Dead Weight Loss

日期:2012/06/12

The economic analysis of "dead weight loss" puts in perspective the loss that occurs to the totality when an external body spends money on things that consumers would not buy voluntarily. Without intervention, consumers buy things where the price does not exceed the value they place on it. For all units purchased except the last, there is excess value or utility that consumers receive over and above the price they pay. With intervention, money is spent on goods that consumers were not willing to pay for before. The real cost might be assumed to be higher than the amount that is paid. There is a dead weight cost to extent that the price of the good is higher than what consumers would have voluntarily paid.



Let us consider all the earmarks in the bail out bill, and all the improvements in environmentally friendly improvements to government buildings, and all the construction projects that were earmarked to special groups or unions. How much of this is a dead weight cost? Perhaps 95% of the amount spent. The value of the total output of the economy is reduced by this amount. There is a smaller total to divide among consumers. This to me explains why the economy is having a much smaller recovery from a recession than in the past. See Consumer Surplus.

I have not fine tuned the analysis in the above, and would have to go take into account many other variables and factors, and would have to make my analysis much sharper for it to be disspositive, but I think it catches the essence.