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#21 Phenomiracle

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Posted 13 November 2013 - 05:32 PM

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.

 

An amusing analogy. To answer your point: Certainly not, but you should know how to treat it in a manner that would not exacerbate the suffering of the patient. Which no economic model is capable of, by the way. Also, no economic model is able to solidly quantify a "diagnosis" that requires treatment to begin with.  

 

Um, exactly. All excuses for government intrusion in markets and decisions made thereof lack objectivity, because there isn't a consistent economic model to refer to. What's your objection here?

 

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

 

It's hardly a reliable standard if the classification of goods could enter fierce debate. The implications of self-security have impact on the market as a whole.

 

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“?

 

Say what? Did you not mention monopolization and "fast destruction of production" as problems that arise from two situations of that cross-matrix? I assumed the latter translated to "depletion of resources." Correct me if I'm wrong, as I simply sought to refute those two assertions.

 

Because free-riding common goods is a near impossibility especially in modern society, unless one chooses to live near a lake, in the mountains, or builds his/her own mine? That's precisely why the free market functions quite well in the trade of commons goods, since:

 

-There is incredible demand with little chance of free-riding

-Efficiency in profit motive would force competitors to offer these goods in the highest quality possible.

 

Also, you used "consumer-friendly" in a completely different context. I had used the phrase in a context in which prices would no longer be within the affordability range most consumers were used to dealing with in the scenario I delineated. I'll answer what you posited next.

 

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.

 

An "initiate monopoly" in a market follows the exact same model in which I stated. Instead of a market whose competitors possess 'absolute' knowledge, there is only one firm who does so.

 

Competition, in its core concept, is defined as rivalrous behavior. There is always potential for rivalrous behavior of any kind (barring government intervention and the adverse effects antitrust laws may have), and subsequent potential for rivalrous behavior to develop into fearsome competition. The difficulties for which a second competitor can establish itself to effectively compete with an original firm vary in different situations, but the possibilities always exist. This type of struggle promotes innovation and creative thinking, since, as I said, no knowledge is absolute. There is always a way to improve on the trade of a certain product or service. The expense for entry in a market, as you brought up, is almost never controlled by a monopoly. Without government intervention, a formation of a true monopoly is a near impossibility.

 

Also, consumers have the right to choose not to buy a product if they feel that they can either get it cheaper or at no expense at all, which is more than possible in today's information age. A so-called monopoly must also be aware of keeping the consumer happy.

 

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

 

...which is what? 

Simply put, the higher the level, the greater probability for inefficiency, mismanagement, corruption, etc. Smaller communities would function well as well as effectively compete against other small communities in free trade. Her proposals make sense; we agree there, at least.

 

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

 

Right. You presented a dumb example (lolcars), and I refuted it. The laws of supply and demand govern the fiscal availability of non-public goods to the varied consumer base.

 

As if I doubt the right to education...? I see education as a public good, despite the fact that excludability is somewhat possible. 

 

: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".

 

Ah, the fine line. The spectra of socialism is quite broad in definition, and varies within different political atmospheres. Your views resemble Keynesian economics especially within the topic of short-term vs. long-term more than anything, but alright.


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#22 hitesh93

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Posted 13 November 2013 - 08:05 PM

 
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.
  
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.
  
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, public goods isn't a form of market failure - it is simply not a market function so how could it fail at it?

My apologies if I wasn't clear - oranges weren't meant to be an example of 'common good', I meant it like "A common good" trying to show that government or any one person/team cannot determine the right supply/demand/price balances of any item - only a large group of people engaging in free transactions can. 

This is the point phenom was trying to clarify as well - how do we know that the market has failed? When the price is too high? Demand too low? Supply too high? All of those are determined by the market. If there are many people wanting a product, price goes up --> that's normal. But the govt. might say that's too expensive and 'force' price to be lower, which then creates a supply shortage, which then the govt. subsidizes (opening up fraud as well), which then leads to oversupply, which then leads to waste, which then leads to government declaring a new form of market failure and trying to fix it again (all at the taxpayer's dime).

 

I actually gave pollution as an example and described how to deal with it earlier in my original post (taxes to reflect real cost of the product/service causing pollution which naturally adjusts the demand and price to reflect the cost of cleaning the environment). I was not purposefully avoiding it at all. 

Of course I agree that the market doesn't do everything - I clearly stated right in the beginning that the government has a very important role. The problem is that government often tends to ignore its important roles and starts focusing on activities that generate donations and votes instead of the things it should be doing. Government's involvement in the market should be rare, precise, and highly documented and currently it is the opposite of that.

Large scale government programs ALWAYS result in massive fraud and corruption for the simple reason that the money doesn't belong to them at all.

 

Let me clear this up one more time - there are functions that the Federal govt. undertakes that really belong at family, neighborhood, or at most county level. A few of them at state level, but the larger and more centralized the government, the more the issues. 

 

"You might mistake social-democrats for classical socialists though."

And I think you're mistaking free-market proponents for anarchists. Phenom, Passingby and others on here all agree that a  good government is needed and desirable. We just disagree with role, scope, power, and abuse that comes with a large government that takes over various market functions.


Edited by hitesh93, 13 November 2013 - 08:07 PM.

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#23 Oben

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Posted 15 November 2013 - 04:40 PM

Sorry for the late reply, but I was pretty busy yesterday.
 

An amusing analogy. To answer your point: Certainly not, but you should know how to treat it in a manner that would not exacerbate the suffering of the patient. Which no economic model is capable of, by the way. Also, no economic model is able to solidly quantify a "diagnosis" that requires treatment to begin with.

Um, exactly. All excuses for government intrusion in markets and decisions made thereof lack objectivity, because there isn't a consistent economic model to refer to. What's your objection here?


My objection... you propose that a) the policies following of an inconsistent model have to be wrong, that B) every model is and will be inconsistent and that c) nothing but economic models are a reason for policy-making.
Obviously, neither is logically correct.
 

It's hardly a reliable standard if the classification of goods could enter fierce debate. The implications of self-security have impact on the market as a whole.


Given that you use it yourself eagerly and don‘t bring in anything better, I‘m not all that sure that you don‘t just critisize to immunize yourself... or can you give a better model?
 

Say what? Did you not mention monopolization and "fast destruction of production" as problems that arise from two situations of that cross-matrix? I assumed the latter translated to "depletion of resources." Correct me if I'm wrong, as I simply sought to refute those two assertions.


