Can you have a sustained tight labor market in capitalism?

[K. A. Pital]

Failure is part of human nature.

"Death is a part of human nature. The dream of defeating death by science is actually a rejection of reality". Yeah, I know. Yours is the position of the social-darwinist.

In equilibrium you can have changes in prices over time. However, in equilibrium, all changes are foreseen.

How does this even address the problem?

You example is a case of monopsony (not monopoly) in a highly restricted model that doesn't exist in reality, unless the monopsony is protected or is the government.

The monopsony can, in fact, exist (albeit in an imperfect form) and it can exist without any protection of the government, too.

[HMS Conqueror]

[Sorry for taking so long to reply to this, I have been busy with work.]

So where does that put us at times when corporations are doing massive reductions in force, like now? Why are you so confident that the incentives do reward only non-wasteful firing, that you won't see executives firing people based on perverse incentives like the desire to boost stock prices in a bad quarter regardless of what it does for the company in the long term?

Just logically: if you waste time and money pointlessly replacing workers you will lose out to companies that don't. The present large job losses are a response to the recession - a real change in economic conditions, and in particular the cost of borrowing money - not a perplexing 'churning' with no obvious cause.

Why not? All I see linear scaling proving is that at best I have to pay you twice as much to get you to do twice as much, on average. Without separating out productivity and wages by industry, by income (it's possible for average wages to remain constant as a function of productivity when only the managers are getting meaningful raises), and without dissecting what a given unit of productivity entails and how much people are paying for it, you don't know what the scaling constant is between productivity and wages.

If employers did not compete for workers they would not have to raise their offer in line with productivity. It would either be flat, or follow an unrelated trend. If there was a weak connection, but still a connection, then wages should rise slower than productivity. What you're arguing is more like that employers as a group underpay by a fixed percentage despite competing between one another up to the agreed maximum. But this would require a conspiracy on a vast and incomprehensible scale. Seriously, this is far less plausible than a belief that Kennedy staged the moon landings.

That's how snake oil salesmen survive and thrive even though they are selling a product of zero utility and therefore zero value.

Do they really thrive? How many snake oil companies are in the Fortune 500? It's more like a small imperfection at the margins. Most of these people are just barely above the minimum wage themselves, or sometimes doubtless below it, as they're working in the black market.

Excepting, of course, industries where the returns are not easily collectible (national defense), and bearing in mind that industries may have exceptionally high returns because of a bubble...

Sure, state cartels and quasi-nationalised industries that live almost entirely on state contracts may not exhibit entirely market behaviour, because they're not entirely a part of the market. Not that I feel sorry for Lockheed Martin employees.

But we could equally well turn that around: Wal-Mart charges the lowest possible wages in order to charge the lowest possible prices. In consequence they can outbid virtually any other retailer who doesn't duplicate their methods.

Everyone in an economy does this, there is in fact no other way to determine what the price of anything is.

The mainstream competition theory works IF you incorporate the nonlinear effects of buyers' and sellers' markets. Commodity prices skyrocket in a seller's market (see what happens to the prices of essential goods immediately after a natural disaster) and plummet in a buyer's market (see the effects of monopolies).

As long as there is a relative symmetry in the positions of buyer and seller, market forces work fairly well at producing an outcome society can live with, that will have no disastrous consequences. When the two positions become asymmetric, that model breaks down. Sellers who have more information about their product than the buyer can cheat the buyer; buyers who have the option of not choosing to buy can extract much lower prices from sellers for whom making the sale is a matter of life and death.

That kind of inequality can be induced by intervention in the market (force buyers to buy whether they like it or not, and sellers can jack up prices), but it can also be induced by non-government forces acting on the market (arbitrary discrimination against certain types of customers, incentive structures for CEOs that favor laying off workers to boost stock prices over the long term viability of the company).

Once inequalities distort the market, we start getting marked instabilities in the price of the good being bought and sold, and/or prices reaching levels that lose touch with the public interest. Ideally and over the extreme long term the market should self-correct, but there are often consequences of market instability that the market cannot take into account- such as a generation of children growing up undereducated because of the hardscrabble life led by their parents. This can impair the market-oriented society's ability to recover from economic crises that would otherwise be a mere hiccup.

What you call a "seller's market" seems to be any market in which the commodity is genuinely worth a lot of money. There is no problem with the market here. Vital supplies really are worth more in natural disasters, for instance, not just the same as when they are being continually trucked in to the local store. No trade is ever "symmetric" (it's not clear how this would even be defined). The whole purpose of the market is to decide what a whole load of different goods and services are worth relative to one another when it is in no way obvious.

I for one am eagerly awaiting it, because it seems to underly your entire position: the market can not be worse than other alternatives because... something. I for one would like to know what "something" is.

It's rather that I would still support freedom even if it were worse in some utilitarian sense than the alternatives. But happily it rarely if ever is, so I don't really have to make that choice.

I'm not sure I follow the difference. See, if markets are preferable to statism, then one would expect making societies more market-oriented and less state-oriented would leave them better off. Which, as I said: "suggests that you can cite evidence that strongly capitalist societies are better off over the long run than weakly or moderately capitalist societies.

Can you?

The whole debate I have been doing that. The market largely eliminates involuntary unemployment: interventions create it, one way or another. The market assigns investment to the best expected returns: interventions divert it to worse ones. If you want me to link to some study that totally and irrevocable proves my correctness beyond any further debate, however, you will be disappointed, because if such a thing existed there would probably not be any debate. For one thing, a lot of people have a strangely tenacious hatred of the market and freedom in general.

With respect to the first, the problem tends to be resolved fairly easily in a welfare state, where having 5% to 10% of the population systematically unemployed at one time works because the remainder who can be profitably employed are taxed to support that fraction. It is only in systems where the unemployed are forced to turn towards crime and permanent underclass status (for reasons racial as in France or reasons economic as in the US) that systematic unemployment is a disastrous problem.

Which leaves us with two self-consistent systems: a laissez-faire system in which the least employable citizens must somehow find a way to survive in a society that charges a flat fee for the privilege of surviving, or a welfare system in which the least employable citizens are supported by the state at cost to everyone else. We are then left to ask which system works better. Economic indicators are supposedly better in societies that do the former, while social indicators are generally better in the latter. Which is more important?

With respect to the second, can you demonstrate that this sort of forced consumption of artificially labor-intensive goods and services was in fact a major part of the Soviet and Maoist economies?

Wonderful! So we toss the taxi driver out on his arse, and it's ok, because he can live in a council house and claim JSA his whole life. Shall you tell his kids, or shall I?

Of course, they're really the same system. US has welfare, just less of it. It also has unemployment, just less of it. And Europe also has a high GDPPC, US just has even more of it. And US also has high tax, EU just has even more of it. My view is that it is worse to be permanently unemployed than to work a low-paid job, and that it is immoral to force people to pay to support others who could work, but simply do not want to.

EDIT: I just re-read this, and I'm quite stunned: you think there isn't a criminal underclass in Europe?! Is this really the way the American left views the EU15, as some kind of Socialist Realist picture postcard wonderland of peasants frolicking in the fields?

Here we see the core of our disagreement. I would argue that an unregulated market is empirically bad because of the people who do not find a living, or find it only under conditions of relatively great suffering in an economy that could relieve this suffering with a trivial fraction of its resources.

You argue that this is not a bad thing because these people are not owed a living.

There is a fundamental incompatibility of attitudes here: I'm interested in the empirical outcome of the system and whether it is good or bad, not on whether I or anyone else "owes" anyone anything. A system that yields bad results is not working and should not be emulated.

You've shifted from an efficiency vs inefficiency to an efficiency vs equality argument here, so it's not the core of our disagreement, but a separate issue. For instance, you could concede that the market is the most efficient system for distributing goods and services, but that there should be a cash transfer payment from the rich to the poor. That is different to arguing that Walmart underpays its workers, though, which implies that Walmart pays them less than their labour is worth.

Which predictably leads to what amounts to a flat contractual salary (you are paid X dollars a week for your labor) being paid for an amount of work left up to the employer... the fault in which system becomes obvious the moment you stop trusting your boss to act in your best interests.

You don't have to trust to anything: you don't seem to understand the key importance of the result that wages track productivity. If you work more, and so produce more, you will also be paid more in the free market, or else you will be poached by someone else who will pay you more. Overtime existed before regulation and will exist after the regulation is gone. It is not always the best model, though.

[Simon_Jester]

Just to pull up a few highlights that ought not be forgotten, and which I think show profound intellectual dishonesty on my opposite number's part:

If you want me to link to some study that totally and irrevocable proves my correctness beyond any further debate, however, you will be disappointed, because if such a thing existed there would probably not be any debate.

So... you cannot prove your repeated assertion that markets produce optimal outcomes in terms of efficiency? Because I, in contrast, can cite to the effect that markets are only efficient if P=NP. Since P=NP is at best unproven and is widely considered unlikely by computer scientists, this leads me to suspect that the market is not truly efficient- in the context of the article, that the current and future prices of a commodity need not accurately reflect the available information contained in past prices.

