The Instigator
Esuric
Pro (for)
Winning
9 Points
The Contender
TheAtheistAllegiance
Con (against)
Losing
0 Points

Government intervention is always a retardant of beneficial market mechanisms.

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Post Voting Period
The voting period for this debate has ended.
after 2 votes the winner is...
Esuric
Voting Style: Open Point System: 7 Point
Started: 9/3/2010 Category: Society
Updated: 7 years ago Status: Post Voting Period
Viewed: 7,809 times Debate No: 12904
Debate Rounds (3)
Comments (35)
Votes (2)

 

Esuric

Pro

This is a philosophical defense of markets and an attempted refutation of government intrusion into market activity. To be clear, my argument is not that politicians/the government are evil, in general, but rather that it, the government, is structurally defunct and wholly incapable of efficiently allocating scarce resources towards warranted economic employments. My argument will focus on the incentive structure set in place for politicians, and the fact that the government (central planning) lacks certain mechanisms/social institutions that are absolutely required for a rational and efficient economic order. Essentially, the government has a knowledge problem. Again, I do not believe that free markets are perfect, or that they will usher in a utopian paradise of infinite abundance, immortality and perpetual peace.

Key concepts and definitions:

Profit: (From previous debate):

Profit (in an unfettered economy) is comprised of two different components, namely revenue and costs (revenue – costs = profit). In order to maximize revenue, firms must produce goods and services that are desired by society and they must out-compete their competitors. In order to do this, they must offer the highest possible quality for the lowest possible price. Next, minimizing costs means using as little resources as possible in the production process. Thus, profit maximization is the production of the highest quality goods, at the lowest possible prices, while utilizing the minimal amount of scarce resources as possible.

Rational:

The desire to better ones own condition--doing the best you can with what you have available to you. Not to be conflated with reasoning ability/knowledge.

Tacit/Idiosyncratic knowledge:

Knowledge that is difficult to transfer to another person by means of writing it down or verbalizing it and which exists at the individual level. It differs from formal, explicit, and scientific knowledge.

I would like to thank con for participating in this debate. Also, round 3 is solely for rebuttals—no new arguments may be introduced at that point in time.
TheAtheistAllegiance

Con

This is a philosophical defense of government intrusion into the markets, for they can be capable of rational and efficient economic order. This will be a refutation of the notion that government is wholly incapable of efficiently allocating scarce resources towards warranted economic employments. Like free markets, the government isn't perfect, nor able to usher in immortality. However, my defense is of a mixed economy that leaves particular aspects to government, while leaving others to markets.

I agree to all 3 definitions put forth, and I will leave the next round to Pro's arguments, points, refutations, and criticisms. Also, thanks for the debate challenge.
Debate Round No. 1
Esuric

Pro

-=1=-

The price mechanism is a social institution that has emerged over countless centuries by a continuous process of trial and error. Prices are the culmination of countless individual subjective valuations which are expressed through voluntary market transactions. They facilitate a free flow of idiosyncratic and tacit information amongst individual actors in the global market economy [1]. Quite simply, they allow for the optimal allocation of various heterogeneous goods which may be devoted to a myriad of different economic activities because they express opportunity costs.

Prices and the profit/loss constraint allow both producers and consumers to engage in rational economic calculation. When prices are arbitrarily manipulated, economic calculations become inept/monstrous, and without the price mechanism, economic calculation becomes impossible (opportunity costs are unknown) [2]. The producer who ignores prices in his daily entrepreneurial activities will lose access to his capitals and go out of business. Likewise, the consumer that ignores prices will find himself in a most unsatisfactory condition.

-=2=-

The government is not bound by the profit/loss constraint, it does not serve the consumer, it raises revenue by force (compulsory taxation), and it completely ignores the price mechanism. In fact, it manipulates and arbitrarily alters prices, through inflation, in order to raise revenue (seigniorage [3]) and extinguish its own debt. The government, therefore, does not engage in rational economic calculation and its intrusions into the market economy are ad hoc guesses made by decree. It is simply unaware of actual consumer demand conditions, supply conditions, the marginal rates of technical substitution, opportunity costs, and it faces absolutely no competition.

