free market economics - the only game in town?

"Free Market" is a loaded word indeed, and it also may be something that can't truly exist. After all, if a market is truly "free," then aren't people free to create monopolies, which in turn would make the market much less free?

I mean economies primarily based around people exchanging goods and services at rates of exchange agreed among themselves. And yeah, ok, an individual may be a bit shagged in terms of being stuck with whatever corporation a big supplier/buyer is citing, but unlike in a feudal or communist system they have the choice to not make the transaction or to look for someone else with whom they can make the transaction.

in a country where more than 10% of money flows through tescos hands everyday, and where a single company can wield that much power, how much 'choice' is there really?

though, how much choice do people actually want, is another question

these, perhaps, are not arguments against the free market, as these conditions are anti-free market.

the invisible hand of the market suggests that brokers and financial advisors are more important than nurses and teachers. perhaps they are

although, for those that are against the free market, we can at least take heart in our governments careful protectionism of our economy, via tariffs and quotas

In reality, all modern economies fall somewhere between being model free market and command economies. You may as well ask whether a pure free market system is a viable option, as this has to my knowledge never been tried anywhere.

I've come round to a broadly pro-market position, based on comparing the relative perfromance of market and non-market economies.

What criteria are you basing your comparison on? And what non-market economies are you thinking of that dispense entirely with the market?

I think what you ought to say, if it is what you mean, is that you have come round to a more-market position, based on a comparison of more-market and less-market economies.

There are a few interesting theories of how an economy based around ecological values might work. The "green" economy would reject the assumptions of neoclassical economics and the materialist assumpions of socialism, and replace it with a holistic approach geared towards "uneconomic growth". I haven't read enough about these theories yet to tell you whether I think they are credible alternatives. To be honest, I struggle with the maths. But I do think that at some point in the future there may *have* to be a viable alternative to an economy which pumps out unnecessary and environentally harmful products at this rate. But that doesn't mean it would be necessary to dispense with the market entirely, it could still be valuable for distributing sustainable products eg foods.

Oh goodness, this all makes my brain hurt.

Credible? That's an odd criterion. Every economic system works to some degree, because, ultimately, most people are able to eat and stay warm under every system. They insist on this. An economy is just an aggregate of all those human actions intended to keep them fed and warm.

"Free market economics" exists entirely as a theory. It's like "liberty and justice for all" - an ideal that breaks down as soon as you come to implement the details. All we have in reality is a set of rules (treaties, laws, taxes) that are imperfectly followed and imperfectly enforced - and an economy, wherein we all try to stay fed and warm with varying levels of success. The fact that some people choose to label this "free market economics" has few practical implications.

So in a nutshell, the alternative is a system of laws, regulations and policies in which the happiness of the greatest number is the guiding framework. This deosn't have a name per se, though terms like 'economics as if people and the planet mattered' (copyright New Economics Foundation) are helpful. But they rely on us not continuing to do economics differently, and in so doing, we create an alternative to what we do now, which is progress.

I revived a thread about such a thing yesterday. You might be interested in checking
Capitalism & Participatory Economics: A Comparison http://www.zmag.org/parecon/capvsparecon/html/introduction.html

as soon as you accept any regulation of a marketplace -- like, penalties for lying and cheating -- then you're away from the utopian "free market" and into a regulated market. i don't think anyone except a handful of hardcore wackos really advocates total deregulation and caveat emptor. so then the debate is really about how much you regulate, and what, and who, and when, and how, etc. clearly, there are serious disadvantages to over-managed markets. but there are also serious disadvantages to under-managed markets. by framing the question always as "free market, c/d?", people who favor less regulation (for their own purposes) try to portray anyone in favor of more regulation as being somehow against the "free market," when of course what's really being debated is just the lines on the football field.

At one extreme, I am comparing western european market ecomomies with the ones you had in eastern Europe until the early 1990s.

More broadly, I am comparing countries which erect massive barriers to external trade, and those who do not.

