Knights & Knaves Alehouse

AxeMental wrote:Anyway, a free market, operating under the rule of law, should self adjust, even in this mess (historically 6-8 months, but there's no telling).

The free market is not magical and does not have some sort of voodoo powers of resuscitation. It's just a system, of human design. Some people seem to worship it like it's a primitive deity, or like it has teleological purpose and intent and consciousness of its own. It does not.

We've been through this before, true, but we've got out of it because gov't always steps in and does what's necessary to stabilize the system. On the few occasions they've failed to do so ... the Great Depression comes to mind ... the situation simply continues indefinately, until something is done to reset it back on track.

The market is an unstable system, like anything else. Perpetual motion machine it is not.

Axe is right. A truly free market is actually the most stable system. Prices are the best transmitters of economic information for interested parties to act on, not regulations, gov't bureaucrats, etc.

The gov't, operating beyond its constitutional authority, is actually the key force in de-stabilizing the economy. The examples of this, including Fed policy immediately before and at the beginning of the Great Depression, are too numerous to itemize in a post here.

So, let's look at the present crisis. The source of the problem begins with the Equal Credit Opportunity Act of 1974. This was the beginning of a series of misguided regulations, legislation, and Fed monetary creation which led to the current disaster. What we need is for the gov't and the Fed to "step out", let the true market prices be reflected. But, alas, that will not happen. Instead, we will pay through higher taxes, an inflated dollar, and ultimately less freedom.

We are on Hayek's "Road to Serfdom".

Free market isn't stable. By definition it's not stable, it can't be stable, changes in supply and demand will change prices.

Exactly, but it is the most stable system without arbitrary regulation and artificial control of the money supply.

I'm not talking utopia, here. I'm talking about the best, most honest system: the free market where free men exchange value for value.

Wow, had no idea there was that many big government people around these parts.

Stormcrow wrote:Then how'd we get into this mess? Metaphors and aphorisms do not make arguments.

Just like with any person who has the power to do good (parents, teachers, policemen, presidents), using that power irresponsibly can also screw s&!# up. Greedy, irresponsible entrepreneurs got us into this mess and responsible, honest entrepreneurs will help to get us out of it. The government's role shouldn't be to usurp the power of responsible, honest entrepreneurs, but to make it impossible for the greedy, irresponsible ones to continue doing business (IMO, YMMV, etc.).

Terrex wrote:Exactly, but it is the most stable system without arbitrary regulation and artificial control of the money supply.

The free market isn't, in any context, stable. By definition it isn't stable. It wouldn't work if it were stable. No market that's truly free will ever be "stable".

It would be like saying junkfood tastes good because it's healthy for you. If it were healthy for you, it wouldn't BE junkfood. It's a non sequitur.

There are many advantages to a free market. Stability isn't one of them.

It is stable in the sense that the free market operates in a cycle. As you near 100% employment you have shortage of labor, hense salary increases on average. This cost is transferred to price. Also during maximum production times its difficult to retool and with strong profit hard to argue the need to become more efficient (ie. wasted paper, getting by with old computers, hugely expensive office parties etc.). When the prices get too high this causes the buying power of the dollar to decrease, so you get demand for higher salaries (hense inflation). This Boom period hits a crest and then collapses into a recession. During this time people get layed off (the most un-needed or most expensive first). Others agree to work for less (so they don't get fired) and longer hours. This results in prices having to be lowered (since fewer people can afford the crest high prices). Hense prices go back to being low. Some companies at this time go out of existance, others come in and fill the gap (often with innovative products, either cheaper or better, hit the market). Also, that is when you often see entire new industries come into existance as investors try to find profitable ways to invest their money (afterall the potential can be huge).

Though a capitalistic free market system does offer stability in economic equalibrium (while forces of supply and demand remain constant) in the short term, fluctiation is not only expected but desireable. Not only because of the inflationary reasons mentioned above, but even more fundamental, how else can I the business owner make an above normal profit, or how else as the consumer can I make a great savings (usually someone trying to gobble up market share or get rid of extra inventory).

If you think of the free market as people interacting in an economy without government at all (accept to keep things legal and to provide currency) you pretty much have the ideal situation.

Control of the monetery supply is supposed to remove the extreme bumps of the booms and downturns (make things less painful for people). I think this is a nobel idea, but I strongly suspect it causes problems and is used by the super-ultra rich to make vast sums of money (letting their buddies know before the public whats going to happen.

Terrex wrote:Axe is right. A truly free market is actually the most stable system.

Actually it is notoriously unstable. Argentina tried moving in that direction, and the economy promptly collapsed, disastrously. There are quite a few other examples.

The most stable economy - the one practiced by the US and all of the other developed nations, to greater or lesser degrees - is a mixed economy. This is empirical fact.

The mixed economy is a capitalist system, and gets all the advantages of capitalism. But it is not market fundamentalist, and therefore, can act to mitigate the negative features of the market and stabilize the market.

The US, since Reagan, has been moving away from the mixed economy and towards market fundamentalism. The result has been a dwindling economy, loss of US power on the world stage, social decay, etc.

Saying that it's not working because the ideology hasn't been pursued far enough is absurd. It's like a hardline communist in the late 80s blaming "not enough communism" for the situation of the USSR.

