Pérdida Irrecuperable de Eficiencia (Deadweight Loss)/en

De Demarquía Planetaria

Eliminating Waste: How Demarchy Proposes a More Efficient Economy for All

1. Introduction: Why Is Our Economy Losing Value Along the Way?

Imagine you're trying to fill a bucket with water to irrigate a garden, but the bucket has several leaks. No matter how hard you try at the source, a significant portion of the water is lost along the way. It never reaches the plants, and that effort and resource are wasted without anyone benefiting. Our current economy functions much like that leaky bucket: a significant portion of the value, effort, and resources are lost in the process due to structural inefficiencies.

This text has a clear purpose: to explain exactly what this "loss of value" is and how a social redesign model called Planetary Demarchy proposes an economic system conceived from scratch to seal these leaks. The goal is not to apply band-aids, but to build a new, airtight "cube" that allows for the creation of much more value for everyone with the same effort.

To understand the solution, we must first name the problem. This loss of value has a technical name: Deadweight Loss.

2. The Central Problem: The "Irrecoverable Loss of Efficiency" (ILE)

In simple terms, Deadweight Loss (DWL) is the value of welfare destroyed by system "frictions." It measures the value of two types of failures: first, mutually beneficial transactions that never take place ; and second, transactions that do occur but whose real cost to society is greater than the benefit they generate. It is a potential for prosperity that simply evaporates, without anyone taking advantage of it.

The main causes of this systemic inefficiency are:

  • Taxes and Subsidies: They create an artificial "wedge" between the price paid by the buyer and the price received by the seller, preventing many deals that would be fair and beneficial to both parties from being closed.
  • Price Controls: By setting prices below or above the natural equilibrium, artificial shortages or production surpluses are generated, wasting valuable resources.
  • Market Power (Monopolies): When a single company controls a market, it often reduces production to raise prices, excluding consumers who would be willing to buy at a fair price.
  • Externalities: These are hidden costs that are paid by all of society, such as pollution, but are not included in the price of the product, leading to the production of more than is socially desirable.

These four leaks are inherent in the design of our current system. Demarchy is presented as a comprehensive response designed to eliminate these causes at their root.

3. The Demarchic Solution: A Fundamental Economic Redesign

Instead of trying to "patch up" the system with complex regulations, the Demarchy proposes five structural mechanisms that eliminate the causes of PIE from their origin.

1. Replace Extraction with Association: The AU50

  • The Problem It Solves: The fiscal "wedge" created by taxes and subsidies , which distorts prices and prevents fair deals from being made.
  • The Mechanism: The 50% Universal Partnership (AU50).
  • How it Works: Instead of being an external fundraiser that extracts value, the " Common Fund " (the entity representing society) acts as an automatic investment partner in each company. It contributes 50% of the capital and, in return, receives 50% of the profits.
  • The Result: Bureaucratic friction and the tax "wedge" are completely eliminated. Without coercive extraction, all mutually beneficial transactions are allowed to take place, maximizing value creation.

2. Internalizing Hidden Costs: The RUAC

  • The Problem It Solves: Externalities , such as pollution, whose hidden costs are paid by all of society instead of those who generate them .
  • The Mechanism: The Royalty for Use of Common Assets (RUAC) .
  • How it Works: A fee is established that is paid to the Common Fund for the private use of resources that belong to everyone, such as clean air, water, minerals or the radio spectrum.
  • The Result: An "Osmotic Equilibrium" is generated. This mechanism makes sustainability and frugality the most profitable option, turning ethics into the guiding light . Those who consume many common resources pay more than they receive, while those who are efficient receive a net positive balance.

3. Activate Idle Capital: Selective Oxidation

  • The Problem It Solves: Stagnant value and cyclical crises caused by compound interest , which makes debt grow faster than real wealth, and by the accumulation of idle capital that is not invested.
  • The Mechanism: Selective Oxidation.
  • How it Works: A "negative interest" ( demurrage ) is applied to unproductive money that remains idle instead of circulating in the real economy.
  • The Result: Capital is incentivized to "flow or die." Instead of stagnating in parasitic speculation , it is encouraged to be invested in productive projects, preventing stagnation and boosting the creation of real wealth.

