socialism fundamentally confuses efficiency and equity: the two opposite sides of the economic policy coin.
utility is roughly log(wealth), so we maximize utility by maximizing the size of the pie, and also how evenly it’s distributed. some redistributive mechanisms shrink the pie — they have what economists refer to as “deadweight loss”. e.g. if i have an apple and you have an orange, but i think an orange is worth two apples and you think an apple is worth two oranges, then we double our utility by trading. that is a pareto improvement. but if a tax is imposed which makes the trade no longer pencil out, then we stick with the suboptimal allocation and derive less utility from the same goods.
we want to avoid these inefficient taxes in favor of methods that have zero (neutral) deadweight loss, or even negative deadweight loss where possible. chiefly these are:
pigovian taxes (negative deadweight loss)
land value taxes (neutral deadweight loss)
UBI (neutral deadweight loss
we want to assiduously avoid the socialist conceptions of paying people in the form of company equity (which doesn’t change the equilibrium price of their labor anyway). we want to avoid price controls, e.g. rent control and minimum wage. we want to avoid means testing and progressive marginal tax rates. just use efficient taxes and give people money, allowing of course for non-excludable goods (public and common goods).
socialism essentially gets everything wrong on these basic econ 101 concepts.
socialism fundamentally confuses efficiency and equity: the two opposite sides of the economic policy coin.
utility is roughly log(wealth), so we maximize utility by maximizing the size of the pie, and also how evenly it’s distributed. some redistributive mechanisms shrink the pie — they have what economists refer to as “deadweight loss”. e.g. if i have an apple and you have an orange, but i think an orange is worth two apples and you think an apple is worth two oranges, then we double our utility by trading. that is a pareto improvement. but if a tax is imposed which makes the trade no longer pencil out, then we stick with the suboptimal allocation and derive less utility from the same goods.
we want to avoid these inefficient taxes in favor of methods that have zero (neutral) deadweight loss, or even negative deadweight loss where possible. chiefly these are:
pigovian taxes (negative deadweight loss)
land value taxes (neutral deadweight loss)
UBI (neutral deadweight loss
we want to assiduously avoid the socialist conceptions of paying people in the form of company equity (which doesn’t change the equilibrium price of their labor anyway). we want to avoid price controls, e.g. rent control and minimum wage. we want to avoid means testing and progressive marginal tax rates. just use efficient taxes and give people money, allowing of course for non-excludable goods (public and common goods).
socialism essentially gets everything wrong on these basic econ 101 concepts.