Actualy I think even teh "Market fundamentalists" (by which I mean the ones actually in Government, not Axe) still practiced a "mixed economy" they just changed the mix to favour themselves and their cronies.

Note the so called "free-market" measures in post-war Iraq - selling of State property at its decreased value (beccause it's a war-zone) in contravention of international law (which forbids seliing the assets of an occupied state) in spite of the fact tha the increased unemployment benefits the insurgents more than anyone and ordinary Iraqis and even US troops least of all.

Also both the US and Europe subsidise agriculture, but developing nations are forbidden to BY IMF REGULATIONS. So for an African villager living next door to an African rice-farmer, it's still cheaper to by US/European subsidised rice. And of course the African farmer goes out of buusiness.

Large companies often fight against things like food labelling - labelling GM foods as such for example (not banning or taxing, simply labelling the product as what it is). To protect the free market it is sometimes necessary to go AGAINST the interests of big business (not always, but sometimes).

Also note that "free-market" purists usually source labour in "communist" dictatorships. Ever notice that?

Werral wrote:Actualy I think even teh "Market fundamentalists" (by which I mean the ones actually in Government, not Axe) still practiced a "mixed economy" they just changed the mix to favour themselves and their cronies.

Absolutely, they just whipped up libertarian fervour to get what they wanted. Which didn't actually include taking the economy back to the trading principles that guided the Stone Age. That was just a convenient form of smoke and mirrors, to enthrall and delude.

Ultimately when you corner and nail down some of the movers and shakers behind market fundamentalism you find that they, too, are not really into the theories they propound. Look at Friedman ... confronted by the scenario of a liquidity trap, he still wanted the government to get involved and dole out money. Only instead of building infrastructure and employing people, Friedman wanted his "helicopter money" to rain down on rich banks and corporations and somehow it was going to magically trickle down to everybody and save the economy.

Didn't work quite so good as the Keynesian approach, as the bailouts attest to!

To protect the free market it is sometimes necessary to go AGAINST the interests of big business (not always, but sometimes).

Yep. That's why Keynes was called "the saviour of capitalism".

Also note that "free-market" purists usually source labour in "communist" dictatorships. Ever notice that?

Lol yes. Look at the Waltons - they're rabid market fundamentalists (fundamentalists in other ways too) and they just loooove employing Chinese labour to fill the shelves at Walmart.

Your talking reality and specifics. Those problems have little to do with the free market system or capitalism (as systems) and more to do with total all out corruption. Be it the old Soviet Union or American Imperialists, using factories that use forced labor (kids, old people, paying pennies and making huge profits) is a crime. Its also a crime to create unfair trade (not just in Africa but in the USA). For instance, there should be laws against huge placement fees in the grocery store chains (why you see only coke and Pepsi placed in the best positions) when we only have a few chains left (nearing a monopolistic industry).

Actually, those examples you site are both anti-free market (allowing some big business interest do away with competitive forces. The government is not a tool to be manipulted by the highest bidder, it is supposed to be nuetral and constantly a force to increase competition (not protect). Its also supposed to do the will of the people (which requires both an educated and informed public.)


Of course your right, we shouldn't be dealing with China until it stops human rights violations and adopts a free market system (and allows its currency to float) there are other countries that would love to fill the gap, and we could make it our duty to make sure we don't let that country trash its own people, culture or environment in the process. Equally, it would be to our benefit to have all third world nations be healthy (to buy our goods). Thats something the USA should be working toward.

Will that happen? I am an optomist (like Reagan) and believe that over time good wins out over bad. But as McCoy said in that hokey Star Trek episode, good has to be very very lucky.

AxeMental wrote:Equally, it would be to our benefit to have all third world nations be healthy (to buy our goods). Thats something the USA should be working toward.

No, that would very much be against American interest. To create markets strong enough to buy more exports (which would probably not be American anyway, the US is not very competitive as an export economy, that's why the multinationals are fleeing like rats on a sinking ship and basing production elsewhere), it would be necessary for these countries to maintain a healthy trade balance, ie large volumes of competitive exports.

The current policy towards the Third World, ethically dubious as it is, is to force them to drop all protectionist measures and open their economies up to foreign competition, while developed nations raise barriers to protect their domestic producers. This obviously is the most beneficial situation for the developed nations.

Bringing up the Third World economies can only be done at the expense of developed economies, largely by outsourcing our economies to them and allowing them to put our industries out of business. Which is basically happening already, we are moving towards a situation where capital is so mobile that wage, labour, and other economic conditions are moving towards a more homogenous state. This is bad for us, as we lose industry and our real wages drop, and good for them, as the reverse happens.

AxeMental wrote:It is stable in the sense that the free market operates in a cycle.

It is only "stable" if you consider a roller-coaster ride "stable". Yeah, a rollercoaster covers the same old ground over and over again, and no matter what you always end up back at the beginning, but that doesn't do your stomach a whole lot of good when you're pulling out of a 100ft drop at 6 Gs.

Axe, I'm a big believer in free markets, but arguing that they are stable is just stupid. A free market is resilient, but almost never stable.

None of us have lived in a true free market capitalist system. Our economies are rigged by commerce treaties and international cartels.

I went to a stable market once, but since I didn't own a horse, I didn't actually buy anything.