Current economic/market events - a view from the playing field

[rgraham666]

The question is, is efficient the same thing as effective?

 

[BlackShanglan]

To the extent that there is a moral justification for free market capitalism it is this: in the long run, it efficiently allocates scarce resources.

Mreh. I'm not wholly convinced. In cases in which more of the commodity can be created, I'll agree that the rising prices created by scarce supply do seem to stimulate more production - although it can still also price even a large new supply out of reach of people who need it, and as we've seen with the MBS meltdown, it also stimulates the supply of things that aren't actually the desired commodity, but are labelled as such. But when the supply is finite and can't be increased in any practical way, its chief efficiency seems to be in moving scarce commodities into the hands of the wealthiest people.

I'm not sure that that really counts as "efficient." It's orderly, in its way, and it does keep people in the lower socio-economic classes from frittering away a resource unless they absolutely need it. However, at least in the Western developed world, there doesn't seem to be a real shortage of people with enough money to blow very large quantities on their whims. In the old "What about people selling ice for $50 a bag post-hurricane?" example, the problem I see is that while there are poor people with serious health problems or other circumstances that make them really need the ice, there are ample rich people who typically blow $200 on a dinner out anyway to buy the ice up because they like cold beer.

Then capitalism to me doesn't seem to serve any moral purpose. I understand that the theory is that the outrageous prices will limit the use of the commodity to those who desperately need it, but in practice it seems to me more likely that it limits use of the commodity to people with cash to burn, whether they need it or not.

So, as Rob says, I guess it comes down to what you mean by "efficient." If you mean it works in a relatively orderly fashion, and that people with a lot of money can very often find what they need in the shops, then it's efficient. If you're thinking in moral terms, however, or if your definition of "efficient" includes some desire for resources to go to the areas of most critical need, then I don't see that it's ideal from a moral stance.

 

[xssve]

So, as Rob says, I guess it comes down to what you mean by "efficient." If you mean it works in a relatively orderly fashion, and that people with a lot of money can very often find what they need in the shops, then it's efficient. If you're thinking in moral terms, however, or if your definition of "efficient" includes some desire for resources to go to the areas of most critical need, then I don't see that it's ideal from a moral stance.

There is a difference between capitalism as a moral philosophy and capitalism in praxis - I think even Adam Smith would have recognized the law of economic gravity as described above: i.e., that the overcapitalized will tend to displace the undercapitalized in any given market, regardless of need - of course in Smiths original conception, I believe he envisioned competition fierce enough to limit the uses of excess capital largely to capital investments in order to stay competitive in a dynamic market.

In praxis of course, we see protectionism and rent seeking, etc., enabled politically, because while we defend capital accumulation on the grounds that it maximizes capital investment, the unspoken consensus is that capital accumulation for it's own sake is also good and desirable (you can never be too rich or too thin - at least as far as your wife is concerned).

The difference between theory and praxis here is to a large extent a function of our fundamental primate psychology, particularly the political patterns of alpha hierarchy formation that on the centripetalist side, tends towards the formation of cabals and other power sharing agreements, since nobody can be everywhere at once. This is the essence of feudal economic systems, supporters are rewarded, the opposition punished, and allocation of resources is predominantly determined by patronage systems, often based on hereditary circumstance.

It seems that alpha hierarchies among Gorillas and Chimpanzees are also often comprised of closely related individuals - probobly less a factor of any innate superiority, but more likely what in Evolutionary psychology is referred to as kin selection: we are more likely to favor and come to the aid of those most closely related to us, again, a phenomena that is confirmable to the extent of cliche, it's the underlying structure of the extended family and the clan.

The common practice of scoffing at conspiracy theories ignores completely that the bulk of human political history is based on conspiracies, explicit and implicit, a conspiracy is merely a private consensus to facilitate the accomplishment of some goal, we differentiate mainly between "conspiracy" and "consensus" in that in consensus, the goals are ostensibly transparent and public, in conspiracy, opaque and occult.

Smith understood this innate propensity towards conspiracy, explicitly mentions it: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices." (WN I.x.c.27: p 145)

And presumably he thought it might be a thing we might like to keep an eye on.

