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#1 Oben

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Posted 11 November 2013 - 05:16 PM

Since the US-Healthcare thread derails into this interesting topic every now and then (as in, all the time), I thought it would be interesting to have a broader extra-topic for it.

 

How free should a market be?

What does the state have to do, and when does it become intrusive?

How much welfare is good for the losers of the market?

 

Interesting topic in my opinion.


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#2 waleuska

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Posted 11 November 2013 - 05:38 PM

A true free market would have only one winner.

This is a competition people and the winner would be the last one standing. There might be fifty stores at the beginning but at the end only one will win.


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#3 hitesh93

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Posted 11 November 2013 - 05:46 PM

Since the US-Healthcare thread derails into this interesting topic every now and then (as in, all the time), I thought it would be interesting to have a broader extra-topic for it.

 

How free should a market be?

What does the state have to do, and when does it become intrusive?

How much welfare is good for the losers of the market?

 

Interesting topic in my opinion.

Great topic indeed. And hopefully the debate will be centered  around providing a basis behind your beliefs instead of just stating it :)

 

How free a market should be is like asking 'How free should a human be?' The answer is pretty obvious - Completely free UNTIL your freedom affects someone else negatively.

 

The state has a very important role - that is to protect individuals from those who would violate their freedoms (murder,rape, theft and such).

Similarly the state has a very important economic role - to protect marketplace behavior that would violate free choice of people in what products they choose. 

For example, misrepresenting a product is a behavior that prevents a market from functioning properly - in this case, consumers are buying something without properly knowing what it (like obamacare lol). 

This prevents rational decisions and thus prevents proper market behavior.

So the first role of the government is to preserve the freedoms that individuals have to operate socially and economically without fear of misrepresentation/lies/bullying/intimidation/other threat.

 

For this purpose, a state is equipped with legislation (to make the laws), law enforcement (to enforce the laws made) and judicial system (courts that  determine who violated another's rights).
 

Another example is when someone's behavior negatively affects others - for example, a bad neighbor can affect the value of someone else's house. A company that pollutes the waterways damages many other people as well.

In these cases, the government has the power of levying a tax to discourage negative behavior. For example, the government can tax cigarettes because the true cost of the cigarette isn't calculable easily and it has negative affects on others as well. So an added tax on cigarettes discourages cigarette use.

 

However, if a state begins to regulate markets through price fixing (excess taxes and subsidies) or supply control (over regulation), or through demand control (mandating purchase of car/health insurance for example), it makes the markets inefficient, because the true cost of the product now has to account for  the invisible government requirements. For example, government  regulations require about $900-$1500 worth of extra equipment in each car. Even though we don't consider this a tax, this means every consumer has to pay more for a product.

Overall, the state has a very important role - which is to allow a marketplace where individuals (businesses) can trade products and services without fear and with reasonable assurance of good behavior. 

The state's role is NOT to determine what product is good, what it should cost, how it should be distributed, who should purchase it, and who should manufacture it. All of these are functions of individuals in the marketplace :)


 

A true free market would have only one winner.

This is a competition people and the winner would be the last one standing. There might be fifty stores at the beginning but at the end only one will win.

Care to explain why you believe this total fabrication? US has been around 300 years. I don't see just one store. I see Walmart, Target, Krogers, HEB and others competing within a mile of each other. The only time only 'one option' has been available to people is when the government mandates it so (like in communist nations -- and even they are beginning to see the  light!). The only way that Walmart would create a monopoly is to bribe the government to create laws and raise taxes that would make it impossible for the small stores to keep up with them resulting in them being the only ones left. But if everyone could compete fairly, then only the stores with the best prices, service, and selection will win. 

Since you complain a lot about this issue, I'm assuming there is only one restaurant in your area, only one hair salon, only one grocery store, only one accountant, only one attorney, only one clothing store, only one construction company, only one realtor, and only one farmer?


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#4 Passingby

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Posted 11 November 2013 - 05:58 PM


Since you complain a lot about this issue, I'm assuming there is only one restaurant in your area, only one hair salon, only one grocery store, only one accountant, only one attorney, only one clothing store, only one construction company, only one realtor, and only one farmer?

 

The government provides everything for him, that's the world where waleuska lives. Kinda like NoKor, he would wail and bow down to the ground for every blessing the great leader provides him. Because there can only be ONE provider for all.


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#5 Oben

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Posted 11 November 2013 - 06:06 PM

@ hitesh:

 

I disagree with some parts here. While yes, the state has foremost to guarantee the individual rights and enforce them, he also has to correct market failure since the free market does fail occasionally (I elaborated it here). Nobody but the state or some other sort of higher force can solve these problems, and therefore, the state has to do it in order to sustain a working market.

Futhermore, there are subjects that the state has to offer himself because everyone needs to be included, this time not for a functioning market, but for a functioning society. Education would be an example - everybody should have it, but the free market wouldn't guarantee it for everyone, so the state has to provide education as well himself. I think the same thing about healthcare, but that's another story.

Anyway, what I'm saying is that there are goods that the state has to provide himself simply because everybody in the society must get access to them. This also applies for welfare in some sort of way. Yes, helping the unemployed isn't particulary efficient, but letting them die or hunger or whatever is simply no option. The state also has a social responsibility.

 

Btw, in my country, I'm considered rather liberal. Before the ignorants start calling me socialist, which I am not.


Edited by Oben, 11 November 2013 - 06:07 PM.

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#6 Passingby

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Posted 11 November 2013 - 06:12 PM

@ hitesh:

 

I disagree with some parts here. While yes, the state has foremost to guarantee the individual rights and enforce them, he also has to correct market failure since the free market does fail occasionally (I elaborated it here). Nobody but the state or some other sort of higher force can solve these problems, and therefore, the state has to do it in order to sustain a working market.

Futhermore, there are subjects that the state has to offer himself because everyone needs to be included, this time not for a functioning market, but for a functioning society. Education would be an example - everybody should have it, but the free market wouldn't guarantee it for everyone, so the state has to provide education as well himself. I think the same thing about healthcare, but that's another story.

