Part 1 was about eco-Socialists not really understanding choice, Supply and Demand, and the importance of Price in describing value to either a Seller or a Consumer and how it is EXTREMELY important in managing markets.
ICYMI: “Nothing But Political Cowardice, No Matter Where You Look”
Part 2 was about why Price is the optimal mechanism to ration products when Demand outstrips Supply of a thing over other kinds of rationing because YOU decide a thing’s value is too high for its given Price (an example was the price of ribeye steak) and not someone else determining it for you (and why Pricing can’t be gamed like other rationing systems).
Easy – 3) is self-rationing rather than imposed rationing by others. It causes people to think “do I REALLY need this”? Does this item, at this Price make sense for me?
Well, Nigel has another comeback to that but it was rather strange that it WASN’T at TreeHugger but did come in on a DISQUS notification. However, I think that either it was deleted by TH for BEING too long or Nigel deleted himself. Either way, I wanted to address it so I’ll fisk it as appropriate (reformatted, emphasis mine):
And I appreciate the answer. It is nice to feel you are talking to someone who is willing to discuss in good faith! I have changed my mind on so many things over the years (sometimes several times, oops) that I now like to mull things over. So thank you for your point of view and expect me to offer a position on this issue in 6 to 12 months time. If I may however I’d like to take the opportunity at this point to, in return, mention a few details and then offer a small point for your consideration.
The Price Mechanism generates at least four market responses that I can think off, specifically:
(1) Some products are priced high and then go higher. This causes an increase in demand! This happens for various reasons. People conflate price with quality (the mark up on perfumes for example I know to not be 10 or 20% but 10 or 20 times). The manufacturer generates a social cachet around their product so people want to have it and paying the inflated price makes them fee l they are joining a special club (think Apple products which IMO are not the best on the market but certainly the most pricey). People see the product as exclusive (think Chanel and other such manufacturers, serious £99 million billion trillion for a handbag). I shall call this option Posh Choice.
Rated: True. Diamonds are another commodity in which price seems to rise for no apparent reason. Sure, there are some large and extremely rare for coloration, cut, and the rest of its attributes but diamonds, while having to be mined in certain places, don’t seem to be that rare to command such pricing. That is called Marketing and DeBeers, a primary supplier, is a master at doing this. There’s nothing wrong with doing the above in creating a Perceived Value that may well be above what others believe is “actual” value.
The Dutch did this with Tulips back in the 1600s (overinflated the worth/value of plants) – and we did it in the Dot Com bust again (overvaluation of companies that had never even turned a profit). But people decided the value offered by a thing, at times, regardless of the fundamentals supporting a Price (tulips, stock prices, perfume, or Apple products).
And then there is the “crash” part of overvaluation:
(2) Prices go up and after a while people start to think, “You know what? This isn’t good value for money! They’re taking the p***. I’m not buying it (in either sense of the word).” I shall call this option Value Choice.
Actually, his #2 was my #3 and exactly my point – the value of a thing is less than how I value my money because I’m not going to pay that high price. So, one of his choices matches mine. This next one matches a statement I also made: The seller is under no consideration to make you happy. It doesn’t make any difference that you can’t afford something – or even anything. There are a lot of things that I would like to purchase but I:
Don’t have the resources to purchase it (or them – there are times that my wants outstrip the money in my wallet).
Are you entitled to have everything you want?
Nigel takes the tack that everyone should be able to get what they want. And in the process, violates an inviolate rule of Life (and Economics):
Life is all about Scarcity (and the tradeoffs due to Scarcity)
(3) Imagine you are one of the millions of people who: are paid weekly; are paid in cash; live pay cheque to pay cheque; have no savings; have no access to credit. You get paid on a Friday night, you go the the shops Saturday morning, you buy your food for the week for you and whoever you support. You now face several options. You know how much food you need for the week. You cannot – you CAN NOT – spend over your budget. The price of some items has gone up. Option (A) becomes buy the usual, but cut out enough items to allow you to buy the now more expensive items. Result, you eat for 6 days, go hungry Friday, go shopping Saturday. Option (B) becomes swap out the increased price items, buy different items (lower quality?) eat for 7 days. I shall call this option the Semi Choice.
(4) Same situation as in (3) but now we are talking about bigger items. You need to get a car for travel to and from work. Option (A): The price of the cheapest used car available is so low you can just stretch to covering the repayments on it so you get it. Option (B): The prices go up and the bank/car finance people say No. To purchase this item is now Beyond Your Means so you have to do without. I shall call this option the Non Choice.
Like I said, no seller is under an obligation to give you something at a lower price (other than by Government fiat). I’d love to have a top of the line laptop that rivals a personal supercomputer; that ain’t happening. I can afford a pretty beefy one, though – one that my son, although lusting after it, can’t afford it (yet!). So my want of that personal supercomputer is a Non-Choice. So is my want for a McLaren supercar – I have an F-150 instead.
Now, obviously, at all levels of income all the above cases apply. The point I want to draw attention to however is that in cases (1), (2) and (3) the Price Mechanism puts the purchaser in the position of having a choice, or having to make a choice. In case (4) however, the purchaser is not faced with a choice. They are simply Priced Out Of The Market.
I disagree. Again, it is all about Value – the price being asked is above the value I place on my money (even if I had to re-hock my house to pony up the bucks). Again, it is Price elasticity – or in this case for me, inelasticity. Sure, it could be that even re-mortgaging my house would be insufficient to pay for that McLaren or the DGX.
But those products are out of the realm of most people to begin with – and we started off with regular consumer items like food stuff that are not Wagyu beef ($200+/pound) or caviar.
I feel that in your reply above your argument does not sufficiently take this into account. You seem to view the Price Mechanism (PM) as being one where the only result is one in which the consumer is free or forced to make their own choices. However, I’m not convinced this is true. Surely it is the case that often, when a seller increases the price, one of the things he is doing is knowingly pricing those at the bottom end of the income distribution out of the market, thereby suppressing Visible Demand and thereby matching it to available supply.
The nuance here is that the Seller is obligated to use Pricing that meets everyone’s needs. That’s a Socialist style undertone (or overt, depending on who is to say that Healthcare is a Right that everyone else has to pay for you). Of COURSE every time that Price goes up, somebody will be priced out of the Market for that thing.
And this is supposed to be a bug? Sorry, with Capitalism, what is often seen to be a “Price bug” often becomes a feature. How much did you just pay for that smart watch that doubles as a cellphone yesterday? Could you have afforded an original “radio telephone” when they first came out? How about even a minicomputer back in the day? Yes, the moral of the story is that things generally become MUCH cheaper and with MUCH more functionality over time; the early adopters pay the high price so that “regular folks” get the same for less. Now, this is generally true for DIGITAL based things – not as much for more mechanical type things.
In said case therefore your implication that Rationing by seller, government or some other authority is imposed upon you, and that this is completely distinct from the use of the PM where Rationing is imposed by you upon yourself fails at the bottom end of the income distribution. Here rationing is still being Imposed upon the buyer, in this case by the seller though the PM where he has decided which group of people do not get to buy his product, that is, the poor. What do you think?
P.S. I hope you don’t mind long posts. I know people often just go: “Humph.TL:DR”
I still maintain that Pricing is the optimal mechanism even though the “bottom of the income distribution” is a real thing. The problem that wasn’t brought up is that in Socialist economies, the “bottom end” is generally MUCH larger, the middle class is sparse, and only the politically connected apparatchik have the resources to purchase what they want.
You know, like Bernie Sanders and his three dachas homes.