I was replying to one situation with each question. If you cannot exclude people from obtaining a good, you logically cannot „sell“ it for another good (money or whatever) either, since nobody would buy it if he could access it in the first place. Therefore, it‘s impossible to give the good an actual price.
 

Because free-riding common goods is a near impossibility especially in modern society, unless one chooses to live near a lake, in the mountains, or builds his/her own mine? That's precisely why the free market functions quite well in the trade of commons goods, since:

-There is incredible demand with little chance of free-riding
-Efficiency in profit motive would force competitors to offer these goods in the highest quality possible.


...
 

I believe that government should manage the production of public goods […] Due to the incredible dangers of private exploitation and uncertainty in efficiency […] However, free-riding drastically decreases incentive for individuals to offer efficiently produced public goods, largely removing it from the equation.


o.ô
You better explain this well.
 

Also, you used "consumer-friendly" in a completely different context. I had used the phrase in a context in which prices would no longer be within the affordability range most consumers were used to dealing with in the scenario I delineated. I'll answer what you posited next.

An "initiate monopoly" in a market follows the exact same model in which I stated. Instead of a market whose competitors possess 'absolute' knowledge, there is only one firm who does so.

Competition, in its core concept, is defined as rivalrous behavior. There is always potential for rivalrous behavior of any kind (barring government intervention and the adverse effects antitrust laws may have), and subsequent potential for rivalrous behavior to develop into fearsome competition. The difficulties for which a second competitor can establish itself to effectively compete with an original firm vary in different situations, but the possibilities always exist. This type of struggle promotes innovation and creative thinking, since, as I said, no knowledge is absolute. There is always a way to improve on the trade of a certain product or service. The expense for entry in a market, as you brought up, is almost never controlled by a monopoly. Without government intervention, a formation of a true monopoly is a near impossibility.

Also, consumers have the right to choose not to buy a product if they feel that they can either get it cheaper or at no expense at all, which is more than possible in today's information age. A so-called monopoly must also be aware of keeping the consumer happy.


It‘s still not a question about knowledge. It‘s a question about mere existence. If one exists within the market, shaped like we assume, then another competitor will have it very hard (yes, it‘s not impossible, but just barely). Probably so hard that entering the market is not possible. Intriguingly, the state is not half as useless here as you might think. For example, the german telephone-lines were built by the state, since private firms were not capable of doing so in a fully satisfying manner. Then, after the lines were up for a while (and everything worked), the state decided to privatize the existing system and divide it among private companies. Which worked as well. If the situation requires it, then the state is a very great instrument to set non.existing markets up.

The last point is not bad, but very dependent on the product. You cannot effort to boycott every kind of good. If you have to use the railway because you can‘t buy a car (^^), then the amount of equally cheap alternatives is very slim – boycotting wouldn‘t be possible under your circumstances.

 

...which is what?

Simply put, the higher the level, the greater probability for inefficiency, mismanagement, corruption, etc. Smaller communities would function well as well as effectively compete against other small communities in free trade. Her proposals make sense; we agree there, at least.


Because one would need a judge that could judge in the possible case of conflict, and the state is, due to the law, the only one who can solve a really fierce conflict.
It doesn‘t have to come to conflict, but it‘s not particulary unlikely either.
Arguably, it doesn't have to be a real judge, a blurry thing of "fear" could be enough as well. But since the state monopolizes violence, he's the only thing in question again.
 

Right. You presented a dumb example (lolcars), and I refuted it. The laws of supply and demand govern the fiscal availability of non-public goods to the varied consumer base.

As if I doubt the right to education...? I see education as a public good, despite the fact that excludability is somewhat possible.


Exactly, education is something that the free market could offer very well.
You make the claim „The Free Market is best for everything except public goods“ and then you go ahead and redefine several non-public goods as public because they‘d break your way of thinking. :lol: You might want to overthink your overall paradigma if your statements speak against it that much...
 

Ah, the fine line. The spectra of socialism is quite broad in definition, and varies within different political atmospheres. Your views resemble Keynesian economics especially within the topic of short-term vs. long-term more than anything, but alright.


It has a lot of variations, sure, but command economy would be a central part of real socialism :shrug:
 
 
_______________________________

 

No, public goods isn't a form of market failure - it is simply not a market function so how could it fail at it?


That‘s not correct. It‘s a government function because the market cannot provide it, instead of the government being needed because it‘s not a market function.
 

My apologies if I wasn't clear - oranges weren't meant to be an example of 'common good', I meant it like "A common good" trying to show that government or any one person/team cannot determine the right supply/demand/price balances of any item - only a large group of people engaging in free transactions can.

This is the point phenom was trying to clarify as well - how do we know that the market has failed? When the price is too high? Demand too low? Supply too high? All of those are determined by the market. If there are many people wanting a product, price goes up --> that's normal. But the govt. might say that's too expensive and 'force' price to be lower, which then creates a supply shortage, which then the govt. subsidizes (opening up fraud as well), which then leads to oversupply, which then leads to waste, which then leads to government declaring a new form of market failure and trying to fix it again (all at the taxpayer's dime).


With this I agree, as long as the good isn‘t meritorical (like the education example I had with Pheno).
 

I actually gave pollution as an example and described how to deal with it earlier in my original post (taxes to reflect real cost of the product/service causing pollution which naturally adjusts the demand and price to reflect the cost of cleaning the environment). I was not purposefully avoiding it at all.


Ah, ok. Anyway, this requires quite an heavy government and wouldn‘t be solved by the free market alone at all.
And it doesn‘t cover how all previously created damage would be reduced. I‘m not just talking about cigarettes here... how will the market clean a contaminated area for example?
 

Of course I agree that the market doesn't do everything - I clearly stated right in the beginning that the government has a very important role. The problem is that government often tends to ignore its important roles and starts focusing on activities that generate donations and votes instead of the things it should be doing. Government's involvement in the market should be rare, precise, and highly documented and currently it is the opposite of that.
Large scale government programs ALWAYS result in massive fraud and corruption for the simple reason that the money doesn't belong to them at all.


I was with you till the last sentence... which isn‘t true. Fraud? Corruption? Of whom, please? A government can make unpopular decisions against the majority and against election-tactics – for example, in the early 2000‘s, the german government decided to cut and rearrange spendings for unemployed/lower incomes. It was – though this is very debatable – probably the right decsion for the society as a whole, but it was clearly a decision against the regular supporters of the coalition. They still suffer from it, actually... That just as an example.
 

Let me clear this up one more time - there are functions that the Federal govt. undertakes that really belong at family, neighborhood, or at most county level. A few of them at state level, but the larger and more centralized the government, the more the issues.


