The PIIGS still fly

[dcarrigg]

Re: The PIIGS still fly

I'm enjoying this discussion, and I think depending on the reader, we both proved our points.

My Neolithic example still holds. However, what happens within families, even today, has nothing to do with the theories we're discussing. And that kind of non market exchange can never exist beyond a village or family level. And good luck with any technological progress adopting such a non market system on a larger scale.

Humanity progressed when real trade began between different familial groups/tribes and in the process, ideas and goods, never known of before in some tribes, spread. And how did they determine the value of the goods they traded? Market forces such as supply and demand - even back then. I'm guessing those that eschewed what you brush aside as the one-off trade with non related groups remained in their caves, stunted of progress.

What are these market forces?

Like, exactly what are they? What causes them? Where do they come from? In what unit are they measured? What physical constant does it rely on? Can you point to it?

Are "market forces" just totally spiritual/magical? Like, are they literally conjured up in the mind of man? Does all it take is a distant desire for something in the imagination of a farmer 10,000 years ago for "The Market" to use its mighty forces to get to work developing whatever that desire might be and birthing it forth into reality and directing it to him?

I'm serious with these questions. What do you imagine these spooky "forces" are?

Because I don't think the equilibrium exists in reality in most cases. I think it's a thought experiment that grew legs and became a religion. And you're flying in the face of all anthropology when you insist that Neolithic man was a profit-maximizing rational actor. He'd might just as soon boil you for dinner as establish a "market." The wind could blow the wrong way and he might determine you're angering his gods. Rationality wasn't very big. And you know what definitely didn't exist? Perfect competition. So how is it you imagine these forces set prices?

Do you even have a proposition for drawing a supply and a demand graph that can determine a price for a situation where all actors are irrational, where they often eschew profit in favor of ritual, where there is minimal competition, and no equilibrium exists, and they are thousands of years away from even beginning to invent currency in an animist society that believes in rock and tree spirits and makes decisions based on them?

Like I tried pointing out in an earlier post, lots of non-market inventions are cutting edge. I was just telling you about a few Soviet ones. But they include interlaced video, LEDs, satellites, masers, excimer lasers, carbon nanotubes, space stations, three-phase power, nuclear power plants, ICBMs, reflector telescopes, radio antennae, artificial organs, blood banks, vitamins, hydrofoils, ramjets, nuclear icebreakers, right down to sambo and tetris. Oh, they sucked at cars and consumer goods big time. But for the big physics, space and military stuff, they were right there on the bleeding edge for a good while. No markets required.

Humanity progressed because of humans. Not because of some spooky god named "The Market." I firmly believe that.

One-off annual trades at harvest time happened in the Neolithic here and there where there were surpluses. But much more technology would have been transferred as gifts. And innovation happens because of the scientists and engineers that deeply love their work. You don't have to pay them any more...or even much in the first place. Your fancy iPhone (that has so much unlicensed Soviet IP in it) couldn't have been possible without hundreds of engineers working for regular wage who never interacted with any market forces whatsoever, and hundreds more scientists slaving away at universities who never see even a crumb from the billions Jobs' wife made off it. There are no incentives for anyone even in the modern system, but the guy at the top and the investor class. Yet things get invented by salaried employees with nothing to gain anyways.

Take Grigori Perelman for example. Solved the Poincare conjecture. Was entitled to millions of dollars from foundations for doing it. Just said no to the money and went back to his mother's basement to do more math because he thought the money would distract him. THOSE are the people who make breakthroughs. Not the carefully PR-crafted personas of the billionaire MBA businessmen who pretend they are scientists and engineers. He did it and spit in the face of "The Market" in the process by being totally "irrational."

And don't forget, the firm itself--that is the corporation--is a form of non-market interaction. In fact, it's a whole branch of economics that tries to figure out why firms are more efficient than "free markets," where every employee is an independent contractor out for him/herself and there is no "team," bureaucracy, or corporate hierarchy. According to economic theory, firms should be less efficient than a lack of firms where everyone's just an individual in the market supplying whatever services they can to whomever at market rates--and therefore corporations shouldn't exist in a free market. But they do. And not only do they exist, they dominate the marketplace. Why?

