The Laffer Event Horizon?

by John Holbo on August 21, 2014

Reading Jon Chait this morning:

With predictable fury, supply-siders have denounced this heresy [that Reagan-era supply-side policies might not be optimal today, even granting that they were in 1980]. You can get a flavor of the intra-party debate in columns appearing in places like Forbes or The Wall Street Journal, the later of which retorts, “Good economic policy doesn’t have a sell-by date. (Adam Smith? Ugh. He is just so 1776.)”

The quote is a few months old, but – wow! – what an evergreen formula for zombie economics!

Good economic policy need not be formulated with reference to the economy.

I think maybe we need something a bit more science-fiction-y. Instead of the Laffer Curve, we have the Laffer Event Horizon, which is located in 1974, when Laffer sketched his famous curve on a napkin. After 1974, the economy fell into a black hole, for tax purposes. Specific facts about it could no longer cross the boundary of the Laffer Event Horizon, for policy purposes. A bit more precisely: within the black hole, all tax-like-paths – must be warped down and down, eventually to zero. Especially taxes on the rich.

Just a thought.

{ 107 comments }

1

ZM 08.21.14 at 3:13 am

” [that Reagan-era supply-side policies might not be optimal today, even granting that they were in 1980]”

I was talking to someone just recently about how hard it will be for our Labor Party to move away from neo-liberal economics since they were the ones who largely made the neo-liberal reforms to the Australian economy in the 1980s and 1990s (they called them economic rationalism so as not to be associated with our Liberal Party which is liberal in the English market liberalism sense). I said they need to reject those 1980s Labor politicians as having departed from the longer Labor tradition with their taking up of liberalising reforms (for instance Ben Chifley wanted to nationalise all our banks [he did not succeed], whereas Hawke-Keating privatised our public banks [they did succeed]).

The person I was speaking to said the Party would likely argue neoliberalism was right for those times but wrong for these, because then they do not have to reject Hawke and Keating et al.

I think it wrong altogether myself, 1890s, 1980s or now. I think it was mostly done in the 1970s 1980s etc to not share resources equitably with poor countries and to try to ‘win the future’ to be at the top of the global economy, and – because the limits to growth and other things were published in the 1970s – to avoid working out how to transition to a long term sustainable, ecologically safe, bio diverse, and fair economy.

‘taxes on the rich’
I do not think adding taxes will be sufficient to achieve this transition yet this extra taxing method is the main thing talked of unfortunately. I think there will need to be substantial intervention and some form of co-ordination of national and interrelated global economies because the unsustainability keeps increasing yet at the same time we have billions of people in desperate poverty.

2

floopmeister 08.21.14 at 4:12 am

I like the analogy… except for one point.

Once past the event horizon nothing can ever return, which is a tad depressing.

3

ifthethunderdontgetya™³²®© 08.21.14 at 4:17 am

4

ZM 08.21.14 at 4:24 am

“Once past the event horizon nothing can ever return, which is a tad depressing.”

You will be cheered up then to know despite my not understanding physicists’ cosmology I read not too long ago about Stephen Hawking saying things can leave black holes after all and not be stuck in them forever. Event Horizon science is apparently out of date science like flat earth science.

“In a paper posted online, the physicist, based at the University of Cambridge, UK, and one of the creators of modern black-hole theory, does away with the notion of an event horizon, the invisible boundary thought to shroud every black hole, beyond which nothing, not even light, can escape.

“There is no escape from a black hole in classical theory, but quantum theory enables energy and information to escape.”
In its stead, Hawking’s radical proposal is a much more benign “apparent horizon”, which only temporarily holds matter and energy prisoner before eventually releasing them, albeit in a more garbled form.

“There is no escape from a black hole in classical theory,” Hawking told Nature. Quantum theory, however, “enables energy and information to escape from a black hole”. A full explanation of the process, the physicist admits, would require a theory that successfully merges gravity with the other fundamental forces of nature. But that is a goal that has eluded physicists for nearly a century. “The correct treatment,” Hawking says, “remains a mystery.”

Hawking posted his paper on the arXiv preprint server on 22 January1. He titled it, whimsically, ‘Information preservation and weather forecasting for black holes’, and it has yet to pass peer review. The paper was based on a talk he gave via Skype at a meeting at the Kavli Institute for Theoretical Physics in Santa Barbara, California, in August 2013 (watch video of the talk).”
http://www.nature.com/news/stephen-hawking-there-are-no-black-holes-1.14583

5

Plume 08.21.14 at 4:38 am

Reagan-idolatry is all they have. And it’s not based on reality. He was easily among the worst and most corrupt presidents in our history. No president prior to Reagan launched as many covert wars, and against the defenseless. We were a creditor nation before he took office, and the world’s leading debtor nation by the time he finished. Inequality skyrocketed on his watch, and America took the lead among developed nations in the creation of low paying jobs. He tripled the debt. The surveillance state got its biggest boost to date during his regime as well.