I'm not sure I follow the difference. See, if markets are preferable to statism, then one would expect making societies more market-oriented and less state-oriented would leave them better off. Which, as I said: "suggests that you can cite evidence that strongly capitalist societies are better off over the long run than weakly or moderately capitalist societies.

Can you?

The whole debate I have been doing that.

You are a liar; you have done no such thing. You have merely asserted, over and over, that the market produces optimum results. When challenged on this claim, you patiently explain that of course it does, because the market produces optimum results. When challenged on that claim, you once again explain that it surely must do so, because the market produces optimum results.

So show me the results already.

The market largely eliminates involuntary unemployment: interventions create it, one way or another. The market assigns investment to the best expected returns: interventions divert it to worse ones.

Can you demonstrate this to be true?

For one thing, a lot of people have a strangely tenacious hatred of the market and freedom in general.

Cute. Can you tell the difference between "I hate X" and "I see no reason to believe that X is the ideal solution to all problems?" I don't hate markets; I just view them as a tool rather than a deity. A screwdriver is a good tool too; that doesn't mean I use it for every purpose or consider it superior to all other tools for all other purposes.

---

As for the rest:

So where does that put us at times when corporations are doing massive reductions in force, like now? Why are you so confident that the incentives do reward only non-wasteful firing, that you won't see executives firing people based on perverse incentives like the desire to boost stock prices in a bad quarter regardless of what it does for the company in the long term?

Just logically: if you waste time and money pointlessly replacing workers you will lose out to companies that don't. The present large job losses are a response to the recession - a real change in economic conditions, and in particular the cost of borrowing money - not a perplexing 'churning' with no obvious cause.

Employee turnover was increasing (job security declining) even before the recession, though. Layoffs have been a common feature of the economic climate for the past twenty years or more. In the long term they do have the potential to weaken the company if the wrong workers are fired... but in the short term they can increase profit margins and stock prices.

This is a critical problem with many free-market models: ignoring the time scale on which decisions are made. If employment decisions were always made with an eye to still having (or still not having) the employee ten years in the future, the labor market would be more rational. But when the decision to fire people swings on whether the company needs a quick reduction of expenses to make its next quarterly income statement come out in the black... suddenly, the long term health of the company may be demoted to a secondary concern.

Markets are like evolution; they only optimize local variables. It's quite possible for a creature to evolve traits that lead to disaster for its species (such as boom-bust cycles), and it's quite possible for a market to select for business practices that are rewarding in the short term but counterproductive in the long term.

If employers did not compete for workers they would not have to raise their offer in line with productivity. It would either be flat, or follow an unrelated trend. If there was a weak connection, but still a connection, then wages should rise slower than productivity. What you're arguing is more like that employers as a group underpay by a fixed percentage despite competing between one another up to the agreed maximum. But this would require a conspiracy on a vast and incomprehensible scale. Seriously, this is far less plausible than a belief that Kennedy staged the moon landings.

Not at all, because it does not require a fixed-percentage discount on the price of labor. All it requires is that there be a discount on the average price of labor: company A may be discounting its workers' labor to a greater extent than company B.

If all employers enjoy the same position of relative advantage to their employers, there is no reason to assume that they will not all exploit it. When you look at the statistics on a national level, you won't be able to tell the difference. All you see is an average rate of "dollars/hour per unit productivity/hour." That rate does not tell you whether the average rate is depressed, elevated, or 'normal'.

That's how snake oil salesmen survive and thrive even though they are selling a product of zero utility and therefore zero value.

Do they really thrive? How many snake oil companies are in the Fortune 500? It's more like a small imperfection at the margins. Most of these people are just barely above the minimum wage themselves, or sometimes doubtless below it, as they're working in the black market.

And yet if the market worked as per theory, they shouldn't be able to survive at all: a product of zero worth should sell for zero dollars. The fact that trade in products that are worthless (or which cannot be demonstrated to have worth, or which don't improve over blind luck) is a sign that there are mechanisms in place which can alter the price of an item away from the equilibrium set by supply and demand. Demand can be engineered; suppliers can be pressured.

One would hope that the equilibrium state works on average over most commodities, but one cannot generalize from that to every single commodity, claiming that the price must be right because the market only sets right prices. If it did, carbon emissions would be self-taxing and homeopathic medicine would be free.

Excepting, of course, industries where the returns are not easily collectible (national defense), and bearing in mind that industries may have exceptionally high returns because of a bubble...

Sure, state cartels and quasi-nationalised industries that live almost entirely on state contracts may not exhibit entirely market behaviour, because they're not entirely a part of the market. Not that I feel sorry for Lockheed Martin employees.

Lockheed Martin doesn't sell national defense; you didn't understand. They don't produce defense. They produce missiles. The Air Force produces defense, and you may note that they have a hard time getting people to pay them a dollar rate per unit defense provided. Instead they have to get their budget out of taxes (and pay Lockheed Martin for missiles out of that budget).

The point is that if you make certain industries (infrastructure construction, defense, education) part of the market, you do not remove the perverse incentive structures that lead to counterproductive outcomes. Back when education was fully privatized, literacy rates were low and the general public was useless for almost anything but subsistence agriculture and apprenticeships, because it did not pay to produce an education for people who had no money. Those individuals could not pay you to teach their children.

And yet this does not mean that society has no interest in educating the children of poor people, or that a situation in which the children of poor people don't get educated is more efficient. Back when education was fully privatized, even the richest nations took a major hit to their potential productivity and their ability to innovate simply because of the huge mass of illiterate peasants who could have done so much more for their society had they possessed the education to do so.

The market did not and does not take that kind of opportunity cost into account. Nor will it take into account the cost of polluting the air (since that cost is spread uniformly over millions of people and yet only one person actually does the polluting), or of providing military defense to keep the countryside (and the cities) from being pillaged by bandits. Or of widespread preventative health care.

Everyone in an economy does this, there is in fact no other way to determine what the price of anything is.

...The price of a commodity is then defined as the lowest rate it is feasible to charge for the commodity. Which would work fine if there were no such thing as externalities; see above.

Wal-Mart's business model creates externality costs for the communities that host a Wal-Mart, costs that are not reflected in Wal-Mart's store prices. Hence the problem: the price of the goods does not accurately reflect the cost of the goods.

This is a well-known phenomenon: dumping. If I can flood the market with cheap goods and destroy my competition by outbidding them, I gain a much stronger economic position in the years after the bidding war, and may be able to recover profits lost during the bidding war now that I am protected from competition by economies of scale and barriers to entry.

Once inequalities distort the market, we start getting marked instabilities in the price of the good being bought and sold, and/or prices reaching levels that lose touch with the public interest. Ideally and over the extreme long term the market should self-correct, but there are often consequences of market instability that the market cannot take into account- such as a generation of children growing up undereducated because of the hardscrabble life led by their parents. This can impair the market-oriented society's ability to recover from economic crises that would otherwise be a mere hiccup.

What you call a "seller's market" seems to be any market in which the commodity is genuinely worth a lot of money. There is no problem with the market here. Vital supplies really are worth more in natural disasters, for instance, not just the same as when they are being continually trucked in to the local store. No trade is ever "symmetric" (it's not clear how this would even be defined). The whole purpose of the market is to decide what a whole load of different goods and services are worth relative to one another when it is in no way obvious.

We also see a seller's market when the seller has an automatic advantage in their ability to decide whether or not to sell, such as superior information about the product, forcing the customer to guess at facts about the product that the seller already knows.

If I know that the car I'm selling you was salvaged out of the river and dried off and hopefully works, but you do not... the price you pay for that car does not represent an accurate picture of how much you were willing to pay for the item you bought (a flooded-out car).

I for one am eagerly awaiting it, because it seems to underly your entire position: the market can not be worse than other alternatives because... something. I for one would like to know what "something" is.

It's rather that I would still support freedom even if it were worse in some utilitarian sense than the alternatives. But happily it rarely if ever is, so I don't really have to make that choice.

"It rarely if ever is" because... well, I would still like to know what the "something" in that picture.

Also, I question the proposition that the market can reliably be considered a form of freedom: it doesn't guarantee you, personally any rights or decision-making power, after all. Any freedom gained from it is purely collectivist, not individualist: the society as a whole becomes "more free" even if individuals' decisions are just as constrained as they ever were.

With respect to the first, the problem tends to be resolved fairly easily in a welfare state, where having 5% to 10% of the population systematically unemployed at one time works because the remainder who can be profitably employed are taxed to support that fraction. It is only in systems where the unemployed are forced to turn towards crime and permanent underclass status (for reasons racial as in France or reasons economic as in the US) that systematic unemployment is a disastrous problem.

Which leaves us with two self-consistent systems: a laissez-faire system in which the least employable citizens must somehow find a way to survive in a society that charges a flat fee for the privilege of surviving, or a welfare system in which the least employable citizens are supported by the state at cost to everyone else. We are then left to ask which system works better. Economic indicators are supposedly better in societies that do the former, while social indicators are generally better in the latter. Which is more important?

