Thread by @ArashKolahi

In one short thread, we will expose and debunk 5 of the biggest & most consequential lies regarding economic efficiency perpetuated by the right. 1/

These lies are so often repeated and so vehemently held that even some on the left concede or repeat them. But as we will definitively show, they are nothing but illogical propaganda not based in either economic theory or reality. 2/

Because these 5 lies are so often used by the right to argue against leftist economic policies, it cannot be overstated how important it is for those of us on the left to be able to expose & debunk them for what they are: illogical propaganda. 3/

My hope is that with this thread anyone on the left, whether or not they studied economics, should be able to debunk these oft-repeated lies. 4/

I strongly urge anyone who cares about the environment and progressive policies in general to take the time to read & understand the economic theories and arguments in this thread. 5/

Since these lies are used constantly against leftist policies such as environmental regulations, public education, Medicare for All, etc., investing a few minutes to understand the economic models that demonstrate the fallacies of these lies is a worthwhile endeavor. 6/

It is no exaggeration or hyperbole to say that coherently exposing and debunking these 5 lies is an important starting point to making positive changes that could save the human race & life on the planet. 7/

Economic efficiency, as we will prove, is the domain of the left, NOT the right. The right might speak of economic efficiency when arguing against left policies but they are either completely ignorant of basic economics or just blatantly trumpeting propaganda. 8/

As we will see, it is actually the left who holds the logical, moral & ethical high ground in terms of economic efficiency and environmental sustainability.

But first we must first begin by defining our basic terms: 9/

Economics is the study of the production, consumption & allocation of goods & services and the disposal of wastes & by-products within a society.

Economic Efficiency means accomplishing the above economic functions optimally while minimizing waste of precious resources. 10/

To best understand and debunk these lies we will use two economic models: 11/

Widget A Model:

To produce 1 unit of Widget A it costs the manufacturer $0.50 of resources & materials and $0.50 of labor for a total cost of $1.00 per unit. 12/

However, the production of Widget A entails emissions that result in $1.00 per unit of environmental damage to the neighboring community.

Another $1.00 per unit of damage is caused when manufacturing by-products are dumped into local environmental 'sinks'. 13/

Manufacturing Widget A also causes respiratory health problems for its workers, resulting in $1.00 of costs per unit incurred either by the worker or society, but not the manufacturer. 14/

Finally, after consumers complete their utility of Widget A, disposal of Widget A results in toxic seepage into the earth and water supplies causing another $1.00 per unit of social and environmental costs. 15/

So while the cost incurred by the manufacturer for producing 1 unit of Widget A is only $1, the true social & environmental cost of producing 1 unit is 1+1+1+1+1 = $5. 16/

Economists call the $4 of costs not incurred by the manufacturer or consumer of Widget A as an 'externality'. And because in this model it's a burden rather than a benefit, it's called a 'negative externality'. 17/

Prices of goods and services act as a source of information to economic actors to help gauge the true social cost of that good or service. When the price is relatively high, less is consumed & produced. When the price is relatively low, more is consumed and produced. 18/

In our model of Widget A, the true social cost is $5 however the actual cost incurred by the manufacturer is only $1.00. let's assume the manufacturer sells Widget A for $2 ($1 profit). 19/

At a price of $2 far more Widget A's will be bought & sold than would be if the cost incurred by the manufacturer was based on the true social cost of $5, and assuming the same $1 profit a selling price of $6. 20/

In other words, the mispricing of Widget A causes an inefficiency because the artificially lower price of $2 will cause far more Widget A's to be produced & consumed than if they were correctly priced at $6. 21/

The problem is actually worse than this model shows because of the built-in incentives of market capitalism. The incentive for the manufacturer of Widget A is to externalize as much of the social costs as possible in order to maximize profits. 22/

Conversely, the incentive for the consumer is also to externalize as much of the social costs as possible in order to minimize the price she has to pay.

