[AnthonyMouse]

> By being a legal requirement and not a choice, that $29k doesn't register to the market as using disposable income, so competitive pressure doesn't inflate prices of everything to compensate.

In competitive markets prices approach the cost of production rather than absorbing all of the disposable income of the customer. If you have uncompetitive markets, that is a separate problem with its own solutions.

And then you have the other problem. The job pays $29k less because it costs the company that much to avoid those costs, i.e. they're willing to pay that much more to someone in the US to do the same job. That doesn't mean you're getting $29k in value. Some of the money is going to compliance and administration rather than you.

And in general money is worth more than stuff, because if you want the stuff you can buy it with money, but if you don't want that specific stuff then turning it back into money or other stuff at best incurs transaction costs and at worst isn't even achievable.

The notion that you're not taxed on the stuff is also an illusion; the rules apply to everyone in the jurisdiction and the government needs however much money from people to provide the services it provides so if you're not paying it there you're either paying it somewhere else or getting fewer government services.

[ben_w]

> In competitive markets prices approach the cost of production rather than absorbing all of the disposable income of the customer. If you have uncompetitive markets, that is a separate problem with its own solutions.

All markets are a bit uncompetitive — if they were not, if they were perfectly elastic and frictionless cows in a vacuum, then not only would anyone making a profit be undercut by someone willing to make less profit, a cycle which would repeat until profits became zero, but so too would wages be undercut by anyone else willing to provide the labour for less, with the same cycle driving income to subsistence + internet in our present case (or pennies per kloc when LLMs get better).

[AnthonyMouse]

> All markets are a bit uncompetitive

Oh sure, but there's a vast difference between "people make $1000 more and landlords take $0.05 on the dollar" and "people make $1000 more and landlords take $0.95 on the dollar".

Profit margins are also not inherently determined by wages in some other sector. If a bag clip costs $1 and $0.25 of that is profit and $0.75 is cost of labor, the profit margin clearly isn't zero. If nurses then get a pay raise that came out of reduced overhead rather than higher prices, the unrelated $1 item can profitably be produced for the same price it always was.

In can, indeed, go the other way. Some item is $1.00, $0.75 of that is labor, you eliminate some regulatory overhead which reduces the company's labor costs (e.g. need fewer HR/lawyers) and now the labor costs fall to $0.60. But this also reduces barriers to entry to the market, so competition increases, the profit component drops to $0.20 and now the item costs $0.80 instead of $1.00.

[TeMPOraL]

The way I usually phrase the problem here is that the market strives to push average disposable income to zero. Average here means that there will be people with various degree of spending money surplus (the rich) and those not able to afford even the essentials (the poor). This is a stable(ish) state, even as people move up and down the wealth ladder. However, when suddenly a large chunk of population gets extra disposable income - say a hypothetical UBI experiment (or not so hypothetical universal or near-universal social handouts), or as two-income household model gains popularity in a country, or (indirectly) some innovation creates a new, widely-applicable efficiency - then the market absolutely swoops in and eats all the average surplus.

You mention some regulatory overhead being eliminated, but more often than not, a surplus of disposable income enables passing further regulatory requirements that improve (or at least purport to) safety or quality of products and services, and that were hitherto too costly to implement. Then, most sectors aren't nearly competitive enough to keep the margins to zero, and some degree of price fixing is a natural thing that happens without any actual collusion, so things get more expensive (per unit) (or don't get cheaper). Then, like with new regulations, you also get new products and services that had no market yesterday, become popular today, and a de-facto requirement of living tomorrow. Etc.

> Oh sure, but there's a vast difference between "people make $1000 more and landlords take $0.05 on the dollar" and "people make $1000 more and landlords take $0.95 on the dollar".

If I parse this correctly, then the latter is definitely the case. Real estate is the prime force that eats all surplus disposable income. Houses and apartments get smaller, get built from worse and worse materials, using inferior techniques, and designed for ever shorter life span, all while getting more and more expensive. Any sudden bump in disposable income across the population is, first and foremost, likely to be eaten by rent.

[AnthonyMouse]

> However, when suddenly a large chunk of population gets extra disposable income - say a hypothetical UBI experiment (or not so hypothetical universal or near-universal social handouts), or as two-income household model gains popularity in a country, or (indirectly) some innovation creates a new, widely-applicable efficiency - then the market absolutely swoops in and eats all the average surplus.

My argument is that this is not a feature of markets but rather government action.

The rise of two-income households is a great example. Historically only the husband worked for money and the wife would do domestic work like washing clothes etc. Now the washing machine washes the clothes, which takes 15 minutes of human labor instead of four hours, and the labor is then spent working a job that does something else. Meanwhile the family has more money, which allows them to buy those same additional products and service now being provided.

And yet this hasn't happened. The surplus went somewhere else. You already know where:

> You mention some regulatory overhead being eliminated, but more often than not, a surplus of disposable income enables passing further regulatory requirements that improve (or at least purport to) safety or quality of products and services

It "enables" that to happen, but we as a populace are not actually required to do that. And when we do, the overhead eats the surplus. So maybe we shouldn't?

> If I parse this correctly, then the latter is definitely the case. Real estate is the prime force that eats all surplus disposable income.

Oh, absolutely. This is why uncompetitive markets are a problem.

Real estate is an unusual case, because the really isn't anyone with a monopoly on real estate. The supply constraint comes directly from the government through zoning rules. We effectively have a cartel whose board of directors is the zoning board.

In a free market, if wages go up, people who had been living with their parents will want to get their own place, so they would use the extra money they're making to do that, and the extra money would pay construction companies to build more housing. But if that's prohibited by law then the extra money only goes to bid up the price of existing housing, people don't get housing who didn't have it before because new housing is not created, and the money just goes to landlords.

That is an independent problem that we badly need to solve, because it isn't just a problem when people make more money. If you get more benefits, the same thing happens. If companies all start providing free daycare, people save the money they'd been using to pay for daycare, they want to use the money to get their own place, rents go up. If prices go down, the same thing happens. Computers get cheaper, you can get a suitable one for $400 instead of $2000, landlords take most of the difference. This needs to be fixed or it eats any surplus that would otherwise go to the middle class. It's a huge problem, but it's a solvable problem. Build more housing.

And either way it doesn't affect whether you should prefer cash or "benefits" as compensation, because when a market with an artificial supply constraint is eating the bulk of any surplus, it would just as well eat the surplus created by benefits too. At which point we're back to "money is better than arbitrary stuff" because turning money into stuff you want has lower deadweight friction losses than turning stuff you want less into stuff you want more.

[ben_w]

> Real estate is an unusual case, because the really isn't anyone with a monopoly on real estate. The supply constraint comes directly from the government through zoning rules. We effectively have a cartel whose board of directors is the zoning board.

It happens basically everywhere, even when the rules are different. If I understand correctly, the primary limit in the UK is there's not enough builders, which is not to say the government isn't in the way as that's despite it also having constant planning issues with regard to the "green belt"; likewise in modern Germany, my understanding is not enough builders (and again yes the government could be better because bureaucracy is very slow, but they're not the limiting factor); likewise DDR (not even trying to be a free market) where the government was organising the construction work and trying to do it cheap and fast but there still wasn't enough.