The problem is systemic and structural: the market intrusions of a benevolent philosopher king are just as inept and self-defeating as those of the most ignorant and belligerent tyrant. Either way, politicians are not benevolent philosopher kings but rather rational utility maximizing agents like everyone else.

-=3=-

A quick analysis of the political structure of modern democracies is in order:

Individuals, to use economic jargon, measure the marginal benefits and costs of every action before they make decisions. So, when a person wants to buy a television set, for example, he does some research, and buys the TV which he believes will satiate his desire. He does not require permission from the majority in order to buy the television set he prefers. The same is not true in the political sphere.

Furthermore, the marginal cost of casting a well-informed and rational vote severely out-weighs the marginal benefit of voting. Your vote is merely one of hundreds of millions, but in order to cast a well-informed vote you must familiarize yourself with the politician's voting record, their sociological, philosophical and economic rational. Additionally, you have to read and understand complicated legislation (CAFTA trade agreements, Healthcare bill, ect) which are thousands upon thousands of pages long. The costs are torrential when compared to the benefits. This is why there is absolutely no accountability in the political realm, and why voters cast ill-informed votes (rational ignorance) [4].

But it must be mentioned that for some groups, the marginal benefits do indeed outweigh the costs. Who cares enough about "free-trade agreements" in order to read them in their entirety? Well, big businesses and special interest groups of course. The political system is built in such a way that only those who seek privilege actually care enough to educate themselves politically. Thus a system which claims to cater to the majority is actually designed in such a way that only the tiniest of minorities care enough to influence it.

-=4=-

The Utopia Fallacy:

The ill-informed take snapshots of market phenomena (employ a completely static approach) and analyze it in order to identify so-called "market failures." I do not deny the possibility of market failures, but I take issue with the terminology and its implications. A market failure is merely the suboptimal allocation of resources that are not in-line with Pareto efficient (perfect) outcomes. But the imperfection of the market economy, and its institutions, does not, in itself, justify government intrusion. Simply pointing out market imperfections is essentially attacking a straw-man and engaging in the utopia fallacy; such a position does not refute my argument but rather entirely ignores it.

Next, the attempt to deal with negative externalities creates a whole new set of negative externalities (negative unintended consequences) because the government does not control, or even understand, the subjective desires of those that it governs.

Some historical examples:

1.NYC Rent control: Rent prices were deemed "too high" in NYC and the government instituted a policy of rent control. The outcomes were expected: severe shortages in housing and lowered quality [5].
2.The "62 Drug Act:" Banned "me too" drugs from the market. "Me too" drugs were drugs which didn't infringe on intellectual property and had similar therapeutic effects to designer drugs. This act made it so new drugs had to be (a) entirely unique and (b) superior to alternatives. This severely constricted supply and solidified monopoly control in the pharmaceutical industry. Additionally, it added extreme research and discovery regulations which increased operating costs 46 fold [7].
3.Government creation of the "Seven Sisters:" The "Seven Sisters" was a government created and backed American oil cartel (BP, Shell, Exxon, Gulf, Mobil, and others) which was countered by OPEC [7].
4.The "Experimental Negotiation Act:" Arbitrarily elevated the wages of steel workers (5% per year) while their productivity decreased (1.7% per year). Massive strikes and productivity declines forced U.S. steel producers to cut costs rather than innovating. This ruined their profitability and competitiveness and they were eventually wiped out by their Japanese competitors, who offered higher quality and lower prices (they were able to innovate and transition into open hearth furnace technology) [7].
5.The "Smoot–Hawley Tariff Act:" Prolonged and increased the severity of the great depression.

