goods.) 88 pizzas and 88 beers produced. Everyone gets .88 of each. (4b) PB's egalitarian socialism: (Workers allocated capital. Keep what they produce. Get the benefits from the capital they do not use. Market for goods.) 100 pizzas and 100 beers produced. Everyone gets 1 of each. (5) Command economy: (Central planners determines optimal distribution of capital, labour, and goods.) 100 pizzas and 100 beers produced. Everyone gets 1 of each. (6) Everything is distributed equally: (Everyone shares equally in what is produced.) 100 pizzas and 100 beers are produced. Everyone gets 1 of each. What do we learn from this? That changing the rules to promote equality works? That sometimes changing the rules to promote equality reduces total production, while still raising the income of the majority of people? That it is possible to create better rules that produce equality with out sacrificing production? That if you ask a bunch of rabble babblers questions about partial differentiation, they'll not be able to answer, but that doesn't mean they don't have a good feel for how to produce a more equal, greener, more prosperous, and more just world?
[ 21 March 2008: Message edited by: PB66 ] [ 21 March 2008: Message edited by: PB66 ]
From: the far left | Registered: Aug 2007
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Stephen Gordon
rabble-rouser
Babbler # 4600
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posted 21 March 2008 02:26 PM
quote: Originally posted by Dogbert: PB's solution does give 75/25 and 25/75, by definition.
Quite right; I realised that later. But it's still just a variation on the egalitarian capitalist theme: everyone gets the same starting point and then the standard market story works. And for those of you who still miss the point of the exercise: - Righteously indignant denunciations of [insert whipping boy here] are entirely beside the point. If [insert whipping boy here] is so gosh-darned evil, then presumably you have a better system in mind. I'd like to hear it. - Pointing out that the model is incredibly simplified is also beside the point. If you have a principle that you're willing to recommend for allocating productive resources and output in a dynamic, uncertain economy with many heterogeneous firms and households, then it should also work for this toy economy as well. [ 21 March 2008: Message edited by: Stephen Gordon ]
From: . | Registered: Oct 2003
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Fidel
rabble-rouser
Babbler # 5594
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posted 21 March 2008 03:02 PM
quote: Originally posted by Stephen Gordon: If [insert whipping boy here] is so gosh-darned evil, then presumably you have a better system in mind. I'd like to hear it.
I don't think the problem is whether or not we have free markets in pizza and beer. Production and distribution of pizza and beer tends to drop off when higher paid steady jobs disappear from AnyTown Canada and are replaced with volatile and seasonal and temporary low wage jobs. Unless we want crooked mortgage schemes as per the U.S. recently, banks and credit companies tend to want a real plan for steady repayment on mortgages and car loans. Since the 1980's, we've experienced a Central Bank policy shift from that of maintaining higher employment levels and fighting inflation to simply maintaining lower inflation. Keynes said governments have an obligation to combat unemployment. What he did not say is that fuller employment levels should mean a return to Dickensian era wages while cost of living only goes one way. The Chinese can get away with low wages, because savings rates are much higher and purchasing power parity favours workers, unlike here in low growth North America. Governments can create money, and there is the cornerstone for viable socialist economics. The power of money creation and credit ultimately belongs to the citizens of any country if full democracy was the rule. Using the Bank of Canada to buy government bonds, Canadian governments were able to afford new infrastructure and social spending for several decades. The precedent and example for successful socialism in Canada alone is there on record for the years 1938 to 1974. And our national debt was a mere shadow of what it is today after a succession of fiscally irresponsible Conservative and Liberal governments alike since then. Bailing out banks for their gambling losses in a casino economy at the expense of social democracy and environment is neither old style political conservatism nor socialism. It's Liberal fascism. The real problem, imo, is monetary and political not the basic mechanics at the lower end of the economy. What we need are long term investments in green economy, people, and basic infrastructure not new financial products or exposing our society to even more marauding capital. [ 21 March 2008: Message edited by: Fidel ]
From: Viva La Revolución | Registered: Apr 2004
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Frustrated Mess
rabble-rouser
Babbler # 8312
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posted 21 March 2008 05:43 PM
quote: Originally posted by Frustrated Mess:
I didn't notice property rights enter the model at all except in the beginning. So why are property rights required at all as per your model?
To take a stab at my own question: 1) Capital is allocated (not necessarily equally) across households, and property rights are enforced. 2) Households supply capital and labour to firms, receive wages and interest income 3)they purchase beer and pizza at market prices. 4) Firms use labour and capital 5) they pay wages and interest to households 6) Wages are the same in both sectors, as are the rates of return on capital. So what if we apply a scenario where one unit of labour became sick and was unable to work for an extended period. How would he get his beer and pizza? As well, his absence causes a reduction in production of beer for one owner. Another beer producer then demands his units of labour work harder producing more beer faster and lowers his price. That further aggravates the other owner who soon finds himself unable to maintain production in competition with his rival. He gives up and he and his labour units are now surplus labour. And where do they get their pizza and beer from? They may start looking at the guy who in their view did them wrong. But just as they rise from plotting their debauchery -- ha!ha! The exploitative beer baron is protected by the one and only human right of mention - property rights. And now our world of pizza and beer has unemployment, homelessness and hunger. What a lousy college party that is.
