Externalities

[TheEarl]

Externalities are the natural restrictors of a demand and supply diagram.

Whatever happens in a free market, the supply and demand will shift, settling into a new equilibrium that initially seems to bring perfect order to the system. Yet many economic systems have artificial restrictions on a market system, such as taxes, subsidies or regulations, preventing the market from reaching its natural equilibrium. The market is less efficient this way, so why is it done?

The answer is externalities. These are the by-products of a supply and demand shift. The most common example is pollution. A free market, without taxes, subsidies or regulations will naturally settle at a self-sustaining level. Prices will rise and fall according to supply and demand and the correct number of businesses will make the correct amount of profit. Yet this free market produces things which cannot be measured by price. The pollution produced does not affect the supply, nor the demand and does not directly impose a cost on the company. It is cheaper to make pollution than to not make it and far cheaper to release it than to convert it. A free market will release pollution and kill people.

In the case of your argument about complete free-market control of education, without intervention of any kind, externalities appear again. The major one would be a class system. The rich can afford to educate their children well. The poor cannot. Thereby, the poor's children will stay in low-paid jobs, whilst the rich's children get richer and provide a better education for their children. It creates a poverty trap and an elitist system. This, we know, results in lower productivity as a stupid rich person gets better education than a clever poor person. Added to this the connections the rich man would make in his school and you have the very makings of an old-school tie brigade.

More information about externalities: http://en.wikipedia.org/wiki/Externality

I'm off to bed now, but I'm interested, as always, in your response.

The Earl

 

[rgraham666]

There are other things that things that affect the market besides 'externalities'.

Greed, in the form of monopolies or oligopolies can severely corrupt a market. I don't really think that could be regarded as an 'externality'.

In fact, human nature is all its glory, and idiocy, is going to distort any system all the time.

I think the biggest problem with the 'free market system' is that we often confuse it with an ethical system. We forget it is just a means of creating and distributing the goods and services we need to meet our material demands. Instead it becomes an absolute system of right and wrong.

All economic systems are just tools. They are ethic free and can do only what we ask of them. If we replace our ability to think with the 'logic of the system' we are not going to be pleased with the results.

 

[amicus]

Earl...the new thread was a nice courtesy...I read your piece and the wikipedia thing, followed a few links...may look a little more later...

As you might suspect, I disagree with the theory of 'externalities' and I will attempt to explain why.

A free market economy requires the foundation and the protection provided by a government.

First off, contractual agreements between individuals or corporate individuals must have a method of enforcement.

Secondly, as this was mentioned in the wiki article, 'property rights' must be clearly delineated and protected.

Our government has failed to enforce property rights to the extent that the protection extends to all property owners, large and small. They should be treated equally under the law but state legislators, local cronies, bribes and favors tilted the courts.

That is not the fault of the system, or an adjunct to the market place, just a failure of government to act as it is required to.

In other words, if a landowner clear cut and caused damage to adjacent property, he is liable for compensation through the courts.

The same with pollution of any kind, if each individuals property rights are protected by law, equally, then any form of pollution would be immediately seen as a violating and remedied.

Companies, business and industry would be forced to stop pollution of any kind and add the costs to the price of the commodity they offer or go out of business.

Property rights are of equal importance as human rights, to life, liberty...as the property is necessary for survival.

You second issue, of a free market education system, is mainly speculation on your part, not necessarily factual as the consequences you foresee are not inevitable.

It is true that different 'qualities' of education would exist in a free market, but they do now. Wealthy people do not send their children to public schools or community colleges.

While education is a wonderful thing, it can also be stifling to an innovative mind. Many very wealthy people never went past elementary school, but gained an education nonetheless within their own field of endeavor.

So your theory of a class structure being created between haves and have nots, is again, possible, but not inevitable, and in my view, not likely to happen.

Your contention that 'government' is a necessity for large projects that are beyond the ability of the market to finance, I do not accept.