A great book on the Carter/Reagan period, Liberty Under Siege, by Walter Karp.

A lot of people would be surprised, for instance, that Carter averaged more new jobs per month than Reagan.

6

heckblazer 08.21.14 at 7:16 am

At least I can say a few positive things about Reagan, like he legitimately hated nuclear weapons and negotiated with Gorbachev despite the objections of his own staff. I can’t come up with anything for George W. Bush beyond “he sure made his father’s administration look good”. Nixon is still the worst, as he engaged in treason by sabotaging the Paris peace talks – and that was before he even got into office.

7

Brett Bellmore 08.21.14 at 9:53 am

““There is no escape from a black hole in classical theory, but quantum theory enables energy and information to escape.””

Quantum theory enables energy to escape. That information escapes is closer to a religious doctrine indulged in by some physicists. They put a lot of effort into proving that information is conserved, but have yet to demonstrate that.

8

Jim Fett 08.21.14 at 11:50 am

heckblazer @6,

I wouldn’t give Reagan too much credit there. Gorbachev offered total nuclear disarmament if SDI (Starwars) wouldn’t be deployed for 10 years. Reagan said no. SDI was a boondoggle that never came close to being deployed. Reykjavik wasn’t a total loss, but no thanks to Reagan, it fell far short of what might have been.

9

Limericky Dicky 08.21.14 at 12:33 pm

Brett Bellmore
Hoping to sell more
Disruptive right-wing trollery
Wikied something vaguely scholarly.

10

ZM 08.21.14 at 12:47 pm

Brett Bellmore,

“…have yet to demonstrate that”

Why do you say that? There was this article about the demonstration earlier this year, and I am not very interested in physics so there may have been others also. I think science resources should go to sustainability research not teleportation research, but you wish to start space colonies for libertarians (I am not wholly against this plan ;) )so I am surprised that you do not support this teleportation research?

“Unconditional quantum teleportation between distant solid-state quantum bits
Toward quantum teleportation on demand

Quantum information processing relies on the ability to store, manipulate, and propagate information encoded in quantum states of matter. Doing so, however, may destroy or compromise these delicate quantum states. Pfaff et al. present a quantum teleportation protocol that uses two defects in diamond 3 m apart (see the Perspective by Atatüre and Morton). They then map the quantum state of one of the diamond defects onto the other. The work presents a key building block for the successful development of larger quantum networks.
….
The reliable transmission of quantum states between remote locations is a major open challenge in quantum science. Quantum state transfer between nodes containing long-lived qubits (1–3) can extend quantum key distribution to long distances (4), enable blind quantum computing in the cloud (5), and serve as a critical primitive for a future quantum network (6). When provided with a single copy of an unknown quantum state, directly sending the state in a carrier such as a photon is unreliable due to inevitable losses. Creating and sending several copies of the state to counteract such transmission losses is impossible by the no-cloning theorem (7). Nevertheless, quantum information can be faithfully transmitted over arbitrary distances through quantum teleportation provided the network parties (named “Alice” and “Bob”) have previously established a shared entangled state and can communicate classically (8–11).

The ability to generate remote entanglement and to control and read out multiple qubits per node, as shown in the present teleportation experiment, makes NV centers a leading candidate for realizing a quantum network (6, 31). Our teleportation scheme is both unconditional and scalable to large distances, as it can mitigate photon loss by heralding and purification of the distributed entangled state (4). Our current capabilities could be supplemented with quantum memories that are robust against optical excitation of the electrons, enabling remote entanglement purification (4, 32) and the connection of multiple nodes into the network. A promising route is the use of weakly coupled nuclear spins (33–35) on which multi-qubit quantum control has very recently been demonstrated (36). For such nuclear spins, coherence times of >1 s under optical excitation have been reported (37), while the incorporation of NV centers into optical cavities may enable remote entanglement generation on millisecond time scales (38). Furthermore, the entanglement and readout fidelities reported here are sufficient for a violation of a Bell inequality with the detection loophole closed, making NV centers a promising system for realizing a loophole-free Bell test and device-independent quantum key distribution (39).”