I‘m not sure what centralization and federalism have to do with it... the issues I adress are inherently on a bigger scale. Eduction is. Pollution is. And for installing fire-fighters it doesn‘t matter wether a centralized government has a mere department at the regional scale or a more autonomous layer. Actually, a centralized government (while I don‘t support it, but still) has a great benefit: it‘s cheap.
 

"You might mistake social-democrats for classical socialists though."
And I think you're mistaking free-market proponents for anarchists. Phenom, Passingby and others on here all agree that a good government is needed and desirable. We just disagree with role, scope, power, and abuse that comes with a large government that takes over various market functions.


But I‘m not calling any of the people you named anarchists :psyduck:
 
...
Phew.

#24 waleuska

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Posted 15 November 2013 - 05:59 PM

Yeah me next since we are naming people I am a communist at heart. To be everyone should strive to be the best with the need to be better than someone else. That and everyone should have everything they need. 1 Person do not need a huge house or 10 cars and please do not say anyone need that.

 

It seems to me the only reason people do stuff is to be awarded. Americans think this the most. The reason why a person should be a doctor is because they have the ability to help people not that they will make a whole lot of money.
 

Instead of working together a person wants to stand on top of everyone else.


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#25 Passingby

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Posted 15 November 2013 - 06:42 PM

Yeah me next since we are naming people I am a communist at heart. To be everyone should strive to be the best with the need to be better than someone else. That and everyone should have everything they need. 1 Person do not need a huge house or 10 cars and please do not say anyone need that.

 

It seems to me the only reason people do stuff is to be awarded. Americans think this the most. The reason why a person should be a doctor is because they have the ability to help people not that they will make a whole lot of money.
 

Instead of working together a person wants to stand on top of everyone else.

As if "communist" countries live like that.

 

Socialist countries do have "elites" or the "party" as they put it, while the rest of the population are just there to be "socialized". In a way, communism is just like another version of monarchy. 

 

And there are only a few remaining "communist" if any "true communist" are left (many who have embraced many capitalist ideals just as well), countries to begin with, and not many of them are in great shape either. 

 

List.

 

This is awfully off-topic though. 


Edited by Passingby, 15 November 2013 - 07:04 PM.

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#26 Phenomiracle

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Posted 15 November 2013 - 07:10 PM

Nobody is throwing around names. 

 

My objection... you propose that a) the policies following of an inconsistent model have to be wrong, that B) every model is and will be inconsistent and that c) nothing but economic models are a reason for policy-making.
Obviously, neither is logically correct.

 

Certainly not "obvious." Your attempts to dismiss this with condescending terms are comical. History has proven every one of those correct within the long-term. Each and every one of them.

 

-Federal monetary and fiscal policies of have been led to outright disasters in the long-term (Social Security, fiat money, overbearing regulations on securities, etc). 

 

-Yes, each and every economic model ever posited by a human who was arrogant enough to believe he/she could understand and predict societal patterns of utility is inconsistent. Otherwise, the world would have been an economic utopia by now.

 

-You must be joking. What the @#!*% is a central bank or a federal government supposed to refer to in instituting aggressive fiscal policies if not an economic model? The Bible? A fortune cookie?

 

Given that you use it yourself eagerly and don‘t bring in anything better, I‘m not all that sure that you don‘t just critisize to immunize yourself... or can you give a better model?

 

For guaranteed maximum efficiency? You certainly know my answer by now.

 

Simply put, the greatest weakness of this model is its lack of precision in classification of goods, which renders it shaky, but not ludicrous. Instead of arguing that posited fact, you turn it around on me, claiming I seek to "immunize" myself, while I could easily state you doing the same. You dodge an argument and continue pretending the opposite of which I stated while debating.

 

There should more definition is in order for a more precise model.

 

Also, your staunch defense of this model is also interesting, since you apparently seem to know very little about it, as I'll point out ahead.

 

I was replying to one situation with each question. If you cannot exclude people from obtaining a good, you logically cannot „sell“ it for another good (money or whatever) either, since nobody would buy it if he could access it in the first place. Therefore, it‘s impossible to give the good an actual price.

 

I've refuted this logic already.

 

Not every one is willing to access a non-excludable rivalrous good by choosing to live in a forest (for timber), near a mountain spring (for water), or dig their own mine (for oil). The amount that all said individuals are willing to trade for a private entity offering those goods (otherwise known as a common goods) along with the laws of supply and demand determine the price.

 

o.ô
You better explain this well.

 

Your ignorance astounds me.

 

It's not my problem if you don't know the difference between a common good and a public good.

 

It‘s still not a question about knowledge. It‘s a question about mere existence. If one exists within the market, shaped like we assume, then another competitor will have it very hard (yes, it‘s not impossible, but just barely). Probably so hard that entering the market is not possible. Intriguingly, the state is not half as useless here as you might think. For example, the german telephone-lines were built by the state, since private firms were not capable of doing so in a fully satisfying manner. Then, after the lines were up for a while (and everything worked), the state decided to privatize the existing system and divide it among private companies. Which worked as well. If the situation requires it, then the state is a very great instrument to set non.existing markets up.

 

The last point is not bad, but very dependent on the product. You cannot effort to boycott every kind of good. If you have to use the railway because you can‘t buy a car (^^), then the amount of equally cheap alternatives is very slim – boycotting wouldn‘t be possible under your circumstances.

 

Barring government regulations, entry way into the market is always possible. Difficulties vary in different situations, but it is always possible. 

 

Plenty of things morally and logistically wrong with that example and its implications. The decision by the state to divide the industry into parts to be micromanaged by private firms is blatantly immoral. Suddenly, a competent company is rendered ineffective before being told to simply pick up where it left off, perhaps in a much less advantageous position than a competitor who was lagging behind significantly. The biggest demon would be the fact that the state chose to intrude simply because it was deemed it to be "inefficient" by a bureacracy, which is economically unquantifiable. The implications that have for the long-term efficiency of any industry in Germany do not bode well within the slightest, though, that may sit legally well within Germany's Constitution. 

 

And then, of course, there's the fact that telecommunications can be arguably classified as a public good, which inherently makes the industry government's responsibility. Yay for more obfuscation.

 

Boycotting a product is always possible under every circumstance in a free society. Whether or not boycotting makes a difference is left up to the consumer's will and strength for a change. 

 

Because one would need a judge that could judge in the possible case of conflict, and the state is, due to the law, the only one who can solve a really fierce conflict.
It doesn‘t have to come to conflict, but it‘s not particulary unlikely either.
Arguably, it doesn't have to be a real judge, a blurry thing of "fear" could be enough as well. But since the state monopolizes violence, he's the only thing in question again.

