16 votes

Are billionaires a market failure? And if not market, are they social failure?

I was reading this text from the Washington Post (sorry for the maybe paywall):

https://www.washingtonpost.com/opinions/2022/10/06/xi-jinping-crackdown-china-economy-change/

The opinion asserts that in response to liberalization of Chinese life, driven by capitalistic economic growth, is the reason that Xi Pinjing "cracked down in every sphere imaginable — attacking the private sector, humiliating billionaires, reviving Communist ideology, purging the party of corrupt officials and ramping up nationalism (mostly anti-Western) in both word and deed."

My conspiratorial brain latched on to the humiliating billionaires line, and started thinking about a between the lines message along the lines that billionaires are good and should not be humiliated, a subtle warning-response to the progressive grumblings here in the U.S. that a failure to support capitalism will result in totalitarianism.

Then I started thinking about the questions, are billionaires good for society? I had always held the position that a billionaire is a market failure (in my econ 101 understanding of the term), much like pollution. It is improper hoarding and unfair leveraging of capital into disproportionate and un-earned degree of pesonal privilege.

It is certainly a by-product of euro-american capitalism, whereby the desires and welfare of the many are trodden on by those with the ability to fight and to shape the regulatory machine meant to protect the interests of the common-wealth.

I see a few possibilities. One, is that my understanding of economics is wrong, and producing as many billionaires as possible is the ultimate goal of capitalism and in fact good for everyone, even in theory.

Two, it is indeed as I suspect, a market failure. And the failure here is one of degree, it is not, in fact problematic to have some individuals with significantly greater wealth among us, and is, in fact, beneficial overall, but to have some with so much more than the rest of us (wealth inequaility) is a result of getting in the way of a clean functioning marketplace.

Three, economic theory is working as described, and economic theory/activity is an insufficient foundation for the maintenance and success of a whole society, and we need to find a way to constrain it to its own sphere, so that it provides us with what we need to be healthy and happy, but no more.

I turn to the bright minds of tildes: am I looking at this right?

24 comments

  1. knocklessmonster
    (edited )
    Link
    Not an economist, but I did take a bunch of classes. Believe it or not, capitalist theory is about the efficient allocation of goods and resources. Even aligned with dudes like Adam Smith, it...

    Not an economist, but I did take a bunch of classes.

    Believe it or not, capitalist theory is about the efficient allocation of goods and resources. Even aligned with dudes like Adam Smith, it would be fair to say billionaires are effectively monopolistic distributions of wealth, and so allocatively inefficient, which is not a capitalist goal.

    Basically I subscribe to 3 with a tweak: The machine is not working as intended. Capitalism as a society driver is not supposed to be this way, but similar to how true communism has never happened, true capitalism has never happened for similar reasons: people with power become corrupt and abuse it, wielding it in ways that undermine the potential benefits of their goal.

    A note about the above: Our markets are dysfunctional for social reasons. People aren't paid their worth in the labor market which is a major issue in society because we have built a labor caste system.

    Due to this, I think a model society has two things: A generally free market for allocative efficiency and a government that ensures fair distribution of economiic profits. The US, for example, doesn't have this and our own capitalism has corrupted itself. People aren't paid according to the revenue they generate but their "station," which, IMO isn't very fair free market. To me this triggers a requirement for a social structure, a government regulation, to correct for it.

    My opinion, at least, isn't too far off of (3) where the failings of capitalism are largely societal failings.

    18 votes
  2. fional
    Link
    I've always looked at market-based capital allocation as a system that functions best away from extremes. A certain sect of political thinking has associated the concept of "free market" as one...

    I've always looked at market-based capital allocation as a system that functions best away from extremes. A certain sect of political thinking has associated the concept of "free market" as one that is as free of regulation and intervention as possible, and this has resulted in unchecked growth in monopoly power at the company and personal level. When "too big to fail" sees zombie corporations limping along on market power and bailouts, when the little regulation that does get passed only serves to empower firms large enough to afford costly compliance mechanisms, and when tax law and loose monetary policy encourages stock buybacks and market concentration, it's hard to call the present world a good implementation of free market capitalism.