11

Sasha Clarkson 08.21.14 at 1:04 pm

Limericky Dicky,
whose rhymes are quite tricky,
really writes Clerihews,
to lighten up heavy news.

(Sorry for the pedantry! ;) )

12

Limericky Dicky 08.21.14 at 1:44 pm

I
write
mostly
Limericks
but also allow
Double-Dactyls and Clerihews
and indeed any doggerel or comic verse form.

13

J— 08.21.14 at 1:53 pm

Said a carpenter’s son who was celibate,
when asked if his thoughts were still relevant,
“I turned water to wine.
Don’t these fishies taste fine?
My work in this field has no sell-by date.”

14

rea 08.21.14 at 1:55 pm

Nixon is still the worst, as he engaged in treason by sabotaging the Paris peace talks

But of course, Reagan did much the same with Carter’s negotiations with Iran over hostages

15

CJColucci 08.21.14 at 1:57 pm

I do get tired of the folks in Adam Smith neckties who, to all appearances, have never actually read Smith.

16

Layman 08.21.14 at 1:58 pm

“Quantum theory enables energy to escape. That information escapes is closer to a religious doctrine indulged in by some physicists. “

I’m not remotely qualified here – I am a Layman after all – but I would have thought that if energy can escape, information can escape. Energy *is* information.

17

AcademicLurker 08.21.14 at 1:59 pm

Perhaps John Holbo was actually referring to this Even Horizon.

18

Rob in CT 08.21.14 at 2:02 pm

It amuses me that folks who like to cite Adam Smith typically haven’t read the bits where he talks about businesses colluding and such. Adam Smith = do whatever businessowners want, to them. Oy.

19

Brett Bellmore 08.21.14 at 2:09 pm

Layman: Suppose you take a small piece of glass. The location of individual molecules relative to each other represents a certain amount of information. Melt it, cool it. The molecules are in different locations now. Same amount of information, but it’s different information.

Conservation of information doesn’t refer to the amount of information, but what the information IS.

Dump some matter into a black hole, stand back, and wait for it to evaporate back out. (Unless it’s a really small black hole, you’re going to have quite a wait.) The matter you dropped in had information, the energy that comes out has information, but there’s no relationship between the ingoing and outgoing information.

But there’s grown up a sort of superstion among physicists that that can’t really be true. That the information has to be stored in the event horizon, or somewhere. This is what I’m referring to as undemonstrated.

20

Jerry Vinokurov 08.21.14 at 2:10 pm

a religious doctrine indulged in by some physicists

Oh look, you misspelled “a complex and unresolved question on which different people hold divergent views.”

21

Jerry Vinokurov 08.21.14 at 2:11 pm

I’m real glad that the complex questions of quantum information theory have been resolved in the space of several comments in a CT thread. Go home physicists, we don’t even need you anymore now that Brett Bellmore is on the case!

22

AcademicLurker 08.21.14 at 2:17 pm

One can only hope that libertarians will bring to the field of quantum information the same nuance and depth of understanding they’ve brought to economics…

23

Brett Bellmore 08.21.14 at 2:28 pm

“It amuses me that folks who like to cite Adam Smith typically haven’t read the bits where he talks about businesses colluding and such. Adam Smith = do whatever businessowners want, to them. Oy.”

It amuses me that people who don’t like free markets imagine that people who do aren’t aware of that part of Adam Smith. There are people who like free markets, and people who use ‘free markets’ as an excuse to let businesses collude. They’re not the same people.

24

J Thomas 08.21.14 at 2:40 pm

I would have thought that if energy can escape, information can escape. Energy *is* information.

Energy is something that can make things move. Information is knowledge.

I liked an example that Jaynes gave. Imagine you have a little ball in a box, and it travels precisely from end-to-end of the box — no sideways motion — and it gains and loses no velocity when it reflects off the ends.

You know the location at one time down to a certain precision. And you know the speed down to a certain precision. So you could draw a graph with location on one axis and velocity on the other, and you could map the particle into a little square on that box. Over time, the box would move sideways because the location changes, and the top of it would go farther than the bottom because faster speed means more motion. It would still cover the same area so you would know just as much as you did before, but now you couldn’t say you knew the location the way you did before. You know a combination of location and speed. If it’s faster it will be in a different place than if it’s slower. By the time it’s reflected off the walls a few thousand times you still know just as much as you did before, but now you can draw a box and say “It will be in this box if the speed is around 27.924, 27.926, 27.928, 2830, 29.361, 29.363, 29.365, or 29.367. Otherwise it won’t.” Depending on what you need to know, you might just as well, say “The volume of the box I’m interested in is x% of the total box volume, so there’s an x% chance the ball is in that area now.”