With respect to the second, can you demonstrate that this sort of forced consumption of artificially labor-intensive goods and services was in fact a major part of the Soviet and Maoist economies?

Wonderful! So we toss the taxi driver out on his arse, and it's ok, because he can live in a council house and claim JSA his whole life. Shall you tell his kids, or shall I?

...This does not reflect my argument, especially the "his whole life" bit.

Of course, they're really the same system. US has welfare, just less of it. It also has unemployment, just less of it. And Europe also has a high GDPPC, US just has even more of it. And US also has high tax, EU just has even more of it. My view is that it is worse to be permanently unemployed than to work a low-paid job, and that it is immoral to force people to pay to support others who could work, but simply do not want to.

Is it immoral to force people to pay to support others who can not work hard enough to purchase the goods necessary to their survival? When others can easily afford those goods, because they would be a tiny fraction of the overall national economy?

In societies with a high per capita GDP, the cost of sustaining life is well below that per capita GDP, and there are considerable advantages to paying it- in particular because the circumstances under which the poor live have future consequences

EDIT: I just re-read this, and I'm quite stunned: you think there isn't a criminal underclass in Europe?! Is this really the way the American left views the EU15, as some kind of Socialist Realist picture postcard wonderland of peasants frolicking in the fields?

...Now I know you must not be listening, because I just said:

"It is only in systems where the unemployed are forced to turn towards crime and permanent underclass status (for reasons racial as in France or reasons economic as in the US) that systematic unemployment is a disastrous problem."

I was under the impression that France was a European country. So I find it hard to see how you could take away from this the notion that I do not believe there is a criminal underclass in Europe. There is- but its American counterpart manages to be even more murderous and every bit as effective at committing crimes.

Moreover, "crime" and "permanent underclass" are not the same things. Members of a permanent underclass need not be criminals; the criminal class is a subset of the underclass as a whole. And even without high crime rates, it remains a disaster to have a large permanent underclass, because this hurts the nation's social mobility and undermines the ideal of meritocracy (again, much of a nation's potential is wasted when a large fraction of the next generation's talent pool is never developed on account of having been born to serfs).

Here we see the core of our disagreement. I would argue that an unregulated market is empirically bad because of the people who do not find a living, or find it only under conditions of relatively great suffering in an economy that could relieve this suffering with a trivial fraction of its resources.

You argue that this is not a bad thing because these people are not owed a living.

There is a fundamental incompatibility of attitudes here: I'm interested in the empirical outcome of the system and whether it is good or bad, not on whether I or anyone else "owes" anyone anything. A system that yields bad results is not working and should not be emulated.

You've shifted from an efficiency vs inefficiency to an efficiency vs equality argument here, so it's not the core of our disagreement, but a separate issue. For instance, you could concede that the market is the most efficient system for distributing goods and services, but that there should be a cash transfer payment from the rich to the poor. That is different to arguing that Walmart underpays its workers, though, which implies that Walmart pays them less than their labour is worth.

I disagree, because equality and efficiency are connected. Again, permanent underclasses are bad. If the 'floor' of the standard of living in a society is low enough, it weakens the entire society: try maintaining a high GDP when a growing fraction of your population is uneducated, for instance.

Thus, I consider "provides a certain minimum level of good outcomes for all citizens" as a part of the results on which an economy is graded. An economy is a tool, not an end in and of itself. An economy that leaves 20% of the population behind is inefficient by definition, because it isn't doing its job, just like any other tool that fails to do its job 20% of the time- imagine a car which fails to carry you from point A to point B 20% of the time, or a knife which fails to cut 20% of the time.

[HMS Conqueror]

Just to pull up a few highlights that ought not be forgotten, and which I think show profound intellectual dishonesty on my opposite number's part:

If you want me to link to some study that totally and irrevocable proves my correctness beyond any further debate, however, you will be disappointed, because if such a thing existed there would probably not be any debate.

So... you cannot prove your repeated assertion that markets produce optimal outcomes in terms of efficiency? Because I, in contrast, can cite to the effect that markets are only efficient if P=NP. Since P=NP is at best unproven and is widely considered unlikely by computer scientists, this leads me to suspect that the market is not truly efficient- in the context of the article, that the current and future prices of a commodity need not accurately reflect the available information contained in past prices.

It's interesting you cite an article written by a Libertarian Party candidate! You rather miss the point, though. Since we're in the business of quoting past posts:

"you would probably have a better understanding market if you didn't take "perfect competition", "perfect information" and other mathematical idealisations too seriously: the point isn't that the market creates a perfect outcome (it doesn't), but that it creates an excellent approximation of one that is continually improved over time."

I don't have to show that the market produces perfect results, only more perfect than the other possible systems. If the most efficient distribution cannot be calculated even in theory, how does nationalising stuff get around this restriction? The government can't calculate the perfect distribution either.

I'm not sure I follow the difference. See, if markets are preferable to statism, then one would expect making societies more market-oriented and less state-oriented would leave them better off. Which, as I said: "suggests that you can cite evidence that strongly capitalist societies are better off over the long run than weakly or moderately capitalist societies.

Can you?

The whole debate I have been doing that.

You are a liar; you have done no such thing. You have merely asserted, over and over, that the market produces optimum results. When challenged on this claim, you patiently explain that of course it does, because the market produces optimum results. When challenged on that claim, you once again explain that it surely must do so, because the market produces optimum results.

So show me the results already.

Results of what, specifically?

The market largely eliminates involuntary unemployment: interventions create it, one way or another. The market assigns investment to the best expected returns: interventions divert it to worse ones.

Can you demonstrate this to be true?

To save repetition, you might be interested to just read this: http://econfaculty.gmu.edu/bcaplan/e321/econ321.htm

For one thing, a lot of people have a strangely tenacious hatred of the market and freedom in general.

Cute. Can you tell the difference between "I hate X" and "I see no reason to believe that X is the ideal solution to all problems?" I don't hate markets; I just view them as a tool rather than a deity. A screwdriver is a good tool too; that doesn't mean I use it for every purpose or consider it superior to all other tools for all other purposes.

Most people seem to be biased against markets in the same way as they tend to be biased against foreigners (when it comes to outsourcing and protectionism, the two often intersect). This is just my experience.

---

So where does that put us at times when corporations are doing massive reductions in force, like now? Why are you so confident that the incentives do reward only non-wasteful firing, that you won't see executives firing people based on perverse incentives like the desire to boost stock prices in a bad quarter regardless of what it does for the company in the long term?

Just logically: if you waste time and money pointlessly replacing workers you will lose out to companies that don't. The present large job losses are a response to the recession - a real change in economic conditions, and in particular the cost of borrowing money - not a perplexing 'churning' with no obvious cause.

Employee turnover was increasing (job security declining) even before the recession, though. Layoffs have been a common feature of the economic climate for the past twenty years or more. In the long term they do have the potential to weaken the company if the wrong workers are fired... but in the short term they can increase profit margins and stock prices.

I feel like I'm going around in circles here. The fact that there are layoffs doesn't demonstrate alone that the layoffs are purposeless or wasteful.

This is a critical problem with many free-market models: ignoring the time scale on which decisions are made. If employment decisions were always made with an eye to still having (or still not having) the employee ten years in the future, the labor market would be more rational. But when the decision to fire people swings on whether the company needs a quick reduction of expenses to make its next quarterly income statement come out in the black... suddenly, the long term health of the company may be demoted to a secondary concern.

Markets are like evolution; they only optimize local variables. It's quite possible for a creature to evolve traits that lead to disaster for its species (such as boom-bust cycles), and it's quite possible for a market to select for business practices that are rewarding in the short term but counterproductive in the long term.

Now this is just silly. No one knows what is going to happen 10 years in the future. It is still better to be employed than not in as much of the meantime as possible. Forcing people to make these decisions only for 10 year periods will mean they are more cautious than they need be, and some will be unfairly shut out completely.

If employers did not compete for workers they would not have to raise their offer in line with productivity. It would either be flat, or follow an unrelated trend. If there was a weak connection, but still a connection, then wages should rise slower than productivity. What you're arguing is more like that employers as a group underpay by a fixed percentage despite competing between one another up to the agreed maximum. But this would require a conspiracy on a vast and incomprehensible scale. Seriously, this is far less plausible than a belief that Kennedy staged the moon landings.

Not at all, because it does not require a fixed-percentage discount on the price of labor. All it requires is that there be a discount on the average price of labor: company A may be discounting its workers' labor to a greater extent than company B.

If all employers enjoy the same position of relative advantage to their employers, there is no reason to assume that they will not all exploit it. When you look at the statistics on a national level, you won't be able to tell the difference. All you see is an average rate of "dollars/hour per unit productivity/hour." That rate does not tell you whether the average rate is depressed, elevated, or 'normal'.

You're really not getting this. If individual employers had a "relative advantage" in the sense you mean then wages simply wouldn't track productivity at all.

That's how snake oil salesmen survive and thrive even though they are selling a product of zero utility and therefore zero value.