    Instead, I see the original envisioning of a "free market" as one that maximizes competition, where there are few barriers to entry for new aspiring players, and relatively few mechanisms to prop up failing players that unfairly bias incumbent firms. Under this approach, we'd make policy to that effect:

    • A laborer is a market player, and so a strong social net increases competition and free market effects. This means not being slaved to a corporate gig for healthcare, and having a viable alternative to working an untenable job that isn't "be funneled into the homelessness/crime death spiral." This might be better labor standards, a higher minimum wage, or some form of basic income. A company should not be able to unilaterally force unsustainable wages, schedules, or working conditions because they are the monopsony buyer of labor in a particular market.
    • Companies that are "too big to fail" are "too big to exist" and should be broken up. We should be on constant lookout for firms whose structural implications grant its leadership to act with impunity knowing a bailout will save them.
    • The legal system should not weight the relative depth-of-pockets of disputants in outcome. Today, it's very easy for a big fish to eat a little one just by virtue of the zero-sum arms race that is having an army of lawyers.
    • Higher top-end tax rates. Just as a company can achieve monopoly power that allows it to drag on unproductively for decades without contributing value, there are levels of capital concentration where no single person can legitimately claim to be able to productively allocate said capital. This isn't "Harrison Bergeron," it's okay for wealth inequality to exist, but the range between the poorest and richest could be significantly compressed before people collapse into black holes of unassailable fortune.

    Ultimately, I see capitalism a bit like running a nuclear reactor. There's a range in the middle where everything is great, but if there's too little (e.g. not enough societal infrastructure to support fair contract enforcement or market making), or if there's too much (markets become so influential that their gravity distorts the societal space around them), then either economic activity stops or blows itself up.

    9 votes
  3. rosco
    Link
    I think you're closest with theory 3. Billionaires and capital hoarding in general is always going to be an outcome of capitalism and our ability/desire to curb their existence is cyclical. When a...

    I think you're closest with theory 3. Billionaires and capital hoarding in general is always going to be an outcome of capitalism and our ability/desire to curb their existence is cyclical. When a small group of individuals consolidates enough resources they can systematically change the way economics work writ large. A great example from the 20th century is Rockefeller v. Getty. While both were absurdly rich, Rockefeller could subsidize coal production with his profits from railroads and allow him to severely undercut Getty by selling coal at a rate lower than it took him to produce it. Conducted long enough you can push other players out of the market and create a monopoly.

    Take that mindset into today and apply to the world of venture capital. Amazon, Uber, Doordash... Almost any "distributive" new technology is just under cutting the market with venture backed dollars in an attempt to monopolize it. There are some really slanted articles, such as this one from the New York Times, that happily blame younger generations for these skeezy tactics. Damn millennial greed!!! This consolidation of wealth also gives them the ability to change political will, a la the Prop 22 in California or reduction of corporate taxes, that only cement their power. This is compounded with traditional boom/bust cycles common in capitalism that allow the wealthy to shore up their gains as they can afford to buy at market lows and maintain holding through those periods.

    With all context, it feels like the natural state of the "free market" leans towards consolidation. Those with the most capital will strive for more, and in doing so change the way the market works. It's Cristiano Ronaldo playing in a youth soccer league. To me that is pure capitalism. The policy and regulations that prevent this type of consolidation are, in my mind, anti-capitalist - and I think that is a good thing. For those of us who don't live in a nation/system that only relies on natural resources (i.e. banana republics), human capital is still a big part of the equation. That is why I think we are able to see cycles of capital consolidation. Things get so bad for your average person that policy and regulation have to change to preserve the overarching governing system. We saw it in the 1930s and I think we'll likely be seeing it again in the next decade or so. At least I hope so.

    Also side tangent inbound. One point the article misses is that the billionaires of China are largely hand selected. The state cultivates things like Alibaba and amplifies them to a national and eventually international scale. It's usually a question of who works most closely and in alignment with the CCP. So when Jack Ma starts making rumblings of China's failings, they can just choose a different company/business man to fill those shoes.

    7 votes
  4. eledrave
    Link
    I feel like option 2 is the most likely. Almost everything we can categorize and discuss is a spectrum. People like to say that something is A or B. But there's few cases where that's true;...

    I feel like option 2 is the most likely. Almost everything we can categorize and discuss is a spectrum. People like to say that something is A or B. But there's few cases where that's true; there's degrees to almost everything. Complete capitalism, probably bad. Total governmental regulation, probably bad. But somewhere in-between is a sweet spot where the country/earth can be sustained, people can be cared for, business owners can get rich, etc. It's just been unconstrained. Time to swing the pendulum back a bit to even things out.