4. Mutualizing Risk to Unlock Innovation: The FSR

  • The Problem It Solves: The paralysis of innovation and entrepreneurship caused by people's fear of personal ruin if a project fails.
  • The Mechanism: The Solidarity Risk Fund (FSR) .
  • How it Works: It is a group insurance policy that covers a significant portion (up to 25%) of personal loss in the event of an "honest failure" .
  • The Result: Individual failure ceases to be a tragedy and becomes a collective learning experience, funded by everyone. By eliminating paralyzing fear, an immense amount of creative energy is unleashed, fostering constant innovation.

5. Streamlining Bureaucracy: The Principle of Least Action

  • The Problem It Solves: The massive inefficiency of the current system's "fat machine ," where intermediation, bureaucracy, and red tape cause goods and services to cost between 80% and 95% more than their real value.
  • The Mechanism: The application of the " Principle of Least Action " through automation and radical simplification.
  • How it Works: A Super Artificial Intelligence for the Administration of the Commons (ASI-AdC) automates administrative procedures, resolving them in seconds. In turn, "Total Tokenization" links the money supply directly to the real value of the economy, eliminating speculative bubbles.
  • The Result: Trillions of dollars in opportunity costs are eliminated and immense human energy is released, allowing value to flow along the shortest and most efficient path from producer to consumer.

To integrate all these concepts, a simple analogy can be very helpful.

4. The Analogy of the Orchard: A Practical and Clear Summary

To understand the fundamental difference between the current system and the one proposed by the Demarchy, we can use the analogy of a garden.

Feature The Garden in the Current Economy The Orchard in the Demarchy
Ownership and Financing A lone farmer, burdened with mortgages, debts and high interest rates in order to work the land. A high-performance cooperative. Humanity provides the land and technology interest-free.
Costs and Friction The farmer must pay multiple taxes and insurance that eat up a large part of his harvest before he can enjoy it. The system is frictionless (no taxes or bureaucracy), allowing for a much more abundant harvest.
Bottom line The farmer keeps 100% of a small harvest diminished by costs and inefficiencies. The farmer keeps 50% of a much larger harvest , whose real value far exceeds the 100% of the previous system.

This analogy leads us directly to the conclusion about the paradigm shift proposed by this model.

5. Conclusion: Towards an Economy Where Winning Means Contributing

Demarchy does not seek to optimize the current system, but to replace it with one where efficiency and justice are not objectives to be pursued, but emergent properties of the design itself.

The most profound change is the shift from a coercive extraction model (based on taxes and bureaucracy) to one of associative participation (based on the AU50). This change naturally aligns individual success with collective well-being: for an entrepreneur to succeed, society must also succeed, as it is their partner.

According to this model, the aim is to create a system where waste is minimized by design and each transaction benefits not only the parties directly involved, but society as a whole.

Definition, Efficiency Condition and Origin of the PIE

Deadweight loss (DWL ) is the portion of total welfare (sum of consumer surplus, producer surplus, and, if applicable, government revenue) that disappears when the quantity of a good exchanged deviates from the socially efficient quantity, without anyone receiving a gain.

In terms of welfare, the PIE measures the value of mutually beneficial transactions that do not take place (or of transactions that do take place but in which the marginal social cost exceeds the marginal social benefit).

Efficiency condition and origin of the PIE

In the standard microeconomic approach to welfare, a competitive outcome without market failures is Pareto efficient when the following holds: MBsocial ( Q *)= MCsocial ( Q *), where Q * is the efficient quantity.

Basic definition of Pareto Optimum

Pareto optimum is a situation in which it is not possible to improve the well-being of one person without worsening that of at least one other. In terms of resource allocation, it describes configurations in which all mutually beneficial exchange gains have already been exhausted .

Marginal formulation

In the standard microeconomic approach to welfare, a competitive outcome without market failures is Pareto efficient when the quantity produced Q * satisfies the condition that marginal social benefit equals marginal social cost: MBsocial ( Q *) = MCsocial ( Q *). If MBsocial ( Q ) > MCsocial ( Q ), there are still units that would generate a positive social surplus, and if MBsocial ( Q ) < MCsocial ( Q ), units are being produced whose social cost exceeds their benefit .

Relationship with irretrievable loss

When policies, taxes, market power, or externalities move the economy away from Q *, the effective quantity Q becomes less or greater than the efficient quantity, and a portion of total welfare is lost that no one captures as a gain. The area of ​​"lost" welfare between Q and Q * in the supply-demand diagram is interpreted as the deadweight loss associated with moving away from the Pareto optimum .