BOTH producers & consumers are incentivized to externalize social costs. 23/

Thus market capitalism causes incorrect incentives for both buyers and sellers: to externalize as much of the social & environmental costs as possible. This means the long term tendency will always be towards greater inefficiency and environmental destruction. 24/

But that’s not all. To make matters worse, even if a good-hearted, well-intentioned manufacturer decides to incur greater expenses to better care for their employees & the environment they would have to complete with all the others who don’t. 25/

This situation creates a ‘race to the bottom’, where those who care the least and most aggressively externalize negative externalities will have greater profits and more competitive advantage. 26/

Put simply, market capitalism punishes those who care and rewards those who don’t. Eventually, over time, those who care the least tend to outperform and out-compete those who care the most. 27/

This suicidal trajectory is part of the reason why it is so important to debunk these 5 lies. 28/

Ultimately if left unregulated the ‘invisible hand’ of market capitalism will lead to greater & greater externalization of negative externalities due to 1) incorrect incentives & 2) competitive ‘race to the bottom’. 29/

In order for efficient production and consumption of goods and services prices need to reflect the true social costs of those goods and services. If prices diverge from the true social costs, then either too much or too little will be produced and consumed. 30/

The fact that market capitalism inherently 1) externalizes most social costs of products and services from both buyers and sellers and 2) incentivizes both buyers and sellers to further externalize costs as much as possible means that it is inherently inefficient. 31/

Service B Model:
Now let's consider a very different model for Service B. Service B costs $1 of resources and $1 of labor for a total cost of $2 to produce 1 unit. 32/

However, unlike Widget A, Service B actually greatly benefits society. The local community benefits $1 per unit, while the global community benefits $1 per unit produced. 33/

For a consumer to purchase 1 unit of Service B, it would be based on the $2 per unit cost because market capitalism has no mechanism that allows others who benefit to participate in that transaction. 34/

However, the true social net cost of Service B should be $0 because there is a 1+1= $2 social benefit and $2 - $2 = $0.

In other words, in order to produce the optimal amount of Service B, the price should be $0 rather than the mispriced $2. 35/

But since market capitalism has no mechanism for all others who benefit from Service B to register their benefit, the full cost is incurred only by the consumer.

Economists call these 'positive externalities'. 36/

Positive Externalities are things that benefit others in society outside of the immediate buyer and seller. 37/

In market capitalism when there is positive social and environmental benefit or 'positive externality' prices will ALWAYS be inherently too high and thus too little will be consumed and produced than would be economically efficient. 38/

In market capitalism when there are negative social and environmental burdens prices will ALWAYS be inherently too low and thus too much will be consumed and produced than would be economically efficient. 39/

In other words, any time economic transactions have either positive or negative externalities market capitalism will ALWAYS result in inefficiencies. 40/

But perhaps circumstances of positive or negative externalities are rare.

If they happen rarely enough, then market capitalism would actually correctly price items and thus be relatively efficient most of the time. 41/

Economics is nothing if not the study of the complex interconnection between various actors each affected differently in the production, consumption, & allocation of goods and services within society and all its interconnected effects on the environment. 42/

The reality is economic interconnection is the rule, not the exception. Thus it is extremely rare, if not impossible for there to be no externalities whatsoever. 43/

How could it be otherwise? For an enterprise to have zero effect on workers, neighborhoods, environments both local and global, etc.? 44/

This means that as a rule, market capitalism is inherently inefficient because it will always misprice goods and services resulting in either too many ‘bad' products and services and too little good products and services. 45/

For a more realistic context, Widget A could be something like gasoline production, that has multiple levels of negative externalities and is underpriced and thus overproduced and overconsumed. 46/

Service B could be something like education, research or infrastructure that benefits everyone in society and might even have global benefits.

With market capitalism these will always be overpriced and thus under-consumed and under-produced. 47/

As we have seen, in almost every situation, market capitalism inherently misallocates resources, resulting in inherently gross inefficiencies. 48/

Thus far we have debunked Lie 1: Market capitalism with its "invisible hand" is inherently efficient.

We have shown the opposite is true. Market capitalism is inherently inefficient.

With Lie 1 debunked, the rest of the lies are fairly easy to debunk... 49/

Lie 2 states that democratically derived regulations on the free market introduce market inefficiencies. This argument is used ad nauseam against regulations for environmental protection, workplace safety etc. 50/

But as we have seen with our Widget A model, negative social costs are externalized, therefore without regulations, far too many goods & services with negative externalities are produced and consumed than is actually efficient. 51/

In other words, it’s only because market capitalism is so inherently inefficient that we need to have regulations to curb its worst effects. 52/

In fact, it’s quite possible that if the true costs of producing Widget A were taken into account it would not even be a viable product and a more environmentally beneficial alternative would need to be sought and produced.