-=5=-

And finally, it is true that the government has many capable economists at its disposal, but their knowledge is different from the individual tacit knowledge that is expressed in daily market transactions and dispersed by market mechanisms. It differs in both degree and in kind. The economist is familiar with broad and impersonal market forces, but the local farmer understands his land, the local climate, farming techniques, local demand conditions, ect. The consumer understands his preferences, which are continuously changing; the producer understands his consumer base, production methods, how to motivate his workers and align their interests with his, ect, ect. The total amount of tacit and idiosyncratic information, in its aggregate, dwarfs the total amount of scientific knowledge that the government possesses. But more importantly, the tacit knowledge that individuals posses is far more relevant for maintaining a rational and efficient economic order.

1.http://web.missouri.edu...
2.http://mises.org...
3.http://en.wikipedia.org...
4.http://en.wikipedia.org...
5.http://www.econlib.org...
6.http://www.peri.umass.edu...
7.Scherer, F.M. Industry Structure, Strategy, Public Policy. New York: HarperCollins, 1996.
TheAtheistAllegiance

Con

"-=1=-"

I agree that the price mechanism is based on subjective and tacit information that amounts to millions of terabytes of information contained in the brains of every consumer and producer. This is why comprehensive state-planning typically results in a sort of market failure within itself - it isn't reflective of actual supply and demand. But this refers to only one form of government intrusion, being price controls, which are of the least conducive forms of intervention.

"-=2=-"

The Federal Reserve - quasi arm of executive branch - targets inflation at around 1-3%, which has little effects on any debts owed.[1] The more fundamental effect is made in creating additional available money within the economy, which initiates increased lending, investment, and production, all in turn for some minimal and stable rises in the CPI - a generous trade-off. Considering the actions taken by banks when money is removed from the economy, any small business entrepreneur is going to have a significantly lesser chance of obtaining the necessary start-up capital, for debtors are punished, and savers are rewarded. This doesn't include additional adverse economic effects such as declines in company profits, rises in unemployment, and stagnated growth - all caused by deflation.[2] Even worse is when a currency is pegged to a commodity such as gold, which results in relatively rapid deflation as the economy expands beyond the supply of gold.[3] Removing government intrusion in this instance would result in an inability to stabilize natural deflationary forces (economy exceeds money supply), which brings lending and aggregate demand to a halt, due to the reasons stated above.

"-=3=-"

1. Voters generally have a philosophical understanding of where their representatives stand, which transfers into the economic realm. Conservatives stand for low taxes and free markets, while Liberals tend to support the opposite. The average voter may not understand international trade agreements, but they do have the overall gist of how they and others will be affected by their votes. Your link correctly expresses the economic illiteracy of most voters, which can easily be fixed by requiring high-school students to pass an economics course; a preferable solution to dismantling democratic rights. Very few states have these sort of requirements, which is the real problem - not democracy itself.[4]

2. Similarly, special interest minorities that determine various laws based on monetary "gifts", rather than majority standing, can be quelled by implementing campaign finance reforms. Once again, democracy itself isn't the problem.

"-=4=-"

1. The rising medical prices over the last few decades is much more than a "snapshot". These market prices may not represent a market failure, but they're certainly are a justification for government intrusion. People require medical care to live decent and comfortable lives, which the markets are not able to account for due to high barriers of entry and the inelastic demand. Because of these market problems, every other country in the OECD has socialized healthcare, which has yielded increased quality, increased accessibility, and lower government and consumer costs.[5][6] The fact of the matter is that government intrusion can improve and expand healthcare more efficiently than the market under these circumstances.

2. Although some government intrusions have been detrimental, most have been helpful. Social Security, labor protection laws, roads, NHS, and many other programs have been very beneficial.

As for this selective list, I share your POV...

1. I disagree with rent controls.
2. I agree that the pharmaceutical patent laws are ridiculous, which can be solved by campaign finance reforms.
3. Oil cartels can also be solved by campaign finance reforms.
4. I agree that the USWA had too much power, which led to the decline in US steel.
5. I also agree that the tariffs were harmful.

