Requesting your thoughts on a long economic article

[Essence]

https://www.linkedin.com/today/post/art ... ree-market


This seems important and like something I'd like to be able to understand well enough to coherently argue about. Since I respect most of the people here in their ability to coherentify complex subject matter, I figured I'd ask all of you for your thoughts.

[AndreiChekov]

unfortunately, this is longer than my attention span, so I can't help you.

[K]

The short version is "oligarchy ruins a capitalist economy and all of the benefits that it could provide."

[Josh_Kablack]

I'm very confused, the article is very USA-centric, but it doesn't read like it was written by a native English speaker.

[DSMatticus]

Well, I've only read the first section, but I'm pretty sure I know exactly what they're getting at, and it's definitely not anything new. It's also... pretty badly written? I don't even know. Anyway, a long summary for a long article:

When the requirements for perfect competition are met, the free market leads to a heavenly utopia perfectly efficient market. If you already have a perfectly efficient market, government regulation can either A) be ineffective and do nothing, or B) be effective and fuck up your perfectly efficient market. As such, regulation literally cannot do any "good" (for this particular definition of good). This is the pseudo-academic justification behind the libertarian warcry of deregulation.

The problem is that perfect competition has a bunch of other requirements that they never want to talk about. Here is a giant list of them straight off wikipedia:

• A large number of buyers and sellers.
• No barriers of entry and exit.
• Perfect factor mobility
• Perfect information
• Zero transaction costs
• Profit maximization
• Homogenous products
• Non-increasing returns to scale
• Property rights
• Rational buyers
• No externalities

Now, I tried to bold items on that list that obviously do not hold in real world markets. It was actually difficult to not just bold six or eight or all of them, but I managed to restrain myself to four really big ones. Look at those four: you need enough buyers and sellers in the market that each individual's power over the whole market is effectively zero (i.e., infinitely many), all of whom must be perfectly omniscient. Starting up a firm has to be completely free, and externalities need to not exist. Those are the things perfect competition requires to exist.

So right off the bat, you should realize that perfect competition is basically impossible. And if a market doesn't have perfect competition, there is no reason to believe that that market is or will ever be perfectly efficient. And if the market isn't already perfectly efficient, there is no reason to believe that government intervention can only do harm. And if there is no reason to believe that government intervention can only do harm, libertarians are full of shit. Without perfect competition, a regulated market can be more efficient than a free market. Because real world markets are never perfectly competitive, a free market is incredibly dangerous to the health of a capitalist society - a free market is actually just a refusal to correct market failures, which are going to happen because perfectly competitive markets don't exist. Hence the title of that article.

This is why the modern libertarian movement is bankrolled by millionaires and billionaires. They are the leaders of failed markets, and fostering an ideological opposition to correcting those failed markets will allow them to continue to rule their respective industries.

[Username17]

It should also be noted that there is no reason to believe that a perfectly efficient market is welfare maximizing. The Nazis winning World War II is just as efficient as them losing at Stalingrad. Market efficiency is measured in the transaction costs of moving goods from producers to consumers - but it's totally efficient to have 90% unemployment and have a very tiny number of people actually producing or consuming anything.

You can increase market efficiency without reducing the number of people who aren't eating because they are not given enough food. There are many ways to increase market efficiency while reducing the number of people who get food, shelter, and medical care.

Market efficiency simply isn't "good." It doesn't have to be bad, but there's no reason to believe it will make our lives better. It's a totally arbitrary and frankly insane thing to fetishize as the goal of the economy. You might as well judge the overall economy by how many pogs are produced.

-Username17

[Mord]

It should also be noted that there is no reason to believe that a perfectly efficient market is welfare maximizing.

A perfectly efficient market is welfare maximizing by definition: perfect competition eliminates deadweight losses caused by misalignments between quantity/price supplied/demanded. This isn't just limited to transaction costs, but they play a part.

This isn't to say that you're wrong: I mean to say that the definition of "welfare maximizing" in economics is insane.

It is required that there be arbitrarily large numbers of producers and consumers in each identifiable subset of the economy for perfect competition to hold, but a perfectly efficient market is not a socially responsible market. When we're speaking about the efficiencies characteristic of a perfectly competitive market, there's absolutely no reason to think that people without buying power are not dying like dogs in the gutters. As long as that arbitrarily large number of people is still capable of participating in the market, it is "welfare maximizing" by the economic definition.