Anyway, what I'm saying is that there are goods that the state has to provide himself simply because everybody in the society must get access to them. This also applies for welfare in some sort of way. Yes, helping the unemployed isn't particulary efficient, but letting them die or hunger or whatever is simply no option. The state also has a social responsibility.

 

Btw, in my country, I'm considered rather liberal. Before the ignorants start calling me socialist, which I am not.

Although I agree on some of your points, I don't see exactly how you 'elaborated' market failure. You're again, discussing state responsibilities vs free market goods. Business vs Public commodity. 

 

Now if you could in fact provide an actual case study in which competing business in a relatively perfect free competition failed and the state has to intervene then we could have an actual discussion. But right now, all you're saying is hardly relevant to 'free market'. 

 

And as a sidebar, healthcare is different from healthcare insurance.


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#7 Oben

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Posted 11 November 2013 - 06:27 PM

Although I agree on some of your points, I don't see exactly how you 'elaborated' market failure. You're again, discussing state responsibilities vs free market goods. Business vs Public commodity. 
 
Now if you could in fact provide an actual case study in which competing business in a relatively perfect free competition failed and the state has to intervene then we could have an actual discussion. But right now, all you're saying is hardly relevant to 'free market'.


Well, if you want to discuss how much the state should intervene, you need to start with the question if the state has to intervene at all. Since market-failure happens (look up the tragedy of the commons for example), the answer to that is a clear yes. But on this forum, there are some anarcho-capitalists that would even question that, so there's need to start with it.
Which is already all that part of my post goes into. Not very deep, but basic.
 

And as a sidebar, healthcare is different from healthcare insurance.


I mean what I wrote. But honestly, I made this thread to drag the topic from just that ^^

Edited by Oben, 11 November 2013 - 06:29 PM.


#8 Nyanko

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Posted 11 November 2013 - 06:51 PM

A state should intervene to prevent Market Failure. A state should intervene to protect the welfare of its citizens. A state should intervene in the Banking System. A state should intervene to protect the safety of the state. A state should intervene with fiscal policy to achieve its desired economic goals... I'd explain more... perhaps tomorrow when I don't have the threat of exams or essays over my head


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#9 waleuska

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Posted 11 November 2013 - 06:57 PM

 

Care to explain why you believe this total fabrication? US has been around 300 years. I don't see just one store. I see Walmart, Target, Krogers, HEB and others competing within a mile of each other. The only time only 'one option' has been available to people is when the government mandates it so (like in communist nations -- and even they are beginning to see the  light!). The only way that Walmart would create a monopoly is to bribe the government to create laws and raise taxes that would make it impossible for the small stores to keep up with them resulting in them being the only ones left. But if everyone could compete fairly, then only the stores with the best prices, service, and selection will win. 

Since you complain a lot about this issue, I'm assuming there is only one restaurant in your area, only one hair salon, only one grocery store, only one accountant, only one attorney, only one clothing store, only one construction company, only one realtor, and only one farmer?

Yes, at time the government have help business when they did not need it but also, if it was not for the monopoly laws Microsoft would be the only computer company.

 

 

Microsoft save apple because it would have been the only real computer company and the government would have broken it up. Now, apple is one or if not the largest company because Microsoft save it, and the only reason they save it was because of fear.


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#10 Phenomiracle

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Posted 11 November 2013 - 06:57 PM

I disagree with some parts here. While yes, the state has foremost to guarantee the individual rights and enforce them, he also has to correct market failure since the free market does fail occasionally (I elaborated it here). Nobody but the state or some other sort of higher force can solve these problems, and therefore, the state has to do it in order to sustain a working market.

 

What you illustrated in that post was not "market failure." Passingby beat me to the issue of public commodity, which, if I recall correctly, he had used in responding to your original post.

 

Also, onto the conventional understanding of "market failure," here are two inherently moral questions which no one has ever been able to provide a concrete answer to: What quantitative value defines a "market failure" which justifies government intervention? What quantitative model is used in deciding the level of government intrusion? 

 

None exist. The reason "failures" are so common is due to frequent government intervention to begin with. intervention in one crisis leads to the inevitable resurfacing of another "problem" somewhere else in the market. Market efficiency can only be optimal if it is left to self-regulate.

 

Futhermore, there are subjects that the state has to offer himself because everyone needs to be included, this time not for a functioning market, but for a functioning society. Education would be an example - everybody should have it, but the free market wouldn't guarantee it for everyone, so the state has to provide education as well himself. I think the same thing about healthcare, but that's another story.

Anyway, what I'm saying is that there are goods that the state has to provide himself simply because everybody in the society must get access to them. This also applies for welfare in some sort of way. Yes, helping the unemployed isn't particulary efficient, but letting them die or hunger or whatever is simply no option. The state also has a social responsibility.

 

A true free market does guarantee services of all kinds being available to individuals of all socioeconomic status, while not relying on force and burden upon other individuals. The implementation of morally upright social responsibility does not entail theft, of which the current model of welfare does, and it's still inefficient to an incredible degree. 

 

There are only two things that guarantee efficiency in offering a product or service: Profit motive and/or genuine compassion

 

These are all theoretical responses, by the way. I could go in plenty of detail giving history lessons, but of course, I'm a bit tired.

 

Also, if you don't want to be called a socialist, try not using the label 'anarcho-capitalists.' I believe in the premise of agencies such as the FDA (and 'premise,' only. The FDA, much like plenty of government agencies, have efficiency problems that stem from its innate bureaucracy). 


Edited by Phenomiracle, 11 November 2013 - 07:05 PM.

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#11 Passingby

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Posted 11 November 2013 - 07:04 PM

Yes, at time the government have help business when they did not need it but also, if it was not for the monopoly laws Microsoft would be the only computer company.

 

 

Microsoft save apple because it would have been the only real computer company and the government would have broken it up. Now, apple is one or if not the largest company because Microsoft save it, and the only reason they save it was because of fear.

 

 

I want to understand how you guys see the free market.