Of course, again, economists are asking the wrong question. Instead of asking, "Why the hell doesn't reality confirm to this mathematical model/theory we invented 70 years ago," they ought to do what all other scientists do and ask, "Why doesn't my theory confirm to reality and how should I change the theory accordingly?"

But, again, The Market is God now. It cannot fail. The theory cannot fail. It cannot even be updated. Markets are now viewed as "natural." As much a part of the universe as gravity itself--existing from the dawn of time like magic run by unseen and unmeasurable totally unscientific forces. No. The Market cannot fail. The Market can only be failed. It's a religion now. No amount of evidence can disprove the theory. Because the supposition begins with "the theory is correct regardless of the evidence." Magical thinking. Totally faith-based.

[gnk]

Re: The PIIGS still fly

I'm enjoying this discussion, and I think depending on the reader, we both proved our points.

My Neolithic example still holds. However, what happens within families, even today, has nothing to do with the theories we're discussing. And that kind of non market exchange can never exist beyond a village or family level. And good luck with any technological progress adopting such a non market system on a larger scale.

Humanity progressed when real trade began between different familial groups/tribes and in the process, ideas and goods, never known of before in some tribes, spread. And how did they determine the value of the goods they traded? Market forces such as supply and demand - even back then. I'm guessing those that eschewed what you brush aside as the one-off trade with non related groups remained in their caves, stunted of progress.

[dcarrigg]

Re: The PIIGS still fly

Really? Supply and demand forces (Free Market) are a recent phenomena? Or are they a fiction?

Yup. Supply and demand "forces" are based on the theoretical concept that human commercial interactions reach a general equilibrium like heat in a thermodynamic system. It is a model based on a theory. It is meant to be a useful way to help think about what happens in real life. But it a game. It is a fiction. It is not actually real life.

In real life, there are 4 physical forces we've managed to identify. Gravitational, electromagnetic, strong nuclear, and weak nuclear. That's it. 4. Which one do "market forces" use? If you can't point to the physical existence of these things called "markets," and you can't describe the forces specifically as anything other than spooky "forces," then are they real, or are they imaginary?

I'm pretty sure that during Neolithic times there was an instance where two cavemen exchanged between themselves an obsidian arrowhead for a chunk of mammoth meat without government price controls. How did they deem the exchange a fair one? I'm sure the then current supply of Mammoth meat and obsidian played a role.

That's not how trade worked back then. Neolithic cultures used gift reciprocity. They didn't keep ledgers. Again, there is ample archeological and anthropological evidence for this in cultures spanning the globe. We don't need a theoretical mind-experiment based off what you imagine "cavemen" did. We have real world evidence.

I think I understand your point. But I don't need to know when the phrase "free market" was coined and by whom to understand that supply and demand existed long before the intelligentsia wanted to make it more complicated than it is.

Commerce predates the concept of markets, yes. And in commerce, goods are supplied and goods are demanded. But the way markets assume supply and demand reach a magic equilibrium and perfectly efficient price was not ever even conceived of until the early-mid 20th century. Now people take it for Gospel. Quite literally. They attribute all sorts of specific action to a fuzzy idea / God called The Market, which is actually just a 60 year old thought experiment. And they assume the world works exactly like the thought experiment. And they thoroughly believe it...so much so that they believe that ancient hunter-gathers were material-maximizing rational actors. They weren't.

The truth is, Neolithic man lived in kinship groups--extended families--tribes--groupings of friends and family. Just like when your brother comes over your house he can sleep on the couch and pull a beer from the fridge without there needing to be a tit-for-tat trade, kinship groups would share. They would also offer gifts. And you were expected to give gifts in return. There was some general idea of fairness...you couldn't take, take, take in a way that pissed everyone who gave you the stuff off. But it wasn't as if things were going 4 bananas to a coconut one week and 3 to a coconut the next or something where you had to barter for every little thing you wanted. You find a bunch of coconuts? You bring them back home and share them. Joe kills a boar? He brings it back and cooks it on the fire Jim made and you share it. There's no magic price equilibrium that forces 2oz of boar meat per coconut or something.

The only time any ancients traded tit-for-tat like that were with outsiders. If your kin-group had way, way more coconuts than you could eat in a year, you might offer some to some outside, non-kin tribe in exchange for something else. But these were rare, one-off transactions, and there was no bidding or equilibrium. Don't forget, markets assume a price equilibrium emerging under perfect competition. I can't even imagine the possibility of anything approaching such a thing existing in Neolithic times.