When a public policy, an institutional constraint, or the market structure prevents the system from reaching Q *, the effective output Q will be less or greater than the efficient output, and the area of ​​welfare lost between Q and Q * is the deadweight loss.

Graphical representation

In the simple competitive model, the demand curve represents the private marginal benefit (and, in the absence of externalities, also the social marginal benefit) and the supply curve represents the private marginal cost (and likewise the social marginal cost if there are no additional distortions).

  • The efficient equilibrium is found at the intersection of supply and demand, with price P * and quantity Q *, maximizing total surplus.
  • A distortion (tax, price control, market power, etc.) shifts the equilibrium to a quantity Q lower or higher than Q *, generating a “triangle” between demand, supply, and the new quantity traded; the area of ​​that triangle is the PIE.

Main sources of irrecoverable loss

Taxes and subsidies

A tax on a good creates a wedge between the price consumers pay and the price producers receive, reducing the quantity traded compared to the situation without the tax.

  • Part of the surplus loss is transferred to the State as revenue, but another part is not captured by consumers, producers, or the public sector: this part is the irrecoverable loss.
  • The same occurs, in reverse, with subsidies that lead to production beyond the point where the marginal social cost equals the marginal social benefit, generating inefficient overproduction.

Price controls

Price ceilings (below the competitive level) generate shortages: the quantity traded is limited by supply, which is less than the efficient quantity; the result is a PIE (Production Efficiency Index) associated with the units that would have generated a surplus if they had been produced.

Price floors (above the competitive level) lead to production surpluses, since effective demand is less than efficient demand; unsold or wasted units also represent lost welfare.

Market power (monopoly)

A monopoly maximizes its profit by producing where marginal revenue equals marginal cost, which implies a lower quantity and a higher price than in perfect competition.

This production restriction excludes consumers who valued the good above marginal cost but below the monopoly price; the surplus associated with these unrealized transactions constitutes the PIE due to market power.

Externalities and other market failures

With negative externalities that are not internalized (for example, pollution with no cost to the emitter), more than the socially optimal amount is produced; with positive externalities, the opposite occurs.

In both cases, the divergence between private and social marginal benefit/cost causes the competitive equilibrium to be at Q ≠ Q*, generating a lost welfare triangle similar to that associated with taxes or monopolies.

Approximate calculation in the linear case

In the case of linear supply and demand curves, the deadweight loss can be approximated as the area of ​​a triangle:

PIE ≈21×Δ P ×Δ Q

where ΔP is the relevant price difference (for example, the tax wedge or the difference between competitive and monopoly price) and ΔQ = | Q - Q | is the change in the quantity exchanged.

In the case of a specific tax that leads from an equilibrium ( P1 , Q1 ) to a new equilibrium ( P2 , Q2 ), an equivalent formulation is:

PIE ≈21×( P 2− P 1)×( Q 1− Q 2)

provided that the relevant curves are approximately linear over the interval considered.

Simple numerical example (tax)

Suppose a market where, without tax, the equilibrium price is 10 and 100 units are traded.

If a tax is introduced that raises the effective consumer price to 12 and reduces the quantity exchanged to 80, the approximate PIE would be:

FOOT ≈21×(12−10)×(100−80)=21×2×20=20

This value represents the total surplus (potential gains from trade) that disappears due to the tax and is not compensated by public revenue or other agents.

Factors that amplify or reduce PIE

The magnitude of the irrecoverable loss depends on:

  • Supply and demand elasticities: the more elastic they are, the greater the reduction in quantity in response to a given distortion, and therefore the larger the area of ​​the PIE (Permanent Insulation and Finish).
  • Size of the distortion: Doubling a linear tax, for example, usually quadruples the PY, because the base and height of the triangle are doubled.
  • Time horizon and adaptability: elasticities tend to increase in the long term, so the PIE associated with the same distortion tends to be greater than in the short term.

Normative use in institutional and policy design

Deadweight loss is used as a standard measure of the “cost of inefficiency” associated with taxes, subsidies, regulations, monopolies, or other market failures.

In policy design, the general rule is that, given a goal of revenue collection, redistribution, or correction of externalities, the aim is to minimize PIE: for example, by taxing less elastic bases, using Pigouvian taxes, or favoring market structures closer to effective competition.

Explore the Demarchy in Greater Depth

Philosophical Foundations

Understand why Demarchy is necessary and how it is based:

Diagnosis of the Current System

Analysis of the Conditioned Individual

Foundations of Individual Liberation

Mathematical and Architectural Principles

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