 

1.Is where the government make a set price on a object and everyone must go by it. EX. A computer set price is $300 and everyone have to deal with it that way.

 

or

 

2.Every company for itself. No government over sight at all. And if number 2 would never work.

 
 

From "Government setting the price of goods" to "anti-monopoly laws". I'm observant of what you posted Wale, now don't go pretending that you were actually saying that government prevents monopoly but at the same breathe, once again you're alright with them controlling the prices of the goods.

 

The question here is this: What's the difference? It's basically the same thing. I don't know if you're against it or for it, as you're seemingly contradicting yourself. You're walking a very fine line right now.

 

Edited by Passingby, 11 November 2013 - 07:05 PM.

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#12 Zommie

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Posted 11 November 2013 - 07:39 PM

It depends entirely on how they intervene and to what extent. I think some are confusing the question with being on of a debate between absolute freedom and absolute control. Government intervention is sometimes both the cause and solution to imbalances in the global financial market, but sometimes there are factors outside government intervention that can lead to collapse. The recent 2008 crisis is a good example of that. In this instance government intervention was required to bail out banks and pump enough liquidity into the market in order to sustain growth.

I think that the main argument that can be made against government intervention is that it can often be ineffective due to information lags and demand/supply inelasticity. Some tools are of course better than others, repo rates, open market transactions and quantitative easing have all been proven to be beneficial to various economies. Even tariffs can help industry grow so long as they are low enough to still promote competitiveness. Other tools such as price ceilings and minimum wages seem appealing from an ethical point of view but from an economic perspective they hamper the market and I feel should be only employed if economic conditions allow it.
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#13 Nyanko

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Posted 11 November 2013 - 07:52 PM

A state should intervene to prevent Market Failure. A state should intervene to protect the welfare of its citizens. A state should intervene in the Banking System. A state should intervene to protect the safety of the state. A state should intervene with fiscal policy to achieve its desired economic goals... I'd explain more... perhaps tomorrow when I don't have the threat of exams or essays over my head

 

Seeing as though I am stuck at home now, thunderstorm and flooding blocking the only way to University, I might expand on this post a little.

 

A State should intervene to prevent Market Failure

I think Oben covered this pretty nicely, tragedy of the commons, etcetera.

 

One key point is the matter of Government Monopolies. When a company is unable or unwilling to provide a particular good which is for the social wellbeing, the government is most welcome to implement a public monopoly to supply that good. A key example would be telecommunications in Australia. Because of the relative size of Australia, and the low population density, it was not seen as economically viable for private companies to deliver telecommunications to the distant communities, the cost of connecting them would outweigh any potential income derived from that connection. However the Commonwealth desired that good telecommunications was a necessity, and created a monopoly to provide telecommunications services to these communities, which the private market was unwilling at the time to provide. Of course, this ended up being a problem when the government privatized the telecommunications service, as it created a strong monopoly, due to poor decisions in privatizing it; selling it as a whole instead of breaking up the retail and wholesale divisions. Ending point, if a company is unwilling due to costs or lack of profit to provide an essential service to the community, the government is obligated to step in and provide that service However, I do think that any GRE should be privatized when the chance is right to recoup the investment.

 

A State should intervene to protect the welfare of its citizens

When a company is doing something that impacts negitively on the citizens of a nation, the government should intervene to prevent this action. This can include safety regulations, advertising regulations, pollution regulations. It very much links in with Market Failure above. Also unemployment benifits are key here. Unemployment in traditional economics is the excess labour force from which companies can source labour during boom times. It is in the companies best interest that this pool of potential labour is at the very least, alive, educated and able to work when required. Starving plebs don't make a very good excess labour pool, after all.

 

A state should intervene in a Banking System

Anyone who disagrees should look at the past 20 years of deregulation in the banking system and the events of 2006-2008. Banks are too important to the fate of the economy to let them run around on their own, creating new products, chasing bubbles, crashing and expecting everyone to clean up after their own greed induced mess. Strong and prudent regulation is required if there is a large banking sector in the economy... I wonder how many US banks are compliant with Basel III? The supply of Money and credit is a key and important part of any economy, and disruption of such (see 2008) can cause significant economic crisis, as credit becomes scarce, and business cannot fund expansion

 

A state should intervene to protect the state

If the actions of a company or a market threaten the welfare and security of the nationstate, the state is most welcome to intervene and come down hard on them.

 

A state should intervene with fiscal policy to achieve its desired economic goals

This is a very contentious issue, but the indisputable fact is, Government Spending makes up a large proportion of GDP, and if it so wishes, it can use its spending to modify GDP Contract in times of boom, expand in times of bust; thats what Keynes said, right? Of course, anyone with any economics training would know that it is nowhere near as simple as this, crowding out theory, excess debt, spending beyond ones means, as well as the neo-liberal and monetarist arguments.It all depends on whose in government at the time as to how fiscal policy is used. But it should never be discounted.


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#14 Phenomiracle

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Posted 11 November 2013 - 10:22 PM

A state should intervene in a Banking System

Anyone who disagrees should look at the past 20 years of deregulation in the banking system and the events of 2006-2008. Banks are too important to the fate of the economy to let them run around on their own, creating new products, chasing bubbles, crashing and expecting everyone to clean up after their own greed induced mess. Strong and prudent regulation is required if there is a large banking sector in the economy... I wonder how many US banks are compliant with Basel III? The supply of Money and credit is a key and important part of any economy, and disruption of such (see 2008) can cause significant economic crisis, as credit becomes scarce, and business cannot fund expansion.

 

Excellent point; I knew someone would bring this up. Chances are, someone will use that mess to argue against what I posited.

 

As a preface: I believe all interest should be outlawed. I define interest as profit being made off a loan created with the condition that the borrower will pay back the lender a greater quantity than the amount lent to the borrower.

 

Interest is profit made at a no-risk venture, which is inherently against the nature of free trade and thus, outright immoral. The mere concept of interest contradicts the very definition of currency, as interest is sought by the lender for attempting to offer currency as a product/service. Also, interest causes inflation, which creates the necessity of a central bank to control said inflation, thus creating the cyclical problem. 