You can have the same amount of information but it can be converted into a form that’s useless to you and might as well be random.

People tend to care about useful information more than useless information, and so it’s easy to get mixed up about what it all means. There are similar problems available concerning energy available for work or random energy. If you have a dependable energy gradient you can use it for work even if it happens to be a random dependable energy gradient, once you find out about it. While it lasts. But a dependable energy gradient you don’t know about is useless.

25

William Timberman 08.21.14 at 3:09 pm

Brett Bellmore @ 23

There are people who like free markets, and people who use ‘free markets’ as an excuse to let businesses collude. They’re not the same people.

First rule in running a shell game, Brett: don’t use transparent shells.

26

The Temporary Name 08.21.14 at 4:14 pm

Why would collusion be wrong if Firm A buying Firm B isn’t?

27

Brett Bellmore 08.21.14 at 4:15 pm

Seriously, while “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” may be the most widely known Adam Smith quote, the following is scarcely less widely known among advocates of the free market:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Advocates of the free market are aware that businessmen themselves are some of the free market’s worst enemies.

28

mattski 08.21.14 at 4:48 pm

Advocates of the free market are aware that businessmen themselves are some of the free market’s worst enemies.

Not only that! Some advocates of free enterprise are aware that relatively laissez-faire outcomes aren’t necessarily fair or desirable. FDR comes to mind.

Thought experiment: two poker players have roughly equal ability but one has 10x the chips. Does ability determine outcome in this scenario?

And by extension, does accumulated wealth damage/distort the fairness of the market?

29

J Thomas 08.21.14 at 4:57 pm

Why would collusion be wrong if Firm A buying Firm B isn’t?

I repeat, we should require that businesses must split into competing businesses when they get too large either in terms of number of employees, cashflow, profits, etc.

For employees, Wamart should split in half, from 2,100,000 employees to 1,050,000, and then again to around 500,000,

Walmart should split from 500,000 to 250,000 while UPS splits from 430,000 to Why would collusion be wrong if Firm A buying Firm B isn’t?215,000, IBM from 386,000 to 193,000 and a collection of others including BOA.

Meanwhile the largest companies by capitalization are clearly too large, including Citigroup, JP Morgan, Visa, Amex, and Mastercard.

Etc. If we merely required that the very largest corporations must split into smaller competing ones, that would surely help some. Even when we can’t really pay attention to attempts to avoid competition by small companies.

30

Ed 08.21.14 at 5:19 pm

There are alot of approaches that could be taken towards reducing the size of business. Changes can be made into how companies are incorporated or capitalized, or we could do away with the concept of corporations entirely. Chartered businesses could be confined to one state. They could invest in out of state businesses, but their control would be limited to 20% or something like that. Imagine if Walmart was confined to Arkansas, or McDonald’s remained a regional West Coast chain,.

31

Trader Joe 08.21.14 at 5:28 pm

@28
We did that with ATT and within about 20 years they had reconfigured themselves into – basically ATT + Verizon.

There’s plenty to fault about WalMart, but their prices are as low as they are precisely because of the scale that they have – cutting their size would not make them pay their employees more, source their goods from better 3rd world manufacturers etc…more likely the opposite.

32

Plume 08.21.14 at 5:36 pm

Business and their products should be thoroughly vetted, democratically, before they are allowed to exist. We allow far too many dangerous products on our shelves, and think it makes sense to try to “regulate” them after the fact. That’s just beyond stupid. Given the fact that government now has one million fewer employees than it did in 1962, while we’ve added 140 million new citizens, it’s obvious that regulatory agencies can’t handle unbridled development. We see that especially with the EPA, which has only studied hundreds out of 80,000 different chemical compounds now in use. Aside from lack of staffing and funds for the EPA, businesses have managed to knee-cap its regulatory powers using cons like “trade secrets” laws to prevent disclosure and detailed study.

Think of all the pollution, the toxic, dangerous products and services we could have prevented before hand, instead of scrambling afterward to contain their damage. Want to shrink government? Want “smaller government”? Then slow this horse race down, vet all new businesses and their products and democratize the economy.

Along with the above, yes, corporations should be capped in size. It’s not just financial institutions that should never be allowed to get to “too big to fail” status. Every business should be capped. Small is beautiful should be our goal. And better yet, small and local is more beautiful.