 

You didn't answer my question. I didn't ask "why," I asked "what level."

 

Regardless, we agree, though I believe her application makes the most sense the more localized it is.

 

Exactly, education is something that the free market could offer very well.
You make the claim „The Free Market is best for everything except public goods“ and then you go ahead and redefine several non-public goods as public because they‘d break your way of thinking. :lol: You might want to overthink your overall paradigma if your statements speak against it that much...

 

A willing free market would guarantee the most efficiency in any industry.

 

There's the problem you egocentrically choose to conveniently ignore yet again, the fact that this model is very shaky due to imprecise classifications of goods.

 

What you define as a 'non-public good' I (and plenty of economists) can easily argue as a 'public good.' Your opinion isn't any more solid than mine. 

 

Yeah me next since we are naming people I am a communist at heart. To be everyone should strive to be the best with the need to be better than someone else. That and everyone should have everything they need. 1 Person do not need a huge house or 10 cars and please do not say anyone need that.

 

It seems to me the only reason people do stuff is to be awarded. Americans think this the most. The reason why a person should be a doctor is because they have the ability to help people not that they will make a whole lot of money.
 

Instead of working together a person wants to stand on top of everyone else.

 

Right, so let's abolish the freedom of choice to pursue our own happiness. Sounds awesome. 

 

And as usual, you oversimplify the concept of free enterprise by constraining it to the issue of human selfishness. 


Edited by Phenomiracle, 15 November 2013 - 10:42 PM.

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#27 hitesh93

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Posted 15 November 2013 - 07:47 PM

An interesting issue Waleuska - I think I might be closer to figuring out some of your motivations. It seems like you find capitaslim 'evil' because 'it's every man for himself at expense of others'. Right?

 

Actually, in a small way you're right - such behavior could indeed result in problems. And it does. You are right on that this is an issue.

 

HOWEVER, this is an issue of humanity, not that of capitalism. In fact, in EVERY system the individual looks out for himself or his family first. You need to understand that first - it's the natural state of things, and it's not evil at all. Your first priority is always to feed  your kids and then you go from there. Further, I think you confuse self-preservation with selfishness or greed (both are traits punished by the market). 

 

The central issue of 'exploitation' is really what you are referring to if I'm reading this right. The problem is that exploitation is only possible if someone holds a certain power over others. And the only way to hold power over another is to either:
1. Control the resources they need (monopolies created by government found in fascist systems like our insurance industry).

2. Control behaviors (laws passed by governments in full out communist nations).

 

The reality is that exploitation and 'taking advantage' of others is ONLY possible in a system that has heavy government involvement. This is why  Big Business always looks to involve government and has lobbyists and  campaign contributions. If they can have an 'in' with the govt., they can get more control over the market and thus get an advantage over others. This way they can exploit the consumer who has no option but to purchase the goods at high prices. 

 

So how do you  prevent a 'company' from exploiting the customer and the employee? It's easy - free trade! You allow complete, free competition among people. If there is only 1 apple seller in town, he sets the price of apples, but if there are 5-10 of them competing with each other, the consumer sets the price of apples because he determines what he is willing to pay. This results in better apples at cheaper prices for the consumer. 

 

Now, what often happens is that one of the apple sellers will go to the politician and try to create laws that will give him an advantage. For example, he will demand that the taxes on apple farms be increased, that there be really complex guidelines to owning an apple farm, that there must be limits on how many apple sellers are allowed in town. Once he gets these things passed by bribing the govt. official, he will be able to establish a monopoly by driving some of the competition out of business, and colluding with the ones who remain. And this is how monopolies are created, and how they screw the consumer.

 

So Wale, you and I want the same thing, but our understanding of how to get it is very different. I know that government is the cause of monopolies, while you think government protects us against it. Remember that these 'government officials' that are supposed to protect you are also humans, and they will also first look out for their family and themselves.


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#28 Phenomiracle

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Posted 15 November 2013 - 07:49 PM

I admire your patience, hitesh.


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#29 Passingby

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Posted 15 November 2013 - 07:56 PM


So Wale, you and I want the same thing, but our understanding of how to get it is very different. I know that government is the cause of monopolies, while you think government protects us against it. Remember that these 'government officials' that are supposed to protect you are also humans, and they will also first look out for their family and themselves.
 

 

Pretty much sums up his problem. He thinks Big Government is different from Big Business. He fails to realize that both go hand in hand. You put too much power to any single entity and corruption naturally arises. Greed doesn't discriminate. 

 

He doesn't care about checks and balances (which competition naturally brings to the table), but prefers a single judge, jury, and enforcer of anything else. I honestly believe that he's just slightly naive. I would bet that he would dearly miss capitalism and the concept of freedom once he's placed in an actual hardcore communist nation.


Edited by Passingby, 15 November 2013 - 07:57 PM.

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#30 hitesh93

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Posted 15 November 2013 - 10:48 PM

I admire your patience, hitesh.

I figure if we can get Wale and others to see the issues more clearly, there might yet be hope for us all. Forums are notoriously hard to sway someone's opinions on via debating. It'd be quite a personal victory if we were able to get someone to see the folly of an out-of-control government. 

I have some stuff that's getting ready to burst out in the mass-media in the next year or two and I really think I'll be able to leverage it to actually help people see this issue a lot better than the biased media/hollywood does right now so consider this practice :D


 

1 Person do not need a huge house or 10 cars and please do not say anyone need that.

But what if one person WANTS it, not needs it? Doesn't this actually HELP the poor? Who builds the massive house (construction workers). Who builds the cars? (auto-workers). Who gets the gas to power the cars (workers at the rigs). 

 

It's this consumption that provides jobs for the poorer workers, who then have the chance to also use their money/skills to also rise up the ladder. Those that work hard, use money wisely, live a cautious life have a good shot at rising up and leaving a great inheritance for their children.

 

Why are we so bent upon villifying this type of consumption? I would never do this personally, but I wouldn't hate upon those who want a big house and 10 cars because it helps the workers and the economy as a whole just as much as consumption by 10 people. 


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#31 DarkNemesis

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Posted 25 November 2013 - 09:20 PM

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You and I bump heads on this subject quite a bit, but I am nodding my head in agreement with a lot of what you said. +1 for you. However this part puzzles me:
 
 
 

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.

 
Is that not the government making sure that cars are safe and/or gas-efficient? Well at the very least, safe. I'm sure some will have issue with the gas-efficient part.