The government has no money, only the power to tax. Private investors, through banks and investments and the ability to borrow large sums of money, financed both the oil and steel and railroad industry in America. Government only provided the land for development, as it should do.

The same holds true between business and labor. There have been businesses that treated employees badly and employees that ripped off companies.

While the individual always has the right to with-hold his labor, business also has the right to impose rules concerning the work done.

Although the left is big on unions, as the saviours of the working man, it is mostly yellow journalistic propaganda that has created the political division between business and labor.

Business requires skilled, loyal employees just as much as those employees need the wages and salaries to live on.

Just after your post, someone, Rgraham, I think, did his usual thing about business but what he does not realize is that the free market creates and engenders an ethical and moral system based on the work ethic, honesty, productivity and a wide range of issue that spring directly from the free exchange of goods and services between consenting participants based on equal value.

And again, government, in providing police protection and a court system, upholds that ethical and moral system based on a free market place.

Ethics and Morals were not sent from heaven or voiced by some ancient philosopher, eithical and moral actions between people is learned in childhood and grows all through life as we deal with others.

If are dealings are honest and legitimate, we 'usually' receive the same treatment in return.

But there are criminals in society, people who take without returning in kind; thas why we have jails.

thanks for the thread

amicus...

 

[TheEarl]

Our government has failed to enforce property rights to the extent that the protection extends to all property owners, large and small. They should be treated equally under the law but state legislators, local cronies, bribes and favors tilted the courts.

That is not the fault of the system, or an adjunct to the market place, just a failure of government to act as it is required to.

On the contrary, I'd say this was a very clearly defined method of the system. Humanity as a race is generally weak and corrupt and those who get to power are weaker and corrupter. They use the system's tools to get what they want. You cannot have a pure economic system, Amicus. At some point you will always have people and you have to consider that those people may not be saints. Hence, this is an unnatural limitation on the market and thus part of the system.

In other words, if a landowner clear cut and caused damage to adjacent property, he is liable for compensation through the courts.

The same with pollution of any kind, if each individuals property rights are protected by law, equally, then any form of pollution would be immediately seen as a violating and remedied.

Companies, business and industry would be forced to stop pollution of any kind and add the costs to the price of the commodity they offer or go out of business.

Norwegian redwoods.

They're dying due to acid rain, almost certainly caused by sulphur dioxide production. The wind patterns of the Earth suggest that this sulphur dioxide is being produced in the USA. Norway have said "You're violating our property rights by damaging our trees with your sulphur."

After a brief discussion over what sulphur is, it's explained that the Americans should be thinking of sulfur <shudder> and the conversation continues.

The US attitude? "Prove it. Prove that it was us, prove that that acid rain wouldn't have happened anyway, that the trees wouldn't have died without us, prove exactly which factory it came from."

Trust me amicus, people have thought of these ideas before. Human mendacity prevents them from working.

You second issue, of a free market education system, is mainly speculation on your part, not necessarily factual as the consequences you foresee are not inevitable.

It is true that different 'qualities' of education would exist in a free market, but they do now. Wealthy people do not send their children to public schools or community colleges.

While education is a wonderful thing, it can also be stifling to an innovative mind. Many very wealthy people never went past elementary school, but gained an education nonetheless within their own field of endeavor.

So your theory of a class structure being created between haves and have nots, is again, possible, but not inevitable, and in my view, not likely to happen.

Amicus? I'm English. And apart from spelling sulphur correctly and getting confused when you talk of 'public schools', that means that I know a lot about English history. More specifically, in this case, I know of the Victorian class system in England and how it started. The rich get richer and send their children to the best schools, where they meet friends, who turn into cronies. The poor get poorer and their children go out to work at a young age to feed the family. I'm not speculating. I'm learning from history.

Your contention that 'government' is a necessity for large projects that are beyond the ability of the market to finance, I do not accept.