As for massive barriers to external trade, for the right country this can be a real winning strategy. The USA pursued various modifications of this strategy during its period of explosive growth in the second half of the 19th century. Japan used this to very great effect in the decades after WWII. Variations on this theme have been used effectively in South Korea and the other Asian Tiger nations, too.

The primary reason why tariffs worked well in these cases seems to be that all these countries could attract foreign investment in large amounts and had a highly productive, low-wage labor pool. Tariffs were just one component of the strategy and not the main one.

But, Dave B made an excellent point that framing this debate in terms of free-market ideology vs. strawman alternatives only serves to enshrine the flaws and inequities of the current "system" as somehow innately superior and unassailable, when in fact it is just a hodge-podge of ad-hoc decisions, that serve a distinct set of interests and disserve others. What's needed is a debate on how do we adjust what we've got to be better than it is, and what would "better" look like? When that debate ends, economics has ossified into dogma.

From my perspective we need a wider understanding of what it means to be a person and human nature ie examining the inbuilt assumptions about how "rational" people behave and why etc. We need a bottom up synthesis rather than bottom down. You dont have to be a religious nut to favour this, physchology etc.I like Edwards WIlsons approach to genetics, its not the inbuilt "logic" thats the problem but the unpredictibilty of nature itself.

As for monopolies upthread, excluding natural monopolies I think the Rand logic itself is ok, monolpies themselevs are no big deal;basically if people demand it, the market will supply it-- theres bound to be thousands of libertarian responses to this issue online.One final point the "market place" = abstract equality of exchange value and not much else.

just reread your post and youre not saying what I thought you were--sorry

"rather than bottom down"--u know what I mean

obviously not.

The big dogs -- the historically wealthy families and the corporations whose power is based on economic and social exploitation -- benefit from the current arrangement, and they happen to be very very friendly with the people in charge of passing the laws that govern their behavior -- the World Bank, the IMF, the US congress, the US executive branch.

What is curious is that allowing the big dogs to continue to eat in the way they've been eating is not only obviously to the great detriment of the majority of the planet -- insofar as the big dogs' profit-taking results in massive impoverishment in some of the most fertile areas in the universe, etc. -- but it is not even to the benefit of the big dogs themselves, because the fossil-fuel-based economy, the way it's currently set up, is unsustainable! The national and global corporate expansion, in which year-on-year profits are expected to exceed last time around, is based on the premise of a constantly expanding supply of energy -- and not much fucking else (with all of this, obviously I would LOVE for someone to set me straight about this stuff, argue with me about it) -- so the continued arrangement of affairs as we have them now, in which the powerful are powerful because of their exploitation of or access to the industrial practices made possible by cheap energy, is not in the best interests of those that arrangement benefits, much less those it explots.

I'm not sure what that means, but it absolutely is about feedback. The fact that Soviet central planners didn't pay attention to who was buying what and where is precisely the reason why you'd have huge surpluses of product X and shortages of products Y and Z. And how would have computers made Mao's profoundly stupid idea to have everyone in China smelt steel in backyard ovens any more workable?

xpost: they might have run simulations based on sales, supply, demand and nipped it in the bud?

the continued arrangement of affairs as we have them now, in which the powerful are powerful because of their exploitation of or access to the industrial practices made possible by cheap energy, is not in the best interests of those that arrangement benefits, much less those it exploits.

otm. which is why a lot of the rest of the industrialized world is moving (slowly) toward curbing that arrangement. and why i think the u.s. will too, whoever gets elected in '08 (why does that still seem so far off?). we've corrected for excesses before, most obviously about 100 years ago, and we probably will again -- although arguably the people at the top are more powerful now than they were then, making reform even harder.

*sent them to forced labor camps

how did that work, exactly?

My point is that this kind of thinking was light years away from the planners' minds, computers or no computers.

Even after NEP, there were black markets for anything that might have been in short supply but available through other channels -- in a sense, the freeest of free markets.

China is also an interesting example. Apparently, one of the reasons China's steel (I think) industry was better able to adapt than others when China began to open up was that ever since Deng had come to power, the planning was done on a regional level, and the regions were allowed and encouraged to compete with one another.

the whole range of reforms and regulations of the progressive era: labor laws, anti-trust laws, the establishment of a progressive income tax and estate tax, food safety laws, etc. etc.