[MGuy]

I have a question: I'm unfamiliar with how economics works at all so all of this stuff you guys talk about seems pretty reasonable from the point of view of someone like me who doesn't even know the tax code or how it works. Can someone give me a rundown of how we went from a nation that enacted a bunch of socialists schemes and regulations to drag ourselves out of a depression just to turn around and do the opposite? I mean we've already proven that socializing shit and regulations are good to do. How did we get to a point where these libertarian ideas are even taken seriously when our own history shows they are not?

[Ikeren]

I'm just going to critique his writing mockingly, not economically:

This article is about one the biggest Political and Economic issues of our time. After reading it, you might seriously consider to share it.

Plz share my article so I can put it on my resume

I bet I got your attention with this seemly counter-intuitive statement. It might remind you of Orwell's 1984, even if it is not there.

No. Neither of those things occurred.

Is by no means exhaustive and is fully open to debate.

I have no idea what I'm talking about.

If you liked the article, please, feel free to like it and share it, of course with the proper attributions.

I'm looking forward to your comments. I will be honored if you follow me or better, to invite me to your networks.

If you want to do business with me, please read my profile carefully and contact me once you have your deal prepared and the decision maker ready to talk to me, do your prep work.

I am available to serve in one Public Company Board and a non Profit Company Board.

Attention bankers: A group of friends hold hundreds of billions EUR and want to put them to work in very sophisticated banking transactions. If you are a large bank CEO and/or a board member, this may interest you. Please, invite me to your networks, if I'm are not already in. I am especially interested in the CEOs and the Board Members of the 100 top world banks. also, in Central Bankers and very high level government officers including presidents and prime ministers. I used to be a headhunter for bank presidents at MRI. With a large banking network, I can also help those you want to help. My contact information is in my profile...

...I am particularly interested in doing financial engineering to fund economic development and humanitarian causes.

The entire thing reads like "I have no idea what the fuck I'm talking about, but please give me a job, as I want to be rich."

The comments are horrendous as well.

[Mord]

Can someone give me a rundown of how we went from a nation that enacted a bunch of socialists schemes and regulations to drag ourselves out of a depression just to turn around and do the opposite? I mean we've already proven that socializing shit and regulations are good to do. How did we get to a point where these libertarian ideas are even taken seriously when our own history shows they are not?

You have to remember that politics is not fact-driven. Keynesian economics (which says "government spending can bootstrap an economy") was pretty much universally accepted as true and efficacious in the governments of the West after World War II. Western Europe went whole-hog on Keynes and enacted welfare states and socialism and everything associated with the modern EU. The United States, on the other hand, is a different beast. FDR was despised in his own time and forever after, mostly by upper-class white Southerners (who are collectively the worst). There was an honest to god fascist conspiracy to overthrow FDR before WWII broke out. Even among the common people, his policies weren't wholly supported - his margin of victory in each term's election shrank as well.

Despite the effectiveness of the New Deal programs at bringing people out of poverty and improving the standard of living for Americans (cf. the Tennessee Valley Authority), this is not something that the Southern aristocracy wanted then or wants now. Colin Woodard wrote a book about, among other things, why the South is such a fucked up and horrible place. It goes back to the fact that that region was colonized by Barbadian slave lords. Wealthy whites in the South don't want anyone, white or black, lifted up to compete with them. It's just not allowable in their ethics, so they cry foul when the federal government steps in to give the poor an "unfair" advantage.

The situation in the South became critical in the 1960s during the Civil Rights movement, when average Southerners came to resent the federal "overreach" that violated their local autonomy (Southerners have a history of reacting... poorly... to such). Elsewhere in the country, the government was losing face due to fuck-ups like the Vietnam War and Cold War policy in general. Rising violence in cities, the trinity of 60s assassinations, Watergate, oil embargoes - basically look up everything in "We Didn't Start The Fire."

The late 70s saw these undercurrents of resentment against the ruling liberal government structures boil over in the United States and elsewhere. It manifested in many ways, from the NRA's Revolt at Cincinnati to the elections of Ronald Reagan and Margaret Thatcher. 1980 marked the beginning of the deregulation madness in the United States, as Ronald Reagan rode a tide of public dissatisfaction on promises to shake up business as usual. His campaign slogan, "Are You Better Off Than You Were Four Years Ago?" touched on the disaffection of Americans with the so-called "malaise" years of the Carter administration.