The law of economic gravity tends to reflect a (mostly) unspoken consensus, that wealth itself is an indicator of moral and intellectual superiority, and that superior people deserve the best - I say mostly unspoken because this particular philosophy is openly touted by the AEI philosophers for hire, Charles Murray and Dinesh D'Souza in particular, but can be discerned as underlying almost every editorial issued by any conservative philanthropy backed think tank, it's palpable in the editorial about resources I linked to earlier from the Cato Institute, where the explicit argument against conservation relies on the capital accumulation for investment argument, but the tone of the article suggests a mocking incredulity at the entire notion of conservation: "if we don't use it up, those unborn bastards will" - i.e., we deserve it.

Smith conceived of capitalism as a moral philosophy, but he had no illusions about people, he was a realist - the best he could hope for here was that competition would lead to conflict that could only be resolved by a less uneven allocation of resources than was the case in feudal economies, and that unregulated and uncompetitive markets will simply devolve straight back into feudalistic patronage patterns.

This is what I see as the essence of capitalism, in terms of moral philosophy: in order for the system to remain dynamic, to prevent it from devolving back into feudal stasis, competition has to be preserved, through regulation or otherwise, regardless of how inconvenient it is to you personally - if you don't have backbone to do this, eventually, you'll wake up back in the middle ages, and feudalism, as historically demonstrated, is an extremely piss poor way of allocating resources or anything else, including making productive capital investments.

 

[rgraham666]

My favorite author points out in one of his books that globalism bears a close resemblance to feudalism. It's an abstract system, unrelated to geography or the people within it. Its primary concerns are protection of its power and prerogatives.

 

[xssve]

The thing is, you'll encounter this essentially Darwinian pattern in any social/economic system regardless - it presents in socialism every bit as much as it does in capitalism, it just happens to be pretty much all that works in feudalism - in ten centuries of feudal theocracy, Europeans managed a single social/technological advance that wasn't borrowed or stolen - linear perspective.

When farmers rotated their crops to avoid soil depletion, their less successful neighbors denounced them for witchcraft and divided their property with the crown.

Innovation and competition are the very things established power and prerogative find most threatening.

 

[Sean]

I haven't read all of every post, you AH types are too long winded for a mere GBer like me.
But I did read the OP. The main problem with capitalism's "ability to set a price" idea kinda falls apart when you start talking about derivatives. When you have mathematical geniuses coming up with new and ever more inventive ways to package securities you run into a major problem: said mathematical geniuses treat it as a mathematical problem. The rocket scientists on Wall St and in The City have completely lost touch with reality. There are derivatives out there that no-one understands. Not the people trading in them and not even the people that came up with them in the first place.
How does one go about setting a price on something so intangible that assigning VALUE to it becomes a question of "think of a number"?
The crisis in confidence in the financial markets is caused by one thing and one thing only: No-one knows what the liabilities of anyone else are. A isn't going to lend to B when there is a chance that B is holding fifty billion dollars worth of fairy dust as a fixed asset.

 

[rgraham666]

Value is always fairy dust. That is things are only as valuable as we believe they are.

I was willing to pay $40 for a good riding crop. Most people, not so much. It's not that valuable to them.

 

[BlackShanglan]

The rocket scientists on Wall St and in The City have completely lost touch with reality. There are derivatives out there that no-one understands. Not the people trading in them and not even the people that came up with them in the first place.

Or is this a sign of a somewhat cynical but strong grasp of reality? All sorts of industries (insurance comes first to mind, in all of its many manifestations) currently seem to be dedicating large portions of their energy to making sure that consumers will never be able to easily and directly compare their product to anyone else's. It works fairly well as long as people don't read the fine print - which, Handprints seems to suggest, happens on Wall St. as well as on Main St.

Pity it's so nearly impossible to create any sensibly-worded rule requiring simplicity and clarity.

 

[Sean]

Value is always fairy dust. That is things are only as valuable as we believe they are.

I was willing to pay $40 for a good riding crop. Most people, not so much. It's not that valuable to them.