"-=5=-"

Tacit information within the economy is very complex, but this doesn't mean the government cannot do anything right. There are fundamental properties in the economy that cannot be solved by natural market forces, so it's best that the government steps up to these problems, be it deflation, healthcare inadequacy, or dismal working conditions. Overall, there are simply resources that are not efficiently allocated by markets alone.

Sources:

1. http://www.federalreserve.gov...
2. http://www.investopedia.com...
3. http://en.wikipedia.org...
4. http://www.councilforeconed.org...
5. http://seekingalpha.com...
6. http://en.wikipedia.org...
Debate Round No. 2
Esuric

Pro

-=1=-

I chose to define the price mechanism and explain its function because it, along with the profit/loss constraint, defines the market mechanism. This is why economic coordination and calculation is at all possible, and why government intrusion, which is not bound by either prices (in the short-run) or the profit motive, must necessarily lead to relatively suboptimal results (relative to the market). The failure of price controls is merely a small part of a much larger and systemic problem.

-=2=-

Rather than responding to my argument directly, you have decided to make a very specific argument about monetary equilibrium theory and the tenability of the gold standard. There is no possible way to respond to each of your points adequately since entire volumes have been written on this very topic by many great economists (Keynes, Hayek, Friedman, Myrdal, Wicksell, Mises, ect). Thus I am forced to give a very general and inadequate response:

The Federal Reserve's record, over the past 100 years, has been quite atrocious by anyone's standards. This is because the Federal Reserve is essentially a socialist institution that centrally plans one-half of the market economy (money is one-half of all exchanges) and has contradictory mandates (full employment, price stability, economic growth, financial stability, ect) [1]. Since its introduction in 1913, the U.S. economy has experienced 19 recessions, including the great depression and the stagflation crisis of the 1970s [2]. All of this ignores the various hyperinflations that have plagued the world economy since the worldwide introduction of central banks (South East Asia, Argentina, ect).

But the monopolization of currency and the extreme regulation of the banking sector predates the Federal Reserve act of 1913 [3]. Such intrusions have led to intense macroeconomic instability which is simply not found in relatively unregulated banking environments from previous historical periods (Scotland and Sweden in the 19th century) [4].

Next, in order to affect the general price level (general price inflation), the total rate of monetary growth must exceed both the demand for money and total output (expressed by the quantity theory, MV=PQ). So, for example, if total output is growing at a rate of 7% per year, total monetary growth must range from 8-10% in order to yield 1-3% general price inflation. If the demand for money rises, let's say by 5%, than total monetary growth must range from 13-15% per year in order to yield 1-3% general price inflation. Thus monetary expansion does not always yield general price inflation, but it always yields relative price inflation/distortions [5]. The effects of relative price distortions are disastrous: they lead to a misallocation of scarce resources towards ultimately unwarranted and unsustainable economic activities (bubbles) and reduce real wages (since laborers are the last to receive the newly created sums money) [5]. Either way, any expansion in the monetary base is, by definition, the monetization of government debt [6].

-=3=-

You admit that voters are politically illiterate but you then go on to say that they have a general understanding of how complicated pieces of legislation, which are thousands of pages long, will affect them. But this requires intense political literacy, something that most politicians don't even posses. Many politicians openly admit that they do not read complicated and extremely important pieces of legislation [7].

Next, you claim that conservatives "stand for low taxes and free markets," but how can this be when our last president, a conservative, was one of the most interventionist presidents in U.S. history? He passed 8,000 regulations during his presidency, including Sarbanes and Oxley, a multi-trillion dollar Medicaid entitlement bill, and accumulated the largest fiscal deficits in U.S. history (more than all other presidents combined) [8]. Deficits are merely taxes that must be imposed upon future generations.

The average voter is not only clueless about legislation that will directly affect them, but they are entirely ignorant of the philosophical ideologies that are supposed to define the political parties. How many people have read Marx, Mises, Friedman, Trotsky, Keynes, Nozick, Rawls, Rand, ect? The answer should be obvious. Thankfully, consumers do not need to be enlightened philosophers in the market; they merely need to understand their own subjective preferences.