The government has no money, only the power to tax. Private investors, through banks and investments and the ability to borrow large sums of money, financed both the oil and steel and railroad industry in America. Government only provided the land for development, as it should do.

The German Autobahn. The French TGV. The Eurostar. Maybe your government doesn't build things, but this, I think would explain why you have no public transport of any kind and start panicking when your petrol prices go up to just under half of ours.

... the free market creates and engenders an ethical and moral system based on the work ethic, honesty, productivity and a wide range of issue that spring directly from the free exchange of goods and services between consenting participants based on equal value.

No, it doesn't. People are greedy. That's how capitalism works; people want things. Ethics and honesty are individual traits. As a race, human beings are greedy, venal and wantign to get as much as they can for as little as they can.

You say you don't believe in externalities, but I'm not sure you can ignore them. Say someone dies, because it's more efficient to release a drug without proper testing. The market says that that person should die. That's an externality. It's intervention, the thing that you are so steadfastly against, that brings in laws to prevent that.

At times you argue for intervention and times you argue against, quite often contradicting yourself.

Just as a little exercise, I think you should look at this: www.nationstates.net. It's a fascinating little online game, where you get to have a nation and lead it, getting given a series of issues each day to make decisions upon - ie. Do you intevene in this market or do you not, do you regulate this or don't you, etc. I think you'd enjoy it.

The Earl

 

[elsol]

On the contrary, I'd say this was a very clearly defined method of the system. Humanity as a race is generally weak and corrupt and those who get to power are weaker and corrupter. They use the system's tools to get what they want. You cannot have a pure economic system, Amicus. At some point you will always have people and you have to consider that those people may not be saints. Hence, this is an unnatural limitation on the market and thus part of the system.

Uh... you're arguing this with someone who on one side tells us to 'Trust humanity a little more' but wants the government to protect 'property rights'.

Do you see the problem?

When the chips are down... really DOWN... he doesn't trust humanity either. Cause he knows, deep down inside where it really counts, that we will take his shit!

It's a logically inconsistent failure in the model... I prefer the more pure version where they actually trust me not to take their shit.

Obviously, I prefer it because it's easier to take their shit in that model.

Sincerely,
elsol

 

[amicus]

The Earl, ElSol....

I did a brief search for acid rain in the Norwegian Red Wood forest and aside from the eco-nuts and greenies, found no credible evidence anywhere of your assertation.

Does acid rain occur and is it a by product of industrial production? Yes to both, however there are other natural sources that create various forms of acid rain, forest fires and volcanoes, naturally exuding petroleum both under and above the ocean.

London was almost uninhabitable because of the soot from burning coal, Venice is drowning in its own sewage and the Russians polluted most of northern Europe with Cheyrnoble, so yes, mans actions can affect the environment, I never said otherwise.

What I did say, without using the word 'intervention' at all, was that we establish government to protect and defend our innate rights to life and liberty and since we can not have life and survive, without 'property' we also defend that right, to own and manage the property that provides food, shelter and clothing, as an 'innate right', not as an intervention.

You need not beat us over the head with redundancies of just how terrible you think man, the rational animal really is, we get your point. You hate mankind, his societies and his civilizations, I have pointed out that characteristic of yours and your kind many times before.

Your silliness displays itself when you want to give total power to these hateful beings and put them in charge of your life. What? Do they suddenly become angels under the guise of bureaucrats and socialists? I think not.

You need not love mankind or even trust a single one, up to you.

I don't either. But in opposition to you, I understand a system of laws, government, that protects the innate rights of the individual to pursue his own happiness in his own way without the intervention of others.

I know you don't get it. I understand you cannot grasp the essence, the necessity of human freedom if man is to maintain dignity.

Since a totally 'free' society and market have never existed, we, the United States, are the closest thing to it.

But true statism, where men had no rights, has existed, over and over again and has failed and caused untold human misery countless times.

It stuns me that you advocate slavery having such ample evidence about you that it does not and cannot work.