Which is fine as long as you don't try to base your whole economy on imaginary riding crops that may or may not exist depending on which value of rho you use in one of Euler's equations. And, like it or not, that's just about where we are in the derivatives market right now.

Or is this a sign of a somewhat cynical but strong grasp of reality? All sorts of industries (insurance comes first to mind, in all of its many manifestations) currently seem to be dedicating large portions of their energy to making sure that consumers will never be able to easily and directly compare their product to anyone else's. It works fairly well as long as people don't read the fine print - which, Handprints seems to suggest, happens on Wall St. as well as on Main St.

Pity it's so nearly impossible to create any sensibly-worded rule requiring simplicity and clarity.

It isn't impossible, it's just undesirable for those vested interests with their fingers in the pot.
Did you see Waxman take Lehman's chairman apart at the Senate Committee hearings? I watched it on Youtube and fucking CHEERED.

 

[BlackShanglan]

Thank goodness someone knows the value of a good crop.

It isn't impossible, it's just undesirable for those vested interests with their fingers in the pot.
Did you see Waxman take Lehman's chairman apart at the Senate Committee hearings? I watched it on Youtube and fucking CHEERED.

I missed that, and it's a pity. It would be nice to have some vent to the frustration of having one's life and finances upset by persons and events one can neither control nor, in my humble case, very much comprehend.

I wonder about regulations, though. They have a way of sprouting unintended consequences from slight variations in wording, or from unforeseen dodges. Take the "safe haven" law in Nebraska, originally intended to stop people from smothering infants in trashcans. Thanks to some lax wording, it's now being used chiefly to kick out intractable teenagers. Or there's the Texan law forbidding the sale of horsemeat. Its intent may have been to stop the slaughter of horses for meat, but its effect is actually to change the system from a swift death in Texas to a long, hot, often mishandled truck ride to Mexico, then slaughter anyway.

That's not to say that I'm taking the side of the folk who argue that since regulation has loopholes, we may as well not have any; it's just to suggest that creating a law to require something as relative and subjective as simplicity and clarity in financial offerings strikes me as difficult to draft and harder to enforce.

(And you know it's a grim market when, as happened today, you receive unsolicited snail mail from your mutual fund solely for the purpose of assuring you that they aren't about to fold.)

 

[Sean]

Heh, I'm a lawyer. It's possible to write tight regulations. It's just that, especially in the US, there are so many lobbyists lobbying that things get complicated.

Ever wondered what the Bill of Rights would look like if it was written today?

 

[rgraham666]

For the people that say "Get rid of all regulations" I just reply, "Imagine what football would be like if there were no rules and no referees."

 

[Sean]

For the people that say "Get rid of all regulations" I just reply, "Imagine what football would be like if there were no rules and no referees."

Easy. Aussi Rules.

 

[BlackShanglan]

Heh, I'm a lawyer. It's possible to write tight regulations. It's just that, especially in the US, there are so many lobbyists lobbying that things get complicated.

Ever wondered what the Bill of Rights would look like if it was written today?

*shudders* A hundred times worse than Orwell's comic lampoon of the modern man writing "The race is not to the swift ..." etc.

I've read that supposedly our tax code was simplified some years back, before I paid enough taxes to much concern myself. Apparently its gradual reversion to a Chancery-style tangled heap is mostly down to lobbies and special interests.

I particularly liked the latest tax break given (in the bail-out bill) to manufacturers of an extremely specific type of wooden arrow shaft. The cost to taxpayers was estimated at roughly (if I recall) $200K. The sponsor of that rider had a factory in his district that stood to benefit from the break to the tune of - surprise! - $200K.

I realize that technically that's not theft, but it's exasperating to have to call it anything else.

See below: Stella reveals that all is actually well with the tax.

 

[BlackShanglan]

Easy. Aussi Rules.

Now imagine that they all have sticks to beat each other with, and you have hurling.

 

[rgraham666]

Easy. Aussi Rules.

Except where are the goal posts, and how many balls are on the field? What size of teams are allowed and what equipment can be used? Swords? Firearms?

Even the fact that the field is flat is due to human intervention. Try finding a flat area big enough for football close enough to human habitation to be convenient for an audience in nature.