 

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.


And this puzzles me as well. Not that I disagree in general. But it seems that this behavior would be what leads to Obamacare or the villification (aka. over-taxation) of buying a McMansion and 10 cars. I would assume that in your worldview (some others on this forum) that you would in principle be against the government (local or federal) punitively taxing cigarettes because it's the individual's freedom and choice to smoke them or not. If the punitive taxation of cigarettes are ok, then wouldn't carbon tax/cap-and-trade be just as acceptable?


To be clear, when I say "puzzles me" I mean that your example seems to go against what I think your position is.

Edited by DarkNemesis, 25 November 2013 - 09:22 PM.

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#32 hitesh93

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Posted 25 November 2013 - 10:05 PM

You and I bump heads on this subject quite a bit, but I am nodding my head in agreement with a lot of what you said. +1 for you. However this part puzzles me:
 
Is that not the government making sure that cars are safe and/or gas-efficient? Well at the very least, safe. I'm sure some will have issue with the gas-efficient part.

And this puzzles me as well. Not that I disagree in general. But it seems that this behavior would be what leads to Obamacare or the villification (aka. over-taxation) of buying a McMansion and 10 cars. I would assume that in your worldview (some others on this forum) that you would in principle be against the government (local or federal) punitively taxing cigarettes because it's the individual's freedom and choice to smoke them or not. If the punitive taxation of cigarettes are ok, then wouldn't carbon tax/cap-and-trade be just as acceptable?

To be clear, when I say "puzzles me" I mean that your example seems to go against what I think your position is.

 

I'm glad we're actually having a good discussion :D +1 for you too :)

 

I can see why my examples may seem puzzling at first glance, so let me explain that a little bit more.

 

1. No group of people have a right to force any individual in regards to what he can own/pursue/do in his personal life provided his actions do not negatively impact others around him/her. Since cigarettes carry the issue of second-hand smoke, a local government would be correct in banning smoking in public places. However, a government would be wrong in banning smoking on someone's own private property. 
The government holds 2 methods to do this - one is behavior control, which is done via passing laws like banning something, and then hiring police to enforce that law. This is difficult to achieve and indeed costs a lot.
The second option is via price control - basically impose a tax to raise the price of the activity so it becomes naturally less attractive for people to do.

The danger in all of this is that if you allow someone to price-fix one thing, they assume they should also price-fix something else. This is why these types of taxes and laws should be done at a VERY small level - as local as possible. When you give such big power to a bigger government, like the federal govt., you create a beast that can go out of control.

Let's take the cigs for example - the federal government subsidizes tobacco farmers, lowering the cost of cig production, which lowers the cig price, then the govt. issues regulations on factories manufaturing them, raising the price, but govt. subsidizes TV licensing, which in turn makes it affordable to advertise the cigs. The point is that these people go crazy with this power and start tampering with everything they can. In the end, they tax cigs, while making them cheaper at the same time, all at the cost of the average tax-payer, 80% of whom don't even care about the smoking issue to begin with!

At the same time, this gives power now to corporations to come in and bribe these people to get their way. They come up with creative ways, like a new type of subsidy that will make cigs cheaper, or raising taxes on something else so more people take up smoking and so on. What the corporations in these cases do is evil (bribing, bending laws for profits), but they could never do it if the government officials didn't have power to price fix to begin with.

 

My point is, the government CAN tax something, and it should be at a small local level, there should be good evidence that such activity is harming other individuals (meaning the true cost is not being reflected in the marketplace), and it should not be used easily.

Just because you have a tool/weapon, doesn't mean you should use it irresponsibly, and large governments tend to be notoriously irresponsible :)

 

 

2. Question about making cars safer. It is debatable if the cars are safer or not, but the key issue is to understand why the govt. asks such equipment to be installed - it's not the safety concern, it's because they are lobbied by the manufacturers of this equipment under the excuse of safety. 
But lets say the cars are safer because of it, and yes that is good thing. My point was different - my point was that this govt. activity has raise the price of each car by $1000-$1500 or more. We don't see that cost as a cost of government, since that is hidden from us. My point was to demonstrate that there are many hidden costs of govt. action that we don't recognize readily because we think the only 'cost' of govt. is that tax that they levy on us.
Inflation tax is another example - people can be under the illusion that they are making more money, while still paying a ton more to the government due to devaluing of the currency.



#33 DarkNemesis

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Posted 25 November 2013 - 11:05 PM

If the punitive taxation of cigarettes are ok, then wouldn't carbon tax/cap-and-trade be just as acceptable?


If you, hitesh, or anyone else wants to tackle this question, please feel free. I'm surprised you didn't jump on this, hitesh :)

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#34 Phenomiracle

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Posted 26 November 2013 - 12:23 AM

If you, hitesh, or anyone else wants to tackle this question, please feel free. I'm surprised you didn't jump on this, hitesh  :)

 

hitesh did address that. I'm surprised you didn't catch his answer.

 

Punitive taxation of any kind has dangerous logistical implications; therefore, if it must be done, it should be implemented on a level as local as possible. That was his response. Infer from that just how huge the difference in enforcing taxation is between cigarettes and fossil fuels production.

 

In the grand scheme of things, neither is morally appropriate nor economically viable. However, the effects of enforcing regulation on a localized level will be minimal to nonexistent compared to that of a federal level.

 

Environmentalists are enthralled by carbon taxes and cap-and-trade due to their ethical appeal, whilst remaining woefully ignorant about their economic repercussions, asides from the poor and middle classes being confronted with higher costs of gas, since they comprise the immense majority of the energy consumer base. Those policies are fiscally regressive; they literally take from the poor and give to the rich. 


Edited by Phenomiracle, 26 November 2013 - 01:25 PM.

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#35 hitesh93

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Posted 26 November 2013 - 02:09 AM

If you, hitesh, or anyone else wants to tackle this question, please feel free. I'm surprised you didn't jump on this, hitesh :)

Exactly as Phenom said. Tax or laws of any kind are a necessary evil that are a result of humanity's failure to simply be decent, mindful, and honest without requiring an institution like the government. As with all necessary evils, we should exercise them with extreme caution and keep their effects as local and specific as possible. 

If a state or county wanted to enact a certain style of cap-and-trade of environment protection tax, then people in that local area would be the ones who bear the cost of it. Over time, people who are for that law will stay or move in, while others will move out (similar to how people migrate in droves from union states to right-to-work states). Now note that I'm not saying that one is morally better than the other. This is a matter of choice.
 