But then, I guess it should not surprise me, people still pray and sacrifice to a non existent god and face east five times a day as they wrap themselves in explosives to please Allah.

So then, your 'faith' blind faith, in socialism should not surprise me...but it does.

amicus...

 

[TheEarl]

The Earl, ElSol....

I did a brief search for acid rain in the Norwegian Red Wood forest and aside from the eco-nuts and greenies, found no credible evidence anywhere of your assertation.

Does acid rain occur and is it a by product of industrial production? Yes to both, however there are other natural sources that create various forms of acid rain, forest fires and volcanoes, naturally exuding petroleum both under and above the ocean.

London was almost uninhabitable because of the soot from burning coal, Venice is drowning in its own sewage and the Russians polluted most of northern Europe with Cheyrnoble, so yes, mans actions can affect the environment, I never said otherwise.

You said you didn't believe in externalities. That's an externality. Either you didn't understand basic economic theory, or you contradicted yourself.

What I did say, without using the word 'intervention' at all, was that we establish government to protect and defend our innate rights to life and liberty and since we can not have life and survive, without 'property' we also defend that right, to own and manage the property that provides food, shelter and clothing, as an 'innate right', not as an intervention.

Innate right? Any regulation, law, government, whatever is a market intervention. Cf what I said above about misunderstanding basic economics.

You need not beat us over the head with redundancies of just how terrible you think man, the rational animal really is, we get your point. You hate mankind, his societies and his civilizations, I have pointed out that characteristic of yours and your kind many times before.

My kind? Amicus, I'm a right winger. So my kind is your kind. And I don't hate mankind. I quite like it. I just don't believe we're all saints.

Your silliness displays itself when you want to give total power to these hateful beings and put them in charge of your life. What? Do they suddenly become angels under the guise of bureaucrats and socialists? I think not.

Who said I wanted to give them total power? Please restrict yourself to countering the points I actually made, rather than the ones you're trying to make me make.

I don't either. But in opposition to you, I understand a system of laws, government, that protects the innate rights of the individual to pursue his own happiness in his own way without the intervention of others.

That is intervention. Any law is intervention as it restricts the natural motion of the market.

It stuns me that you advocate slavery having such ample evidence about you that it does not and cannot work.

Again, points which I have made Amicus. Not points you'd like me to make.

So then, your 'faith' blind faith, in socialism should not surprise me...but it does.

amicus...

Ich bin rechts. Je suis les droit. Watashi wa kenri desu. Mifala blong rait. I am a right-winger. I don't think I can say it in any more languages at the moment and I've probably made mistakes in the ones I have used.

I AM A RIGHT WINGER.

I cannot say it simpler. So where do you get this idea that I'm a socialist from? OR do you just enjoy vilifying those who disagree with you because you cannot beat them in debate?

The Earl

 

[amicus]

Earl...perhaps I have grouped you with Cantdog and Pure or even Sweetnpetite, dunno...but if it walks like a duck, quacks, and has little fuzzy feathers around its butt, one is usually safe in calling that crittur, a duck.

The underlying philosophy you advocate indicates a hatred of the works of man, a disdain for industrial society and a willingness to criticize just about every issue I address.

If you say you are a 'Right Winger' then so be it.

Several people, most of them no longer participating on this forum, have pm'd me and asked two questions: "Do they ever address the issues?" and "Why do you keep trying?"

My answer to the first was, "No, they never deal with issues, they pout, they whine, they call names, they rant and rave"

Since you claim not to be the typical lefty liberal, then I guess this does not apply to you: "The reason they do not speak of issues, is the fact that the left wing liberals are morally bankrupt. They have no intellectual foundation to respond, only tired and over used rhetoric. Since the mid 90's, the democrats have lost control of the House and Senate and the White House, the only bastion of liberalism left is the Surpreme Court and that will soon change.