 

All non-profit loans and investments should be either charity or venture capital.


Edited by Phenomiracle, 11 November 2013 - 10:43 PM.

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#15 hitesh93

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Posted 12 November 2013 - 04:08 AM

Seeing as though I am stuck at home now, thunderstorm and flooding blocking the only way to University, I might expand on this post a little.

 

A State should intervene to prevent Market Failure

I think Oben covered this pretty nicely, tragedy of the commons, etcetera.

 

One key point is the matter of Government Monopolies. When a company is unable or unwilling to provide a particular good which is for the social wellbeing, the government is most welcome to implement a public monopoly to supply that good. A key example would be telecommunications in Australia. Because of the relative size of Australia, and the low population density, it was not seen as economically viable for private companies to deliver telecommunications to the distant communities, the cost of connecting them would outweigh any potential income derived from that connection. However the Commonwealth desired that good telecommunications was a necessity, and created a monopoly to provide telecommunications services to these communities, which the private market was unwilling at the time to provide. Of course, this ended up being a problem when the government privatized the telecommunications service, as it created a strong monopoly, due to poor decisions in privatizing it; selling it as a whole instead of breaking up the retail and wholesale divisions. Ending point, if a company is unwilling due to costs or lack of profit to provide an essential service to the community, the government is obligated to step in and provide that service However, I do think that any GRE should be privatized when the chance is right to recoup the investment.

 

A State should intervene to protect the welfare of its citizens

When a company is doing something that impacts negitively on the citizens of a nation, the government should intervene to prevent this action. This can include safety regulations, advertising regulations, pollution regulations. It very much links in with Market Failure above. Also unemployment benifits are key here. Unemployment in traditional economics is the excess labour force from which companies can source labour during boom times. It is in the companies best interest that this pool of potential labour is at the very least, alive, educated and able to work when required. Starving plebs don't make a very good excess labour pool, after all.

 

A state should intervene in a Banking System

Anyone who disagrees should look at the past 20 years of deregulation in the banking system and the events of 2006-2008. Banks are too important to the fate of the economy to let them run around on their own, creating new products, chasing bubbles, crashing and expecting everyone to clean up after their own greed induced mess. Strong and prudent regulation is required if there is a large banking sector in the economy... I wonder how many US banks are compliant with Basel III? The supply of Money and credit is a key and important part of any economy, and disruption of such (see 2008) can cause significant economic crisis, as credit becomes scarce, and business cannot fund expansion

 

A state should intervene to protect the state

If the actions of a company or a market threaten the welfare and security of the nationstate, the state is most welcome to intervene and come down hard on them.

 

A state should intervene with fiscal policy to achieve its desired economic goals

This is a very contentious issue, but the indisputable fact is, Government Spending makes up a large proportion of GDP, and if it so wishes, it can use its spending to modify GDP Contract in times of boom, expand in times of bust; thats what Keynes said, right? Of course, anyone with any economics training would know that it is nowhere near as simple as this, crowding out theory, excess debt, spending beyond ones means, as well as the neo-liberal and monetarist arguments.It all depends on whose in government at the time as to how fiscal policy is used. But it should never be discounted.

 

Thank you for your post. I appreciate you explaining your positions so we can have a meaningful discussion as opposed to some others who simply make statements with no basis or explanation. 

 

A State should intervene to protect the welfare of its citizens

In my original post I already explained the need for this. This is a basic role of government, not intervention in the market. I specifically gave pollution and misleading advertising as examples. You are confusing immoral actions (which are punished by the market and the court system) with true market failure. So in this case, no, this is not intervention into the free market, but simply a basic role of the govt.

 

Banking System:

You realize that the banking system is the mess it is precisely because the govt forced banks to lend money to people who could never pay it back? This was done to assure the 'welfare' of people so they could get houses that they couldn't afford in the first place. Sounds much like telling them to buy insurance they can't afford as well...

In reality, what we need with the banking system is not regulation, but rather transparency and lack of govt bailouts. See, if banks are worried about losses, they invest carefully, lend carefully, and spend carefully. But the govt. came in and said that they would 'guarantee' that banks would not lose money, not matter how bad the investments. This results in risk-taking behavior (investing in risky companies, or lending to people who can't pay money back). If anything, banking is a GREAT example of exactly why govt. shouldn't be allowed to dictate the policies and management by businesses.

 

Finally, it seems like you ignore the fact that the govt dosn't have any money. It gets the money from taxing the people. Why must the govt. take money from people, then tell the banks to go crazy with lending, then use the money from the people to pay off the losses? Who got screwed over in the whole deal? The average guy. Who made out with tons of money? Politicians and executives. This is what I said before - an activist govt. usually results in corruption and fraud at expense of the tax payer. Look at cash for clunkers, obamacare, the bailouts and more. In all cases, the average person lost while politicians and executives made out like bandits.

 

 

Intervention in case of a company's behavior threatening the security of the state: Please give me an example where this wouldn't fall under existing treason and national security laws. 

 

Fiscal policy to achieve desired economic goals:

We have immense evidence that majority of govt intervention in the economy results in creation of monopolies, loss of efficiency, growth of corruption, and high taxes/costs on the consumer. In fact the best fiscal policy for the govt is to stay out of the marketplace and only exercise subsidizing and taxation extremely cautiously to encourage and discourage certain behaviour (like my example with cigarette). 

 

 

I think you are misunderstanding what 'intervention' means. Most of what you have detailed is simply the basic role of govt. You're confusing that as an issue of how much power the state should have over the social and economic lives of people.

 

I also think you're ignoring a very important point - there is no such thing as 'business' or 'government'. In the end they are all people. When there is some wrongdoing (like threat to national security or false advertising), there are PEOPLE responsible for those things. It's a case of an individual breaking the moral code of the free market - that's why we punish them! The laws don't come from the government, but rather the government creates laws that align with our moral understandings of the market. This is why the US constitution highlights that the rights we have don't come from the government, but rather are intrinsic to us and come from God. 