I'd say that they changed business practices approach to finance (both corporate and personal) but hardly changed the overall power structure at all. Even the biggest redistribution schemes do not prevent big dogs from occuring or prospering.

However, since Germany did invade the USSR and Japan did invade China and both of these advanced industrial powers were ultimately defeated and expelled, it is hard to say that Stalin and Mao were misdirecting their nation's resources by choosing to heavily finance their militaries, especially since both their nations were immediately drawn into a Cold War and an arms race with the wealthiest nation on earth, who kept up a steady barrage of belligerent threats against both of them.

It is also important to recognize that the repressive and authoritarian nature of these regimes was also not a product of their centrally planned economies. Both countries had brutal, repressive regimes before their revolutions, stretching back for decades or centuries. Gulags were just a continuation of the Czarist methods by different functionaries. The warlord period of Chinese history in the early 20th century was, if anything, more horrible than Mao ever oversaw.

So, using Stainist USSR and Maoist China as the exemplars of how a planned economy must perform is a rather, um, flawed model to adopt. Japan or South Korea would much closer to the mark of what a modern planned economy would look like... just to stir the pot a bit.

I'm not sure what time periods you're comparing here, Don. It sounds like you're comparing some idyllic period of low regulation against a more recent period of high regulation and saying that the high regulation has not helped. I don't think you can make that comparison because as Tracer pointed out, government intervention has always been a factor in the market. I think the only thing we can do is to try and make sure that the intervention is fair and not overly burdensome.

Well, "really well" when applied to third world economies is necessarily relative, but the success stories of the past decade or so haven't been the countries that rushed to tear down the protectionist barriers. They've been places like China or Vietnam or other Southeast Asian economies that have a tightly controlled form of capitalism with, no doubt, "major restrictions on foreign investment".

re: latin america, i find it interesting how appalled u.s. officials get at suggestions of renationalizing oil and gas industries and renegotiating energy contracts in places like bolivia, when of course we tolerate the exact same thing in the middle east. but we just assume we should be able to call the shots in our hemisphere.

Our continued ability to buy meat and fresh vegetables at the grocery store DEPENDS on politicians and traders taking the stance that they will NEVER do anything about it, on either side.

Taken in aggregate, the Chinese policy is basically to lend the US money so we can buy their products. This in itself is nothing new. It's standard operating procedure in the car business, for example. However in the car business, car companies sell their cars for a loss and make it back in profits on the loans (at least if they're US car companies they do, Japanese car companies make a profit on the cars too). In the Chinese case, they are taking a loss on the loans by settling for lower returns than they could get elsewhere.

The American consumer has been propped up by cheap credit. The net savings rate in the US last year was negative - the lowest figure since the Great Depression. It's doubtful that this situation can go on indefinitely, regardless of what the Chinese do.

what I'm trying to say is that regulation has changed things but barely altered the pre-existing power structure by doing so. That's it. Consumer/labor "protection" or other remedies or redistribution has flattened the power slightly, but how much and for what? I'm not saying that regulation has been universally bad, unneeded, or even unwarranted. I'm saying that some of the goals--the avoidance or reduction of highly concentrated wealth--probably can't be protected in any growth market, free or otherwise. I'm saying that one of the consequences of regulation is the rise in power of the political state, which is regulated, at a distance, only directly by voters. And that's why we need to be diligently skeptical of regulations and market control--not because of the good intentions and protections behind the pages of code, but because of how they may be intent on serving a political interest as much as anything else. The price of freedom is very expensive, and all I'm pointing out is that so is trying to regulate the market in a fair manner.

of course it can be controlled. when we had higher marginal tax rates, we expanded the middle class and reduced the gap between richest and poorest. as the tax rates have declined, the gap has widened. if the gop manages to make the abolition of the estate permanent, it will widen even more. the goal of liberal progressive tax policies (as opposed to marxism) was never to make there be no more rich people, it was to put a check on the concentration of wealth and power, which it did and does. (which is why the wealthy and powerful, or many of them anyway, have been eager to do away with those policies.)

