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Date: Sat, 8 Sep 2007 14:40:20 -0400 (EDT)
To: Daniel Reeves <dreeves &AElig umich.edu>
cc: improvetheworld &AElig umich.edu
From: James W Mickens <jmickens &AElig eecs.umich.edu>
Subject: Re: mind the gap

> So I think we've achieved consensus for simple coconut world.  What about 
> when some resources are limited?  Say Ingrid is building cars out of coconuts 
> but she can only build them so fast.  James claims that when a rich person 
> gets a car that that's directly hurting some poor person who didn't. That's 
> wrong, and the reason is prices.  The price of Ingrid's cars go up until 
> supply meets demand.  What's so exquisitely just about that?  It means that 
> the people who get the cars are coughing up so many coconuts that the people 
> who don't get cars actually *prefer* to not have them -- they'd rather keep 
> the coconuts [4].
>
> So in fact all these things (cars, experts' time, real estate) that seem 
> constrained are not.


This isn't true. The claim "supply equals demand" does not necessitate 
that "resources are unconstrained." When a resource is rare, its price 
will go up. However, this doesn't always mean that people who can't afford 
it don't want it---instead, it may mean that they've been priced out of 
the market. Thus, prices are *not* always a direct indication of people's 
preferences. For example, consider the set of households that are too poor 
to send their children to college. Would you say that all of these 
households *prefer* to not send their children to college? Or would you 
say that some of them would like to send their children to college, but 
lack the money to do so? You might claim that these families "prefer" to 
spend their money on food and shelter instead of education, but this is 
only because survival needs must be satisfied before all others. The 
preference of food and shelter over education doesn't imply that there is 
"enough education to go around." Some families may desire education but 
lack the funds to enter the educational market. Thus, education is a 
constrained resource although supply may equal demand.



> Supply meets demand.  The distribution of these things 
> is unequal because people have different amounts of coconuts, which are 
> unlimited [4].  The more you're willing to harvest, the more you have.

Coconuts are not unlimited. I cannot emphasize this enough. There is no 
island that produces an infinite amount of coconuts every day, just like 
there is no nation that produces an infinite amount of goods or services 
or natural resources every day. The laws of physics make this impossible. 
There is only so much work that a physical process can accomplish in a 
day, and this imposes an upper bound on the amount of resources that can 
exist. For example, recent fluctuations in food prices are partially 
driven by fluctuations in corn distribution. More corn is being diverted 
to ethanol production, so less corn is available to feed to livestock and 
convert into food. Less corn is available precisely because corn exists in 
finite quantities. Since we can't grow an unlimited amount of it, 
allocation changes to one sector must affect all others.

Any other resource, including a human-provided service, is similarly 
constrained by physics-based limits. For example, consider legal services. 
Poor people have a difficult time affording high quality legal 
representation. This stems from three facts:

1) There is a finite supply of lawyers.

2) Most lawyers prefer to work for wealthy clients instead of poor ones, 
since the former can pay more than the latter.

3) Lawyers have a finite amount of time. So, once they have finished 
meeting with wealthier clients, they often lack the time to meet with 
poorer ones.

As a result, poor people have been priced out of the legal services 
market. But once again, this does not indicate their *preference* for 
shoddy legal representation. Supply may equal demand, but we can't claim 
that net utility has been maximized or that people are living their lives 
according to their true preferences. The limited nature of resources 
prevents these optimal outcomes.




> It's unsettling to see Ingrid's vast piles of coconuts but after all, 
> coconuts are unlimited so she hasn't hurt anyone.

But coconuts are *not* unlimited, so she *is* hurting people, at least to 
the extent that a coconut for her is a coconut that someone else can't 
possess.

If wealth in the real-world has infinity-based characteristics that 
coconuts lack, you should use real wealth in your examples and talk about 
these characteristics directly. Otherwise, I completely reject your 
hypotheses about unlimited resources.


~j