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#16 Zommie

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Posted 12 November 2013 - 04:12 AM

Excellent point; I knew someone would bring this up. Chances are, someone will use that mess to argue against what I posited.

As a preface: I believe all interest should be outlawed. I define interest as profit being made off a loan created with the condition that the borrower will pay back the lender a greater quantity than the amount lent to the borrower.

Interest is profit made at a no-risk venture, which is inherently against the nature of free trade and thus, outright immoral. The mere concept of interest contradicts the very definition of currency, as interest is sought by the lender for attempting to offer currency as a product/service. Also, interest causes inflation, which creates the necessity of a central bank to control said inflation, thus creating the cyclical problem.

All non-profit loans and investments should be either charity or venture capital.

Firstly interest on loans isn't the only or even the main cause of inflation. Price expectations, market shocks, exchange rates and economic growth are what mainly attribute to it. In fact having an inflation rate that is too low implies that an economy is not growing tas it should, take the Japanese for example who are still struggling against deflation having an inflation rate of 1% and something like 0.9% growth. A regulated inflation rate can help keep things under control while still promoting growth.

Also I'm not certain what you mean by "interest is a no-risk venture". The interest you get from your bank account maybe, but anything else from loans to shares still carry risk. Your invested capital is your risk.

On another note most of the world is running on credit. In some cases it might get out of hand, take the US for example, but taking loans from other countries or the world bank or the IMF is sometimes the only way to dig themselves out of economic slumps. The interest placed on the loan is often generous if a country is struggling particularly, but still needed for the incentive for there to be a loan in the first place. If all loans had to be charitable or have no interest attached to them you found yourself with an extreme shortage of money supply in the world as no-one would be willing to lend without any return.

Besides loans help people and countries promote their production capabilities which then helps them pay off the interest. It's something that is needed for growth whether moral or not.

@Hitesh - I'd like to know where your information on the government forcing banks to make high risk loans comes from. Also while the government might not have money the reserve bank does. Thats the role of banking Nyanko was talking about as the Reserve Bank was needed to print more money to deal with the crisis.

Also while some average people may have lost out in the bailouts I assure you they would have lost out far more if the banks had been allowed to fail. Could you imagine if millions of people suddenly lost their life's savings because the bank they would deposit in suddenly went under?


Edited by Zommie, 12 November 2013 - 09:59 AM.

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#17 Oben

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Posted 12 November 2013 - 08:52 AM

What you illustrated in that post was not "market failure." Passingby beat me to the issue of public commodity, which, if I recall correctly, he had used in responding to your original post.
 
Also, onto the conventional understanding of "market failure," here are two inherently moral questions which no one has ever been able to provide a concrete answer to: What quantitative value defines a "market failure" which justifies government intervention? What quantitative model is used in deciding the level of government intrusion?

 

Not exactly. "Market failure" is per definitionem (among other things) the failure of allocation of common goods.

Anyway, defining market failure is not a moral question. Efficiency and the likes can be measured, and therefore, a failure of a market can be quantified as well.

 

None exist. The reason "failures" are so common is due to frequent government intervention to begin with. intervention in one crisis leads to the inevitable resurfacing of another "problem" somewhere else in the market. Market efficiency can only be optimal if it is left to self-regulate.

 

Wrong, you are simplyfying way too much. A completely self-regulating market will work only partially, but it will fail in several aspects. You might know the categories goods are classified into: Rivalry and Excludability. If both are given for the customers, then yes, the market works in itself, but if one of the two (or both) are not given for a good, then the market begins to struggle or even to fail. The 0-1 and 1-0 options will lead to monopolies or respectively a fast destruction of the production, while the 0-0 option will simply result in the good not being provided. The 1-0 problem can be solved by chance (so practically never) and the 0-1 problem requires a higher force to play referee (not sure if you know Ostrom, but you can read it up in her books). For the 0-0 version however, a state is inevitable.
 

A true free market does guarantee services of all kinds being available to individuals of all socioeconomic status, while not relying on force and burden upon other individuals. The implementation of morally upright social responsibility does not entail theft, of which the current model of welfare does, and it's still inefficient to an incredible degree.

 

The market gives everyone a chance to access the good, but it doesn't make it possible for everyone. For example, everyone is allowed to buy a car, but that doesn't mean that everyone can buy a car.
 

There are only two things that guarantee efficiency in offering a product or service: Profit motive and/or genuine compassion
 
These are all theoretical responses, by the way. I could go in plenty of detail giving history lessons, but of course, I'm a bit tired.

 

Profit motive will not provide everything (since it is profitable to free-ride while letting others pay, but if everyone does, obviously all lose, and therefore, some goods will not be provided), and genuine compassion is anchored in people's personalities and will not guarantee the supply with all goods. It only increases the chances for some.

 

 

Also, if you don't want to be called a socialist, try not using the label 'anarcho-capitalists.' I believe in the premise of agencies such as the FDA (and 'premise,' only. The FDA, much like plenty of government agencies, have efficiency problems that stem from its innate bureaucracy).

 

There are actually people that call that themselves, like Makaze or Rifle. So I believe using the term on them is not a problem.



#18 hitesh93

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Posted 12 November 2013 - 07:34 PM

Not exactly. "Market failure" is per definitionem (among other things) the failure of allocation of common goods.

Anyway, defining market failure is not a moral question. Efficiency and the likes can be measured, and therefore, a failure of a market can be quantified as well.

 

No no no no no no no no no no no noooooo!

Market failure is the situation where the free market price system fails to price a product in relation to its supply and demand. This CAN happen, but is rare, and usually easily fixed with common sense.
 

Your definition is a dealing entirely with public goods which we have already discussed necessitate some form of government contribution. 

You're extending that definition all the way to cover all goods. Then you're saying 'when common goods are not allocated'. Let's take an orange for example. How many oranges are enough in a group of 1000 people? Should each have 5? 10? 2? At what point are there too few oranges and we need the government to intervene? 

I hope you see the fallacy.

