Applied Socialism 101: A beer and pizza problem

79 posts / 0 new

Thu, 2008-03-20 14:22

RosaL

quote:

Originally posted by Stephen Gordon:
[b]And while I was editing as well...[/b]

heh. [img]smile.gif" border="0[/img]

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 ]

Thu, 2008-03-20 14:42

#53

Fidel

quote:

Originally posted by Stephen Gordon:
[b]
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 ][/b]

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.

Thu, 2008-03-20 14:47

#54

Stephen Gordon

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 ]

Thu, 2008-03-20 16:36

#55

PB66

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 ]

Thu, 2008-03-20 16:50

#56

Stephen Gordon

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.

Thu, 2008-03-20 17:20

#57

PB66

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?

Thu, 2008-03-20 17:24

#58

PB66

Ugh, I failed to properly nest my quotes. Hopefully, it should be clear when I attempted to reply to SG's reply.

Thu, 2008-03-20 17:27

#59

Stephen Gordon

Well, if we had a world in which each worker had one unit of capital, and in which they could only invest in the sector in which they were not working, you'd get the mirror image of scenario (4): 50 people and 50 units of capital in each sector, producing the same level of output: ~0.88 beer and pizza each.

And I'd like to make it clear that I'm not arguing against an egalitarian distribution of output; quite the contrary, in fact. The question is how to bring it about.

Thu, 2008-03-20 17:51

#60

PB66

Am I missing something?

Why wouldn't we have 25 workers and 75 units of capital in one and the reverse in the other?

Thu, 2008-03-20 18:43

#61

Erik Redburn

What's the point of reopening this old thread again? So Stephen can remind us of the one argument he may have won here? It means squat.

[ 20 March 2008: Message edited by: Erik Redburn ]

Thu, 2008-03-20 18:57

#62

Dogbert

PB's solution does give 75/25 and 25/75, by definition. [img]wink.gif" border="0[/img]

Fri, 2008-03-21 03:25

#63

PB66

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 ]

Fri, 2008-03-21 03:29

#64

Michelle

quote:

Originally posted by Stephen Gordon:
[b]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.[/b]

I just failed the course, didn't I? [img]biggrin.gif" border="0[/img]

Fri, 2008-03-21 14:26

#65

Stephen Gordon

quote:

Originally posted by Dogbert:
PB's solution does give 75/25 and 25/75, by definition. [img]wink.gif" border="0[/img]

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 ]

Fri, 2008-03-21 14:40

#66

Frustrated Mess Frustrated Mess's picture

quote:

property rights are enforced

Why is that necessary and why is it the only right in effect? Why is there no right, for example, to pizza and beer?

Fri, 2008-03-21 14:49

#67

Stephen Gordon

It isn't necessary if you don't want to implement a capitalist solution.

Fri, 2008-03-21 15:02

#68

Fidel

quote:

Originally posted by Stephen Gordon:
[b] 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.[/b]

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 ]

Fri, 2008-03-21 16:01

#69

Frustrated Mess Frustrated Mess's picture

quote:

Originally posted by Stephen Gordon:
[b]It isn't necessary if you don't want to implement a capitalist solution.[/b]

Huh?

Fri, 2008-03-21 16:05

#70

Stephen Gordon

Okay, how about: if you want to implement a capitalist solution, property rights have to be enforced.

Fri, 2008-03-21 16:07

#71

Fidel

He means the right of way for marauding capital and uberrich American's rights to scoop up Canada not worker's rights, the environmental, women's rights or anyone elses.

Fri, 2008-03-21 16:28

#72

Frustrated Mess Frustrated Mess's picture

quote:

property rights have to be enforced.

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?

Fri, 2008-03-21 17:43

#73

Frustrated Mess Frustrated Mess's picture

quote:

Originally posted by Frustrated Mess:
[b]
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?[/b]

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.

Sat, 2008-03-22 03:25

#74

PB66

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?

Sat, 2008-03-22 04:20

#75

Stephen Gordon

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 ]

Sat, 2008-03-22 06:32

#76

PB66

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.

quote:

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.

quote:

[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 ]

Sat, 2008-03-22 07:40

#77

Fidel

[url=http://www.shoutwire.com/viewstory/139479/Pizza_Beer_Prices_Skyrocket]Pizza and beer now cost an arm and a leg[/url] (Feb U.S.)
[url=http://www.boston.com/business/articles/2008/03/21/credit_crisis_puts_vi... Pizza[/url] among 93 U.S. companies at risk of defaulting on $53 billion in debts

Sat, 2008-03-22 07:46

#78

N.Beltov

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.

Sat, 2008-03-22 12:19

#79

PB66

Thanks, N. Beltov, for the welcome and the formatting advice.

Applied Socialism 101: A beer and pizza problem

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