Reagan was the first of the Tea Partiers, and he opened the floodgates for everything that came after. Everyone voted Reagan because he was saying something that everyone "knew:" the current policy wasn't working and something new had to be tried. Unfortunately his solutions were batshit, but not so batshit that the average person would know that.

Supply-side economics was the answer to Keynesian policy provided by cranks like Arthur Laffer, Milton Friedman, and Alan Greenspan. These guys were very smart and very persuasive, they just happened to also be very wrong. But, they gave a plausible, respectable face to the madness that Reagan made a Republican doctrine. Grover Fucking Norquist was soon to follow, and his crazy anti-tax anti-government-everything influence on politics has persisted and thrived to this day.

With a plausible competing economic model on offer that appealed to naive American ideals of self-sufficiency, individual responsibility, and equal opportunities, the GOP began to line up behind this new economic doctrine, that would begin to define the ideological content of the party. One supply-sider alliance with fundamentalist Christianity later, and the rest is history.

tl;dr, why did America overwhelmingly give Reagan a mandate to get rid of a tried and proven economic policy that had brought millions out of poverty and generated millions of jobs and college educations? Why did we end up with this? It's because business as usual in the 1970s truly wasn't working, and the only alternative Americans were presented with was plausible, what we wanted to hear, and pitched by one of the most charismatic men ever to run for President.

[Essence]

So why, then, is the EU kicking Keynes in the nuts right now, too?

[Lago PARANOIA]

@Mord
You're missing a couple pieces of the puzzle, but they're pretty big pieces. The first one you're missing is the Southern Strategy, which completely upended the New Deal Coalition and set the stage for Carter's various fuck-ups -- as the 1972 U.S./Congressional election ended up strengthening the hold of the conservative Democrats. Hell, the only reason why the Reagan Revolution didn't come a decade early was because of Watergate. If Nixon wasn't found out then we'd be talking about 1972 and 76 as the beginning of the end of the U.S.'s brief foray into economic leftism.

Watergate and the 1974/76 elections, along with the surprisingly slow realignment of the South, gave the appearance of the Democratic Party losing its edge because of legislative fuckups but the reality is that this incarnation of the Democratic Party was fucked after 1968; they just hit the jackpot and promptly squandered its fortune. Even if the Carter administration didn't have stagflation and the Iranian hostage crisis to deal with, simple demographic drift would've made 1980 and definitely 1984 a loss anyway unless they had another black swan bail them out.

The other big piece that you're missing (well, you hinted at it, but left out its perniciousness) is that the U.S. South has never trusted economic leftism. They were a simultaneous boat anchor and thorn of the Democratic Party even when they were at its most ascendant. They directly led FDR into an austerity-driven recession and scuttled the Fair Deal and Truman's UHC.

A lot of people ask why the Democratic Party started sucking Wall Street's cock in the 80s and 90s and turned their back on the American worker despite having working majorities in the House and/or Senate until 1995. Well, the thing was that their majority was a sham, anchored only by the South not really completing their turnover until that year. The U.S. House leaders led a what had to be a heroic effort to stop the Southern Democrats from prostrating themselves to the plutocrats too quickly, but it was ultimately futile. If the Democratic Party of the 80s-90s was more like the post-2006 Democratic Party (where the Conservative South is no longer the fulcrum of electoral power) the Reagan and Bush years wouldn't have been anywhere near as damaging.

[Username17]

So why, then, is the EU kicking Keynes in the nuts right now, too?

The EU's economic policy was created and essentially locked in during the 80s and early 90s bu Helmut Kohl, conservative German politician and Reagan dick-holder. Also contributing: Maggie Thatcher.

So Europe has their monetary policy run by a non-democratic cabal who have a single mandate: to keep inflation low. They don't have the institutional mandate or authorization to use the tools to use monetary policy to combat unemployment. The conservatives who created these institutions in the first place claimed such interventions would never be needed. At the same time, each country that is part of the EU is locked into a treaty that limits their year-on-year deficits, meaning that countries have to violate the EU treaties on debt and growth in order to use fiscal policy to combat unemployment during recessions. Again, because the people who crafted the EU treaties covering the monetary union subscribed to some pretty out-there heterodox trickledown economic theories.

So now the EU is dominated by institutions that are institutionally forbidden from meaningfully helping with the current crisis. And those institutions can't be changed without a major rewrite of the European treaties. No single government has the power to do anything about this, and thus no election can meaningfully affect it in any way.

