A Pareto-optimal Thanksgiving

November 24, 2011 11:27 AM

The most economically efficient use of a turkey is to use it for conceptual art while others starve. Generalized equilibrium theory wishes you a happy and Pareto-optimal Thanksgiving, via Cosma Shalizi.
posted by escabeche (31 comments total)

This gets at something that's bothered me for a long time. There's a difference between commonplace conceptions of "demand" and the ideas of "effective demand" from economics, but the tendency to describe both of these things as "demand" muddies this difference. Generally when people talk about there being a demand for something, they mean that there's a need or a desire (or both) for that thing; some agent, or number of agents, in the world want something — food, shelter, clothing, medical care, clean water, telephones, game systems, shamwows, or whatever. However, the version of demand in economics involves both a desire and also the ability to act on that desire.

If we treat effective demand and demand as the same thing, then there is effectively no demand for clean water or medical care in subsaharan Africa or Appalachia or any of the other places without the economic power (money) needed to express their desires. Nevertheless, saying "there's no demand for clean water in West Virginia, so hydrofrack away!" in so many words strikes most people as being literally insane — even though that's exactly the logic behind economic processes that treat effective demand as demand (which is to say, exactly the logic we live under in most of the world today).
posted by You Can't Tip a Buick at 11:50 AM on November 24, 2011 [12 favorites]

I appreciated the reminder that economic efficiency isn't a good in itself ... it's a good when (and only when) it tends to produce results we favor (i.e. more health and happiness for more people).

Now, maybe generally it's better at producing those results than the alternatives. Maybe not. Either way, that practical debate is the debate that's worth having, rather than spending our time jacking off while babbling about market rates, invisible hands, and why deregulation is TEH AWESUM..
posted by Myca at 12:02 PM on November 24, 2011

If Alice ate herself, how is she able to cook a turkey?
posted by Renoroc at 12:05 PM on November 24, 2011

Pareto-optimal, at least, until Lazarus says "screw society", steals Alice's turkey and feeds Divies into that monstrous machine. Externalities like social order are such a bitch.
posted by bonehead at 12:34 PM on November 24, 2011 [5 favorites]

I don't get it. If Dives is willing to pay anything up to $5000 for the turkey, then why would Alice sell it for $0.11? Since she holds the turkey monopoly, she can set whatever price she wants and since demand will still be the same regardless of whether the price is $5000 or $0.11, she should logically ask the highest possible price.
posted by daniel_charms at 12:47 PM on November 24, 2011 [1 favorite]

Since Dives, being a rational agent, knows how much Lazarus can pay, he will offer 11 cents, which Alice will accept as the superior offer.

I guess Alice isn't a rational agent, since she doesn't benefit from a similar insight into Lazarus' willingness to pay.
posted by CaseyB at 1:11 PM on November 24, 2011

Daniel_charms

The bargaining is your question. Anything between eleven cents and five thousand dollars is efficient. Pareto efficiency Does not specify the price - only that the trades that have the highest gains from trade occur.

The author has basically presented the bargaining as a one-shot ultimatum game in which the wealthy guy offers first and alice accepts or rejects. He should offer eleven cents. If she had gone first, I think 4999.99 is the result. Either way the point you make is about the distribution of the surplus, not the allocation.
posted by scunning at 1:16 PM on November 24, 2011 [1 favorite]

This parable is no more an example of market failure than seeing atrocities on the news is a sign of something wrong with your television. One of the many unquestioned assumptions (explicitly handwaved by the author) is that Dives is rich. Where did his money come from? Since he is by profession a conceptual artist, there must be demand in society at large for the spectacle of turkey-digesting machines. Dives has effective demand because (collectively) we have voted for him with our dollars rather than donating those dollars to charities that could have benefited Lazarus. We can't pass the blame to some invisible hand---the perpetrators of this injustice are all of us.
posted by drdanger at 1:23 PM on November 24, 2011 [3 favorites]