[gnk]

Re: The PIIGS still fly

Really? Supply and demand forces (Free Market) are a recent phenomena? Or are they a fiction?

I'm pretty sure that during Neolithic times there was an instance where two cavemen exchanged between themselves an obsidian arrowhead for a chunk of mammoth meat without government price controls. How did they deem the exchange a fair one? I'm sure the then current supply of Mammoth meat and obsidian played a role.

I think I understand your point. But I don't need to know when the phrase "free market" was coined and by whom to understand that supply and demand existed long before the intelligentsia wanted to make it more complicated than it is.

[dcarrigg]

Re: The PIIGS still fly

The only problem with your theory is that the idea of Markets didn't exist yet as such. Especially not the idea of "free markets." Income tax hadn't been enacted yet. The primary source of national income was still gathered at the customs house through tariffs on foreign goods. You're still conflating capitalism and markets, particularly "free market forces," whatever spooky religious nonsense they might be. Capitalism came long, long before "free markets" and "free trade."

I suppose, as chene pointed out, I should heed my own advice and just stop. Still, I wonder how long it will be before a young virgin gives birth by a manger and cites "free market forces" rather than "the holy ghost" as the father...waiting for three wise men to show up and drop some Gold, Similac, and a Blue Cross card...

I seem to remember some old story about "forces" destroying the unsustainable...

I just can't remember...

Was it this one?



Or this one?



Or maybe this one?



Is that a whisper in the distance? Did you feel a tremor? Uh oh...here they come. I can sense them. The market forces are around us...

Nope. False alarm. That was just the marketing forces. Sorry about that...

[gnk]

Re: The PIIGS still fly

Real Markets that foster competition are destructive. Even the Robber Barons of the Guilded age knew this. The banker John Pierpont Morgan even ascribed to this view.

So what else could it be? How can some companies keep growing and wealth accumulate in the hands of the few?

The answer: Central Banking in partnership with Commercial Banks - that's where the action is.

Ironically, you, dcarrigg and many wealthy people agree on something.

As I said before, the AFC arose from free market forces. It was a natural phenomenon of Capitalism - to destroy the nonsustainable. However, the crisis was handled with very non-free-market methods.

[dcarrigg]

Re: The PIIGS still fly

"free markets" is a political slogan that trades on our tendency to conflate the interests and rights of individuals and those of corporations. "free" sounds so good!

i think we should distinguish the realms of individuals, corporations, and social organizations including governments.

the "free market" in individual transactions includes ponzi schemes and other kinds of fraud - they are commercial arrangements freely entered into. legally it includes the sale of shoddy goods and services. it also includes individuals using corporate power for their individual benefit. this is what surprised greenspan: that corporate officers cared about their individual bonuses more than the well-being of the corporations they ran.

the "free market" includes corporations having "shareholder value" as their only goal, without consideration of e.g. externalities. if a company can make more money by dumping waste somewhere, should it not do so? the corporate "free market" also includes collusive arrangements, monopoly rents, union busting. the corporate "free market" suborns public officials and employees, and not necessarily in any illegal way - campaign contributions, lobbying, the revolving door and other species of regulatory capture are all quite effective and have a very high return on investment. and shouldn't the corporation make use of all those tools? to do otherwise is to commit treason against the corporation's shareholders.

the "free market" requires that all actors have perfect knowledge of all relevant information and act solely as utility maximizers. we know that both of those requirements are false, but "free market" sounds so good. and it makes economists' math so much easier.

in sum "free market" oversimplifies the economy, trading on the power of pretty words and the simplicity of its assertions, not to mention its material rewards, to seduce its supporters. it's not so simple.

isn't there some saying to the effect that for every problem there is a solution: simple, straightforward, and wrong?

as soon as you get down into the weeds of what is the proper amount of regulation and what exactly is regulated, which individual interactions should be criminalized, life gets very complex. a slogan isn't a solution.

Aye.

And it comes out in all kinds of places.

Take the minimum wage.

Market theory says an increase should result in disemployment.

Except when measured in the real world, over 2,000 times in different states/countries/towns/cities, the disemployment effects of real minimum wage increases were at or near zero.