From: doom without the gloom | Registered: Feb 2005
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PB66
rabble-rouser
Babbler # 14465
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posted 22 March 2008 03:25 AM
quote:
And for those of you who still miss the point of the exercise:... presumably you have a better system in mind. I'd like to hear it.
As a result of this exercise, we have five alternatives to capitalism in this very simple model. Every single one of them is better for the average person, at the 50th percentile of income. Three of them produce the optimal outcome. They do better the further they deviate from a pure market. It is reasonable for people who are trying to combat the effects of unemployment, illness, discrimination, and pollution to say that they believe these are the most pressing issues, and that any model which ignores them potentially makes capitalism look better than its alternatives. As it happens, capitalism fails even in this simplified model. Isn't that the point of this exercise?
From: the far left | Registered: Aug 2007
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Stephen Gordon
rabble-rouser
Babbler # 4600
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posted 22 March 2008 04:20 AM
quote: Originally posted by PB66: (2a) Actually existing capitalism: 100 pizzas and 100 beers produced. The bottom 50% of people get .256 beers and pizzas each. (2b) Model capitalism: 100 pizzas and 100 beers produced. The bottom 50% of people get .628 beers and pizzas each. (Unless I made an error.)
I think you did. If everyone has the same endowment of capital, you get the social optimum. quote:
(3) SG's inegalitarian socialism: (Workers get what they produce. Market for goods.) 100 pizzas and 100 beers produced. The bottom 50% of people get .666... beers and pizza each. (These are the calculations according to SG, although, at the moment, I'm failing to see why, if the labour and product markets are flexible, the beer producers don't switch to pizza, reducing aggragate production, but increasing personal production.)
Presumably they could, but workers from the (capital-intensive) pizza sector will always have three times as much capital than those who had been working in the beer sector. quote:
(4a) SG's egalitarian socialism: (Workers allocated capital. Keep what they produce. Get the benefits from the capital they use. Market for goods.) 88 pizzas and 88 beers produced. Everyone gets .88 of each. (4b) PB's egalitarian socialism: (Workers allocated capital. Keep what they produce. Get the benefits from the capital they do not use. Market for goods.) 100 pizzas and 100 beers produced. Everyone gets 1 of each.
How is this socialist? Workers wouldn't control the means of production. What would be the mechanism by which workers could claim output in the sector they don't work? quote:
(5) Command economy: (Central planners determines optimal distribution of capital, labour, and goods.) 100 pizzas and 100 beers produced. Everyone gets 1 of each.
That's sort of what I had in mind with (1). quote:
(6) Everything is distributed equally: (Everyone shares equally in what is produced.) 100 pizzas and 100 beers are produced. Everyone gets 1 of each.
How would productive resources be allocated?[ 22 March 2008: Message edited by: Stephen Gordon ]
From: . | Registered: Oct 2003
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PB66
rabble-rouser
Babbler # 14465
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posted 22 March 2008 06:32 AM
quote:
I think you did. If everyone has the same endowment of capital, you get the social optimum.
As I said before: "The model given has no growth, no future, and no rules for trading capital, so we have no way to determine how the capital is distributed." I maybe mistaken, but with no way to discount future returns in comparison with present consumption, I don't see why there will be any trade, so Coase's theorem does not apply. Regardless, even if it did apply, the theorem only guarantees an efficient outcome, ie one in which no one gains without others losing. A distribution in which the bottom half of the population owns only 12.8% of the capital would, in this technical sense, be classified as "efficient" since any redistribution of wealth would require the top half to lose. Thus, the calculations in (2b) model capitalism still appear to be correct to me, and, with the wealth distributed this way, those in the bottom half get only .628 pizzas. Now, you might want to say that, if we redistributed all the wealth equally, and then let capitalism play, we'd get an equal outcome by the second welfare theorem. Fair enough, let's call this (2c) Post-revolutionary capitalism.
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How is this socialist? Workers wouldn't control the means of production. What would be the mechanism by which workers could claim output in the sector they don't work?
I've already answered the first question. As for the second, each person must work in one sector and invest one unit of capital in the other. These are the property rights imposed by the society.
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[Re (6) equal sharing of output] How would productive resources be allocated?
The capital of our model society would be distributed democratically. In this model, let's say by consensus. As I see it, the options we currently are aware of for achieving the optimal output and distribution are: (2c) total redistribution of wealth, (4b) strange and convoluted rules limiting the allocation of capital, (5) central-planning, (6) everyone shares equally, works where they like, and allocates capital democratically.
Was that the point of this exercise? [several typos fixed]
[ 22 March 2008: Message edited by: PB66 ]
From: the far left | Registered: Aug 2007
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N.Beltov
rabble-rouser
Babbler # 4140
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posted 22 March 2008 07:46 AM
Well, since no one else seems inclined to do so, let me welcome another newcomer to babble, PB66. By the way, if you go to the bottom of a post, you can find the part that reads ... quote: [ 22 March 2008: Message edited by: PB66 ]
and, after any number of edits, your entries can look much neater than, say, the following ... quote: [ 22 March 2008: Message edited by: PB66 ][ 22 March 2008: Message edited by: PB66 ] Fixing typos. [ 22 March 2008: Message edited by: PB66 ]
All you have to do is to delete all of the (above) text and the discussion board software will automatically add one more version after each edit.
From: Vancouver Island | Registered: May 2003
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