Do they really thrive? How many snake oil companies are in the Fortune 500? It's more like a small imperfection at the margins. Most of these people are just barely above the minimum wage themselves, or sometimes doubtless below it, as they're working in the black market.

And yet if the market worked as per theory, they shouldn't be able to survive at all: a product of zero worth should sell for zero dollars. The fact that trade in products that are worthless (or which cannot be demonstrated to have worth, or which don't improve over blind luck) is a sign that there are mechanisms in place which can alter the price of an item away from the equilibrium set by supply and demand. Demand can be engineered; suppliers can be pressured.

One would hope that the equilibrium state works on average over most commodities, but one cannot generalize from that to every single commodity, claiming that the price must be right because the market only sets right prices. If it did, carbon emissions would be self-taxing and homeopathic medicine would be free.

Like I said, perfection is impossible. The market is just the best approximation. Hence in the market you have snake-oil salesmen eeking out a living at the margins. In command economies, you have colonies in Siberia consuming a substantial proportion of national income.

Excepting, of course, industries where the returns are not easily collectible (national defense), and bearing in mind that industries may have exceptionally high returns because of a bubble...

Sure, state cartels and quasi-nationalised industries that live almost entirely on state contracts may not exhibit entirely market behaviour, because they're not entirely a part of the market. Not that I feel sorry for Lockheed Martin employees.

Lockheed Martin doesn't sell national defense; you didn't understand. They don't produce defense. They produce missiles. The Air Force produces defense, and you may note that they have a hard time getting people to pay them a dollar rate per unit defense provided. Instead they have to get their budget out of taxes (and pay Lockheed Martin for missiles out of that budget).

The airforce isn't a market institution at all, it's a fully nationalised industry. It's not surprising it doesn't meet market outcome predictions(?!).

The point is that if you make certain industries (infrastructure construction, defense, education) part of the market, you do not remove the perverse incentive structures that lead to counterproductive outcomes. Back when education was fully privatized, literacy rates were low and the general public was useless for almost anything but subsistence agriculture and apprenticeships, because it did not pay to produce an education for people who had no money. Those individuals could not pay you to teach their children.

And yet this does not mean that society has no interest in educating the children of poor people, or that a situation in which the children of poor people don't get educated is more efficient. Back when education was fully privatized, even the richest nations took a major hit to their potential productivity and their ability to innovate simply because of the huge mass of illiterate peasants who could have done so much more for their society had they possessed the education to do so.

The market did not and does not take that kind of opportunity cost into account. Nor will it take into account the cost of polluting the air (since that cost is spread uniformly over millions of people and yet only one person actually does the polluting), or of providing military defense to keep the countryside (and the cities) from being pillaged by bandits. Or of widespread preventative health care.

Education and healthcare have fully internalised benefits (?!). Pollution should be a tort, however.

Everyone in an economy does this, there is in fact no other way to determine what the price of anything is.

...The price of a commodity is then defined as the lowest rate it is feasible to charge for the commodity. Which would work fine if there were no such thing as externalities; see above.

Wal-Mart's business model creates externality costs for the communities that host a Wal-Mart, costs that are not reflected in Wal-Mart's store prices. Hence the problem: the price of the goods does not accurately reflect the cost of the goods.

This is a well-known phenomenon: dumping. If I can flood the market with cheap goods and destroy my competition by outbidding them, I gain a much stronger economic position in the years after the bidding war, and may be able to recover profits lost during the bidding war now that I am protected from competition by economies of scale and barriers to entry.

What externalities does walmart cause?

Bear in mind that an externality has a strict scientific definition, it's not just anything you don't like. "Some people don't want to live in a town with a walmart" isn't any more an externality that walmart should pay for than "Anti-semites don't want to live in a country with Jews" is an externality that Jews should pay for.

Once inequalities distort the market, we start getting marked instabilities in the price of the good being bought and sold, and/or prices reaching levels that lose touch with the public interest. Ideally and over the extreme long term the market should self-correct, but there are often consequences of market instability that the market cannot take into account- such as a generation of children growing up undereducated because of the hardscrabble life led by their parents. This can impair the market-oriented society's ability to recover from economic crises that would otherwise be a mere hiccup.

What you call a "seller's market" seems to be any market in which the commodity is genuinely worth a lot of money. There is no problem with the market here. Vital supplies really are worth more in natural disasters, for instance, not just the same as when they are being continually trucked in to the local store. No trade is ever "symmetric" (it's not clear how this would even be defined). The whole purpose of the market is to decide what a whole load of different goods and services are worth relative to one another when it is in no way obvious.

We also see a seller's market when the seller has an automatic advantage in their ability to decide whether or not to sell, such as superior information about the product, forcing the customer to guess at facts about the product that the seller already knows.

If I know that the car I'm selling you was salvaged out of the river and dried off and hopefully works, but you do not... the price you pay for that car does not represent an accurate picture of how much you were willing to pay for the item you bought (a flooded-out car).

Hence why, contrary to the market prediction, there is no market in used cars. Oh wait - my family has for one has never owned any other type of car.

You really need to get out of the habit of regarding "perfect information" and so on as in any way useful for realistic situations. There is always asymmetric everything: one of the great advantages of the market is as a search mechanism that allows these things to be corrected for as much as is possible and worthwhile.

I for one am eagerly awaiting it, because it seems to underly your entire position: the market can not be worse than other alternatives because... something. I for one would like to know what "something" is.

It's rather that I would still support freedom even if it were worse in some utilitarian sense than the alternatives. But happily it rarely if ever is, so I don't really have to make that choice.

"It rarely if ever is" because... well, I would still like to know what the "something" in that picture.

Also, I question the proposition that the market can reliably be considered a form of freedom: it doesn't guarantee you, personally any rights or decision-making power, after all. Any freedom gained from it is purely collectivist, not individualist: the society as a whole becomes "more free" even if individuals' decisions are just as constrained as they ever were.

Freedom in the sense I mean is self-ownership, and ownership of the produce of my labour.

Wonderful! So we toss the taxi driver out on his arse, and it's ok, because he can live in a council house and claim JSA his whole life. Shall you tell his kids, or shall I?

...This does not reflect my argument, especially the "his whole life" bit.

Of course, they're really the same system. US has welfare, just less of it. It also has unemployment, just less of it. And Europe also has a high GDPPC, US just has even more of it. And US also has high tax, EU just has even more of it. My view is that it is worse to be permanently unemployed than to work a low-paid job, and that it is immoral to force people to pay to support others who could work, but simply do not want to.

Is it immoral to force people to pay to support others who can not work hard enough to purchase the goods necessary to their survival? When others can easily afford those goods, because they would be a tiny fraction of the overall national economy?

In societies with a high per capita GDP, the cost of sustaining life is well below that per capita GDP, and there are considerable advantages to paying it- in particular because the circumstances under which the poor live have future consequences

EDIT: I just re-read this, and I'm quite stunned: you think there isn't a criminal underclass in Europe?! Is this really the way the American left views the EU15, as some kind of Socialist Realist picture postcard wonderland of peasants frolicking in the fields?

...Now I know you must not be listening, because I just said:

"It is only in systems where the unemployed are forced to turn towards crime and permanent underclass status (for reasons racial as in France or reasons economic as in the US) that systematic unemployment is a disastrous problem."

I was under the impression that France was a European country. So I find it hard to see how you could take away from this the notion that I do not believe there is a criminal underclass in Europe. There is- but its American counterpart manages to be even more murderous and every bit as effective at committing crimes.

Moreover, "crime" and "permanent underclass" are not the same things. Members of a permanent underclass need not be criminals; the criminal class is a subset of the underclass as a whole. And even without high crime rates, it remains a disaster to have a large permanent underclass, because this hurts the nation's social mobility and undermines the ideal of meritocracy (again, much of a nation's potential is wasted when a large fraction of the next generation's talent pool is never developed on account of having been born to serfs).

You've shifted from an efficiency vs inefficiency to an efficiency vs equality argument here, so it's not the core of our disagreement, but a separate issue. For instance, you could concede that the market is the most efficient system for distributing goods and services, but that there should be a cash transfer payment from the rich to the poor. That is different to arguing that Walmart underpays its workers, though, which implies that Walmart pays them less than their labour is worth.

I disagree, because equality and efficiency are connected. Again, permanent underclasses are bad. If the 'floor' of the standard of living in a society is low enough, it weakens the entire society: try maintaining a high GDP when a growing fraction of your population is uneducated, for instance.

Thus, I consider "provides a certain minimum level of good outcomes for all citizens" as a part of the results on which an economy is graded. An economy is a tool, not an end in and of itself. An economy that leaves 20% of the population behind is inefficient by definition, because it isn't doing its job, just like any other tool that fails to do its job 20% of the time- imagine a car which fails to carry you from point A to point B 20% of the time, or a knife which fails to cut 20% of the time.