I'm saying that one of the consequences of regulation is the rise in power of the political state, which is regulated, at a distance, only directly by voters.

of course, and this needs to be kept in check too. the idea is to use all of these things to maintain some kind of balance of power.

of course, what we have with the bush administration is sort of the worst of all worlds, with concentrated wealth and power expressing itself through the manipulation of a powerful political state.

If high concentrations of wealth - ie., the big disparity between the top 1% and everyone else - is seen as a social ill, then I think there are ways we could try and correct it. One, as Gypsy Mothra points out, is a progressive tax structure, including an estate and gift tax. We would also need an aggressive policing system to make sure that the wealthy don't simply devise clever loopholes to avoid these taxes. Another is to direct more social spending towards those further down the income distribution - through public education and training, tax credits, housing, health care, and so on. These will go a long way towards raising the real standard of living in the middle and at the bottom, thereby reducing the disparity with the top.

My point is that we can try to amend wealth through various redistribution schemes but that the power structure is unlikely to change significantly. The wealthiest people and companies did not become unwealthy, they simply didn't accumulate wealth as rapidly as they once did because of regulation. The benefits to this are obvious but again my point is at what cost--arguably the greatest beneficiaries of higher regulation is the political class, the government. The resulting corruption is agnostic to party lines, as anyone who's paid attention in the past forty years knows. The argument for leaner government or less intervention isn't to quit helping people who need help or to not protect that what needs to be protected--it's to keep away corruption, or, more succinctly, the whims of whomever has been most recently elected.

as the tax rates have declined, the gap has widened.

has the disparity widening come at the expense of lower classes? Is this a causal relationship? Is this disparity the result of a static economy?

There may be some correlation between the amount of regulation or the level of taxation and the amount of endemic corruption in government. However, I think there are lots of reasons for corruption that have little to do with those factors. Whether you tax the wealthy at 30% or 70%, there will always be some who will try to cheat the system. Does the number of cheaters increase proportionally with the tax rate? Probably not. There's probably a broad middle range of tax rates that are politically sustainable and enforceable. At some theoretical upper limit, the tax rate will become so burdensome that normally law-abiding wealthy citizens will be sufficiently incentivized to break the law.

Also, even with a fairly permissive government (such as the current administration) we have seen that there can still be corruption. Yet we need government. So we need to find ways to minimize corruption - having an educated citizenry with a free press and as little government secrecy as possible is a step in the right direction.

yes. see: cuts in a whole range of programs, from student loans to housing to health care.

Is this a causal relationship?

tax cuts => lower revenues => growing deficits => spending cuts

Is this disparity the result of a static economy?

not unless you think the u.s. economy has been "static" for the last 30 years.

Some could comment on unleashing media ownership problems affecting this

care to explain why, or are you just declaring this by fiat?

but i mean, i agree with your broad point about needing to keep state power in check as well as the power of wealthy individuals and corporations. i don't agree that more regulation = more corruption, though. a lot of regulations are hedges against corruption. see the SEC, for example.

you could also argue, more persuasively, that the greatest beneficiaries of higher regulation (in what? high-yield bonds? car safety? decay-proven dentifrices?) are the most powerless members of society.

How do you explain the higher revenues this year?

Deficits result when spending exceeds income. Revenues have increased since the Bush tax cuts, but spending (both discretionary and non) has increased faster. Congress is not required to cut spending and hasn't. And the converse of your flow here is that if taxes are raised, revenues will raise, deficits will shrink, and spending cuts will be spending increases. You're substituting all the other political decisions that are not necessarily causal to the State's income level--the fed's non-discretionary spending is far less than tax revenue. It's the politicians that are cutting spending, and they haven't yet correlated that to tax cuts. Like always, they just keep authorizing more spending (3000 earmarks in the current budget, for starters.) Besides, the Clinton actually cut spending when tax revenues were increasing, so there's another hole there.