How many times has congress attempted to "reform" campaign financing? How effective has this been in diminishing the power of special interests? The answers are, again, obvious. Your faith in future reform entirely ignores the nature of government.

-=4=-

"Although some government intrusions have been detrimental, most have been helpful. Social Security, labor protection laws, roads, NHS, and many other programs have been very beneficial."

How have they been "very beneficial?"

1.Social security and Medicare are utterly unsustainable. Collectively, they are 100+ trillion dollars in the hole and may bankrupt our nation [9].
2.The public roads and infrastructure in the U.S. are horrific. Do you believe that without government central planning we would not have private roads? Why are you so sure that private roads would be worse than the deteriorating roads we see today? Can you cite any historical examples?
3.We already debated government intrusion into the labor market: http://www.debate.org...
4.There have been numerous government intrusions into the medical market, many of which began under FDR and were expanded upon by LBJ (employer-based health insurance, Medicare, ect). I've already given examples of government interventions into the pharmaceutical industry, and I could give many, many more.

-=5=-

The complicated nature of this information is merely one variable. My argument rests on the assertion that such information (a) is solely facilitated and dispersed by market mechanisms and (b) is required for a rational and efficient economic order. The government lacks all access to this information, and therefore does not engage in rational economic calculation and must necessarily override the subjective valuations of those that it governs. The fact that markets are imperfect does not necessarily or logically imply that government intrusions are appropriate and effective (the fact that a person is unconscious does not necessarily mean that bludgeoning him in the head is an effective way to wake him up).

You said that you had a philosophical defense of government intrusion, but so far you have only given me various unsubstantiated assertions and highly controversial examples. The scope of this topic is enormous, which is why the argument must be both general and inherently philosophical.

1.Mishkin, Frederic S. The Economics of Money, Banking & Financial Markets. Columbia University, 9th edition.
2.http://en.wikipedia.org...
3.http://www.cato.org...
4.http://econlib.org...
5.Mises, Ludwig von. Theory of Money and Credit. Yale University press, 1953.
6.http://en.wikipedia.org...
7.http://www.cnsnews.com...
8.http://www.theobjectivestandard.com...
9.http://www.ncpa.org...
TheAtheistAllegiance

Con

"-=1=-"

I agree that the market mechanism is very complex, which is why over-expansive government price controls can have adverse effects on the economy. However, the market itself is limited by its own factors, such as barriers to entry, imperfect information, demand elasticity, and externalities, which create sub-optimal results all on its own. Obviously market equilibrium will be met at some ridiculously high or low price, but that isn't serving anybody any good. This is why nearly every industrialized country has adopted socialized healthcare, for the prices are naturally too high in an unfettered market, which can lead to unnecessary sickness and death.[1]

"-=2=-"

1. I did respond to your argument directly, albeit very briefly. You stated: "In fact, it manipulates and arbitrarily alters prices, through inflation, in order to raise revenue." This is false, and I gave the real reason why governments target inflation at around 1-3%. I also provided an argument for why government intrusion is beneficial by citing the role of central banks.

2. The Federal Reserve's record is hardly atrocious when compared to the history of decentralized banking in the US. From 1797 until the inception of the Fed, the US suffered 28 recessions, many of which were depressions combined with uncontrollable deflationary spirals that lasted decades.[2]

3. Scotland's banking system was reliant on the Bank of England for liquidity, had just as many failures as English banking, enforced interest rate ceilings, and most damningly, the specie backed notes were largely inconvertible, which kinda defeats the whole purpose.[3] Also, Sweden's banking system was ironically more reminiscent of central banking, for there were no competing currencies, but instead just a base currency, and it was issued by a state-regulated bank.[4]

4. More often than not, the Federal Reserve is successful at targeting inflation. The money supply is indeed distorted, but this is often used to to cushion the rise and fall of the business cycle, which is beneficial. And unless the Fed radically increases the money supply, distortions are not significant enough to form bubbles.