You're proposing to make it illegal for low-paid workers to work at all. This:

- Increases the size of the underclass.
- Disproportionately hurts the vulnerable.
- Removes any sense of self-respect these people have.
- Gives them more time and incentive to turn to crime, drugs, etc.
- Imposes a needless cost on everyone else.
- Reduces total economic output.

There is NO trade-off here, it's ONLY negative.

[K. A. Pital]

Just to note (about "strongly capitalist" and "weakly capitalist" societies).

http://www.deepdyve.com/lp/emerald-publ ... FEgb44Pqxo

You can read this for free, just register. It shows that there's a strong correlation between the level of government interventionism and HDI. The correlation is direct (the larger is government involvement, the higher is an HDI) for the 122 nations sampled in the UN HDR. It's a general trend, abberations notwithstanding.

I don't have to show that the market produces perfect results, only more perfect than the other possible systems. If the most efficient distribution cannot be calculated even in theory, how does nationalising stuff get around this restriction? The government can't calculate the perfect distribution either.

Efficiency of distribution has many dimensions, not just raw Pareto efficiency. Pareto efficiency can be utterly fucked-up, like one man having 80%, the other 20% and the rest - zero. It doesn't really do anything but establish that the productive resources are used up fully (i.e. fully distributed among the members), it doesn't specify how they are distributed.

[Simon_Jester]

"you would probably have a better understanding market if you didn't take "perfect competition", "perfect information" and other mathematical idealisations too seriously: the point isn't that the market creates a perfect outcome (it doesn't), but that it creates an excellent approximation of one that is continually improved over time."

I don't have to show that the market produces perfect results, only more perfect than the other possible systems.

Very well then, feel free to do so at any time.

If the most efficient distribution cannot be calculated even in theory, how does nationalising stuff get around this restriction? The government can't calculate the perfect distribution either.

No, it cannot. However, it can at the very least scan the market-generated results for problem areas, where the market manages to provide badly suboptimal outcomes (say, children employed as laborers instead of as students, or investment in an inflated financial sector riddled with unstable baskets of mortgage securities instead of in more stable industries). This does happen; the market really isn't guaranteed to produce results better than those that come about after government intervention.

At least, I wouldn't expect so from my read of the history books. If you disagree, feel free to demonstrate rather than assert this at any time.

You are a liar; you have done no such thing. You have merely asserted, over and over, that the market produces optimum results. When challenged on this claim, you patiently explain that of course it does, because the market produces optimum results. When challenged on that claim, you once again explain that it surely must do so, because the market produces optimum results.

So show me the results already.

Results of what, specifically?

Results of highly market-based societies compared to moderately and slightly market-based ones, demonstrating that the former are systematically better than the latter, while factoring out obvious confounding variables.

If you're going to say, over and over, that markets produce the best results, you should be able to show what the results of markets are and that they are in fact best.

The market largely eliminates involuntary unemployment: interventions create it, one way or another. The market assigns investment to the best expected returns: interventions divert it to worse ones.

Can you demonstrate this to be true?

To save repetition, you might be interested to just read this: http://econfaculty.gmu.edu/bcaplan/e321/econ321.htm

So in other words, "no, but I have faith that my professor's lecture notes will."

Very well. I shall examine the lecture notes, but it will take more time than I have available this evening. Just from his first lecture, a few points that come to mind:

-The dichotomy he describes between employer-as-middleman and employer-as-exploiter is false. It is entirely possible for the same person to be both a middleman without whom the economy cannot function and as much of an exploiter as circumstances allow. Every person has incentives to get as much as possible for as little as possible; employers do not need to be villains to take advantage of the fact that their workers need a job more than they need their workers not to quit and be replaced.
-Observations such as "typical hours of work have stopped falling for the past couple decades" are double-edged. They can mean that people are broadly comfortable with the situation and have reached an equilibrium... or that external pressures have brought a halt to an ongoing process that would otherwise keep reducing typical hours of work. It is not necessarily the case that both causes are equally consistent with the public interest."
-Some of the Fundamental Labor Fallacies are not sufficiently examined for implications. For instance:

Fallacy #1: Make-work. Many variants: "Reduce the work-week to create more jobs," "NAFTA costs us jobs," "New machines destroyed jobs," "Immigrants are taking our jobs."

The essence of the fallacy: Focusing on effort instead of result. Bastiat calls this "Sisyphism," after the legendary Sisyphus. If people figure out a way to accomplish the same result with less labor, this means that there is more labor to accomplish some other goal.
1. Partly, this is just a special case of the broken window fallacy, of measuring wealth by inputs rather than output. Saving one person's job may make that person better off, but it also means wasting valuable labor.
2. Additional confusion: a decline in labor demand only leads to involuntary unemployment if real wages cannot fall.
3. Unemployment is frequently just a symptom of shifts in labor demand, not a lower level. Unemployment and job search go together, and job search is vital for prosperity.

The "essence of the fallacy" is itself problematic, because "more labor to accomplish some other goal" does not mean the goal is a desirable outcome. Freed-up labor from lost manufacturing jobs may find itself employed at Wal-Mart; this does not mean we are better off.

(1) is problematic because it may well be the case that making one person better off really is worth "wasting valuable labor." Unless, of course, you adopt the strict-collectivist model, which I wouldn't expect from you.

(2) is problematic because it's quite possible for a decline in labor demand to lead to the immiserization of huge numbers of people, which is bad even if it's efficient by some screwy definition of "efficient."

(3) is problematic because it does not take into account recession conditions, where intervention may be necessary to prevent high "temporary" unemployment over multiyear time scales from leading to mass poverty, mass outrage, and mass civil unrest that threatens to destroy the economy entirely. Few economic models take into account the risk that the peasants will storm the Bastille if they cannot afford bread!

Cute. Can you tell the difference between "I hate X" and "I see no reason to believe that X is the ideal solution to all problems?" I don't hate markets; I just view them as a tool rather than a deity. A screwdriver is a good tool too; that doesn't mean I use it for every purpose or consider it superior to all other tools for all other purposes.

Most people seem to be biased against markets in the same way as they tend to be biased against foreigners (when it comes to outsourcing and protectionism, the two often intersect). This is just my experience.[/quote]This does not address my question.

Can you tell the difference between "I hate and am biased against X" and "I see no reason to assume that X is a golden hammer which solves all problems?"

More will follow as I have time.

[Iosef Cross]

Failure is part of human nature.

"Death is a part of human nature. The dream of defeating death by science is actually a rejection of reality". Yeah, I know. Yours is the position of the social-darwinist.

Social darwinist? Well, society is truly a evolutionary process and many social processes can be explained by evolution. Social Darwinist is a problematical term, since Darwin was influenced by the social scientists and not the other way around.

I already provided some examples of measures that can be taken to reduce unemployment.

However, if you have labor markets, you are bound to have some unemployment. You can abolish labor markets to abolish unemployment, in the same way that you can abolish death by killing everybody. After that nobody will die again.

Let me try to explain to you why unemployment is bound to happen given the existence of labor markets:

Unemployment is defined as a person that is trying to sell his labor but fails to sell his labor at the present moment, given the wage that he expected and other conditions. It doesn't measure people that are selling their labor (employed) and people that aren't trying to sell their labor (inactive).

He failed to sell his labor because he failed to anticipate the underlying conditions of the labor market. He failed to anticipate these conditions because his mind had an imperfect model of the labor market.

To never fail in offering his employment is to never have an imperfect model of the labor market is his head.

The labor market is made up of the millions of actions that millions of people decide to make.

A single brain cannot make a perfect model of something more complex than itself. A labor market is a process of interaction shaped by the actions planned by millions of brains, hence, more complex than a single brain. It follows that the brain cannot always predict the market, it follows we will always have unemployment with labor markets, given the existence of labor markets.

Milton Friedman has even developed the concept of natural rate of unemployment. With is used today by all serious economists.

In equilibrium you can have changes in prices over time. However, in equilibrium, all changes are foreseen.

How does this even address the problem?

Your conception of the problem is based on a fundamental lack of understanding of the concepts involved in this discussion. For example, you do not know that rational expectations is a property of economic equilibrium.

It is expected: there are about 50 people in the world that would fully understand what I said in the previous posts. However, a intelligent layman like you can develop some basic understanding of these problems from my superficial comments here.

You example is a case of monopsony (not monopoly) in a highly restricted model that doesn't exist in reality, unless the monopsony is protected or is the government.

The monopsony can, in fact, exist (albeit in an imperfect form) and it can exist without any protection of the government, too.

Well, if you want I can show you the dragon:

The fact is that models of oligopoly, monopoly and monopolistic competition were made based on the imperfections of the model of perfect competition in explaining economic reality. The creators of these models though that since the real world was not like the model of perfect competition another model of price determination was needed.

So a plethora of models of oligopoly emerged. From the two basic models of Bertrand and Cournot oligopoly from the 19th century to the more complex but equally useless models developed in the last decades. The welfare outcomes of each different model can be different. For example, in the Bertrand model, if you have a number greater or equal to 2 firms, you will have perfect competitive prices. In the Cournot model you need an infinite number of firms to reach perfect competition.