    4 votes
  5. [3]
    skybrian
    Link
    I don't believe this question can be answered very well in the abstract because fortunes are made in a variety of ways. You'd have to study individual cases. But sometimes, It seems like...

    I don't believe this question can be answered very well in the abstract because fortunes are made in a variety of ways. You'd have to study individual cases.

    But sometimes, It seems like billionaires become rich because of a runaway market success. It happens due to snowball effects. People are trying to create snowball effects on purpose, but some of them go on for a lot longer than anyone imagined they would. And they keep going because, well, nothing stops it from continuing, until some upper limit is reached and it slows down.

    This is fairly obvious in the entertainment business where famous people often get more attention from the media, which makes them even more famous.

    The upper limits are quite high in large markets with hundreds of millions of people. A billion dollars is $100 from 10 million people or $10 from 100 million people. When you pay $10 for something, you're thinking what the deal is worth to you, not how many other people would want to do the same deal. So a person or company that can have some sort of one-to-many financial relationship with millions is in an extraordinary position that causes counterintuitive effects.

    I think it's weird to call this a market failure when it's a consequence of market success.

    To prevent snowball effects from happening, the system would have to actively work against whatever causes the positive feedback that creates financial relationships with many millions of people.

    But there are benefits to scale, like lower prices. Preventing things from happening at large scale isn't obviously a win.

    3 votes
    1. [2]
      vord
      Link Parent
      It's a market failure in the sense that the system sets the rules for the market. If the rules allow that snowball effect to continue unabated, bad things happen. There's plenty of historical (and...

      I think it's weird to call this a market failure when it's a consequence of market success.

      To prevent snowball effects from happening, the system would have to actively work against whatever causes the positive feedback that creates financial relationships with many millions of people.

      It's a market failure in the sense that the system sets the rules for the market. If the rules allow that snowball effect to continue unabated, bad things happen.

      There's plenty of historical (and current!) evidence that the periods of greatest economic and political instability are also the ones with the greatest levels of wealth inequality.

      The times of US history with the greatest economic growth were ones with strong antitrust, planned economies (WW1/2), and heavy taxation (to prevent the snowball).

      Billionaires are the natural result of an unchecked market economy. And their existence is immoral. It is the epitomy of an economic system which prioritizes personal gain at any cost.

      Capitalism is driven by our primative instincts. It did allow for immense growth (for a few)...but also burned the planet in doing so. Its time for an economic system driven by our rational minds, not our primal ones.

      5 votes
      1. skybrian
        Link Parent
        This seems like a misuse of terminology. "Market failure" doesn't mean "anything we dislike about markets." It means that trades aren't happening that we think should happen. You can't buy or sell...

        This seems like a misuse of terminology. "Market failure" doesn't mean "anything we dislike about markets." It means that trades aren't happening that we think should happen. You can't buy or sell what you think you should, or prices are wrong for for some reason.

        Prices being too high due to a monopoly is a market failure. Prices being too low due to environmental damage not being taken into account is a market failure. People being out of work due to widespread unemployment is a market failure - they can do useful work and should be able to sell their labor, but they can't find a job.

        Wealth inequality might often happen as the result of market failures, but it's not necessary so. What bad trades happened that caused Oprah Winfrey to become a billionaire? If the prices were wrong, what should they have been?

        It's easy to complain about how things are in an abstract way, but this doesn't show what the market failure is.

        1 vote
  6. [17]
    HotPants
    Link
    Extreme wealth inequality is a market failure. A market failure is the inefficient allocation of supply and demand. We have markets for labor and capital as well as goods and services. All of...

    Extreme wealth inequality is a market failure. A market failure is the inefficient allocation of supply and demand. We have markets for labor and capital as well as goods and services. All of these markets fail with extreme wealth inequality. Grossly inequal distributions of both income and wealth give the wealthy grossly disproportionate political power, which they then use to change laws so as to benefit themselves at the expense of society as a whole.

    Market failure of labor: I think this is the easiest to argue. Much like monopolies in marketplaces, those who have a monopoly on capital seek to control labor rates, conditions, taxes and therefore social services. You don't have to look far for billionaires who lobby for no minimum wages, no labor unions, no childcare or free education or healthcare or retirement care. In America, where these lobbying efforts are most successful, there is a well documented tendency for the rich to succeed more often than the poor. This is the definition of an inefficient labor marketplace, where people succeed not based on merit but on position.