33

Plume 08.21.14 at 5:41 pm

Trader Joe @30,

But Walmart’s size makes it so they can drive down wages throughout their supply chain, at least — and of course this ripples outward far beyond that supply chain. They have a virtual monopoly whenever they set up shop in a town, and local businesses quickly go under. They can’t compete with that “economy of scale.” And the bigger Walmart gets, the more powerful it is politically, so it’s harder and harder for other merchants to fight the onslaught of cheap goods and rotten wages.

And we taxpayers pick up the tab for what Walmart doesn’t pay for in wages and benefits. Its existence costs all of us in much higher taxes, lost jobs, lower wages, etc. etc. It is a huge net negative for the economy and quality of life overall.

Oh, and the Walton family? Just that one family holds more wealth than the bottom 40% of the nation combined.

We need to break up businesses and the concentration of wealth, everywhere.

34

Trader Joe 08.21.14 at 6:10 pm

@32
I understand those points and agree with you on the negatives associated with large businesses.

That said, there’s no reason to believe that 5 Small-Marts instead of 1 Wal-Mart would do anything to change the wages, sourcing and tax issues you describe. If you have an example of an instance where breaking apart a successful large business was ultimately beneficial related to points like this I’d be interested in hearing about – I’m not aware of any and its not for lack of looking.

You’ve made your point on several threads about a preference for small rather than large businesses – with a blank sheet of paper, that might make some sense. Splitting up 1 large business into several small businesses doesn’t change a monopoly into a democracy – it changes it into an oligopoly with all the same attendant issues and X voices at the table rather than 1.

35

The Temporary Name 08.21.14 at 6:11 pm

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Okay, that’s nice and all, but the brewer does well and buys the baker and butcher out. The remedy is what?

36

Minor Heretic 08.21.14 at 6:15 pm

Getting back to Reagan idolatry and historical lacunae, motivated reasoning is necessary to those with false premises. Later economists have tried to create Laffer curves from actual data and ended up with random squiggles. Bad economic policy seems to last like a Twinkie – appealing to immature palates when fresh, always unhealthy, and appalling in its unchanging appearance over the years.

I should note that Adam Smith wrote “Wherever there is great property, there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.” He didn’t seem to object to this, but stated that only law enforcement allowed the rich to sleep at night. He did advocate for progressive taxation, “that is, in proportion to the revenue which they respectively enjoy under the protection of state.”

37

Plume 08.21.14 at 6:31 pm

Adam Smith was a strange bird. He made many statements which appeared critical of the system he pushed. In reality, he seemed not to really have a problem with most of these things. He really didn’t think much of the poor or the masses in general — which was the common view of political economists of his time. See Michael Perelman’s excellent The Invention of Capitalism.

A representative quote:

Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.
Chapter I, Part II, 775

38

Scott Supak (@ssupak) 08.21.14 at 6:52 pm

Considering the extreme gravity’s effects on the policy makers inside the black hole, it seems that taxes on the rich are crushed to LESS than zero once we pass the event horizon.

39

Limericky Dicky 08.21.14 at 6:57 pm

Wibbly-wobbly!
Bretty-boy Bellmore on
Markets is trying to
straddle two stools.

Stopping collusion is
UnLibertarian
Instrumentality:
Property rules!

40

Brett Bellmore 08.21.14 at 7:21 pm

“Okay, that’s nice and all, but the brewer does well and buys the baker and butcher out. The remedy is what?”

Don’t let the brewer bribe politicians into creating regulatory barriers to competitors, and then pretend you’re fixing the problems with a free market, rather than assuring there won’t be one.

While businesses collude, they also have motive, once colluding, to cheat each other. Cartels and the like hardly ever achieve their end unless the cartel can enlist the government as an enforcer.

41

The Temporary Name 08.21.14 at 7:24 pm

Don’t let the brewer bribe politicians into creating regulatory barriers to competitors, and then pretend you’re fixing the problems with a free market, rather than assuring there won’t be one.

But the brewer buys his competitors, and the politicians can make all the regulations they want and both they and the brewer operate in a state of virtue right?

42

The Temporary Name 08.21.14 at 7:24 pm

Thanks Dicky!

43

TM 08.21.14 at 7:32 pm

I have always been mystified by that “black hole information conservation” business. Clearly, the amount of information in the universe is not fixed – burning a manuscript destroys that information forever. Why should a black hole of all things be gentler with information than mere combustion? It’s probably just me for not understanding the intricacies of cosmology but I do understand this much, that the whole business is highly controversial among experts and that there is no experimental evidence for the conservation hypothesis.