All of the New Deal, New Frontier, Great society programs of Roosevelt, Kennedy and Johnson, have failed, liberals are without a base, Union membership is falling, even minority support is weakening although welfare blacks and hispanics still vote 90 percent left wing.

Even the colleges, where liberals once reigned supreme, are showing more conservative understanding of current issues.

Liberals and Democrats are in a true turmoil, are losing political influence at all levels of government and may not survive without a major shake-up in the party.

I must say it did surprise me in searching your 'externalies' theories, to find some classical economists in the list of contributors. It did not quite gell with what I remember you saying.

How nice it would be to have another free market person to converse with from time to time.


amicus...

 

[cantdog]

My kind? Amicus, I'm a right winger. So my kind is your kind. And I don't hate mankind. I quite like it. I just don't believe we're all saints.

Ich bin rechts. Je suis les droit. Watashi wa kenri desu. Mifala blong rait. I am a right-winger. I don't think I can say it in any more languages at the moment and I've probably made mistakes in the ones I have used.

I AM A RIGHT WINGER.


The Earl

I knew a German fellow once. He coached us in football, which he pronounced phootbowl. He played center forward, because he was one of the few of us who could actually play. He called out frequently for his wings to heave in view for a pass.

When he said "right wing", it went like this: "Rat Fink! Rat Fink! Vair iss the rat fink??"

 

[TheEarl]

Earl...perhaps I have grouped you with Cantdog and Pure or even Sweetnpetite, dunno...but if it walks like a duck, quacks, and has little fuzzy feathers around its butt, one is usually safe in calling that crittur, a duck.

The underlying philosophy you advocate indicates a hatred of the works of man, a disdain for industrial society and a willingness to criticize just about every issue I address.

If you say you are a 'Right Winger' then so be it.

Several people, most of them no longer participating on this forum, have pm'd me and asked two questions: "Do they ever address the issues?" and "Why do you keep trying?"

My answer to the first was, "No, they never deal with issues, they pout, they whine, they call names, they rant and rave"

Since you claim not to be the typical lefty liberal, then I guess this does not apply to you: "The reason they do not speak of issues, is the fact that the left wing liberals are morally bankrupt. They have no intellectual foundation to respond, only tired and over used rhetoric. Since the mid 90's, the democrats have lost control of the House and Senate and the White House, the only bastion of liberalism left is the Surpreme Court and that will soon change.

All of the New Deal, New Frontier, Great society programs of Roosevelt, Kennedy and Johnson, have failed, liberals are without a base, Union membership is falling, even minority support is weakening although welfare blacks and hispanics still vote 90 percent left wing.

Even the colleges, where liberals once reigned supreme, are showing more conservative understanding of current issues.

Liberals and Democrats are in a true turmoil, are losing political influence at all levels of government and may not survive without a major shake-up in the party.

I must say it did surprise me in searching your 'externalies' theories, to find some classical economists in the list of contributors. It did not quite gell with what I remember you saying.

How nice it would be to have another free market person to converse with from time to time.


amicus...

I believe, although this is solely from memory and will be glad to be corrected, that the term externalities was coined by Keynes, the father of free-market economics. And you do believe in externalities. You mentioned them earlier with the pollution of Venice and the smog of London. Without market intervention (in the form of regulations and laws), London would still be practically uninhabitable. You seemed to be in favour of these laws, yet you are against market intervention.

I thoroughly believe in the free-market. I don't hate industrialisation, nor mankind. Please don't insert words into my mouth.

My answer to the first was, "No, they never deal with issues, they pout, they whine, they call names, they rant and rave"

I've drawn you diagrams before, demonstrating how Keynesian economics opposes your theories on free-market healthcare and how the most famous free-market economist of any generation disagrees with you. You ignored them and announced I was an Imperialist Briton who yearned for the days when the sun never set on the Empire and hated freedom in all forms.

It seems a bit hypocritical for you to accuse others of dodging issues and name-calling.

The Earl