    Market failure of capital: Extreme wealth inequality is a failure of capitalism. Capitalism is the private ownership of capital for profit seeking opportunities with the goal of improving society. Some form of wealth inequality is expected under capitalism for efficient market place operation. A few Billionaires are presumably good for market efficiency. The only way to avoid billionaires would be to intervene heavily in the capital markets, which presumably is bad. The usual Pareto principle applies. 80% of the wealth would be owned by approximately 20% of the people. 64% of the wealth should be owned by 4% of the people. 50% of the wealth owned by 1% of the people. But if 1% of the people own 80% of the capital, then they are not allocating their capital to improve society, but to improve themselves, as seen by the massive lobbying to decrease taxes for the rich, which ultimately hurts everyone, as the engine for economic growth is consumer spending. If you agree that the purpose of capitalism is to improve society, this is a clear failure of capital markets.

    Market failure of the economy (goods and services): Extreme wealth inequality is also economic failure, because economic failure spans both market failure and social failure. Economic goals can include market efficiency, wealth and income equity, economic freedom, full employment, economic growth, security, and stability. Another way to look at this is from the market place of goods and services. Extreme wealth inequality means the vast majority of people can't afford to buy the standard of living that is freely available to the wealthy, meaning most of the economic output is focused on making the few billionaires happy, not the many poor happy. This is a clear failure to allocate supply with demand (unless you are rich, then screw the poor?)

    Oligarchy's are inherently bad: Oligarchies are where a small group of people having control of a country, organization, or institution. Some level of wealth inequality is required for an efficiently operating market, and countries with markets that can allocate capitol efficiently do better for its citizens than those whose government intervene too heavily with the markets. Scientific America has a really interesting article that talks about how wealth inequality is a natural state of a free market economy, and how free market economies are better for society. It makes the interesting point, that Russias problem was a rapid transition from an authoritarian controlled society to an oligarchy. If too much government intervention is a problem, too little government intervention in free markets is also a problem. Billionaires are OK, oligarchs are not.

    Extreme wealth inequality is inherently bad: I think this is the hardest to answer, but the closest to your actual question. I think Piketty covered this well in Capital in the Twenty-First Century. Globally, the world economy grows faster when there is more equality. A raising tide raises all boats. The best argument against Piketty is that America has the most number of billionaires in the world, but until recently, I would much rather live in America than anywhere else. I stress the recent change in my opinion. It's not far fetched to claim that extreme wealth inequality causes huge societal problems. That is the essence of Trumps Make America Great Again demagoguery. We don't have a lot of data points, but as Piketty points out, the last time wealth inequality was these extreme, was prior to the great depression. I guess time will tell if wealth inequality inevitably leads to another great recession, or perhaps an authoritarian leader in America?

    3 votes
    1. [16]
      skybrian
      Link Parent
      In the US, it seems strange to call it a market failure overall when unemployment is at a 50 year low? Yes, there is more to it than that. But instead of debating whether to call it success or...

      Market failure on labor

      In the US, it seems strange to call it a market failure overall when unemployment is at a 50 year low? Yes, there is more to it than that. But instead of debating whether to call it success or failure overall, maybe it would be better to make narrower claims.

      Also, it seems strange to point to people arguing in favor of no minimum wage (etc) when talking about current market conditions? Arguments aren’t laws.

      1. [15]
        HotPants
        Link Parent
        Not sure if you are disagreeing with my definition, or with my conclusion. The question was, are billionaires a market failure, not if the market is failing right now. Also, the market is failing...

        A market failure is the inefficient allocation of supply and demand.

        Extreme wealth inequality means the vast majority of people can't afford to buy the standard of living that is freely available to the wealthy, meaning most of the economic output is focused on making the few billionaires happy, not the many poor happy. This is a clear failure to allocate supply with demand

        Not sure if you are disagreeing with my definition, or with my conclusion.

        The question was, are billionaires a market failure, not if the market is failing right now.

        Also, the market is failing right now. There is too much demand for workers and not enough supply. Billionaires have been actively suppressing wages. Productivity is up. Profits are up. Wages were stagnant for decades. Billionaires haven't caused this market failure, but they have made it worse. With inflation at 8%, wages aren't even keeping up, yet the Fed is going to hike rates until unemployment is up, wages are down and the threat of wage driven inflation is non-existent. The fed's mandate for 2% inflation isn't to benefit workers. Workers, with debt, benefit from higher inflation. Billionaires do not.

