Tuesday, March 15, 2016

Sectornomics Simply Illustrated

Reply to reply: Should we create a digital sector?

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If you're right, and having consumer surplus hides information and makes the economy inefficient... then that means you think every society has been continuously and actively engaged in an activity for the last 10 millennia that makes them less efficient. Yet the evidence appears to be the opposite. So either prehistoric man had some Godlike level of efficiency and we somehow still haven't managed to spiral from there to rock bottom... or your theory about consumer surplus is wrong. - Maqo


Rake is a pretty wonderful Australian show about a lawyer. A while back it would have cost you $24.28 to purchase the first season on Amazon. Here's how I illustrated this...




The less expensive the show is... the more people that would be willing to purchase it. Lots of people would buy it if it only cost a penny. A lot less people would buy it if it cost $100 dollars. I'm sure you agree with this pretty straightforward economic concept.

Amazon decided that $24.28 was a good price for the show. This is the Value Conveyed (VC) line. This is the seen. What's the unseen?

A. Everything to the left of the VC line (all the people who would have purchased the show for less money)
B. Everything to the right of the VC line (all the people who would have purchased the show for more money)

B is the consumer surplus. If you would have been willing to purchase the show for $30 dollars... then you derived $5.72 worth of consumer surplus from your purchase.

You're perfectly happy with what we currently see. And it's certainly good that we can see some valuation... but if it's good to see some valuation... then it's better to see more valuation.

A cup has a drop of water in it and you say, "Hey! The cup is .01% full!" And I'm like, "Yeah... the cup is .01% full... but it's also 99.99% empty."

If we created a digital sector then the cup wouldn't be 100% full... but we'd certainly have a far better idea of the true value of Rake and all the other digital goods.   Everybody's valuations would be far more accessible... which means that everybody's decisions would be far more valuable.

Trait A: Right now everybody (with some exceptions) is forced to spend Z% of their income in the public sector.
Trait B: However, people can not choose which public goods they spend their taxes on.

Trait C: Right now nobody is forced to spend Y% of their income in the non-profit sector.
Trait D: However, people can choose which charitable goods they spend their donations on. - Xero

To be honest, Trait A is bad. We know it's not optimal. That's one aspect of your Lord and Savior Buchanan's paper that I can agree completely with. We should be trying to minimize the areas that are affected by A.
But we know (or at least, have very significant theory and empirical evidence to believe) that A+D is worse. It has to be A+B. We accept the problem to some extent with normal taxation because we haven't yet found a way around it (and no, you haven't found that way). But for normal, private goods (or public goods which can be privatized) then we don't need to introduce the problem where none exists. - Maqo

Really... "WE" know that A+D is worse? Who's WE? I have my lord and savior James Buchanan. Who's your lord and savior? Paul Krugman? Paul Krugman's your lord and savior... because... why? Because he defeated my lord and savior in battle? Krugman has completely refuted Buchanan? No, he really hasn't. So if not Krugman... then who? The only person you consistently cite is Galloism. So Galloism is your lord and savior? If not, then who is your lord and savior?

Forcing people to spend some % of their income on some product is going to be wrong for EVERYONE. It is going to hide EVERYONE's preferences. - Maqo

If this is what you clearly see in your head... then it should be so super easy for you to draw a diagram for the rest of us. If it's hard for you to diagram it... then either....

A. you're not clearly seeing it
B. you're incompetent

I don't think you're incompetent. So if you can't quickly and easily draw a diagram... then you're not clearly seeing what you're telling us.

On the off-chance that you don't realize how easy it is to create and share a diagram... you simply go to Google Docs... select Google Slides... create a new slide and draw a diagram. Then you can download the slide as a jpg, upload it to imgur and share it with the rest of us.

Here's an illustration that I just quickly and easily created using Google Slides...




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