The Distributive Justice of the Market - Part II

Written by Sam Vaknin

Philosophers tried to specify a "bundle" or "package" of goods, services, and intangibles (like information, or skills, or knowledge). Justice - though not necessarily happiness - is when everyone possesses an identical bundle. Happiness - though not necessarily justice - is when each one of us possesses a "bundle" which reflects his or her preferences, priorities, and predilections. None of us will be too happy with a standardized bundle, selected by a committee of philosophers - or bureaucrats, as wasrepparttar case under communism.

The market allows forrepparttar 132671 exchange of goods and services between holders of identical bundles. If I seek books, but detest oranges - I can swap them with someone in return for his books. That way both of us are rendered better off than underrepparttar 132672 strict egalitarian version.

Still, there is no guarantee that I will find my exact match - a person who is interested in swapping his books for my oranges. Illiquid, small, or imperfect markets thus inhibitrepparttar 132673 scope of these exchanges. Additionally, exchange participants have to agree on an index: how many books for how many oranges? This isrepparttar 132674 price of oranges in terms of books.

Money -repparttar 132675 obvious "index" - does not solve this problem, merely simplifies it and facilitates exchanges. It does not eliminaterepparttar 132676 necessity to negotiate an "exchange rate". It does not prevent market failures. In other words: money is not an index. It is merely a medium of exchange and a store of value. The index - as expressed in terms of money - isrepparttar 132677 underlying agreement regardingrepparttar 132678 values of resources in terms of other resources (i.e., their relative values).

The market - andrepparttar 132679 price mechanism - increase happiness and welfare by allowing people to alterrepparttar 132680 composition of their bundles. The invisible hand is just and benevolent. But money is imperfect. The aforementioned Rawles demonstrated (1971), that we need to combine money with other measures in order to place a value on intangibles.

The prevailing market theories postulate that everyone hasrepparttar 132681 same resources at some initial point (the "starting gate"). It is up to them to deploy these endowments and, thus, to ravage or increase their wealth. Whilerepparttar 132682 initial distribution is equal -repparttar 132683 end distribution depends on how wisely - or imprudently -repparttar 132684 initial distribution was used.

Egalitarian thinkers proposed to equate everyone's income in each time frame (e.g., annually). But identical incomes do not automatically yieldrepparttar 132685 same accrued wealth. The latter depends on howrepparttar 132686 income is used - saved, invested, or squandered. Relative disparities of wealth are bound to emerge, regardless ofrepparttar 132687 nature of income distribution.

Some say that excess wealth should be confiscated and redistributed. Progressive taxation andrepparttar 132688 welfare state aim to secure this outcome. Redistributive mechanisms resetrepparttar 132689 "wealth clock" periodically (atrepparttar 132690 end of every month, or fiscal year). In many countries,repparttar 132691 law dictates which portion of one's income must be saved and, by implication, how much can be consumed. This conflicts with basic rights likerepparttar 132692 freedom to make economic choices.

The legalized expropriation of income (i.e., taxes) is morally dubious. Anti-tax movements have sprung all overrepparttar 132693 world and their philosophy permeatesrepparttar 132694 ideology of political parties in many countries, not leastrepparttar 132695 USA. Taxes are punitive: they penalize enterprise, success, entrepreneurship, foresight, and risk assumption. Welfare, onrepparttar 132696 other hand, rewards dependence and parasitism.

The Dismal Mind - Economics as a Pretension to Science - Part III

Written by Sam Vaknin

4. Homo Economicus

The economic actor is assumed to be constantly engaged inrepparttar rational pursuit of self interest. This is not a realistic model - merely a (useful) approximation. People don't repeat their mistakes systematically (=rationality in economics) and they seek to optimize their preferences (altruism can be such a preference, as well).

Still, many people are non-rational or only nearly rational in certain situations. Andrepparttar 132669 definition of "self-interest" asrepparttar 132670 pursuit ofrepparttar 132671 fulfilment of preferences is a tautology.

V. Consumer Choices

How are consumer choices influenced by advertising and by pricing? No one seems to have a clear answer. Advertising is bothrepparttar 132672 dissemination of information and a signal sent to consumers that a certain product is useful and qualitative (otherwise, why would a manufacturer invest in advertising it)? But experiments show that consumer choices are influenced by more than these elements (for instance, by actual visual exposure to advertising).

VI. Experimental Economics

People do not behave in accordance withrepparttar 132673 predictions of basic economic theories (such asrepparttar 132674 standard theory of utility andrepparttar 132675 theory of general equilibrium). They change their preferences mysteriously and irrationally ("preference reversals"). Moreover, their preferences (as evidenced by their choices and decisions in experimental settings) are incompatible with each other. Either economics is not testable (no experiment to rigorously and validly test it can be designed) - or something is very flawed withrepparttar 132676 intellectual pillars and models of economics.

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