        The market moves in cycles. Unemployment swings between lows and highs. Just because high employment currently benefits workers, doesn't mean the very rich and wealthy aren't pulling the levers of power to raise unemployment and suppress wages to further increase their profits. Give it a year and see.

        Grossly inequal distributions of both income and wealth give the wealthy grossly disproportionate political power, which they then use to change laws so as to benefit themselves at the expense of society as a whole.

        Anyway, thanks for reading my ramblings and writing a thoughtful response.

        3 votes
        1. [14]
          skybrian
          Link Parent
          I don't think this gets us anywhere without a good definition of "efficient." If it means "nothing goes to waste" I think that could be true even when prices are wrong. (A company that enjoys...

          A market failure is the inefficient allocation of supply and demand.

          I don't think this gets us anywhere without a good definition of "efficient." If it means "nothing goes to waste" I think that could be true even when prices are wrong. (A company that enjoys monopoly pricing could be run very efficiently.)

          Extreme wealth inequality means the vast majority of people can't afford to buy the standard of living that is freely available to the wealthy

          I'm inclined to disagree with this because it's too vague about what standard of living you're advocating for. Do you mean that people should have their basic needs taken care of, or everyone should live like millionaires, or what? I suppose those are both interesting goals but they have different consequences (for example, energy usage).

          1. [2]
            LukeZaz
            Link Parent
            This is rather irrelevant because their statement remains true almost entirely independently of what specific standard of living it's talking about, short of ridiculous logical extremes. The...

            I'm inclined to disagree with this because it's too vague about what standard of living you're advocating for.

            This is rather irrelevant because their statement remains true almost entirely independently of what specific standard of living it's talking about, short of ridiculous logical extremes. The greater the wealth inequality, the less the poor can afford and the more the rich can afford. Sufficient wealth inequality would render it true for both of the standards you mentioned, so what basis is this to disagree over?

            2 votes
            1. skybrian
              Link Parent
              Maybe it doesn't matter if all you want to show is that inequality exists and it's bad. But I'm thinking along the lines of how expensive something like universal basic income would be. Of course...

              Maybe it doesn't matter if all you want to show is that inequality exists and it's bad.

              But I'm thinking along the lines of how expensive something like universal basic income would be. Of course it's going to cost more the higher the level you set it at. And there are going to be supply limits restricting how high you can set it. We're already seeing high inflation.

              (These limits are more vivid in Europe this year. There's going to be a limited amount of natural gas available this winter, and there may be limits on electricity usage in general.)

              Thinking a bit longer term, from a climate change perspective, we are already badly over-extended. Without dramatic improvements in clean energy, the world isn't going to be able to adopt a similar lifestyle to developed nations.

              1 vote
          2. rosco
            Link Parent
            Yeah but it's hard to argue that hoarding behavior is efficient.

            I don't think this gets us anywhere without a good definition of "efficient." If it means "nothing goes to waste" I think that could be true even when prices are wrong. (A company that enjoys monopoly pricing could be run very efficiently.)

            Yeah but it's hard to argue that hoarding behavior is efficient.

            2 votes
          3. [10]
            NoblePath
            Link Parent
            Efficiency in economics means no resources, including financial resources, are expended in excess of value returned. In this sense, overpayment for goods or services that comes from monopolies or...

            Efficiency in economics means no resources, including financial resources, are expended in excess of value returned. In this sense, overpayment for goods or services that comes from monopolies or other market distortions/failures is inefficient. As would be hoarding cash.

            1 vote
            1. [9]
              skybrian
              (edited )
              Link Parent
              I'm a materialist. Money is just abstract numbers in a computer somewhere. The way it's distributed can certainly cause inefficiency, but that's an effect, not inherent. How the inefficiency...

              I'm a materialist. Money is just abstract numbers in a computer somewhere. The way it's distributed can certainly cause inefficiency, but that's an effect, not inherent. How the inefficiency happens is more complicated than just saying some people have more money.

              Consider a rich owner of an apartment building. If all the units are being rented out, that's efficient - nothing goes to waste. A lot of investments are like that; businesses certainly can be inefficient, but that's usually not the goal when investing or running a business.