The European technocrats themselves could admit that the institutions they belong to were badly designed and the entire premises on which they were founded were total bullshit - but for whatever reason they've been reluctant to do that. Instead we had Trichet announcing:

We have delivered price stability over the first 12 years and 13 years of the euro — impeccably, impeccably!

Basically, people in the 80s were allowed to make policy decisions that plotted the path of Europe's macro-economic interventions for forty years. And the people who ended up making those policy decisions were batshit crazy conservatives who believed (or claimed to believe) that tight money policies and minimalist fiscal interventions would make major economic crises impossible. While in reality, economic crisis is most definitely a thing that can still happen, and tight money policies and fiscal inaction make such problems much, much worse.

-Username17

[tussock]

So why, then, is the EU kicking Keynes in the nuts right now, too?

1: Rich people aren't that smart. I mean, statistically they are smarter, but it's much smaller than most people imagine and not that well correlated at the top.

2: Money is political and social influence. Much more strongly than linear. The few people at the top can get things done for them that they haven't even put that much thought into. Not just in politics, but also educational and media institutions.

3: People really are self-centred. That's not just a loose approximation used in economics, folk really strongly tend to look out for their own and don't give the slightest fuck about you and yours. Private schools and gated communities reinforce that.

4: People don't see their wealth objectively. It's all relative to our poor little monkey-brains. If your kid's got a $200 phone they'll feel like kings next to a kid with a $20 phone, and like peasants next to the kid with the $2000 phone. That never really stops.

5: Externalities are way better than gold.



So rich German people, who aren't all that smart, are actually super happy if a bunch of Greeks end up really poor if it keeps even one more Euro in their pocket this week, because look how comparatively well off it made them. Them being happier with it is going to make it happen because they're the richest and have the most influence.

Our mistake, your loss, financial genius at work.



Note: we got socialism in the west because the immediate alternative seemed to be a communist revolution that resulted in all the rich people getting lined up against a wall and shot (note the gigantic army that had just come home and wanted what they'd been promised and then some). It was never about making most people better off, it was about sucking up the loss of relative wealth to save their own necks.

When the threat of communism started to fall, so did socialism. Hand in hand. The guys with factories still need educated and able-bodied drones to make them print money, but less of them every year, and drones are cheaper in China anyway.

[Blade]

Why people in the EU are afraid of inflation.

The graph in the link shows the inflation in France. I think you can compare the reaction to the high inflation in the 80s to the overblown response of the US to 9/11. People in charge will be happy to report that there has been no terrorist attack since they were put in charge, even though it has little to do with what they do, and their actions actually have bad impacts on other things.

[Username17]

Why people in the EU are afraid of inflation.

The graph in the link shows the inflation in France. I think you can compare the reaction to the high inflation in the 80s to the overblown response of the US to 9/11. People in charge will be happy to report that there has been no terrorist attack since they were put in charge, even though it has little to do with what they do, and their actions actually have bad impacts on other things.

That doesn't make any sense. High inflation is not, by itself, a problem. You could theoretically have a booming economy with year on year price increases of 100% or more. And there have been times when that has actually happened, so I guess it isn't even theoretical. I mean, here's the actually meaningful chart:



You see that place where high inflation brought the economy of France to a halt? Neither do I. I see a modest stagnation in the early eighties, but the period of high inflation overlaps both that and the rapid growth of the mid-seventies. The rapid late eighties expansion corresponds with inflation coming under control, but it was immediately followed by the early nineties contraction during which inflation was still under control.

The supposed damage that inflation might do to the economy simply does not appear in the purchasing power records of the French people. The entire "price stability" imperative was and is based on a myth.

-Username17

[Mord]

I think this might also have something to do with why Germans fear inflation:



EDIT: Ok, the picture isn't especially clear. Those are children playing with sheaves of Marks in the Weimar era.

[Lago PARANOIA]

Feh. I always think that people 'fear' inflation because the overclass -- and only the overclass -- would rather have 0.5% inflation or even deflation with 15% unemployment than 3% inflation with 3% unemployment.

If Europe really was afraid of the horrors that come from economically unstable situation, they would have a white-knuckled fear of unemployment and deflation. Hard money made the Nazis, not Weimbabwe. That the focus is on inflation shows that it's (as usual) a neurosis blown out of proportion thanks to the cultural bubble/fortress of sociopathy the elites live in.