If you prefer a certain type of environment even though you pay higher taxes/take lower wages, that's perfectly fine! That might be your value judgement and you're free to do so. 

Similarly others might want to take a higher paying job, with lower taxation, even if their environment is not as pristine. That's their choice.

And I mean this earnestly, our choices change. A few years back I would've taken a higher paying job. Right now, I'd rather take a location that even if more expensive, provides for hiking/climbing and so on instead. In a small government system, I would have that option. In a Federal system, I wouldn't have that choice since every single place would be influenced by the same policies. 

That's the moral argument about this part. Phenom already addressed the economic impact in better detail :)
 

The problem is that by enforcing these type of policies at a large level (like Federal), you take away the choice to choose a lifestyle and then force EVERYONE to live under the value system. These days we think government is about 51% of the people enforcing their choices on 49%. That's exactly why US was founded as a constitutional republic and not a democracy. A pure democracy upholds the rights of the majority over the minority. A republic upholds the rights of an individual above all. 


Edited by hitesh93, 26 November 2013 - 02:12 AM.


#36 m1hawkgsm

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Posted 04 February 2014 - 09:54 AM

I'm surprised I never saw this thread. Or maybe I've been too busy, I can't be assed to remember. Anyways.
 

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


Well you have to realize a great deal of economics/finance is nowhere near a science as physics or even biology is; heck, all academic research, sans very lucky statistical surveys, are really nothing more than "ceteris paribus" propositions.

With that in mind, it's a little unfair to ask for "evidence" in the same sense we ask of physical problems.
Not that I advocate just throwing around opinions; that's not even wrong, it's just plain boring.
 

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.


Except it's not really the same question at all. A single agent is easy to deal with since you have a single understanding of the environment and the needs of the agent--behavior can be reasonably modeled.

In a multi-agent system as complex as society, though, outcomes are dynamic and there are multiple layers of action/reaction/learning problems that are not trivial to model.
 
It's easy to say "a person won't take X action because it causes an unwanted outcome based on the matrix of world states." It's not trivial to say "the group of N agents won't take on this behavior because you'll have X reactions which are bad for individuals," since you don't know if that's bad for a set of individuals.

Externalities, defections, and free riding are pretty much real life examples of second order effects of decision problems in multi-agent systems.

Which leads me to the next point. . .
 

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.


. . . here.
Notice how there isn't anywhere near the amount of debate in terms of the first role, versus the second role.
 

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).


Information asymmetry is inherent in practically every market context there is, market dominated or government dominated. If you're implying here that the government should aid in expanding transparency and information availability, then you're right, and that's the point of much of government regulation (see, for example, reporting standards for businesses, Sarbanes-Oxley/SEC filings).

On the other hand, there is a real cost to providing information to the public, even if it makes sense from the market efficiency perspective. There is great debate over reducing paperwork/reporting standards for the sake of spurring activity in small businesses.

In the same light, the market has a few incentives, on the other hand, to do this anyway. Standardization, for example, of products reduces the need for information (everyone knows they can rely on a particular design/implementation they're buying into), and increases liquidity. On the other hand, specialization usually has more value/profit, which encourages businesses to not standardize and risk that loss of information accessibility--this is true for financial products and more technologically advanced products (pharma!).

Some would claim that it is the responsibility of the consumer to enforce information symmetry--but that too is a cost of resources which (and they do) many choose to forgo for the sake of doing something else more worthwhile (research is no free lunch).

In that case, government enforced reported is a genuine value to the market and eases liquidity in transactions by reducing prior research.

In any case, where to draw the line is not obvious and is a legitimate question, moral questions be damned.
 

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.


Even this isn't clear cut, however. There is legitimate reason to encourage corrective actions where a tangible negative impact is observed--but it cannot control what consequences such action may have. There is always a probability of failure in terms of correcting and externality by generating another externality. This is something people often forget, and then blame the government for screwing up the market in the first place.

But does that imply that the government shouldn't try? Is there a way to quantify risk of risk? Nope.
 

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.


Excess taxing =/= price fixing. Subsidies are more interesting, since they do have their benefits but are very time and place dependent (usually in the outset of an industry or business cycle).

Granted, regulation may impose hidden costs, but it goes back to what I said before--correcting externalities often causes other externalities. You end up with a price hike, BUT you correct the externality of having, for example, city pollution. You have to make the decision of what's a better relative value, and that's not easy most of the time.

Likewise helping information transparency/availability may affect demand and/or supply--another externality from correcting an externality.

Does this mean we should throw out the government function? No, but it certainly makes the complaints of government policies very annoying, when they don't realize how ubiquitous these types of situations are.
 

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.


So long as we all agree what is "good behavior" for "everyone", then yes. Pretty simple.
 

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 :)


Why not? The Surgeon General has to decide if cigarettes are healthy or bad for public health. It's not as if they're making an arbitrary choice, but rather one backed by research; there's also no difference (in theory) between government and private research on the same topic.

Now, if you mean the conventional "choosing" winners topic? It already does for some things, such as auctioning, say, airwaves and/or public projects. Granted you'll argue that's a market anyway, but it's still "choosing" based upon the data of who is better. Again, a kind of research.

A grayer area would be subsidies for solar companies (Solyndra~). This type of activity may seem shoddy on the surface, but really the problems inherent in helping companies in this is lack of tangible research and reason to support them in the first place. The government has no idea how successful these companies can be (no market to show them how good GE compares with, say, Solyndra).

On the other hand, the ethical argument that supporting green technology is almost a necessity comes into a huge problem--belief in information. Is global warming really an inevitability that requires a drastic change in resource useage? Suppose this was true. Then the government has a conceivable case for supporting the death of some harmful industries (coal, for example) and the birth of more beneficial ones (solar, wind, renewables). If not, it's clearly causing damage to society. This ethical argument is similar to that of cigarettes.

But faith in the scientific theories of climate change is highly volatile, which causes some to view support to green companies as a quasi-religious folly. However, barring this, the motivations are still essentially the same as that of taxing the hell out of alcohol and cigarettes--they present a tangible damage to society.

Now, choosing out of the blue? Yeah, that's pretty bad.
 

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.


Standard Oil, Carnegie's empire (forget what his steel/rail stuff was called), JP Morgan, all classic examples of individuals and companies that have inexorable influence over the market--essentially monopoly/oligopoly. Those naturally do tend to exist, and understandably so, since not every entrepreneur is scrupulous nor as clever as others.

Sometimes not everyone naturally wins. Natural selection does not have an inbuilt mechanism guaranteeing fairness. At all.
 