              On the other hand, say someone inherits a house (a parent dies). If you sell it or rent it out then that's efficient. If you keep it and it mostly sits vacant then it's a waste. This is the sort of waste that only a rich person can afford; a family that needs the money is going to sell or rent the family home, even if the house they grew up in has sentimental value.

              I've never seen a serious attempt at figuring out how much waste there is due to inequality, but it's gotta be a lot lower than the raw numbers for inequality in wealth or income, because a lot of that money gets invested, and to a first approximation, it's at about equal efficiency as anyone else's savings or investments regardless of how much money you have.

              For example, a bank can do a good or bad job of making loans, but they don't do a worse job because some of the deposits are owned by rich people.

              Or consider owning government bonds. A government's efficiency or inefficiency depends on how it makes spending decisions, which is a matter of politics. It doesn't depend on how rich the bondholders are.

              To figure out the waste, we have to look at consumption. Things like private jets and yachts would count.

              1. [8]
                NoblePath
                Link Parent
                If I understand you correctly, you are eliminating price (and what that represents) from your definition if efficiency. Stated another way, your definition of efficiency is limited to maximum...

                If I understand you correctly, you are eliminating price (and what that represents) from your definition if efficiency. Stated another way, your definition of efficiency is limited to maximum utilization of resources.

                But efficiency in the market is more than that. Consider, I am not a rich person. If I buy one thing, then I cannot buy another. If the one thing is a necessity, like housing, and prices are not set by a market in which all participants have equal access, the broader market become inefficient. So if I am spending so much on housing that I have to restrict other necessities, like food and housing, my utility is inefficiently diminished (not to mention unfairly restricted).

                So if the reason I am paying inflated rent is because a billionaire can distort the market through the use of their billions, the market has failed to create an efficient result.

                This may also lead to other, practical inefficiencies: my health may suffer, further diminishing my capacity to participate in the market. And if that fails altogether, society still has to do something with me, even if it is scoop me up in a dump truck and haul me off to a soylent green production facility. All that it would seem to me factors into a robust understanding of efficiency.

                Even under your definition, it is not efficient for me to pay a price for a good that is beyond that which would be produced by the interaction of participant-equals. The money spent on that good means that other resources, which produce other goods (and which might result in even greater utility), go un-developed.

                1. [7]
                  skybrian
                  Link Parent
                  It's not so much that I'm eliminating price as saying that it doesn't bottom out there. There needs to be some kind of argument about how it causes material inefficiency (as you are making). One...

                  It's not so much that I'm eliminating price as saying that it doesn't bottom out there. There needs to be some kind of argument about how it causes material inefficiency (as you are making).

                  One thing that makes it tricky is that, in principle, there's no general shortage of money; a central bank can always make more, either directly or indirectly though encouraging more loans. This works even better when they work with the federal government; during the pandemic, COVID payments caused a big reduction in child poverty.

                  People not having enough money for their basic needs results in the many inefficiencies of poverty. But someone else having more money (that they don't spend) often isn't directly tied to you having less.

                  There is an indirect tie through the competition for resources. Rich people can outbid poor people for just about anything, should they choose to do so, and this pushes prices up. This pretty obviously causes increased housing prices in Silicon Valley, for example, and in all the other places where rich people want to live.

                  I don't believe this is primarily due to billionaires though. It's mass affluence. It's due to there being many software engineers and doctors and so on making a good living, not the few who live in Atherton. (Along with zoning restrictions.) Billionaires aren't trying to buy most housing in the bay area for their own use; it's all the affluent people together along with NIMBYism.

                  You might as well blame billionaires for rush hour traffic. As a direct argument, it doesn't work; there aren't that many limos. You could blame rich people in Atherton for blocking improvements to Caltrain, though. You could also ask why tech companies expand in Silicon Valley and not in less populated areas that could more easily grow? The management of big companies has some responsibility there.

                  (But it seems like the worst effects of poverty happen when rich people are absent and the infrastructure collapses? Places like Flint, Michigan and Jackson, Mississippi have water problems.)

                  1. [6]
                    NoblePath
                    Link Parent
                    I think we're disconnecting on definitions. For example, I would not consider "money" to be the same as "quantity of legal tender." Similarly, I don't use the word billionaire in the literal...

                    I think we're disconnecting on definitions. For example, I would not consider "money" to be the same as "quantity of legal tender." Similarly, I don't use the word billionaire in the literal sense, although around a "billion dollars" "net worth" for an individual is the phenomenon I am referring to.