And the field wouldn't stay flat for long. Trenches and minefields would work great for keeping the other team from carrying the ball across the goal line.

 

[Sean]

Except where are the goal posts, and how many balls are on the field? What size of teams are allowed and what equipment can be used? Swords? Firearms?

Even the fact that the field is flat is due to human intervention. Try finding a flat area big enough for football close enough to human habitation to be convenient for an audience in nature.

And the field wouldn't stay flat for long. Trenches and minefields would work great for keeping the other team from carrying the ball across the goal line.

Fuckedifiknow. Aussi rules always looked like full contact karate with a ball to me.

 

[Sandy_Fox]

*shudders* A hundred times worse than Orwell's comic lampoon of the modern man writing "The race is not to the swift ..." etc.

I've read that supposedly our tax code was simplified some years back, before I paid enough taxes to much concern myself. Apparently its gradual reversion to a Chancery-style tangled heap is mostly down to lobbies and special interests.

I particularly liked the latest tax break given (in the bail-out bill) to manufacturers of an extremely specific type of wooden arrow shaft. The cost to taxpayers was estimated at roughly (if I recall) $200K. The sponsor of that rider had a factory in his district that stood to benefit from the break to the tune of - surprise! - $200K.

I realize that technically that's not theft, but it's exasperating to have to call it anything else.

Technically, smectically corruption is corruption. The politicians "legally" stole $200K from us and gave it to "them". It might be legal, but then I have to ask "Who wrote the laws?" - Oh, politicians!

 

[BlackShanglan]

Technically, smectically corruption is corruption. The politicians "legally" stole $200K from us and gave it to "them". It might be legal, but then I have to ask "Who wrote the laws?" - Oh, politicians!

It's like Ngugi observes in "Devil on the Cross" - the really accomplished thieves don't have time to do more than laugh at anyone who hasn't gotten his theft declared legal.

 

[Stella_Omega]

*shudders* A hundred times worse than Orwell's comic lampoon of the modern man writing "The race is not to the swift ..." etc.

I've read that supposedly our tax code was simplified some years back, before I paid enough taxes to much concern myself. Apparently its gradual reversion to a Chancery-style tangled heap is mostly down to lobbies and special interests.

I particularly liked the latest tax break given (in the bail-out bill) to manufacturers of an extremely specific type of wooden arrow shaft. The cost to taxpayers was estimated at roughly (if I recall) $200K. The sponsor of that rider had a factory in his district that stood to benefit from the break to the tune of - surprise! - $200K.

I realize that technically that's not theft, but it's exasperating to have to call it anything else.

I'm in multi-answer mode again;

• Do you think this rider would cover any other sort of wooden shaft as well?
• Aren't we all getting shafted?
• but really when I think about it-- at least the toy is made in America, so there are a few folks who might not lose their jobs. More power to them.

I know one woman who makes historic costuming patterns and is doing very well, much to her own surprise. One of her wholesale clients just increased his account with her! She works her ass off.

edit to add;

Oregon live dot com has an explanation for the arrow shaft business

 

[xssve]

My favorite author points out in one of his books that globalism bears a close resemblance to feudalism. It's an abstract system, unrelated to geography or the people within it. Its primary concerns are protection of its power and prerogatives.

Globalism is definitely part of the plan, and deregulation that free multinational corporations from being held liable for public health, safety, and human right violations are very much central motives.

They narrowly missed achieving this back in the Ninties - I'll have to google on it again, the details have gotten fuzzy on me, it has to do with the takings clause - but were stopped by the European anti-globalization riots.

Like a lot of this stuff, globalization, or something like it is for many reasons and in many respects, inevitable, which is not the same thing as saying it should not be closely monitored, understood, and reigned in where applicable - like most of this stuff, to critique is generally considered the same as luddite opposition globalization PR operatives.

The real point being, who exactly is doing it, how, and why - the fact that they rely so heavily on secrecy is itself not a good sign.