"-=3=-"

1. No, I only admitted that voters are unfamiliar with specific and complicated legislation. As for the politicians themselves, they don't read the bills because they have staffers and lawyers who translate the information for them. They don't just make blind guesses when voting on House and Senate bills; that's ridiculous...

2. Bush and Obama both crossed party lines on certain issues, but that doesn't change their philosophical standing or party affiliation, which people are well aware of, thus this is not a valid refutation.

3. Not many people have read Marx or Smith, but they still have a general understanding of how Communism differs from Capitalism. You portray the average voter as not being able to decipher political philosophy at all, which is a very inaccurate representation.

4. Campaign finance reform will certainly be tough, but it isn't impossible to achieve. And once accomplished, the problems you cited will be solved.

"-=4=-"

1. Well first of all, Social Security and Medicare provide healthcare accessibility for the elderly and disabled, which is beneficial for obvious reasons. Also, the collective debt of these programs won't reach $100 trillion until sometime around the end of the century. Much of this debt results from the SS funds being spent, which isn't a structural, nor unsustainable problem. In fact, Social Security will run a surplus until 2017, and according to the CBO, it won't be completely depleted until 2052.[5]

2. Private companies can create roads if they feel like doing so. However, some critical highway and infrastructure projects won't be undertaken if not profitable, which is axiomatically detrimental. In any case, US infrastructure is poor due to lackluster funding, not government intrusion.

3. I was referring to other government regulations, such as worker safety, child labor, anti-union discrimination, etc.

4. I don't see how this refutes the prowess of the NHS...

"-=5=-"

The government doesn't have access to perfect economic information, but in the case of extremely high or low market prices that harm consumers and producers, the imperfect information wielded by the government is far superior to the established market equilibrium. For example, if medical care wasn't imperative to an individual's health and well-being, the insanely high market prices wouldn't be such a devastating factor. However, in the real world, this just isn't the case. People do often end up getting sick and/or dying because of private healthcare inaccessibility. Under these circumstances, government intrusion is certainly justified, and it has proven to be VERY beneficial in many places all around the world, such as Canada, UK, Australia, France, Germany, Japan, Netherlands, and the list goes on. When compared to the United States' private insurance-based system, all of these countries hold higher rankings in quality, efficiency, accessibility, and especially cost. The fact of the matter is that the government is not always a retardant of beneficial market mechanisms.

Lastly, thanks to Esuric for the stimulating debate.

Sources:

1. http://www.pnhp.org...
2. http://en.wikipedia.org...
3. http://docs.google.com...
4.http://docs.google.com...
5. http://en.wikipedia.org...
Debate Round No. 3
35 comments have been posted on this debate. Showing 1 through 10 records.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
The problem is that when those firms fail because of poor management, 3rd parties within the economy are adversely affected. Instead of allowing the working class to deal the brunt of these consequences, shareholders could be given more direct authority, and government safeguards can be implemented as *preventative* measures.

90% of those that are harmed by busts end up being firms and individuals that are indeed organizing capital inefficiently. So when the government attempts to prevent or cushion busts, it is mainly aiding efficient firms and workers. Not to mention, providing economic recovery measures don't necessarily prop up weak pillars within the economy -- the two are not mutually inclusive. It seems as if you're implying that all attempts to aid an ailing economy keep housing prices at 2005 levels; this just isn't so in the vast majority of scenarios.
Posted by Esuric 7 years ago
Esuric
"Rather you asserted rates didn't depend on the money supply at all."

Market interest rates are clearly affected by alterations in the supply of money, but the natural rate of interest is not. But any discussion regarding interest rates is necessarily controversial since there is no consensus.

"Additionally, I don't take issue with managers making money; I take issue with the conflict of interest at stake due to managers not being appointed by shareholders, among making short-term profits regardless of the long-term health of a particular firm, and in some cases, the entire economy."