This is a gross failure of market capitalism. 53/

Furthermore, because of the inherent problem with market capitalism creating 1) incorrect incentives & 2) ‘race to the bottom’, even a good-hearted well-intentioned actor will be out-performed and out-competed and eventually weeded out of the market. 54/

Regulations such as environmental regulations only curb the worst failures of market capitalism inefficiencies, such as the complete externalization of environmental damage. As we have seen, without regulations, the inherent tendencies of market capitalism would be suicidal. 55/

These regulations in fact usually only partially rightsize the inefficiencies, but nonetheless, result in more efficient use of resources then if market capitalism is left to is own inherent flaws.

Lie 2 has been debunked. 56/

Lie 3 states that democratically derived taxation on the free market introduces market inefficiencies. This lie is used often as an argument against taxes imposed on corporations. 57/

But as we have seen in the Widget A model, corporations often only incur a tiny fraction of the true social cost of the goods and services they produce. 58/

Thus a democratically derived taxation in such situations again helps rightsize the utter failure of market capitalism in properly pricing goods and services so that the optimal and efficient quantity (or none at all) would be produced. 59/

Furthermore, as we have seen in our Services B model, the costs of goods and services with positive externalities like education & infrastructure are not incurred by most who benefit, including corporations. 60/

For example, corporations benefit from much of the social benefits of what society produces (infrastructure, education, etc), but incur none of those costs. Here again, taxation slightly helps rightsize these gross inefficiencies. 61/

We have thus debunked Lie 3. Taxation on corporations that have negative externalities and benefit from positive externalities actually increase economic efficiency. 62/

Lie 4 states that policies typically considered 'democratic socialism', such as 'free' education are inefficient or unjust to those who have to pay into such policies. 63/

But just like we have seen with Lie 2 and Lie 3, 'democratic socialist’ policies only scratches at the surface of the inherent inefficiencies of market capitalism. 64/

Policies such as free higher education are similar to our Services B model, where the benefit to society is great but market capitalism fails at efficiently allocating proper resources to it because market capitalism can't handle transactions with positive externalities. 65/

If left to it’s own devices, with market capitalism the worse something is (i.e. high pollution), the more it causes its consumption & production. And the better something is (i.e. education, infrastructure, etc.) the less it causes its consumption & production. 66/

Democratic socialist policies are really just Band-Aid attempts at rightsizing the worse suicidal inefficiencies of market capitalism. 67/

And because they bring prices closer to their true social & environmental costs/benefits, they increase efficiency compared to the horrific failure of market capitalism to allocate resources efficiently.

Lie 4 debunked.

The final Lie 5 states that socialist alternatives to market capitalism are inherently inefficient. 69/

As we have seen with Lie 2, Lie 3, & Lie 4 all these regulations, taxation & policies are really just Band-Aids for the horribly inefficient market capitalism. None of them actually make market capitalism inherently efficient. 70/

In other words, rather than Band-Aid solutions, is it possible to have a system whereby the inherent features of the economy cause less social & environmental wounds and thus require no Band-Aids at all? 71/

Socialist alternative models to market capitalism such as Participatory Economics utilize production, consumption, and allocation based on inherently efficient, environmentally sustainable & democratic transactions. 72/

Since this model inherently gives economic actors a say in decisions proportional to how much the decision affects her, it properly treats externalities resulting in prices that truly reflect the true social & environmental costs. 73/

While market capitalism excludes everyone who is affected by the transaction except the buyer and seller, Participatory Economics gives everyone the right amount of say to attain the most economically efficient results. 74/

Thus while market capitalism is inherently inefficient, socialism based on real democracy & participation is inherently efficient.

https://twitter.com/ArashKolahi/status/1125471207086649346?s=20

As we have shown, economic efficiency, properly allocating precious resources, environmental stewardship and minimizing waste of precious resources are values of the left. 76/

Also, as we have shown, the right with their anti-regulation mantra and irrational worship of the 'invisible hand' of market capitalism are worshiping a system that is both inherently inefficient and by definition inefficient. 77/

Economic efficiency and environmental sustainability are leftist values and anyone who worships the inherently inefficient market capitalism has no claim to either. Period. 78/