44

chubs 08.21.14 at 7:43 pm

From what I understand, as a casually interested amateur, the deal is that physicists figured out the the idea that information can never be destroyed underpins everything else in physics. That is: the conservation of information had been an unacknowledged presupposition all along.

That also is: if information can be destroyed, then the rest of physics doesn’t hang together anymore.

In other words, it is theoretically possible to reconstruct a burned manuscript, and, if it becomes theoretically impossible to reconstruct a burned manuscript, then physics is nowhere.

45

J Thomas 08.21.14 at 8:28 pm

There are alot of approaches that could be taken towards reducing the size of business. Changes can be made into how companies are incorporated or capitalized, or we could do away with the concept of corporations entirely. Chartered businesses could be confined to one state.

Agreed. There are lots of approaches that might help, and it makes sense to me to try all of them that look mostly harmless, and try the potentially-dangerous ones one at a time until something works.

#31 Trader Joe

We did that with ATT and within about 20 years they had reconfigured themselves into – basically ATT + Verizon.

It should be an ongoing thing. When one of them doubles its size it should be required to split again. Like bacteria.

There’s plenty to fault about WalMart, but their prices are as low as they are precisely because of the scale that they have – cutting their size would not make them pay their employees more, source their goods from better 3rd world manufacturers etc…more likely the opposite.

There’s plenty to fault about WalMart, though. If they weren’t so uncompetitive, if there were, say, 16 WalMarts that competed for suppliers, there would be more of a competitive market, right? And hardly anybody argues it’s better to have one monopolist than 16 WalMarts. 32 WalMarts might be even better.

#34 Trader Joe

That said, there’s no reason to believe that 5 Small-Marts instead of 1 Wal-Mart would do anything to change the wages, sourcing and tax issues you describe.

People who believe in free enterprise should believe in competition. WalMart currently has no competition at what they do. It’s surprisingly hard to find out how many employees Walmart has, but in 2009 there was an estimate of 2.1 million and in 2013 an estimate of 2.2 million. Over 4 times the size of the next largest employer, which is also clearly too large. If Walmart was split into 8 smaller companies they would each still be among the very largest in the nation. If we had 64 Walmarts and they competed, and whenever one of them doubled its size it split, wouldn’t that be a lot more free enterprise than we have now? Who could be against that? As it is, a big chunk of our economy is not run by free enterprise, it’s run by Walmart bureaucrats deciding what to do according to their own central planning. What good is that?

By comparison Target has about 366,000 employees — still too big! — and Costco has about 100,000.

Free competition probably would not help wages while there is still such a big labor surplus. There’s no possible free-market solution to that. But other problems of businesses that are too big and uncompetitive are still worth fixing.

46

Limericky Dicky 08.21.14 at 8:39 pm

Alla barnen kom överens om att hålla tyst
Utom Brett
Han gick till polisen, för säkerhet

47

Plume 08.21.14 at 8:41 pm

Again, there is no “free market” solution to any of our economic problems. The free market IS the problem.

The key to this is that a business owner has every incentive in the world to pay workers the least possible amount, hire as few as they can possibly manage, and produce products that break down and need to be replaced.

I know the anecdotal is never proof of anything, but an example: I purchased a computer recently, the kind you put together yourself via drop down menus on a website. I selected my own parts, etc. All top of the line for their respective components. They put it together and ship it out. Overall, I got a “good deal” relatively speaking. But it hasn’t been without problems. The keyboard, for instance, from Microsoft, was made to be replaced even sooner than I expected, as the letters and numbers started fading away or disappearing altogether after roughly two weeks. All of the most common keys are now black, without the white letters and numbers. Microsoft, in the “free market” system, has every incentive in the world to push you to buy a replacement, build these products overseas where they can pay workers 70 cents an hour, cut costs elsewhere, automate jobs out of existence, and so on.

It’s baked into the system. How are you going to solve the problems of capitalism using capitalism? It’s like saying you can cure lung cancer due to cigarette smoking by tweaking the cigarettes.

48

J Thomas 08.21.14 at 9:13 pm

The key to this is that a business owner has every incentive in the world to pay workers the least possible amount,

Not necessarily a problem, unless workers are desperate for pay.

hire as few as they can possibly manage,

Not a problem at all, unless workers are desperate for jobs. Why have more people doing boring work than necessary?

and produce products that break down and need to be replaced.