The issue you raise, namely agency problems, is quite complex--much more so than you're making it out to be. Managers are accountable for their actions, and they are indirectly chosen by a board of trustees (which is appointed by shareholders). Shareholders can, and often do, form voting blocks in order change management. Additionally, there is (a) competition amongst managers within the firm and (b) a market for corporate control (key). Both (a) and (b) are extremely effective tools that manage agency problems. And finally, in a relatively free market, firms are allowed to fail--the oldest and most effective way to deal with bad managers.

"You simply feel that 'busts' are beneficial to the economy because capital becomes cheap, and new investors can quickly invest their funds, which will supposedly happen almost instantaneously."

This, in fact, is not the argument. Busts are necessary (as opposed to beneficial) because they undo the relatively inefficient organization of capital that yields unstable and destructive growth patterns. The bust is, unfortunately, inevitable, and the correction process is anything but instantaneous. The question at hand is this: how do we deal with the bust? Do we prolong the process, or do we allow for the necessary correction?
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
Respect for air use will require government intrusion, which is hardly Libertarian.

I never stated interest rates depend on "just" the money supply. Rather you asserted rates didn't depend on the money supply at all. Additionally, I don't take issue with managers making money; I take issue with the conflict of interest at stake due to managers not being appointed by shareholders, among making short-term profits regardless of the long-term health of a particular firm, and in some cases, the entire economy. It isn't a matter of petty jealousy.

You addressed the herd mentality mainly by writing it off. You simply feel that 'busts' are beneficial to the economy because capital becomes cheap, and new investors can quickly invest their funds, which will supposedly happen almost instantaneously. Unfortunately, this *isn't* bound to happen under the crushing effects of volatile business cycles, being high unemployment, contraction of growth, and an overall loss of livelihood and purchasing power. It's apparent that busts have severely negative effects, which is why herd mentality and risk should be limited, and busts cushioned. Letting the entire middle class lose everything they've worked for just isn't justified ethically, nor practically...
Posted by Sieben 7 years ago
Sieben
I already addressed your reference to herd mentality in a previous post.

You also seem to be laboring under the impression that the stimulus somehow saved us from some worse fate. Its unclear how translating the losses of financial groups onto the general population saves any money. If the banks went under, their infrastructure wouldn't disappear. Buildings and computer networks and people don't phase out of existence. They're available to be bought up on the cheap and reorganized into more efficient configurations.

The ONLY intervention you should support is the FDIC, because it actually guarantees deposits. Banks fail all the time and the FDIC will usually just find another bank to accept the deposits. No fuss. At this point, we can just debate whether the FDIC is a good long term policy, and I can advocate phasing it out gradually.
Posted by Sieben 7 years ago
Sieben
Well, so anarchy versus statism is a broader question. I'm just saying that respect for air-use is a good and practical libertarian policy

Interest rates do not just depend on the "money supply". They depend on the time structure of people's purchases and savings. They can also be pushed down by increasing the money supply ASYMMETRICALLY thru open market operations.

There is no such thing as "demand for money". To be specific, there is demand for money now versus demand for it later. If demand for money now decreases (or for later increases), interest rates will fall, increasing the stock of money available for investment.

Under fractional reserve banking, there is always a monetary contraction after boom periods. The fed either increases interest rates intentionally, or the market becomes saturated with credit. This kind of deflation is healthy because it allows capital to be rearranged more quickly. If you keep inflating, prices stay high and you wind up with a retarded amount of resources sitting idle in the housing markets etc.

You're basically confusing deflation as a result of FRBing with deflation as a result of changes in market time preference or risk assessment.

The bailouts were a mistake because they socialized the losses of the banks. The stimulus was only a surprise to the average american voter... The banks engaged in such reckless lending because they KNEW they would be bailed out. see the greenspan put http://en.wikipedia.org...

So if you take away their support, they won't take such huge unsustainable gambles because they'll go broke and fail. You're worried that maybe some managers will still walk away with big paychecks. Even if you're right those paychecks will be smaller than what they walk away with now, and its really just a petty jealousy thing anyway. You shouldn't care if a few managers make it out with 10 million dollars because its effects on a 14 trillion dollar economy are zilch.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
Yes, but isn't legislative authority required to "force" companies to place some sort of meter on their emissions? That is a sound idea, but I don't know if it could work in an Anarchist society.

