"Are you saying, then, that the market is not the best determiner of value, especially when it comes to salaries? Or that there should be another component to determining value other than straight financial benefit?
Fraud Guy"
In a word both. Actually, in the post I just said the market wasn't a perfect determiner, but I do think that there should be another component to determining value.
I tend to guess from the nickname that Fraud Guy agrees with me, but in the heat of the moment, I assumed he didn't. Thus this long reply to pseudo-Fraud Guy.
Look Fraud Guy, the market thinks that cocaine is very valuable. if you think that drug smugglers have earned their money, you are consistent. If you don't you agree with me. If you think the market is perfect except totally absolutely wrong and the opposite of what it should be for heroin and cocaine, then you have to explain the discontinuity. From "money 100% earned" to "confiscation of everything that can be confiscated and a jail sentence earned" is a big jump.
In answer to your question, I obviously don't think that the market is the best judge of value. For one thing, the strongest claim for the market is that market outcomes are Pareto efficient -- not welfare maximizing. This means utils are weighted inverse to the marginal utility of consumption. Second, the claim for the market requires
1) rationality
2) price taking behavior (no market power)
3) no externalities
4) 3 means among many other things people must be assumed to be divided into groups (families) which are totally selfish.
5) symmetric information
6) complete markets
Now I have been talking about financial innovation a bit. You should know that the claim that markets are efficient is based on the assumption that there is no possibility of profitable financial innovation.
But somehow it seems shocking or odd that an economist doesn't thinks that "that the market is not the best determiner of value." I mean when did you drop out of economics 101 ?
Look the market keeps changing its mind about the value of the S&P 500. The right price is changing on the order of 1% a day. How can you have such faith in the judgment something which keeps changing it opinion ?
Oh and actually my claim in the post copied by rdan was just that the market is not a perfect determiner of value. I did not then claim that a better way of determining value is feasible.
I will do so now. A better way of determining value is feasible. It defaults to the market, but if an overwhelming majority of people think a correction is an improvement then it is implemented. This is our current system (overwhelming to defeat a filibuster in the Senate). I am absolutely sure that the outcome with public redistribution is better, more just and a more efficient generator of happiness than the market.
2 comments:
Robert, in your alternative to market valuation, could you sketch the mechanisms by which you believe we could (1) determine the popular defeater and (2) implement the correction? Roughly, do you have in mind something along the lines of a plebiscite followed by standard regulatory intervention? Or something more exotic?
I wrote unclearly.
My proposal is that we keep on doing what we have been doing. Tax income to pay people to provide services which are undervalued by the market. With taxes and spending chosen by our elected representatives. A huge majority is needed to do anything, because of the filibuster in the Senate.
Over at AngryBear I gave examples of the sort of people who should get public money. The examples weren't made up. They are my father, my sister and my mother all of whom are (or were my mom is retired) public sector employees.
Paying them to do what they do is efficient.
My brother is a private sector employee.
I am a public sector employee. I didn't say that paying all of us is efficient and make no claims about the extent to which I do or don't earn my salary.
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