Wow, this may actually be more depressing and poetic than Burroughs' A Thanksgiving Prayer.
posted by loquacious at 1:30 PM on November 24, 2011 [1 favorite]

drdanger, your assumption only holds up if Dives earns money as a conceptual artist. Perhaps Dives' full name is Dives Kardashian, and he is in fact a spendthrift trust fund baby who flunked out of art school and is funded by inheritance dollars. Eh? Eh?
posted by mightygodking at 1:39 PM on November 24, 2011 [4 favorites]

Also, note that in places where this has held in the long-term, eg British-occupied Ireland, British-occupied India, many have have ended in bloody upheavals and long-term social unrest. Where's the economic cost of avoiding crime or revolution?
posted by bonehead at 1:44 PM on November 24, 2011 [1 favorite]

The real example is more interesting than the rhetorical one. Because it has Lazarus selling his turkey and dying of starvation.
posted by Napierzaza at 1:47 PM on November 24, 2011

What kind of assholes names their kid Dives?!
posted by Brandon Blatcher at 1:57 PM on November 24, 2011 [3 favorites]

mightygodking, you're right that we can't be sure where Dives's wealth came from. But if he's endowed with it by inheritance, then the parable is less interesting because it just shows that the rich can usually get what they want. The author wants to say something about effective demand---contrasted to growling-stomach demand---and my point is that it's not the market that's keeping food from the poor, it's a society that cares more about the Kardashians than about nutrition.
posted by drdanger at 2:03 PM on November 24, 2011 [2 favorites]

Dives could change his project: buy the turkey scrumpy meal for, say, $500, then pay Laz another 500 to eat it, destroy it, fuck it, or whatever Laz wants. Dives still ends up a theoretical four grand up on the deal, which will really help his conceptual retirement account grow. And he becomes a job creator.

Clearly this proves that wage and price controls for turkey and art are the solution.
posted by vrakatar at 2:05 PM on November 24, 2011 [1 favorite]

indeed, why not Lazarus purchasing the turkey for $0.10, then selling the turkey to Dives for some inordinate sum, and purchasing a great multitude of turkeys with the money?

This is beginning to remind me of the ancient and interminable 'Two Cows' parables of various forms of economies and governments.
posted by the man of twists and turns at 2:06 PM on November 24, 2011

Why Economics is the Mournful Moronic Science. Example 23.
posted by tspae at 2:10 PM on November 24, 2011

a great multitude of turkeys

Oh that has a nice ring to it.
posted by vrakatar at 2:12 PM on November 24, 2011

The man of twists and turns -

The only way Lazarus buys it for ten cents is it there is imperfections in information. Alice would never sell it to Lazarus for ten cents when she could sell it to dives for eleven. If she did not know about dives or dives did not know about Alice, then why would Lazarus know? Thats actually the argument though for market failure when there is information asymmetries. The turkey goes to Lazarus potentially and society is poorer $4999.90 as a consequence.
posted by scunning at 2:14 PM on November 24, 2011

If economics is the science of studying the optimal allocation of (possibly scarce) resources then there must be some optimization function. This optimization function can depend on any values we have. It's up to society to determine what is valuable, whether it's human life and happiness or money.

I get the thought experiment, it's clever and topical. But it's also naive and ignores the generality of economics. Economics isn't the problem here, it's what we value as a society.
posted by formless at 2:15 PM on November 24, 2011 [2 favorites]

The problem seems right to me. Given a society of three, the turkey goes to its highest valued use and is produced by the low cost provider. It helps explain the difference between efficiency and equity too which is very important. Fairness is not efficiency. Efficiency is exactly this problem - the maximization of economic surplus doesn't require that people who are hungry are fed.