This is potentially a problem. It isn’t a giant problem in the short run while we’re improving designs a lot. Why make a product that will last 50 years if it will be obsolete in 2 years? But it can become a big problem. I’m not sure what to do about it. If we start using more public-domain designs, where you pick the design you want and have it made, we will increasingly be replacing the parts that break first and replacing them with better-designed parts, and things will tend to last longer. But I don’t know whether things will head that direction.

I don’t see a problem with trying to build stuff using fewer resources — less materials and less labor. That’s a good thing. The problem is that people are desperate for jobs which are dwindling away. Fix that and cheaper products produced cheaper is not such a bad thing.

How are you going to solve the problems of capitalism using capitalism?

You don’t believe in free enterprise. But if you did believe in free enterprise, you would agree with me that it’s a good thing to set maximum sizes on corporations. Because free enterprise theory says that free enterprise works better when corporations are not too big.

If you agree with me that it’s a good thing to set maximum sizes on corporations, because you think that’s a small step toward some other good goal, then great! The more of us that agree about this one useful step, the better. We don’t have to agree about why it’s a good thing, if we agree to get it working.

49

Plume 08.21.14 at 9:30 pm

J Thomas,

Not sure how much of your post is tongue in cheek. But, of course it’s a problem that there is a large surplus army of workers, and that far too many workers make rotten pay.

As mentioned in the other thread, there is a problem of massive inequality, which capitalism can’t solve and still be capitalism. It’s built on the premise of redistributing wealth upward to ownership and concentrating as much wealth as possible at the top. That’s its reason for being.

This is clearly shown in practice as well as in theory. The bottom 75% of the country receives roughly 31% of total income. Zooming out further, the richest 20% of the world consumes 85% of our resources, and just 85 people hold more wealth than the bottom half of the world’s population.

And, no, I don’t believe in “free enterprise” in the real world, because it’s a term very much like our Clear Skies Act. It obscures a very dangerous concept/payload. It’s “free” in the sense that the tiny minority of people who ever choose to or want to own or run businesses have a far greater level of “freedom” than anyone else in our society, much greater privileges, and their “freedom” comes at far too great a cost to the rest of us and the planet. I can’t stand Orwellian terms like that. They’re meant to stifle criticism. As in, “Who could be against “freedom?”

The question always is whose freedom are we talking about here, and what are the consequences, etc.

As for capping the size of corporations. I already said that was a great idea above. And much needed. I’d rather they didn’t exist at all. But capping them is a step in the right direction.

50

Plume 08.21.14 at 9:33 pm

Sorry, that should be roughly 32.2% of total income left over for the bottom 75%. Not 31%.

51

Minor Heretic 08.21.14 at 9:59 pm

The basic problem with terms such as “free market”, “free enterprise”, and “free trade” is that they are oxymorons. A market is a set of restraints on commerce, necessary for the order and trust required for commerce. A market is, by nature and purpose, not free. The restraints are laws, made and enforced by governments. The trade in “free trade” is across national borders, which are by definition restraints.

Invocations of “free (whatever)” are special pleading passed off as an economic principle.

The difference between “free enterprise” and the tooth fairy is that in the latter case the person being lied to gets the better half of the deal.

52

J Thomas 08.21.14 at 10:09 pm

Not sure how much of your post is tongue in cheek.

I’m completely serious. Just, it’s hard to say something that isn’t already a widely-accepted idea. People tend to refuse to take it seriously because they haven’t already taken it seriously. So I want to make it fun, hoping that people who have fun with it will at least think about it a little, which they would not if they took it seriously from the start.

But, of course it’s a problem that there is a large surplus army of workers, and that far too many workers make rotten pay.

We can’t expect to solve that with what people call capitalism. But there might be ways.

I don’t claim to have the facts on the system as it is. But capitalist theory says we need to concentrate capital so we can make capital investments. And I see public companies have a lot of debt. I’ve been told they need to stay in debt so they won’t be hostile takeover targets. A company that owns too much can be bought up and forced to issue junk bonds and then let go with a lot of debt after the wealth has been sucked out.

Similarly, pension funds don’t particularly concentrate wealth to make capital investments. They have managers who gamble the money on the stock market. The winners get to gamble some more and the losers are replaced by new gamblers who try their hand. Every now and then there’s a scandal about pension funds losing money, but nobody can do anything about it so it blows over.\

Rich people can lend money to corporations for capital investment, but depending on their tax situation it may make more sense to put it into tax-free government bonds.