 

[BlackShanglan]

edit to add;

Oregon live dot com has an explanation for the arrow shaft business

Huzzah! It's sane after all! Thanks, Stella, for the excellent link. Now I can bed down for the night with a faint feeling of justice in the world.

 

[trysail]

Mreh. I'm not wholly convinced. In cases in which more of the commodity can be created, I'll agree that the rising prices created by scarce supply do seem to stimulate more production - although it can still also price even a large new supply out of reach of people who need it, and as we've seen with the MBS meltdown, it also stimulates the supply of things that aren't actually the desired commodity, but are labelled as such. But when the supply is finite and can't be increased in any practical way, its chief efficiency seems to be in moving scarce commodities into the hands of the wealthiest people.

I'm not sure that that really counts as "efficient." It's orderly, in its way, and it does keep people in the lower socio-economic classes from frittering away a resource unless they absolutely need it. However, at least in the Western developed world, there doesn't seem to be a real shortage of people with enough money to blow very large quantities on their whims. In the old "What about people selling ice for $50 a bag post-hurricane?" example, the problem I see is that while there are poor people with serious health problems or other circumstances that make them really need the ice, there are ample rich people who typically blow $200 on a dinner out anyway to buy the ice up because they like cold beer.

Then capitalism to me doesn't seem to serve any moral purpose. I understand that the theory is that the outrageous prices will limit the use of the commodity to those who desperately need it, but in practice it seems to me more likely that it limits use of the commodity to people with cash to burn, whether they need it or not.

So, as Rob says, I guess it comes down to what you mean by "efficient." If you mean it works in a relatively orderly fashion, and that people with a lot of money can very often find what they need in the shops, then it's efficient. If you're thinking in moral terms, however, or if your definition of "efficient" includes some desire for resources to go to the areas of most critical need, then I don't see that it's ideal from a moral stance.

Ah, equus.

The alternative is that the Third Deputy Assistant to the Fifth Director of the Second Minister of the Secretary of The Bureau of Snoofles in The Department of Horse Supplies decides that snoofles are no longer a state priority. As a result, the snoofle factory is ordered to reduce their production. Since the price of snoofles cannot be permitted to vary and the underlying demand for snoofles is unchanged, block-long lines of horses at the snoofle store are subsequently the norm each and every day.

It turns out that the Third Deputy Assistant to the Fifth Director of the Second Minister of The Secretary of The Bureau of Snoofles in The Department of Horse Supplies served his apprenticeship in The Directorate of Primate Affairs and had never previously seen a snoofle in his life. His appointment as Third Deputy Assistant to the Fifth Director of the Second Minister of the Secretary of The Bureau of Snoofles may have been related to the fact that his sister-in-law's father is the personal assistant to the Second Minister of the Secretary of The Bureau of Snoofles.

Yes, it is always possible to find examples where any system is less than perfect. Is this where I trot out Winston Churchill's summary judgment of democracy?

 

[Roxanne Appleby]

Good News! We're not "all gonna die"

Talking Ourselves Into A Depression
By INVESTOR'S BUSINESS DAILY | Posted Friday, October 10, 2008
http://www.ibdeditorials.com/IBDArticles.aspx?id=308530374766527

Economy: Feeling a bit, well, depressed? It's not surprising. Headlines around the world are filled with the D word, as if an epic global economic collapse were inevitable — especially here in the U.S. It isn't.

No, we're not hopelessly out of touch. As our coverage shows, we know how serious the current financial mess is — and how important it is to the U.S. and the rest of the world that we begin to settle down our markets.

The loss of $8 trillion in stock market wealth in a matter of months is no small thing. The dive will have a major impact on people's spending and investment decisions.

A new economic forecast of 52 leading economists shows most expect the U.S. economy to shrink in the third and fourth quarters, plus the first quarter of 2009 — the first time in nearly half a century that the economy will undergo three quarters of contraction.

In short, we might be in for a brief, yet brutal, recession.

But talk of a depression and other apocalyptic possibilities are way overdone. One investment house last week called this the "death throes of the old economic order." The Washington Post, in a front-page article, asked plaintively if this episode marks "The End Of American Capitalism?"