So what model to take? Simple, if you are a libertarian, take the Bertrand model with perfectly efficient markets, if you are a commie, take Cournot with inefficient markets for a finite number of firms. The model of price determination of labor that I had described earlier is a variation of the Bertrand model applied to oligopsony instead of oligopoly:

A simple demonstration: If you have two entrepreneurs E1 and E2 and one worker, A, with has a labor productivity of 10. If he receives a current wage of 5, then an entrepreneur will make 5 in profit from employing the worker. If E1 is currently employing the worker, for E2 to capture the worker he will need to offer a wage of 6, and would make a profit of 4. However, the optimal response in the part of E1 will be to raise his wage offer to 7 for the worker. But the optimal response in the part of E2 will be to raise his wage to 8.

Hence, the only Nash equilibrium in this game has the wage at 10 (or at 9.9999...).

Substitute the name entrepreneur for firms and worker for product, marginal product for marginal cost and you have the same Nash equilibrium in the Bertrand model.

Actually, Hayek had proved in 1946 that the perfect competition model was never intended to describe economic reality, but was intended to describe the tendency of convergence that economic reality tends towards.

For example, the perfect competition model applied to the labor market predicts that unemployment will be zero and that wage will equal marginal productivity. Also, it's modern incarnation predicts that all contracts of employment would have been signed at time zero (with in the real world wouldn't mean that everybody that some day would be employed would have sold his labor time at the moment of big bang ). Due to the existence of uncertainty, these conclusions of the model don't apply to the real world. However, with the passage of time, wages tend to converge to marginal product and workers tend to find jobs, though it takes time.

Since models of oligopoly do not describe present reality (like perfect competition, they also are equilibrium models that don't take into account uncertainty) they also fail to describe the tendency that reality tends to converge, which is described by the perfect competition model. Hence, they are pretty much completely useless, though they could be used to describe temporary conditions, but not permanent tendencies or states.

[Iosef Cross]

Just to note (about "strongly capitalist" and "weakly capitalist" societies).

http://www.deepdyve.com/lp/emerald-publ ... FEgb44Pqxo

You can read this for free, just register. It shows that there's a strong correlation between the level of government interventionism and HDI. The correlation is direct (the larger is government involvement, the higher is an HDI) for the 122 nations sampled in the UN HDR. It's a general trend, abberations notwithstanding.

Of course, the way you measure "government intervention" is pretty much the problem here.

For example, does Somalia have a free market economy while Sweden doesn't? No, in Somalia your property is not protected and contracts aren't enforced, in Sweden the government tax 40% of you income, the other 60% is nearly perfectly protected and contracts are enforced. The real fact is that Sweden is one of the most capitalistic countries in the world. The definition of government intervention that the article uses is actually the strength of the government. But a strong government is a necessity for the maintenance of free markets.

Second to the measures of Economic Freedom using two methodologies, the Fraser Institute and the Heritage Institute, have show that the freer the market, the higher the HDI. So...

It can be argued that richer countries have bigger states in terms of expenditures in proportion to GDP. But that's because richer countries can AFFORD big governments, while poor countries can't.

I don't have to show that the market produces perfect results, only more perfect than the other possible systems. If the most efficient distribution cannot be calculated even in theory, how does nationalising stuff get around this restriction? The government can't calculate the perfect distribution either.

Efficiency of distribution has many dimensions, not just raw Pareto efficiency. Pareto efficiency can be utterly fucked-up, like one man having 80%, the other 20% and the rest - zero. It doesn't really do anything but establish that the productive resources are used up fully (i.e. fully distributed among the members), it doesn't specify how they are distributed.

The concept of Pareto efficiency is the only scientifically rigorous definition for efficiency of distribution of goods.

Any other concept of efficiency fails to fulfill the axions of modern economic science. For example, if you make a efficiency concept where efficiency is maximized when inequality is minimized, you are comparing the utility functions of different individuals (you are saying that a poor man values 100 dollars more than a rich man). However, you cannot do that, since preferences are only relevant to a single individual brain, for example, you can say that I value 100 dollars more than I value 50 dollars. But you cannot say that you value 50 dollars more than I do value 100 dollars.

Anyway, in the real world any allocation is far from being pareto efficient and there are always opportunities for improvement in welfare for all individuals in the real world simultaneously (from Bill Gates to an Indian farmer). The market is good because it tends to reach pareto superior allocations with the passage of time, not because it reaches pareto optimality instantaneously.

[K. A. Pital]

However, if you have labor markets, you are bound to have some unemployment. You can abolish labor markets to abolish unemployment, in the same way that you can abolish death by killing everybody. After that nobody will die again.

Nice twisting there, Iosef. I said "abolish death by science", not by killing everyone.

Milton Friedman has even developed the concept of natural rate of unemployment. With is used today by all serious economists.

Actually, no. The concept used today is "NAIRU", which is not the same as NRU proposed by Friedman. NAIRU doesn't specify the unemployment being natural, only that it's not raising the inflation. And considering hysteresis, the whole concept is really not that useful.

It is expected: there are about 50 people in the world that would fully understand what I said in the previous posts.

50 people in the world? Oh, I'm sorry - Iosef the Nobel Laureate, I forgot you haven't even completed your formal education. Sorry, what can a person who has completed his even know.

From the two basic models of Bertrand and Cournot oligopoly from the 19th century to the more complex but equally useless models developed in the last decades.

Oligopoly economics is "useless". Come on, Nobel Laureate. Grant us some more wisdom.

However, with the passage of time, wages tend to converge to marginal product and workers tend to find jobs, though it takes time.

Actually, it's either this or NAIRU. Not both.

Hence, they are pretty much completely useless, though they could be used to describe temporary conditions, but not permanent tendencies or states.

An oligopoly can be long-lasting and even becoming more and more monopolistic over time.

[K. A. Pital]

The real fact is that Sweden is one of the most capitalistic countries in the world. The definition of government intervention that the article uses is actually the strength of the government. But a strong government is a necessity for the maintenance of free markets.

Second to the measures of Economic Freedom using two methodologies, the Fraser Institute and the Heritage Institute, have show that the freer the market, the higher the HDI. So...

It can be argued that richer countries have bigger states in terms of expenditures in proportion to GDP. But that's because richer countries can AFFORD big governments, while poor countries can't.

"Strength"? It uses size, as a proportion of GDP. That's not "strength", that's size, idiot. A government can be strong and even dictatorial (see Pinochet) but small, size-wise. See, Iosef, that's why talking to you is not fun - you can't even get your definitions straight, the atrocious use of "second to" aside. By the way - Fraser Institute and Heritage Institute are junk propaganda organizations - about the same worth as the tobacco apologists like the Cato institute and creationists. Sorry.

[Surlethe]

I haven't the time to fully catch up on the thread and post (though I'd love to), but seeing the Heritage Freedom Index mentioned, I thought I'd pull out this blog post, which seems well-reasoned:
Good government vs. less government

The gist is, in the freedom index, the variables which measure how non-corrupt or efficient the government is dominate over variables which measure how unobtrusive or small the government is. In other words, freedom (and the accompanying correlations to HDI and so forth) are not correlated so much to "economic freedom", or lack of government intervention, but to the strength and integrity of cultural institutions: good government is far more important than small government.

[HMS Conqueror]

If the most efficient distribution cannot be calculated even in theory, how does nationalising stuff get around this restriction? The government can't calculate the perfect distribution either.

No, it cannot. However, it can at the very least scan the market-generated results for problem areas, where the market manages to provide badly suboptimal outcomes (say, children employed as laborers instead of as students, or investment in an inflated financial sector riddled with unstable baskets of mortgage securities instead of in more stable industries). This does happen; the market really isn't guaranteed to produce results better than those that come about after government intervention.

At least, I wouldn't expect so from my read of the history books. If you disagree, feel free to demonstrate rather than assert this at any time.

There is a whole academic discipline that has been showing this for 50 years, called public choice theory. If such a thing can be summarised in one sentence, it is essentially applying the imperfections in information, and divergence in incentives that you criticise markets for having to the proposed governmental solutions. They come out worse. This goes some way to explaining why the government intervened heavily to expand the housing bubble (for instance), rather than to restrain it.

Results of what, specifically?

Results of highly market-based societies compared to moderately and slightly market-based ones, demonstrating that the former are systematically better than the latter, while factoring out obvious confounding variables.

If you're going to say, over and over, that markets produce the best results, you should be able to show what the results of markets are and that they are in fact best.

No not really. If you say that imposing price floors doesn't cause unemployment, all I have to demonstrate is that imposing price floors causes unemployment.

Anything as general as what you are asking for is very difficult to construct an experiment for. There are some ok proxy measures, like plotting various economic freedom indicies vs GDPPC:



but this approach is hardly watertight.

To save repetition, you might be interested to just read this: http://econfaculty.gmu.edu/bcaplan/e321/econ321.htm

So in other words, "no, but I have faith that my professor's lecture notes will."

Haha, I study a different subject, at a different university, in a different country.