Most, but not all, modern economists now accept this. But what do they do about it? They ask why the real world doesn't conform to their imaginary market model.

Of course, I ask, "Why should it?"

But the Market project is now a religion.

Long ago it changed from Markets being a conceptual/mathematical tool for modeling certain situations in reality into a religious/cultural/political project to mold reality to be more like the mathematical market model. The problem, as I've been trying to explain, is that other institutions that form the bedrock of capitalism get eroded in this process.

Free market mania is fundamentally radical, even if it is labeled conservative. It atomizes and individualizes everything. It destroys relationships and kin bonds--right down to the nuclear family. In fact, it has gone so far that we have renamed friendship "social capital" and tried to quantify it. But be that as it may, even when you do so you find it diminishing everywhere.

The project of the conversion of Homo Sapiens to Homo Marketus is a weakening of all non-market institutions. From state to family to church to civic associations to military, all of it must wane in the face of Market. Ares and Apollo and Athena cannot be left free to challenge Mammon. The result is that the children of Market end up scattered, polarized, angry, powerless, paralyzed lot of individuals without much of a social support network, formal or informal, living in an environment of increasing and accelerating material inequality with a continued erosion of democratic rights at the bottom and rule of law at the top. They pine for the 'good old days,' but can't see that to a large extent their God Market destroyed them and will never let them come back.

The project of forcing human beings to act as individual material-maximizing rational actors dutifully commoditizing everything and quantifying and recording even the most petty and worthless transaction marches forward.

[Southernguy]

Re: The PIIGS still fly

Congratulations dcarrig; a treasure of information.

[jk]

Re: The PIIGS still fly

"free markets" is a political slogan that trades on our tendency to conflate the interests and rights of individuals and those of corporations. "free" sounds so good!

i think we should distinguish the realms of individuals, corporations, and social organizations including governments.

the "free market" in individual transactions includes ponzi schemes and other kinds of fraud - they are commercial arrangements freely entered into. legally it includes the sale of shoddy goods and services. it also includes individuals using corporate power for their individual benefit. this is what surprised greenspan: that corporate officers cared about their individual bonuses more than the well-being of the corporations they ran.

the "free market" includes corporations having "shareholder value" as their only goal, without consideration of e.g. externalities. if a company can make more money by dumping waste somewhere, should it not do so? the corporate "free market" also includes collusive arrangements, monopoly rents, union busting. the corporate "free market" suborns public officials and employees, and not necessarily in any illegal way - campaign contributions, lobbying, the revolving door and other species of regulatory capture are all quite effective and have a very high return on investment. and shouldn't the corporation make use of all those tools? to do otherwise is to commit treason against the corporation's shareholders.

the "free market" requires that all actors have perfect knowledge of all relevant information and act solely as utility maximizers. we know that both of those requirements are false, but "free market" sounds so good. and it makes economists' math so much easier.

in sum "free market" oversimplifies the economy, trading on the power of pretty words and the simplicity of its assertions, not to mention its material rewards, to seduce its supporters. it's not so simple.

isn't there some saying to the effect that for every problem there is a solution: simple, straightforward, and wrong?

as soon as you get down into the weeds of what is the proper amount of regulation and what exactly is regulated, which individual interactions should be criminalized, life gets very complex. a slogan isn't a solution.

[dcarrigg]

Re: The PIIGS still fly

Believe it or not, I've read my Schumpeter, vt. Kind of pedestrian and lazy--like all Austrian writing. Nowhere near as influential, rigorous, and transformative as Samuelson for a book written in the same year (in fairness, Joeseph was something of a champion for and mentor of Paul if I remember right). Anyways, it's all a standard backlash against the New Deal because FDR wouldn't give Austria back to the Von Habsburgs and other nobility like Lord Von Hayek and Baron Von Mises after the war and instead gave Austria a republic and forced the royalty into exile. But required reading, nonetheless.

DC, China did well for 20 years because of very low labor costs and a smaller economy. That's all past history.

Anyways, you're making this assertion again. But you're still not explaining why other countries with even lower labor costs and even smaller economies didn't also do well...

In fact, according to your theory, shouldn't Niger or Chad or Somalia or Myanmar or some such place have done even better than China?