 

 

Examples of market failure:
Crime. Crime in an area has a direct cost in terms of crime suppression (hiring security guards/alarm systems and such), but it also has hidden costs like devaluing of houses in the area, which is not easily reflected immediately.
Pollution. 
 

 

The fix to market failure:

Time. Not government. Over time, the price in the market adjusts to reflect what people value. The reason crime reduces property value is that people, in general, want to be in a crime free area. Given enough time, people with capital will either move away or will work to eliminate the crime, which will increase the property values, or in case they leave, will reduce the value even more.

In cases like this, government can play a great role. 

 

Proper role of government in such cases:

The government should move to fulfill its role of crime prevention and suppression swiftly and strongly. This will eliminate the core problem.

 

Bad government policy:

The govt instead today subsidizes loans in such areas, and tries to attract people to such areas despite the crime. This perpetuates the problem instead of solving it. This makes the prices of the houses in the area go up artificially because govt. has created an artificial demand for the houses. Next, the interest on loans goes up because of the artificial demand for loans, which eventually crash due to lack of payments by people who couldn't have afforded them without govt. subsidies. 

 

And this is precisely what happened in the housing collapse. 

 

 

 

-------Profit Motive----------

 

While I theoretically agree with your statement that profit motive won't provide everything, by and large such goods are few and far in between. Remember we already agree that it is the State's responsibility to provide protection to individuals against the elements and other people. So firefightning/peacekeeping/courts and such don't fall under profit motive categories. However, private security teams, alarm systems, fire alarms, sprinkler systems and such things all have a profit motive which have resulted in lower costs and efficient services. With some effort it is possible to privatize many other services and goods that the government controls as well. But that's a whole other topic.


 

@Hitesh - I'd like to know where your information on the government forcing banks to make high risk loans comes from. Also while the government might not have money the reserve bank does. Thats the role of banking Nyanko was talking about as the Reserve Bank was needed to print more money to deal with the crisis.

Also while some average people may have lost out in the bailouts I assure you they would have lost out far more if the banks had been allowed to fail. Could you imagine if millions of people suddenly lost their life's savings because the bank they would deposit in suddenly went under?

'Force' is a slightly misleading term:
1. The government did indeed 'force' some banks to make loans. Obama was actually one of the attorneys that threatened to sue banks if they did not give loans to people with low credit scores citing discrimination.

2. The government did something much worse - they guaranteed that if the bank lost money, they would give them the money they lost (guaranteed loans). So lets say you have $100 that you need to invest. Typically, you'd be careful with how to invest because you don't want to lose the $100 and ideally want to make a profit on it, right? So 2 people come to you for the investment, one has a solid business plan, a good credit score, and strong skills. The other is a drunkard with no track record. You'd always give the loan to the better prospect.
However, I come to you and say - look, give the money to the drunk, and if he doesn't pay you back, I'll give you another $100. And guess what, if you DO give the money to the drunk, I'll give you $5 right now! 
Now, I have eliminated the 'risk', so you will give the money to the drunk. This is what the banks did, lost a bunch of money, and the govt. bailed them out. Remember majority of these loans were vetted through Freddie and Sallie's guidelines. 

 

So in this  way, the govt. was indeed responsible for the housing and financial crisis. Andrew Cuomo, Barak Obama and others were attorneys directly involved with suing banks in the past that did not give loans to low-income and low-credit people. You can still find the press conference where Cuomo was celebrating how they had extracted billions of dollars in loans from banks for people who were not qualified for them through lawsuits.

The FED is a massive topic unto itself and the fractional reserve banking system would take a whole other debate to get through :D


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#19 Phenomiracle

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Posted 13 November 2013 - 12:36 AM

 

Firstly interest on loans isn't the only or even the main cause of inflation. Price expectations, market shocks, exchange rates and economic growth are what mainly attribute to it. In fact having an inflation rate that is too low implies that an economy is not growing tas it should, take the Japanese for example who are still struggling against deflation having an inflation rate of 1% and something like 0.9% growth. A regulated inflation rate can help keep things under control while still promoting growth.

 

The context for my comment on inflation was an aggregate one based on current events. Of course, inflation can be good and does signify momentary growth, as rising prices do temporarily drive consumption. In the long term, however, as we've seen throughout the past few decades, inflation tends to go out control, due to poor government regulation on interest rates as well as the cute and cuddly Federal Reserve, and presents itself to be quite the problem it is today.

 

Inflation is the cake that tastes great now, but will call for hours of jogging to burn off. Too much of said cake would make you fat, making jogging more and more difficult. Eating cake moderately, however, can have little repercussion on your health. 

 

Interest is undoubtedly one of the main causes of inflation, as it is either byproduct or a catalyst that drives consumer mentality in everything you just said.

 

Also I'm not certain what you mean by "interest is a no-risk venture". The interest you get from your bank account maybe, but anything else from loans to shares still carry risk. Your invested capital is your risk.

 

The risk in interest is governed by law, not the free market. A borrower is legally bound to give interest back due to contract obligations at the threat of legal punishment. This enforcement renders risk in interest to be either low or nonexistent.

 

Of course, borrowers may not be able to pay back interest collectively, which was one of the main causes of the disaster in 2007-08. What people dub 'greed' was decisions made at no-risk ventures with a guaranteed profit, which is contradictory to the nature of the free market. Banks expected its borrowers to pay back their loans, and thus were indiscriminate in lending them out, giving little regard for credit rating. Banks did not invest in its borrowers ability to pay them back, they outright obligated them to pay them back interest. True investment always carries the risk of failure that would not be subject to legal punishment; interest does not.

 

Interest =/= true investment, especially within a localized system.

 

On another note most of the world is running on credit. In some cases it might get out of hand, take the US for example, but taking loans from other countries or the world bank or the IMF is sometimes the only way to dig themselves out of economic slumps. The interest placed on the loan is often generous if a country is struggling particularly, but still needed for the incentive for there to be a loan in the first place. If all loans had to be charitable or have no interest attached to them you found yourself with an extreme shortage of money supply in the world as no-one would be willing to lend without any return.