Just two weeks ago, German Finance Minister Peer Steinbrueck told Britain's Daily Telegraph today's crisis was an "American problem" that would end the U.S.' "superpower status."

Sorry, but such Euro-gloating aside, this crisis won't last. We won't even be close to a depression. And when it ends, fundamentals will reassert themselves — namely, population and productivity growth, the two engines to long-term economic success.

This is the U.S.' edge — and it's not going away soon.

Since 1980, real per capita GDP has expanded 69.2% in the U.S. vs. 65.6% for the EU 15. Why? Our productivity is greater. In just the last 10 years, U.S. productivity has expanded 2.5% a year, with Europe growing nearly a full percentage point less.

This will widen. "Historically speaking . . . America's economic hegemony has never been greater," wrote Gerard Baker in London's Times a few months back. He's right. Financial crisis notwithstanding, the U.S. economy will be twice Europe's size by 2025.

Even after our stock market and housing losses, the U.S. is still extraordinarily wealthy. In the second quarter, Fed data show, the U.S. private sector owned $110.6 trillion in assets — an immense amount of wealth. The estimated $1 trillion to $2 trillion cost of the current financial mess is small by comparison.

During the Great Depression, U.S. output plunged 27% in four years; unemployment neared a third of the work force. Real private investment shrank 87% in three years; personal spending plunged 41%. We're not close to that. Nor are we likely to be — unless we foolishly pursue high-tax policies that would kill growth.

It's easy to give in to excessive pessimism these days. But the U.S. model — based on productive labor, free trade, fewer rules, lower taxes and rewards for entrepreneurial effort — is still sound. We'll soon emerge stronger, and better, for our current tribulations.

 

[Roxanne Appleby]

Oops! Maybe we are "all gonna die." Kill ourselves, rather

Investors' Real Fear: A Socialist Tsunami
By INVESTOR'S BUSINESS DAILY | Posted Friday, October 10, 2008
http://www.ibdeditorials.com/IBDArticles.aspx?id=308530365266606

The freeze-up of the financial system — and government's seeming inability to thaw it out — are a main concern, no doubt. But more people are also starting to look across the valley, as they say, at what's in store once this crisis passes.

And right now it looks like the U.S., which built the mightiest, most prosperous economy the world has ever known, is about to turn its back on the free-enterprise system that made it all possible.

It isn't only that the most anti-capitalist politician ever nominated by a major party is favored to take the White House. It's that he'll also have a filibuster-proof Congress led by politicians who are almost as liberal.

Throw in a media establishment dedicated to the implementation of a liberal agenda, and the smothering of dissent wherever it arises, and it's no wonder panic has set in.

What is that agenda? It starts with a tax system right out of Marx: A massive redistribution of income — from each according to his ability, to each according to his need — all in the name of "neighborliness," "patriotism," "fairness" and "justice."

It continues with a call for a new world order that turns its back on free trade, has no problem with government controlling the means of production, imposes global taxes to support continents where our interests are negligible, signs on to climate treaties that will sap billions more in U.S. productivity and wealth, and institutes an authoritarian health care system that will strip Americans' freedoms and run up costs.

All the while, it ensures that nothing — absolutely nothing — will be done to secure a sufficient, terror-proof supply of our economic lifeblood — oil — a resource we'll need much more of in the years ahead.

The businesses that create jobs and generate wealth are already discounting the future based on what they know about Obama's plans to raise income, capital gains, dividend and payroll taxes, and his various other economy-crippling policies. Which helps explain why world stock markets have been so topsy-turvy.

But don't take our word for it. One hundred economists, five Nobel winners among them, have signed a letter noting just that:

"The prospect of such tax-rate increases in 2010 is already a drag on the economy," they wrote, noting that the potential of higher taxes in the next year or two is reducing hiring and investment.

It was "misguided tax hikes and protectionism, enacted when the U.S. economy was weak in the early 1930s," the economists remind us, that "greatly increased the severity of the Great Depression."

We can't afford to repeat these grave errors.

Yet much of the electorate is determined to vote for the candidate most likely to make them. If he wins, what we consider to be a crisis in today's economy will be a routine affair in tomorrow's.