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0 pointsfighterpilot5y ago0 comments

Trade almost always creates value for both consenting stakeholders. It should be the default assumption and anyone arguing the opposite is talking nonsense.

In rare edge cases it can be argued that trade doesn't create value for consenting stakeholders:

(1) Information asymmetries that don't rise to the level of fraud, which cause one counterparty to make an uninformed decision.

(2) Trades that appeal to the dopamine system but otherwise work against the individual, e.g. with social-media doomscrolling, gambling, drugs, fast food. In this case the individual has diminished agency to make the best decision for themselves in all cases.

Anything else? [I'm ignoring externalities here]

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InitialLastName5y ago· 2 in thread

I don't think TFA would dispute that transactions create value. The argument being disputed is that the value created by a transaction is meaningfully measured by the value transacted.

To use the pineapples and oranges island metaphor, imagine that on island A (which has lots of oranges but no pineapples) pineapples are valued at $1.1 and oranges are valued at $1, and v.v for island b, where oranges are $1.1 and pineapples are $1.

If you and I trade an orange on island A for a pineapple on island B, we both went from having $1 in fruit to having $1.1 in fruit on our islands. The value created by that transaction isn't $1, $1.1 (or $2.1 as Amazon appears to be double-counting some of the value between revenue, profit and wages), it's $0.2, which is the value we added to the fruit by moving it between islands.

fighterpilotOP5y ago

The general way to measure value creation would be to sum the difference between what both parties would be willing to transact for something with what they actually transact for it.

In your example, the value creation is $0.2 ($0.1+$0.1) due to the existence of a perfect substitute.

In other cases the value creation may be 10x the turnover or higher. For example, if there's a single surgeon that can give me a life saving procedure that costs me $50k when I would've happily paid $500k, then the value creation for me is $450k and perhaps $20k for the surgeon.

In the case of Amazon, their numbers are probably an exaggeration, yes. They've assumed that the turnover = value creation, which is false reasoning, as we both recognize. It might be higher or lower. The real number might be 0.4x of what they stated, if I was to hazard a guess.

But since the whole idea of value creation flies over the heads of so many people (and this misunderstanding of basic economics has profound policy implications), Amazon's exaggeration here is not a point I wish to focus on.

InitialLastName5y ago

... Isn't TFA entirely about Amazon exaggerating their value creation and abusing the fact that said concept flies over many peoples' heads?

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