Besides loans help people and countries promote their production capabilities which then helps them pay off the interest. It's something that is needed for growth whether moral or not.

 

Interest-based loans are not the only way for a country to raise itself from recession. Proper utilization of resources, embracing the establishment of trade are just two viable alternatives that are moral and consistent to the nature of free trade, albeit much longer. 

 

Of course, this is all barring the lack of human compassion.

 

Not exactly. "Market failure" is per definitionem (among other things) the failure of allocation of common goods.

Anyway, defining market failure is not a moral question. Efficiency and the likes can be measured, and therefore, a failure of a market can be quantified as well.

 

No, it can't.

 

There hasn't been a single truly consistent economic model proposed ever that would quantify a market failure. Yes, it's quite obvious to see when an industry or market is suffering, but not a single legitimate benchmark that justifies government intervention, let alone one that explains just how much government should intervene. 

 

This matter has always been left up to pure instinct and emotion, and lack of reason or any objectivity, leading to future "disasters" of which "solutions" exacerbate the suffering in the long term. 

 

A completely self-regulating market will work only partially, but it will fail in several aspects. You might know the categories goods are classified into: Rivalry and Excludability. If both are given for the customers, then yes, the market works in itself, but if one of the two (or both) are not given for a good, then the market begins to struggle or even to fail. The 0-1 and 1-0 options will lead to monopolies or respectively a fast destruction of the production, while the 0-0 option will simply result in the good not being provided. The 1-0 problem can be solved by chance (so practically never) and the 0-1 problem requires a higher force to play referee (not sure if you know Ostrom, but you can read it up in her books). For the 0-0 version however, a state is inevitable.

 

Thanks to imprecise definitions, the mere categorization of goods through property rights is debatable, which leads to inevitable exploitation.

 

I believe that government should manage the production of public goods. Such government policy must be efficient and remain strongly principled. Due to the incredible dangers of private exploitation and uncertainty in efficiency (since government is non-profit), a willing free market would still be much more optimal. However, free-riding drastically decreases incentive for individuals to offer efficiently produced public goods, largely removing it from the equation.

 

In either 1-0 or 0-1, depletion of resources for goods forces the industry to self-adjust to meet rising demand. On the outside, the industry can be appear to be suffering during this transitional period, as major competitors are no longer able to offer their products at a consumer-friendly price. Resource depletion, much like indiscriminate loans of which we've seen the fabulous results of in 07-08 are collective bad business decisions that hurt all involving competitors. 

 

Oh, and regarding monopolies: Many people mistakenly understand competition to be constrained within divergence parameters by the structure of a market whose competitors possess absolute knowledge. In reality, no knowledge regarding a business venture in an industry (for ex. the science of product quality, here being a common good) is absolute, and they are all subject to rivalrous behavior, which promote new ways at attempting to find alternatives. This is why the formation of monopolies is almost impossible, especially in today's information age.

 

You either misunderstood Ostrom or incorrectly assumed her proposed commons management is intended to function at a federal level. Within a localized system (say, a county/province/state), her applications do make sense. Communities are left to self-regulate management of resources, and that management acts as private competition of its own when you consider the existence of other communities managing similar resources.

 

The market gives everyone a chance to access the good, but it doesn't make it possible for everyone. For example, everyone is allowed to buy a car, but that doesn't mean that everyone can buy a car.

 

Of course. The laws of supply and demand determine whether a car of a certain model is available to consumers of income brackets. Resale allows for consumers to sell used cars at affordable prices for those who can't afford the recent models.

 

Your logic assumes that people have an inherent right to possess a car. 

 

...They don't.

 

Profit motive will not provide everything (since it is profitable to free-ride while letting others pay, but if everyone does, obviously all lose, and therefore, some goods will not be provided), and genuine compassion is anchored in people's personalities and will not guarantee the supply with all goods. It only increases the chances for some.

 

And that's precisely when government steps in, to offer public goods. Aside from the dangers that I outlined for government intrusion, a willing free market would always be more efficient in the industry of public goods. 

 

There are actually people that call that themselves, like Makaze or Rifle. So I believe using the term on them is not a problem.

 

I'm neither Makaze nor Rifle, as I'm sure you noticed. Plenty of people who espouse your philosophy (if I'm understanding it correctly) are happy to call themselves socialist.

 

If you don't want to be called a socialist, don't call me an anarcho-capitalist. 


Edited by Phenomiracle, 13 November 2013 - 02:39 PM.

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#20 Oben

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Posted 13 November 2013 - 04:09 PM

No no no no no no no no no no no noooooo!
Market failure is the situation where the free market price system fails to price a product in relation to its supply and demand. This CAN happen, but is rare, and usually easily fixed with common sense.
 
Your definition is a dealing entirely with public goods which we have already discussed necessitate some form of government contribution.
 
You're extending that definition all the way to cover all goods. Then you're saying 'when common goods are not allocated'. Let's take an orange for example. How many oranges are enough in a group of 1000 people? Should each have 5? 10? 2? At what point are there too few oranges and we need the government to intervene?
I hope you see the fallacy.

 
I said "among other things". So, public goods bring ONE FORM of market failure.
 
And an orange is not a common good, not even remotely and not in any sense. That example is bullshit in this context, really.
 

Examples of market failure:
Crime. Crime in an area has a direct cost in terms of crime suppression (hiring security guards/alarm systems and such), but it also has hidden costs like devaluing of houses in the area, which is not easily reflected immediately.
Pollution.
 
 
The fix to market failure:
Time. Not government. Over time, the price in the market adjusts to reflect what people value. The reason crime reduces property value is that people, in general, want to be in a crime free area. Given enough time, people with capital will either move away or will work to eliminate the crime, which will increase the property values, or in case they leave, will reduce the value even more.
In cases like this, government can play a great role.
 
Proper role of government in such cases:
The government should move to fulfill its role of crime prevention and suppression swiftly and strongly. This will eliminate the core problem.
 
