It is also extremely rare for companies to exactly duplicate their competitors’ offerings, since doing so would indicate a marketing department lacking in ideas (and self-esteem). Even when there is over-supply of very similar products, there may therefore be differentiation and innovation in (eg) design, advertising, production processes, distribution methods, market segmentati0n, targeting, customer financing arrangements, after-sales service, etc.

If your argument against capitalism’s waste is that loads of otherwise indistinguishable products nonetheless differentiate themselves thanks to the variety of their branding strategies, then I think you’ve basically conceded the point.

I’m sure many will agree that we’ve seen “people giving the distinct impression they do not quite know what they’re talking about.” Getting more specific – that is, specifying which people – might produce more heat, though. I sometimes see critiques which I think could be improved if the critic wasted more time studying mainstream economics.

http://forums.somethingawful.com/showthread.php?threadid=3159732&pagenumber=1
“While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling – which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help – there were other players in the physical-commodities market – but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures – agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.”

The externalities of depletion and pollution are not included in the calculations.
and
Oil is priced at the cost of pumping it from the ground. The fact that it is non-renewable is not considered.

These may be problems with how capitalism operates, but “economics”, the discipline, recognises these outcomes as not being efficient. The external costs of the pollution (in the first instance) and the (possible, depending on market structure) lack of recognition of the scarcity rents associated with a non-renewable resource are fundamental issues confronted in any treatment of resource and environmental economics.

Of course allocation questions have an ethical component. (You said “moral”, but then you said to bring in the ethicists. I would like to keep the moralists out of it too as much as we can, but sure, bring on the ethics.) Geoffrey Brennan once decribed normative economics as being a branch of applied ethics, which sounds about right to me.

I’ve been reading over these The Problem With Economics threads on CT the last week or so to see if I can gather up any useful new insights, and it’s quite disheartening to see how easily the discussion gets derailed by people giving the distinct impression they do not quite know what they’re talking about.

Follow the Nancy Reagan plan, put the homeless in them. “Just get a house.” ;)

Actually, something like that happened in Honolulu in the 1970s. Overdevelopment led to the phenomenon of the welfare condominium. :)

This assumes that those assets are valuable and can be redeployed.
There was recently this glut of overbuilding of homes in the US, you may have heard of it. We now have a number of excess houses in places where people apparently don’t want to live. How do you propose to redeploy those houses?

You’re on automoderation, and are likely to remain so. I’ve posted your last, but I can’t say I thought it was a particularly useful contribution.

JQ, how many is “most”? Which requires you to answer:

1. How many different ‘rational actor models’ are there?

2. Can you connect q.1 to the claim “’rationality’ can be represented as ‘maximisation of self-interest?

WHO makes these alleged claims that “’rationality’ can be represented as ‘maximisation of self-interest?” I am younger than you, and even I know that since the 1960s, the world’s foremost economists and philosophers have explored the epistemological and political opportuinities opened by “the theory of the second best”.

This assumption is either false or vacuous.

Well of course it is ‘false’ as it is no more than a discourse constructed by you for other battles. Oh and it is simultaneously vacuous, as the historical record attests.

Those committed to egoistic rationality

John are you compartentalsing social scientists on the form or rationality they use – egoistic bor, er, er….?

“The second defect with capitalism is that it is highly wasteful. In the US 80% of all new firms fail within 5 years. All the resources used to build these firms are lost.”

Hardly. The assets of the failed firms (both physical and intangible assets) don’t just disappear in a puff of smoke. Usually, they are purchased by successful firms and redeployed. I doubt any programmer who worked on the development of CP/M, for example, spent much time in his or her career subsequently unemployed.

“The idea that the best man wins still doesn’t compensate for the waste. The flip side is the me-too effect. Company A makes widgets which are a hit. Before you know it companies B, C, and D are making similar widgets. The market becomes saturated and the glut causes the excess to be dumped and firms to fail.”

Your analysis is incomplete, since you ignored the demand side. Potential buyers of widgets get loads of choice (products from all four companies A, B, C and D), and presumably are able to purchase their widgets at reduced prices if there is a glut. It is also extremely rare for companies to exactly duplicate their competitors’ offerings, since doing so would indicate a marketing department lacking in ideas (and self-esteem). Even when there is over-supply of very similar products, there may therefore be differentiation and innovation in (eg) design, advertising, production processes, distribution methods, market segmentati0n, targeting, customer financing arrangements, after-sales service, etc. These innovations, likewise, do not disappear in a puff of smoke when a company fails, but are instead adopted by the other companies remaining or by companies in other industries. IBM’s entire business strategy used to be based on adopting such innovations pioneered by others, as captured in the slogan, “Second, but better”.

True, some of the investors in one or more of the failing companies may lose their investments (although this is not necessarily the case), but they should have known that was possible when they made their investments or joined the firm. To the extent that investors or employees of a company have influence over its policies and actions, then they must bear responsibility for entering a crowded market and/or its failure to survive a shakeout there. In other words, if the investors and employees of company D were that wonderful, why did their product not beat those of A, B and C?

Even allowing for the losses suffered by the investors and employees of the failed companies, it is not at all obvious to me that the net society-wide costs of product duplication always outweigh the net society-wide benefits. Indeed, I don’t believe I’ve ever seen a case where they do.

Where is the cost of the environment damage factored in? Where is the fact that the gold is never going to be available from this source again factored in? The two biggest criticisms of the standard efficiency argument are demonstrated in this example. The externalities of depletion and pollution are not included in the calculations.

As for capitalism itself, it is based upon a model where the “value” of resources in taken as zero. The only cost factored in is that of extraction. Oil is priced at the cost of pumping it from the ground. The fact that it is non-renewable is not considered.

The second defect with capitalism is that it is highly wasteful. In the US 80% of all new firms fail within 5 years. All the resources used to build these firms are lost. The idea that the best man wins still doesn’t compensate for the waste. The flip side is the me-too effect. Company A makes widgets which are a hit. Before you know it companies B, C, and D are making similar widgets. The market becomes saturated and the glut causes the excess to be dumped and firms to fail. The waste is called “creative destruction” since, presumably, the best won out. However we have seen time and again that it is not the “best” that may win, but the firm which uses its marketing or monopoly power or just flat out breaks the law to achieve its aims.

Capitalism was created during a period when the world was mostly empty. There was plenty of land and resources for the size of the population. If one place became depleted or polluted people could just move on. If the trees were all cut down for fuel then coal was substituted. When coal became uneconomic (as in the UK) then oil was favored. Such substitution is standard economic theory, but doesn’t allow for the case where no substitutes exist.

Viewing economics as having its primary focus on the allocating of scarce resources is inadequate in an age when the population will increase by 3 billion over the next 40 years. Allocation has a moral component whether traditional economists want to acknowledge it or not. If they don’t then let’s bring in the ethicists to make the choices apparent.

That said, exhaustion of certain resources doesn’t change the fact that an ever-increasing proportion of genuine goods are becoming abundant, as evidenced e.g. by discussions here of IP.