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.


Technically it is a market failure, since it's a product that cannot be reasonably priced nor a natural and sustainable state of supply and demand be maintained without outside support.
 

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?


There isn't, but there are measures. Price elasticity, liquidity, Pareto Efficiency, Purchasing power parity (on the international scale), trade imbalances, inflation, etc. They're not all encompassing, but then here's my essential and simple retort to all that philosophical jazz:

So the hell what?

Just because I don't have evidence that cigarettes causes cancer 100% of the time in a concrete set of circumstances doesn't mean I shouldn't do something about the more probable than not negative effects of smoking. Just because something causes an externality 60% of the time doesn't mean nobody shouldn't address it.

We don't live in a world of perfection or absolutes, and never will.
 

What quantitative model is used in deciding the level of government intrusion?


There are economic models of supply/demand, agent based simulations, and the like, to figure out what a policy would do to a "rational" market. Perfect? Nope. But again, so what? Just means you have to be careful, not prohibitive.
 

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.


That's a fantastic logical leap of faith. "I don't know if you're 100% right, so I'll assume everything is your fault anyway". But never mind how unqualified the statement is as a hypothesis (I have yet to see a fancy "encyclopedia of what every government has ever done, ever, and how every time they goddamn fail" book or PDF. It'd be nice if you could share it).

Markets, by themselves, don't work perfectly with everybody winning except in small communities with homogenous populations. And not all the time, either.
 

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's a huge caveat to the first line--services and products are guaranteed IF there's a critical mass of support for it in the first place. Nobody's going to research a drug for a rare disease if nobody's going to buy it, or if the only ones who need to buy it can't afford it anyway. That's rational.

Sure it's inefficient, but it still fills a gap that hasn't been universally filled. Until that happens, there's no reason to scrap it.
 

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


Not always. Profit motive might motivate me to innovate and present some fancy functionality to my customer, but it might also encourage me to only research something that has a visible benefit, rather than a delayed, more beneficial benefit (food, pharma are fantastic examples). Profit motive also doesn't motivate me to be very meticulous if I can get away with it.

Essentially, profit motive works if have a decent understanding of the product need/service in the first place, which doesn't always exist. This may or may not encourage government intervention (encouragement of education and general scientific research), but it's still a point worth mentioning.
 
 

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.


Information lags are a huge problem, and time is always a devil in every policy implementation. You might have the best theoretical response to a particular situation, but mistiming can always screw you to hell.

And, as I said and emphasized before, all economics is done "ceteris paribus", or "all else held equal", which happens exactly 0% of the time in the real world.

As my professor would say, "all of the models I'm going to teach you are wrong." From the purists' standpoint, all economists, planners, and policy makers are forever and ineluctably wrong. But, again, who cares? 70% effectiveness is worth the effort.
 

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.


I don't see why interest is "no risk". For one, you have opportunity costs--borrowing you a hundred dollars for a month at 1% might be a bad move if there are other opportunities for investment arising tomorrow, or even something like a great deal on a product I might like, for example. That's something that every investment of any kind entails, by definition. Still no free lunch.

Currency is a commodity, though. The act of trading isn't "free" from the economic perspective, since I have the option of consumption or choosing another counterparty to trade with, the decision of trading with you specifically isn't free. Incentives can change, and that's the point of interest rates.

You also have time value--I can invest in your project, but waiting 5 years is a long time, and I'm going to need compensation for that--that's where interest comes in.

I have a city that is a great investment opportunity (suppose for the moment that that's true), but nobody wants to bother researching and/or believing a local's words. What do I do? Sweeten the incentive, knowing that it costs me/the city, but that the trade off incurs incoming trade, which is beneficial for me/city.

Conversely, as an investor, I might not have an idea of what the risk in investing in your city is. I can either take that leap of faith and invest, not invest (safe choice), or invest with some compensation for that inherent risk of lack of established credibility. Interest is a market measure of risk.

Inflation is a problem, but it's not solely motivated by interest rates. 
 

You are confusing immoral actions (which are punished by the market and the court system) with true market failure.


Semantics, and not true in practice. Immoral behaviors can often be taken as "the norm" in a whole industry (or at least the majority). Underhanded tactics have been in use since the dawn of industrialization, and that's normal in a market society. Most of them aren't a priori "bad", either.
 

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?


That's false. There were incentives to increase loans by providing subsidies and lowering credit standards, but that doesn't explain the phenomena of CDO^2's or NINJA loans--those were purely the "dancing to the music" of investment and commercial banks. None of that was "forced", but rather a very clever abuse of a faulty policy--huge difference.

There are some cases where the gov't actively sued banks to force lower standards, but it was not universal in the industry, nor does it, again, explain anywhere near the horrific cycle of CDO's and MBS's. Wall St. was definitely the main instigator there, with the government playing a deadly tag team player (though you might have a point with the GSE's).
 

In reality, what we need with the banking system is not regulation, but rather transparency and lack of govt bailouts.


Different issues altogether. You need regulation in order to have transparency (at least in practice). For all the complaining that the USA has the worst paperwork in terms of compliance in the world, the USA is also the most transparent financial market in the world, period. There is NOTHING else in the world that compares to the amount of information I can get from ANY publicly traded company from a simple search on the SEC's EDGAR databse. Nothing.
 

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.


No, this is a great example of what happens when a policy screws up incentives. It doesn't generalize to banning gov't from influencing incentives and management policies (which include transparency, which I've already shown is not a trivial issue) altogether. No dice.
 

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).


Except past results do not guarantee future performance. You point out cigarettes as a valid and proper use of government influence upon incentives (and dealing externalities) but you bash EPA and pollution intervention upon car and industry, when essentially they're the same--the only difference is that you have a lesser degree of faith in what the medical community has to say about cigarette effects, versus climate science, and the scale of the problem.
 

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.

 
Except people don't quite understand how people work in aggregate. That's why both businesses and government fail all the time. Imperfect world, with imperfect plans, with imperfect results and imperfect bitching and complaints.

We're not even sure if God exists or not, and yet we claim it as a basis for such a important ethical and legal concept as human rights!

(Partially sarcastic here, but I do enjoy killing the simplifications people have~).
 

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.


Not at all. "Fair price" of a product is one of the most dubious concepts in all of economics. Even the definition of equilibrium price from supply/demand isn't agreed upon by everyone, not to mention that estimating proper supply/demand curves is a supremely dynamic process that modelling is impossible to do without lagging the actual happening.