Bad government policy:
The govt instead today subsidizes loans in such areas, and tries to attract people to such areas despite the crime. This perpetuates the problem instead of solving it. This makes the prices of the houses in the area go up artificially because govt. has created an artificial demand for the houses. Next, the interest on loans goes up because of the artificial demand for loans, which eventually crash due to lack of payments by people who couldn't have afforded them without govt. subsidies.
 
And this is precisely what happened in the housing collapse.

 
It's interesting that you name Pollution as an example but don't cover it later, since pollution is not a problem that can be solved with that logic. While criminals will not actually form a public opinion/faction about having commited a crime (assuming we have a working state) pollution or similar problems will divide the population into two parts. There are those that benefit from pollution in one way or another – normally those that cause it or work for those that do, and on the other side the majority, those that have a problem with it. But what will be the solution? Simple majority decision? Why should the minority listen? Boycott? Would only work in smaller settings given that bigger companies don't rely on one region alone Burn down the factory? Really? There are plenty of problems here which the state could solve more easily.
 

-------Profit Motive----------
 
While I theoretically agree with your statement that profit motive won't provide everything, by and large such goods are few and far in between. Remember we already agree that it is the State's responsibility to provide protection to individuals against the elements and other people. So firefightning/peacekeeping/courts and such don't fall under profit motive categories. However, private security teams, alarm systems, fire alarms, sprinkler systems and such things all have a profit motive which have resulted in lower costs and efficient services. With some effort it is possible to privatize many other services and goods that the government controls as well. But that's a whole other topic.

 
So you agree that the market won't provide certain goods and the government is the better option for them. Alright.
Btw, were should that „some effort“ come from? What rational actor in a free market would possibly invest while most likely not getting paid out properly?
 

No, it can't.
 
There hasn't been a single truly consistent economic model proposed ever that would quantify a market failure. Yes, it's quite obvious to see when an industry or market is suffering, but not a single legitimate benchmark that justifies government intervention, let alone one that explains just how much government should intervene.
 
This matter has always been left up to pure instinct and emotion, and lack of reason or any objectivity, leading to future "disasters" of which "solutions" exacerbate the suffering in the long term.

 
Two pairs of shoes, actually. To diagnose a disease you don't have to know how to cure it.
As for the second part, you randomly exagerrate. First you state "there is no truly consistent model" (ok), then you state that all decisions ever "lack of reason and objectivity". Stop thinking in such hilarious extremes,please. And no, I don‘t need to prove that politicians are more than just farting monkeys.
 

Thanks to imprecise definitions, the mere categorization of goods through property rights is debatable, which leads to inevitable exploitation.

 
You can always criticize the method to secure yourself from the implications, sure, but it is an economic standard model nonetheless :shrug:
 

I believe that government should manage the production of public goods. Such government policy must be efficient and remain strongly principled. Due to the incredible dangers of private exploitation and uncertainty in efficiency (since government is non-profit), a willing free market would still be much more optimal. However, free-riding drastically decreases incentive for individuals to offer efficiently produced public goods, largely removing it from the equation.

 
No real objection here, though I think that the free market could (just because of free-riders etc.) not work at all. But ok.
 

In either 1-0 or 0-1, depletion of resources for goods forces the industry to self-adjust to meet rising demand. On the outside, the industry can be appear to be suffering during this transitional period, as major competitors are no longer able to offer their products at a consumer-friendly price. Resource depletion, much like indiscriminate loans of which we've seen the fabulous results of in 07-08 are collective bad business decisions that hurt all involving competitors.

 
This isn‘t what the model proposes though, your point doesn‘t have much to do with the problem we are discussing. If nobody can be excluded, how can there be a price in the first place? If there is no rivalry and the initiate monopoly I will explain below again, why would the price end up „consumer-friendly“?
 

Oh, and regarding monopolies: Many people mistakenly understand competition to be constrained within divergence parameters by the structure of a market whose competitors possess absolute knowledge. In reality, no knowledge regarding a business venture in an industry (for ex. the science of product quality, here being a common good) is absolute, and they are all subject to rivalrous behavior, which promote new ways at attempting to find alternatives. This is why the formation of monopolies is almost impossible, especially in today's information age.

 
The monopolies in the model are of different kind, so your point doesn't really hold true here. What is proposed is that once a good is established in the market (by an inevitable „first“ provider, since it‘s unlikely that two firms will enter the market at the exact same time and place), nobody else will enter the market anymore under practically all circumstances, since the majority of the population is already completely satisfied with the first or can be satisfyed fastly once an enemy-provider appears, while the entrance for the second would be extremely expensive as well for most goods this applies to.
 

You either misunderstood Ostrom or incorrectly assumed her proposed commons management is intended to function at a federal level. Within a localized system (say, a county/province/state), her applications do make sense. Communities are left to self-regulate management of resources, and that management acts as private competition of its own when you consider the existence of other communities managing similar resources.

 
Not on federal level, but Ostrom requires the existence of a higher levels above the level she refers to.
 

Of course. The laws of supply and demand determine whether a car of a certain model is available to consumers of income brackets. Resale allows for consumers to sell used cars at affordable prices for those who can't afford the recent models.
 
Your logic assumes that people have an inherent right to possess a car.
 
...They don't.

 
Good lord, these are examples, man.
Anyhow, people do have a guaranteed right for education. See the UN-Human Rights Charta.
 

And that's precisely when government steps in, to offer public goods. Aside from the dangers that I outlined for government intrusion, a willing free market would always be more efficient in the industry of public goods.

 
Yes.
Though like I said, I don't think that there is a "willing" free market in itself.
 

I'm neither Makaze nor Rifle, as I'm sure you noticed. Plenty of people who espouse your philosophy (if I'm understanding it correctly) are happy to call themselves socialist.
 
If you don't want to be called a socialist, don't call me an anarcho-capitalist.

 
:huh: A socialist wouldn't support the free market, which I do. Really, I‘m not even for taxing financial transactions...
You might mistake social-democrats for classical socialists though.
 
Oh, and "There are people" =/= "You".

Edited by Oben, 13 November 2013 - 04:11 PM.





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