I'll save the other stuff for later. But overall I thought this was a great problem and perfectly forces the concept of allocative efficiency home.
posted by scunning at 2:22 PM on November 24, 2011

a propos of nothing, the digesting machine is a real thing.
posted by Hoopo at 2:37 PM on November 24, 2011

a propos of nothing, the digesting machine is a real thing

You misspelled "disgusting".
posted by Inspector.Gadget at 3:09 PM on November 24, 2011 [1 favorite]

Dives, being a rational actor, sees Lazarus's poverty, and buys the turkey for what he normally pays for a decent dinner, then gives it to Lazarus, along with an extra $50. Dives then hires Alice to make another turkey dinner, which he documents to pack as extra material on his DVD release of his machine video, and then feeds the dinner into the machine as planned. Everyone's happy! That's not what this is about, is it?

It's up to the next person in the chain to decide what Lazarus spends the money on.
posted by Edogy at 4:23 PM on November 24, 2011

GENIUS
posted by krilli at 5:20 PM on November 24, 2011

Wow, what a narrow and ignorant view of my entire field of study!

formless hit is on the head, though he fails to mention that people look to economists as normative analysts as opposed to the descriptive analysis that the current field views itself as.

FWIW I agree we should be more normative, but then it turns into a philosophical discipline rather than a quantitative descriptive measurement field - and we wouldn't want to lose our competitive edge with Physics now would we!?
posted by AndrewKemendo at 6:09 PM on November 24, 2011

quantitative descriptive measurement field

competitive edge with Physics

Grandpa! More cognac!!
posted by carping demon at 7:27 PM on November 24, 2011 [1 favorite]

Edogy, what if there was only 1 turkey?
posted by dazed_one at 7:50 PM on November 24, 2011

Data point: the popularity of quinoa in the United States and the West means that it has become less affordable to the Bolivians who traditionally ate it.
posted by Deathalicious at 7:51 PM on November 24, 2011

CaseyB: "I guess Alice isn't a rational agent, since she doesn't benefit from a similar insight into Lazarus' willingness to pay."

And indeed, for a rational agent, Dives has a strange commitment to the destruction of wealth.
posted by pwnguin at 9:46 PM on November 24, 2011

AndrewKemendo: people look to economists as normative analysts as opposed to the descriptive analysis that the current field views itself as. FWIW I agree we should be more normative, but then it turns into a philosophical discipline rather than a quantitative descriptive measurement field - and we wouldn't want to lose our competitive edge with Physics now would we!?

For what it's worth, I think Cosma Shalizi would agree with you; in his concluding lines he writes,

Economic efficiency may be a good tool, but it is perverse to serve your own tools, and monstrous to be ruled by them. Let us be thankful for the extent to which we escape perversion and monstrosity.

which I think gets precisely at the normative v. descriptive distinction that you and formless are remarking on (the "tool" here being the descriptive model).

More generally, I've heard the same thing said about political science: that the type of "legitimacy" that the field attains by becoming more quantitative (and therefore more "scientific" in the sense of being measurable) also pushes it to becoming a descriptive discipline rather than a normative (maybe even proscritive?) one, and in the process the field becomes less of an agent for change.

I'm not sure that I would agree that this a necessary result of the move toward quantitation, per se -- that is, I think that quantitation can serve progress in the sense that if one has an accurate model, one can then ask what perturbations would yield a philosophically more optimal outcome. But for this to happen it does mean that the descriptive, quantitative aspects must not overwhelm -- in fact, must serve -- the normative, philosophical ones (which I think is what Cosma was saying in his conclusion and what you were saying about losing the competitive edge with physics).

And I do agree that the balance between normative v. descriptive analysis is a problem that econ & poli-sci faces. To me [someone in the sciences] it seems that the imbalance is a reflection of the funding situation in the academy generally (ie, there's money in science but not in the humanities), and I'm not sure a) how to change the external pressures that drive the descriptive/normative balance, or b) within those circumstances, what could be done to shift the field. I'm curious what you (and others in the field) think about this what can be done to address it. Would you say more?
posted by Westringia F. at 7:00 AM on November 26, 2011