Of course interest rates depend on the money supply; it's a basic principle of supply and demand. Interest rates obviously depend on the demand side too, but when the supply side is strained, and rates are high, demand is going to fall into equilibrium - like any other good. This fall in demand for money brings with it a fall in the supply of available capital, thus investment and production.

The early 80's demonstrate this phenomenon quite well. The money supply was contracted, the economy fell into deep recession, interest rates hit record highs, and until the money supply was increased, the economy did not regain momentum and flourish.

The only reason I *somewhat* support the current bailouts is because the system is inherently risky, and letting trillions in wealth just vanish is not going to prevent this disaster from repeating itself. The real reform lies within structuring the financial system with proper and necessary safeguards. Letting bad management fail isn't going to solve much because managers still walk away with personal profits, and the herd mentality will always exist. The only real accomplishment of your advocacy is made in allowing the entire economy to implode, which mostly harms people who weren't even responsible for the crash.
Posted by Sieben 7 years ago
Sieben
If there's someone on the north pole who is burning coal, and you can measure its effects and show they are harmful, you have a case against them. I don't see what's so hard to grasp. You actually used to be able to go and file an injunction against polluters, but the government caved to corporate interests sometime during the 1930's and gave them immunity.

Interest rates do not depend on the supply of money because that is nominal. Interest rates depend on how and when people choose to spend money.

To believe that entrepreneurs do not invest at lower interest rates is to believe they are so stupid as to ignore prices. You also speculate that they will look at the current market, observe that people aren't buying as much anymore, and conclude that they should stay out. Practically every new invention shows how entrepreneurs correctly forecast the contrary.

What I advocate is letting n number of business and investments fail, because if you bail them out, you don't gain anything. You just socialize costs onto everyone and are stuck with the crappy investments forever. See status quo. If they are allowed to fail, m number of people can put them to better use.

You are afraid that m < n, and therefore this is bad because inequality is bad. First, I'd rather make the poor richer even if I exacerbate inequality.

Second, n is already really small because its basically our central bank and the politically connected financial groups who were in all the toxic assets. I don't know how big or small m could be, but it could be pretty large considering that falling prices will make it easier for everyone to enter the market.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
Well sure, if burning coal in your front yard causes your neighbor's property to become infested with smog, that can be solved by protecting property rights. However, if you're an automotive company that owns plenty of land out in the boondocks, the effects of greenhouse emissions are able to circumvent property rights.

Interest rates rise when there is a smaller supply of money, and debts are discouraged by the inherently higher cost associated with the currency's rising value. With aggregate demand falling in lockstep because of unemployment and depressed wages, entrepreneurs will hardly be motivated to invest, regardless of how cheap capital becomes.

Not to mention, what you advocate is letting a large portion of the population go into economic destruction so that a few entrepreneurs can have a better business environment. Even if that process were completely successful, it is hardly a worthy trade-off...

Deflation can cause and/or symptomatically follow a depression.
Posted by Sieben 7 years ago
Sieben
Air "property" is not enforced over air molecules. Use is defended. So if you start burning coal in your yard, and PM starts effecting what I'm doing, you're violating my rights.

When the value of a currency rises, its a downward push on present consumer goods, but it also results in a lower interest rate. So more long term projects can be undertaken at this new interest rate, and these projects use the laborers and capital that were released in the first place.

Deflation usually follows busts. It is a symptom, not a cause of depressions. If you have a lot of people invested in the housing market, you want prices to fall because that allows capital to be rearranged more quickly to more economic configurations.

Esuric is asking you for the 1920/1 statistics, so I won't burden you further on that topic.
Posted by TheAtheistAllegiance 7 years ago
TheAtheistAllegiance
I bookmarked another link on my work computer, but I can't find it now. It has some raw statistics on employment, GDP, deflation, etc...
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