This is just cheaper and easier (for you) than referring you to a textbook.

Very well. I shall examine the lecture notes, but it will take more time than I have available this evening. Just from his first lecture, a few points that come to mind:

-The dichotomy he describes between employer-as-middleman and employer-as-exploiter is false. It is entirely possible for the same person to be both a middleman without whom the economy cannot function and as much of an exploiter as circumstances allow. Every person has incentives to get as much as possible for as little as possible; employers do not need to be villains to take advantage of the fact that their workers need a job more than they need their workers not to quit and be replaced.
-Observations such as "typical hours of work have stopped falling for the past couple decades" are double-edged. They can mean that people are broadly comfortable with the situation and have reached an equilibrium... or that external pressures have brought a halt to an ongoing process that would otherwise keep reducing typical hours of work. It is not necessarily the case that both causes are equally consistent with the public interest."
-Some of the Fundamental Labor Fallacies are not sufficiently examined for implications. For instance:

Fallacy #1: Make-work. Many variants: "Reduce the work-week to create more jobs," "NAFTA costs us jobs," "New machines destroyed jobs," "Immigrants are taking our jobs."

The essence of the fallacy: Focusing on effort instead of result. Bastiat calls this "Sisyphism," after the legendary Sisyphus. If people figure out a way to accomplish the same result with less labor, this means that there is more labor to accomplish some other goal.
1. Partly, this is just a special case of the broken window fallacy, of measuring wealth by inputs rather than output. Saving one person's job may make that person better off, but it also means wasting valuable labor.
2. Additional confusion: a decline in labor demand only leads to involuntary unemployment if real wages cannot fall.
3. Unemployment is frequently just a symptom of shifts in labor demand, not a lower level. Unemployment and job search go together, and job search is vital for prosperity.

The "essence of the fallacy" is itself problematic, because "more labor to accomplish some other goal" does not mean the goal is a desirable outcome. Freed-up labor from lost manufacturing jobs may find itself employed at Wal-Mart; this does not mean we are better off.

(1) is problematic because it may well be the case that making one person better off really is worth "wasting valuable labor." Unless, of course, you adopt the strict-collectivist model, which I wouldn't expect from you.

(2) is problematic because it's quite possible for a decline in labor demand to lead to the immiserization of huge numbers of people, which is bad even if it's efficient by some screwy definition of "efficient."

(3) is problematic because it does not take into account recession conditions, where intervention may be necessary to prevent high "temporary" unemployment over multiyear time scales from leading to mass poverty, mass outrage, and mass civil unrest that threatens to destroy the economy entirely. Few economic models take into account the risk that the peasants will storm the Bastille if they cannot afford bread!

Possibly interesting, but to avoid another spam of quotes (thanks for cutting it down btw, I was trying to do so without you calling me a liar or a cheat or something!), we can concern ourselves just with what you wanted me to demonstrate: "The market largely eliminates involuntary unemployment: interventions create it, one way or another. The market assigns investment to the best expected returns: interventions divert it to worse ones."

The content here is really very simple: labour is a commodity; if people want to sell and no one wants to buy at the price they're offering, they can lower the price until there's a buyer. If, on the other hand, it is made illegal to lower the price, this can't happen, and you get involuntary unemployment. In the market, you only get involuntary unemployment for a short while, during the search period, or while people are working out what their labour is worth.

So rather than just ask twenty-questions about phrases and random points you don't agree with, can you explain what's wrong with the above reasoning?

Most people seem to be biased against markets in the same way as they tend to be biased against foreigners (when it comes to outsourcing and protectionism, the two often intersect). This is just my experience.

This does not address my question.

Can you tell the difference between "I hate and am biased against X" and "I see no reason to assume that X is a golden hammer which solves all problems?"

More will follow as I have time.

It's the opposite, most people seem to be against markets almost everywhere. Even though they are the best possible approach almost everywhere.

[HMS Conqueror]

I haven't the time to fully catch up on the thread and post (though I'd love to), but seeing the Heritage Freedom Index mentioned, I thought I'd pull out this blog post, which seems well-reasoned:
Good government vs. less government

The gist is, in the freedom index, the variables which measure how non-corrupt or efficient the government is dominate over variables which measure how unobtrusive or small the government is. In other words, freedom (and the accompanying correlations to HDI and so forth) are not correlated so much to "economic freedom", or lack of government intervention, but to the strength and integrity of cultural institutions: good government is far more important than small government.

I'm intrigued how "Property Rights" and "Freedom of Corruption" are "good government not small government". A government is not required for either of these things. In fact, practically the definition of a government is that it may violate property rights (ie. that it can levy taxes), while corruption is what we call crime when governments do it.

[K. A. Pital]

I'm intrigued how "Property Rights" and "Freedom of Corruption" are "good government not small government". A government is not required for either of these things. In fact, practically the definition of a government is that it may violate property rights (ie. that it can levy taxes), while corruption is what we call crime when governments do it.

God damn, you're even more of an idiot than Iosef Cross. The latter at least understands that without a government, you can't have property rights (he said that Somalia doesn't have property rights, heh). Because "property rights" only exist in a legal framework. And law can't exist or work without a government on any meaningful scale.

[Surlethe]

I haven't the time to fully catch up on the thread and post (though I'd love to), but seeing the Heritage Freedom Index mentioned, I thought I'd pull out this blog post, which seems well-reasoned:
Good government vs. less government

I'm intrigued how "Property Rights" and "Freedom of Corruption" are "good government not small government". A government is not required for either of these things. In fact, practically the definition of a government is that it may violate property rights (ie. that it can levy taxes), while corruption is what we call crime when governments do it.

You're not even wrong, pal. In order for property rights to exist they have to be protected by a government. You're not one of those anarcho-libertopian types, are you? But anyway, as long as you have a government (and those places without government aren't even worth talking about), those governments which protect property rights (i.e., don't arbitrarily violate them, pass and enforce laws against property-right violation by private individuals, etc.) and are not corrupt (do I need to explain this?) are invariably better than those governments which don't.

Did you even read the argument I linked, by the way?

[HMS Conqueror]

I'm intrigued how "Property Rights" and "Freedom of Corruption" are "good government not small government". A government is not required for either of these things. In fact, practically the definition of a government is that it may violate property rights (ie. that it can levy taxes), while corruption is what we call crime when governments do it.

God damn, you're even more of an idiot than Iosef Cross.

I'm sure this was meant as an insult, but it isn't really. Iosef Cross comes across as pretty knowledgeable.

The latter at least understands that without a government, you can't have property rights (he said that Somalia doesn't have property rights, heh). Because "property rights" only exist in a legal framework. And law can't exist or work without a government on any meaningful scale.

You're not even wrong, pal. In order for property rights to exist they have to be protected by a government.

How so? For instance, if I am alone on a desert island. My property rights are not being violated, and yet there is manifestly no government, just me.

Now suppose there is another person, but he is my friend, so he chooses not to try to violate my property rights. Is there a government?

Now suppose he is not a friend, but I am armed, so he is too fearful to violate my property rights. Is there a government?

Now suppose that the island contains a village, not just two people. There are some criminals, but I and others on my road are in a neighbourhood watch association to defend one another, so property crime is rare. Is there a government?

One can have law without government. Arguing otherwise gets you into a mess: either you have to argue that exercising self-defence turns me into a government (in which case, Securicor are a government, and so are nightclub bouncers), or you have to argue that self-defence is impossible (Securicor and nightclub bouncers do not really exist, but were instead created by anarchists to advance their ideological goals).

Did you even read the argument I linked, by the way?

Of course. Actually I had already read it before you linked it, but still. Why do you think I was able to attack its conclusions?

[Lusankya]

How so? For instance, if I am alone on a desert island. My property rights are not being violated, and yet there is manifestly no government, just me.

Now suppose there is another person, but he is my friend, so he chooses not to try to violate my property rights. Is there a government?

Now suppose he is not a friend, but I am armed, so he is too fearful to violate my property rights. Is there a government?

Suppose he is not your friend, but he is armed and you are not. Then he steals all your coconuts and shoots you in the face. You are dead, so property rights cease to be an issue for you.

Suppose that he is not your friend, but he is armed and you are not. He steals all of your coconuts and leaves you to starve. Fortunately, before you die, the coast guard comes and rescues you both. Is there a government?

[K. A. Pital]

Now suppose that the island contains a village, not just two people. There are some criminals, but I and others on my road are in a neighbourhood watch association to defend one another, so property crime is rare. Is there a government?

Why suppose? There's a place you describe. Somalia. The question is wrong. Let me put it otherwise.

Now suppose that the island contains a village, not just two people. There are some criminals, but I and others on my road are in a neighbourhood watch association to defend one another...

...and others do the same, and so do many others. In the end, militant, heavily armed tribes and clans spring up which attack each other, kill people, take their property. Property crime runs rampant. Welcome to Somalia.

Arguing otherwise gets you into a mess: either you have to argue that exercising self-defence turns me into a government (in which case, Securicor are a government, and so are nightclub bouncers)

In the absence of a large government, smaller security organizations will become governments. They will be called "tribes" and "warlord militias". You're seriously that fucking dumb?