                    Money provides transactional liquidity. As a result, price and cost are often measured in money. But price and cost exist independently of money. Such that, to a billionaire, price is rarely relevant, but costs are externalized as much as p0ssible. To me, price is highly relevant, and I have little ability to externalize any costs, at least not at my own whim. I do, for example, get a healthcare marketplace subsidy.

                    My rent example was meant merely hypothetically. I would posit that billionaires are responsible for rent inflation in many locations, but less in direct purchase of homes, as much indirectly in driving development practices. Some folks do like a suburban lifestyle, and through a nimby-like process preserve and expand it, but many more are forced into it by economic forces at higher levels beyond their control, but not beyond the control of billionaires.

                    My original question was different, however. Is the existence of a billionaire a market failure? Is so much economic potential concentrated in single market participant, such that they can exert a wildly disproportionate (and perhaps unchecked) influence on the market, a failure of markets to properly self-regulate?

                    1. [5]
                      skybrian
                      Link Parent
                      Could you clarify what you mean when you talk about externalizing costs? What are some examples? If you mean ordinary consumption, it seems like rich people are willing to pay more for stuff? This...

                      Could you clarify what you mean when you talk about externalizing costs? What are some examples? If you mean ordinary consumption, it seems like rich people are willing to pay more for stuff? This is why high-end retailers can sell luxury goods to rich people at high markup.

                      Getting back to "market failure": markets consist of people who do trades. Self-regulation would mean not doing trades - perhaps a boycott of some sort? I guess you could take the peoples' failure to boycott Walmart (say) as a 'market failure' of sorts. However, thinking like an economist, the fact that they bought so much from Walmart seems to indicates that Walmart was doing good trades, or at least people thought they were good. They probably aren't thinking much about how wealthy some of the stockholders are.

                      How would self-regulation work? Would there be special labels for goods that are "certified billionaire-free?"

                      1. [4]
                        NoblePath
                        Link Parent
                        Bringing up walmart is a convenient coincidence, as they are adept at externalizing cost. Their pay structure keeps employees close enough to poverty (or has in the past) so that wal mart doesn’t...

                        Bringing up walmart is a convenient coincidence, as they are adept at externalizing cost. Their pay structure keeps employees close enough to poverty (or has in the past) so that wal mart doesn’t have to pay health benefits. An externality is a market failure where market participants do not bear the full cost of their tramsaction. Pollution is another good example of an externality. If can simply dump my un-needed wastes and byproducts of production on you (externalize them), the costs I must pay are reduced. Externalities are by definition market failures.

                        Self regulation does not ever work, as far as I can tell. Market distortions and failures always appear, and a few take great benefits and many pay detriment as a result. Government and other institutions must intervene to limit impacts and promote fairness and correct grievances. Lassez Faire enthusiasts suggest the market will self regulate itself (such that every participant has perfect information and equal access), and that regulation always distorts incentives and thay is what leads to market failures. Perfect information is impossible, however. No one can ever perfectly quantify the costs or value of any good transaction, and rational self interest will always incentivize participants to externalize costs.

                        If billionaires are a market failure, as i think they are, the market needs external regulation to limit their number and impact. Affluent communities are probably another market failure.

                        1 vote
                        1. [3]
                          skybrian
                          Link Parent
                          It sounds like you mean to say that big business is a market failure?

                          It sounds like you mean to say that big business is a market failure?

                          1. [2]
                            NoblePath
                            Link Parent
                            I wouldn’t say that. I wouldn’t say, either, that big business is necessarily bad or evil. I would say that the most egregious market failures are associated with big business.

                            I wouldn’t say that. I wouldn’t say, either, that big business is necessarily bad or evil. I would say that the most egregious market failures are associated with big business.

                            1. skybrian
                              Link Parent
                              Well, good, we agree on something! I think that, much as sometimes we talk about the economies of scale, there is also what I will call "pathologies of scale." The biggest cities, markets,...

                              Well, good, we agree on something!

                              I think that, much as sometimes we talk about the economies of scale, there is also what I will call "pathologies of scale." The biggest cities, markets, bureaucracies, and social networks have problems that don't arise as smaller scales.

                              Billionaires are another phenomena that only happens at large scale. The owners of regional businesses (like car dealerships or the like) become millionaires, not billionaires.

                              2 votes