[vt]

Re: The PIIGS still fly

DC, China did well for 20 years because of very low labor costs and a smaller economy. That's all past history. Now China's labor costs are high, their banking system has questions, and there is evidence of overbuilding with empty cities. China will continue to do well, growth will slow further and an aging population will cause future problems.

India has a younger population, and will increase growth as it develops it's middle class and builds infrastructure. India also needs to break the bureaucratic logjam that has held it back.

By the way I never said I was against government. I am for government that regulates reasonably with little red tape, and prosecutes wrongdoers; not ties up legitimate business with excessive bureaucracy.

As for Chene's idea that free markets cause corporate dictatorship, the opposite is true. Free competition replaces inefficient enterprises and creates more jobs. The problem is special interests buying government favor to keep competition out of their area. I have called a number of times on this forum for the end of all campaign contributions by corporations, unions, and other special interests. This is a government of the special interests. not of the people or the common good in some, not all areas. Government does good work in many areas, but we must get rid of crony capitalism and crony socialism.

Here are good books on understanding how free competition increases living standards:

https://www.amazon.com/Capitalism-So...ion+schumpeter

https://www.amazon.com/Can-Capitalis...0GZ0DXK09FAS6M

[dcarrigg]

Re: The PIIGS still fly

And YOU tell me it's not worth my time to try to convert true believers ! Rhetorical statement I suppose dcarrigg... great posts...

"free markets" is truly an Orwellian langage used to manufacture consent. When the "Market" is completely free no one else is : freedom ends where the freedom of others begins...

"free markets" really means : big corporate dictatorship... but it is less appealing said like that !

Touché. I always sucked at heeding my own advice...I guess they say doctors make the worst patients...yadda yadda yadda.

[gnk]

Re: The PIIGS still fly

The American Financial Crisis was the free market saying too big to fail can not exist. That exotic investment instruments based on nonsustainable lending and an extractive and not productive banking system can not last. That's how a free market works. It rewards the sustainable and punishes the incompetent - over the long term with corrections, large and small, along the way. Theoretically speaking, Capitalism and Free Markets have a cold Darwinian element that kills off the weak, and the non-sustainable - whatever their size. I would say that in the US we have more socialism/non-free market for the corporatacracy and wealthy (tax treatment/subsidies/backstops/bailouts) than small businesses. A small business, such as a restaurant lives by the rules of capitalism more so than does a commercial bank.

Thus, I believe Capitalism and Free Markets should be a guideline, and the devil is in the details as to how we regulate. That's where the discussion should be. The electorate is ultimately responsible, and more so than in many other countries, the tools are there for the US electorate to do something. We are remarkably transparent compared to most other countries. But, historically speaking, the system usually comes crashing down before real reform can take place. But one could also argue the world and its systems have gotten so complex that the average voter can't keep up.

I think that with the advent of pure fiat money created ex nihilo, the game has gone on a little longer. We're in a new phase in human history when it comes to currency creation, a merely 46 year old experiment (closing of gold window). So far, the Central Banks of the world have coordinated quite well, albeit not addressing the underlying issues. Greenspan has lately questioned the bond market's stability.

I have been visiting Greece for a few decades. I have seen government run enterprises in action. They were basically expensive job (voter) creation entities and patronage rewarding by the party in power - qualifications, merit, and free market economics be damned. Needless to say, these entities were poorly run and had bloated non sustainable budgets.

I think we agree on many things. But your doubting free markets and Capitalism is a symptom of something else that is shared by many unfortunately. The wealthy understand that their disruption of market forces and socialization of losses is creating a new electorate. That's why I think luxury bunkers and escape routes to New Zealand have become popular among that crowd lately. They're not dumb, and the fact that they're buying such "insurance" makes me uneasy. It tells me that they know they can't get their damn hands out of the cookie jar and the end result is unavoidable.

[Techdread]

Re: The PIIGS still fly

Your spot on, seems you have read "Sapiens a brief history of humankind" and maybe why Nations Fail?

[chene]

Re: The PIIGS still fly

It's not worth your time to try to convert true believers in anything.

And YOU tell me it's not worth my time to try to convert true believers ! Rhetorical statement I suppose dcarrigg... great posts...

"free markets" is truly an Orwellian langage used to manufacture consent. When the "Market" is completely free no one else is : freedom ends where the freedom of others begins...

"free markets" really means : big corporate dictatorship... but it is less appealing said like that !