Also, one word: Arbitrage. We're taught that arbitrage happens rarely and is quickly eliminated in financial markets (the basic premise of the Efficient Market Hypothesis--which, by the way, most practitioners laugh at, and most academics realize is false empirically, whatever the Chicago school says be damned), but in reality it's the reason why hedge funds, mutual funds, and traders still have jobs, and why indexes will never be the only worthwhile investment vehicle.

So no, it's not "rare", we just simply don't see it in the news all the time.
 

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.


There's a joke about two economists. One sees a dollar on the ground and tells the other economist. The other one denies it and says, "that's impossible, if there was a free dollar on the ground, it would've been picked up already. Efficient markets!"

Get it, Get it?

In any case, the point is that "time" itself isn't sufficient. You need people to figure out that there's a problem, and often it takes somebody to notice this (this might be government, it might be businesses, or people in general).

(Really this was an excuse to include that horrible joke :P ).
 

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.


There's a caveat to this: originally Fannie and Freddie only accepted investment grade MBS's, which implicitly meant that borrowing was in a way subsidized but with a sensitivity to risk (which, I might add, is defined by the fault system of the credit rating agencies).
 

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

 
And I'll be the first to say that not having a heavily restricted but effective central banking system of some kind is folly~ :D
 

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.


Trade contracts are also enforced by law, no? There's no guarantee that I need to follow through on my agreement with you if I know that I can just as well rob you without the presence of a covenant enforcer. This really isn't debatable.

Also, interest is not that great of a consolation if you lose most of the principal. Risk still exists.
 

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.


Again false and overestimating the compensatory power of interest rates. Defaulting on a loan is certainly NOT okay even if you get your interest back. And, in reality, if you don't have collateral, you're probably not going to get back even the interest.

And, further, banks continued the cycle of producing loans mostly because of the profits that came from the derivative products they sold on those mortgages: MBS's, CDO's, CDO^2's, etc.
 

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


Read: emotion. Which economists are finally realizing is one of the most important factors in economics and finance, ever.
 

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.


And this is enough reason to just take for granted that the markets always and inevitably "work"? The argument of lack of quantitative modeling goes both ways, bro.

Why not? You want to go back to the days where we had lead in our gas?
 

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


Statistical pattern recognition and classification all the way~
 

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.


All this tells me is that during a time when information availability was scarce, government intervention preventing monopolies is probably a good idea, but in an age of info abundance, it's probably not worth it.

Key word probable, as collusion is always an open possibility for rational market players.

(Apologies for the text wall, a lot of the posts I simply couldn't leave untouched :P ).

Edited by m1hawkgsm, 19 February 2014 - 03:11 AM.

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#37 m1hawkgsm

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Posted 02 May 2014 - 09:23 AM

I'm wondering if anybody has paid attention to the rise and hoopla of Thomas Piketty's new book, Capital in the Twenty-First Century, which in a nutshell, tracks the consistent and inexorable trend of wealth to concentrate in the hands of a small few (rentiers, managers), and its consistency across industrialized nations and across two centuries. It's an interesting book for a few reasons (this is coming from my readings of reviews, mind you. I have the book recently but will look at it once exams are over):
A. Piketty looks and measures wealth and capital, although sometimes vaguely and inconsistently in comparison to traditional economic measurements, through a number of venues, primarily through the tax records and philanthropic donations of the rich, for example. In short, most of the book is really just a compilation of statistics and pure data.
B. It focuses on the distinctions between general economic growth and income versus the return on wealth and financial capital (your rents and stock returns). This includes the unpopular and somewhat brushed aside issue of inheritance and economic dynasty of the rich.
C. While Piketty's book smells like a rehash, politically, of Karl Marx's Das Kapital, Piketty (who is very critical of Marx's methods of measuring and collecting data), divorces himself from Marxist critique of capitalism, while still agreeing (again based on the data) with the observation that there is not a natural, "invisible hand" like force that tends to distribute wealth in an equitable and generally socially useful way. In short, money will beget money, and this is irrelevant of nation and time period, to an extent.

I'll post three reviews which were pretty nice (well, unless you don't want to read it, or don't have time for it), mostly critical:
1. A more critical view of it.
2. Slightly more concise and less econ jargon filled review.
3. This more detail specific critique

The last one is especially interesting, as Dean Baker tries to justify "Capitalism's dynamism" but mostly talks about ways government can be improved (for example, weakening patent laws and modernizing telecommunication guidelines including those of the FCC, et al.). From this point of view, Piketty's book isn't "wrong" in its analysis or presentation of the data--the data still supports the trend of capital concentration no matter how you look at it, but rather is lacking in policy and explanation of why things are the way they are. In that sense I'm inclined (without reading the book, yet), to agree mostly with the last review, in the sense that capitalism still works, and markets probably will continue to work, contingent on proper and refined governmental policy that is common sense and up to date with the realities of today.

Thoughts?

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#38 kenkage

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Posted 02 May 2014 - 04:01 PM

ليس لدي خبره واسعة في الاقتصاد ولاكن الشيوعية اثبتت نجاحها في الصين اما الرأسمالية الغربيه فقد وصلت الى طريق مسدود، من الواضح ان روسيا ارتكبت خطئاً فادحاً عندما تخلت عن الشيوعية فلو لم تتخلى عنها لاصبح اقتصادها اقوى بكثير مما هو عليه الآن.translate it if you can.

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#39 m1hawkgsm

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Posted 02 May 2014 - 06:12 PM

Basically you're saying that communism is the answer? I would say history disagrees with you vastly. For one, China does not have a communist country, it's a hybrid of communism and capitalism. There is a great deal of leeway for companies to basically innovate and do their own thing without the direct hand of the government. Granted there is an overall veil of control by the local and national levels of the CP, but it's much, much less strong than, say, the Soviet system or Maoist China.

Other than China, practically every communist nation has failed--though this isn't to say capitalism, unfettered is de facto the way to utopia, as works such as Piketty's discern.

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#40 waleuska

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Posted 02 May 2014 - 07:55 PM

Basically you're saying that communism is the answer? I would say history disagrees with you vastly. For one, China does not have a communist country, it's a hybrid of communism and capitalism. There is a great deal of leeway for companies to basically innovate and do their own thing without the direct hand of the government. Granted there is an overall veil of control by the local and national levels of the CP, but it's much, much less strong than, say, the Soviet system or Maoist China.

Other than China, practically every communist nation has failed--though this isn't to say capitalism, unfettered is de facto the way to utopia, as works such as Piketty's discern.

The problem with communism is that it does not take in the fact of human greed, technology evolution, and the evolution of people. 


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