Your flow here looks like the supposed Norquist-ian game plan and not a sufficient explanation for the disparity in personal income as a result of falling tax rates. So that's why I think it was inaccurate.

xpost: you could also argue, more persuasively, that the greatest beneficiaries of higher regulation (in what? high-yield bonds? car safety? decay-proven dentifrices?) are the most powerless members of society.

The reason I say the political class is is because the political class grows in size AND power with more regulation and governmental intervention. I think the "most powerless" gain greatly, but they are likely still most vulnerable to the political class. After all, changing political classes can give power or take it away. Who's seat would you rather be in?

most analysts agreed that was largely the result of a one-time tax break for corporations to repatriate overseas income at a lower tax rate than usual. it's not a trend.

and you're right, that formula is norquist's starve-the-beast idea. it doesn't work as well as he'd like it to, because it's politically hard to make the cuts, so what you get is growing deficits. but that doesn't mean there aren't cuts, just that there aren't enough to offset the loss of revenue. and the things that get cut tend to be things that benefit the middle- and working-classes.

xpost: the rub there Tracer is what the political class sees as sensible, which, more than not, serves itself in the name of serving voters.

three year trend, eh? might it have something to do with this?

http://www.prudentbear.com/Charts/Commentary/CBB092905/exhomesales0805.gif

if so, i'll gladly bet against it.

I would like to see some evidence or reasoning for this, because on the face of it, it doesn't seem to be true. Many governments which are rather weak and ineffectual in terms of helping their citizens are still quite corrupt. Look at Africa. Those governments aren't corrupt because they're pro-regulation or interventionist - they're corrupt because they don't have the right institutions and there is a lack of accountability and an absence of an educated middle-class with political power. I don't think the correlation between the amount of government regulation and corruption exists in the way you think it does.

marx style communism led by super-intelligent computers

― älänbänänä (alanbanana), Saturday, January 28, 2006 5:14 PM (3 years ago) Bookmark Suggest Ban Permalink

i honestly believe this is a good idea

also, a borg-like hive society mad underrated imo

But everyone could get wiped out by a single fractal!

i'm sure you find ways around it!

UNNECESSARY INTERVENTION

Funnily enough, my brother has just written a book on this subject.

http://farm3.static.flickr.com/2603/3986949084_77a30d9479_o.jpg

Ruh roh...

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Moving from the hegemony of the dollar to a system based on a basket of currencies is inevitable. The USA has been used its privileged position, founded on the Bretton Woods agreement, to screw the rest of the world for decades - basically since Nixon, but far more since Reagan.

But this is a funny subject for a thread about so-called free market economies. It is more like fodder for the Rolling US economy into the shit bin thread.

Was just thinking about blueberries -- we order groceries from Fresh Direct sometimes, and at first we had always been getting blueberries. But then I noticed blueberries were expensive as fuck, and I was like "the fuck? Why are we paying all this money for blueberries?" So we stopped ordering them. Then I noticed the price went down again, but I honestly didn't feel like ordering blueberries anymore because I just got used to the idea that they were superfluous (putting aside the fact that eating berries in November is kind of silly anyway). So, IDK, just an annecdote regarding a weird price phenomenon that seems to have more to do with emotions than rational economic behavior.

having changing tastes and preferences is not really 'outside rational behavior'. being willing to pay more money for something because you hated it = something outside of rational behavior.

(I'm not saying you were just giving a more clear cut example)

But my tastes didn't change, it was more like I did something out of habit and then when something broke the habit I didn't go back to it even though the reason for the change was gone.

desires can be ephemeral. substitution is easy with food choices. presumably whatever the blueberries did for you is being accomplished in other ways.

the idea of a 'habit' does not necessarily break rationality

when buying your groceries you could have
a. made a spreadsheet w/ everything fresh direct has and the cost vs. value to you w/r/t your desires
b. gone w/ what you usually go with for the most part, then watched tv

in your head you decided 'b' was a better use of your time

beyond just the laziness, people can get enjoyment from habits, tho this isn't a good example for that.

I don't want to come across like I think everyone is some perfectly rational economic agent, I just don't think your example is as crazy as you do.