[Stark]

It's pretty clear he's conflating 'rights' with 'I can kill you so this is what I got'. Why do property rights exist without being described, but no other rights do? Is this because he just happens to really like a) having stuf and b) killing the poor? Even his examples are fucking stupid; two guys on an island and one guy is armed... I wonder how long he's going to stay awake?

PROPERTY RIGHTS SHIELDS GO!

[Surlethe]

How so? For instance, if I am alone on a desert island. My property rights are not being violated, and yet there is manifestly no government, just me.

You have no property rights.

Now suppose there is another person, but he is my friend, so he chooses not to try to violate my property rights. Is there a government?

You have no property rights unless both of you identify and agree on them.

Now suppose he is not a friend, but I am armed, so he is too fearful to violate my property rights. Is there a government?

You have no property rights unless both of you identify and agree on them.

You are acting like rights are some sacrosanct, a priori thing instead of a social convention. In the absence of a functioning government, there is no way for social conventions to be legally protected, ergo there are no well-defined rights. In fact, you could say that a defining characteristic of a government is its ability to define and protect rights: a government is the local force monopoly, and an entity can define and protect rights iff it has a monopoly on force, so a government exists iff it can define and protect rights.

I'll concede on a nitpick that government isn't relevant in a situation where you have less than several hundred people, but we both know that that's a bullshit way to weasel out of the original argument, which was over modern societies, which have thousands, hundreds of thousands, millions, and billions of people.

Now suppose that the island contains a village, not just two people. There are some criminals, but I and others on my road are in a neighbourhood watch association to defend one another, so property crime is rare. Is there a government?

Yes: the neighborhood watch association.

One can have law without government. Arguing otherwise gets you into a mess: either you have to argue that exercising self-defence turns me into a government (in which case, Securicor are a government, and so are nightclub bouncers), or you have to argue that self-defence is impossible (Securicor and nightclub bouncers do not really exist, but were instead created by anarchists to advance their ideological goals).

As Stas said, how do you think governments arose in the first place?

[HMS Conqueror]

How so? For instance, if I am alone on a desert island. My property rights are not being violated, and yet there is manifestly no government, just me.

Now suppose there is another person, but he is my friend, so he chooses not to try to violate my property rights. Is there a government?

Now suppose he is not a friend, but I am armed, so he is too fearful to violate my property rights. Is there a government?

Suppose he is not your friend, but he is armed and you are not. Then he steals all your coconuts and shoots you in the face. You are dead, so property rights cease to be an issue for you.

Suppose that he is not your friend, but he is armed and you are not. He steals all of your coconuts and leaves you to starve. Fortunately, before you die, the coast guard comes and rescues you both. Is there a government?

Now suppose that the island contains a village, not just two people. There are some criminals, but I and others on my road are in a neighbourhood watch association to defend one another, so property crime is rare. Is there a government?

Why suppose? There's a place you describe. Somalia. The question is wrong. Let me put it otherwise.

Now suppose that the island contains a village, not just two people. There are some criminals, but I and others on my road are in a neighbourhood watch association to defend one another...

...and others do the same, and so do many others. In the end, militant, heavily armed tribes and clans spring up which attack each other, kill people, take their property. Property crime runs rampant. Welcome to Somalia.

Arguing otherwise gets you into a mess: either you have to argue that exercising self-defence turns me into a government (in which case, Securicor are a government, and so are nightclub bouncers)

In the absence of a large government, smaller security organizations will become governments. They will be called "tribes" and "warlord militias". You're seriously that fucking dumb?

It's a hypothetical, so it's bad form to say it's "wrong", the only relevant fact is that it could happen, not that it necessarily always would, or that it's unrealistic that the guy on the island doesn't have to go to sleep or something - the point it's intended to convey is that property rights can be protected purely through self-defence, and contracting with other people voluntarily for the common defence.

Now perhaps it wouldn't happen. For sure. And perhaps the state police, rather than defending your property rights, will decide that your ethnic group should be gassed to death, scrape the gold fillings out of your teeth, and use your hair to stuff pillows for the Wehrmacht. I'm sure you know that that isn't just a hypothetical, but it does not happen always, nor is it in principle for necessary for a government. The same is true in an anarchy: it may well lead to re-establishment of govt by warlords, but it ain't necessarily so, and for the purposes of this debate (which, I remind, is not even whether ancap'ism is possible, but just whether property rights necessary derive from governments), it doesn't matter if it could. It only matters that property rights can be defended by voluntarist means, and not only can be, but they are to a great extent even in the present, quite statist, society.

So it's clearly ridiculous to say that defend of property rights = big, just "good", government. It does not require government at all, and government itself violates property rights in proportion to its size, through taxation, and regulation. Now the blogger could have made a much weaker claim, for instance, "A government that nationalises health and education is less bad that one that allows rampant violation of property rights but does not itself tax or regulate too much." And I would agree there. But it is a far far weaker claim than to say that actually all the GDPPC correlation of economic freedom comes from the beneficence of government.

You have no property rights.

That's a view, I suppose, but an off-topic one. Both sides in the debate about the Heritage graph only considered the enforcement of property rights, irrespective of whether they are "real" rights, or whatever.

Yes: the neighborhood watch association.

You have chosen Option One, "exercising self-defence turns me into a government (in which case, Securicor are a government, and so are nightclub bouncers)". While I'd argue no more sensible, it is rhetorically the weaker of the two attacks, in that almost everyone plainly disagrees with it. There is a way to test it: set up a neighbourhood watch association and apply to the UN for recognition of statehood. Also, write to the USG and tell them that you've seceded.

[Lusankya]

It's a hypothetical, so it's bad form to say it's "wrong", the only relevant fact is that it could happen, not that it necessarily always would, or that it's unrealistic that the guy on the island doesn't have to go to sleep or something - the point it's intended to convey is that property rights can be protected purely through self-defence, and contracting with other people voluntarily for the common defence.

I would like you to say that to Eddie Mabo, or any other Australian aborigine, for that matter. They tried to defend their property rights, but it turned out that they had sticks and the British had guns. It took taking the matter through the courts for native title to be recognised, and while you might fantasise about Eddie and his mates going on some romantic and glorious rebellion, all that would have realistically resulted in was a bunch of dead blackfellas.

[Surlethe]

That's a view, I suppose, but an off-topic one. Both sides in the debate about the Heritage graph only considered the enforcement of property rights, irrespective of whether they are "real" rights, or whatever.

That's why your argument is so confusing. Whatever you think "rights" are, do you disagree that a government which consistently enforces a reasonable form of property rights and does not arbitrarily violate them is good government, regardless of how much of the economy it controls?

You have chosen Option One, "exercising self-defence turns me into a government (in which case, Securicor are a government, and so are nightclub bouncers)". While I'd argue no more sensible, it is rhetorically the weaker of the two attacks, in that almost everyone plainly disagrees with it. There is a way to test it: set up a neighbourhood watch association and apply to the UN for recognition of statehood. Also, write to the USG and tell them that you've seceded.

Did you miss my concession to your nitpick? In the absence of a larger government umbrella, monopolizing force in a region turns you into a government. But that's a vacuous argument when you're talking about modern nation-states, which the Heritage foundation, you, and I are.

[Samuel]

The same is true in an anarchy: it may well lead to re-establishment of govt by warlords, but it ain't necessarily so, and for the purposes of this debate (which, I remind, is not even whether ancap'ism is possible, but just whether property rights necessary derive from governments), it doesn't matter if it could. It only matters that property rights can be defended by voluntarist means, and not only can be, but they are to a great extent even in the present, quite statist, society.

As long as professional soldiers have large advantages over militias, this will be true. It doesn't even have to be in terms of equipement- just being able to spend all your time fighting instead of having to break off fighting because you need to go to work gives a warlord an advantage where they can encourage people it would be easier to pay then fight.

Unsurprisingly in every case where there has been anarchy, warlords have emerged.

So it's clearly ridiculous to say that defend of property rights = big, just "good", government.

Not it isn't. Unless your neighborhood association has artillary, the local warlord can just shell you as an example to the rest of the idiots out there.

[Teebs]

So US has much lower unemployment than dirigiste EU welfare state in the good times, and only about the same as the better performing EU welfare states in the bad times. Not a trade I would go for. And the two things are intimately related: it's the fact that employers in a dirigiste labour market know that they can't respond to recessions (or any other cuts in revenue) by cutting just a few staff, but rather would be forced into bankruptcy, that means they don't employ more people in the good times. It's also obviously a far lesser personal harm to be temporarily unemployed, even for a year or two, than to be a permanent welfare dependent for your whole life.

Now the good news is, US doesn't even have an approximately perfect free market in labour, just less imperfect than EU welfare states, so there is more improvement that can be made.

Are you sure that's not a result of the US using different measures? I was under the impression that if you were unemployed for longer than a certain amount of time there you were taken off unemployment and no longer counted.