Banks now, banks lend money. Do they create the money out of thin air and lend it, or do they get the Fed to create the money out of thin air for them to lend? Either way, that’s where all the money comes from.

We don’t particularly have capitalists who concentrate wealth to do capital investment. We have owners who concentrate wealth because they want to own things like a Monopoly game, and we have the government creating all the money and giving it away to banks.

We don’t really have to do it that way. We could let the government lend the money just like banks do now, cut out those middlemen. The government uses the interest from all that debt to pay off the national debt, unless it prefers to borrow back money from people so it can pay them interest later. And if we decide to set up the system to that real capitalists actually do make capital investments, instead of fake capitalists play con games, that would be way better than what we have now. But it clearly isn’t necessary, since it mostly isn’t happening.

53

Jeff R. 08.21.14 at 10:10 pm

TM@42: If you had access to a compete description of the states of every single particle in the burned manuscript and environs and unlimited computational power, you could simulate the universe running time in reverse and retrieve the original state and information of the book.

This doesn’t necessarily work as well in the case of the black hole. (It also doesn’t work as well when you freeze the remnants of the book down to levels close to absolute zero, for the same sorts of reason, but there may be loopholes where the information makes its way into the waste heat of the refrigeration process or something in that case that aren’t obviously present for singularities.)

54

J Thomas 08.21.14 at 10:12 pm

#49, Minor Heretic

The difference between “free enterprise” and the tooth fairy is that in the latter case the person being lied to gets the better half of the deal.

Regardless, people who believe in free enterprise should agree to set a maximum size on corporations and encourage competition by getting them to split up when they get too big.

Do you agree with that even though you don’t believe in free enterprise? The more of us that agree on the action, even if we disagree about why to do it, the better!

55

geo 08.21.14 at 10:15 pm

Brett @27 Advocates of the free market are aware that businessmen themselves are some of the free market’s worst enemies.

Has this awareness been reflected in any legislation supported by a majority of Republican legislators since 1980?

56

Brett Bellmore 08.21.14 at 11:26 pm

“”the deal is that physicists figured out”

The deal is that some physicists have asserted…

“If you had access to a compete description of the states of every single particle in the burned manuscript and environs and unlimited computational power, you could simulate the universe running time in reverse and retrieve the original state and information of the book.”

Actually, no, thanks to quantum indeterminacy, you couldn’t. At that level the laws of physics are statistical, any given, completely described state can result in, and result from, a large number of later or prior states.”

“Has this awareness been reflected in any legislation supported by a majority of Republican legislators since 1980?”

What part of advocates of the free market did you miss. You don’t get many of those in government. It’s not where somebody who likes the free market will typically wind up.

This is the part, of course, where you cry, “No true Scotsman!”, and I point out that there really are people who aren’t Scotsmen.

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Jeff R. 08.21.14 at 11:59 pm

@56: Printed words in a book are informationally redundant enough to beat quantum effects for a good long time. Certainly good enough for the purposes of the thought experiment in question. Or you can assume that the computer has access to the hidden variables, whether local or nonlocal, or if you’re going multiple worlds, since it’s already absurdly powerful to begin with, let it look at all of the possible ones. Still more than you can do at a black hole, since Hawking radiation is pure, random quantum noise that really shouldn’t have any connection to the history of the hole.

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mattski 08.22.14 at 12:54 am

What part of advocates of the free market did you miss.

This intriguing response to geo prompts a few questions:

1 Do “advocates of the free market” vote? (Especially advocates of the free market who are unimpressed by low-information voters.)

2 Do “advocates of the free market” know a free market when they see one? (Have you ever seen one, Brett?)

3 Do “advocates of the free market” eschew government because they know a better way to get what they want? What would that better way be?

59

Plume 08.22.14 at 1:57 am

Like Mattski and others, I’d be very curious to know what Brett thinks is meant by “free market” or “free enterprise” or “free trade.”

There are obvious conflicts involved with the words in question. And, again, who or what is “free” in the various equations?

Can a company exist without government in the capitalist system? Is it recognized as such? Are its business operations recognized as legal without government? When it does business, what is the currency of exchange, the store of value, the method of accounting? Who prints that and sets the value of that currency? Is it set by the participants in the trade, and for that moment in time, only? Or is there a standard to which business and consumers adhere? Is there a standard for international transactions? Who controls or “governs” that? What is “free” about commercial arrangements that are so dependent upon those standards, not to mention endless taxpayer supports, including R and D, public infrastructure, education, transportation, courts, police, fire and rescue, treaties, trade agreements, wars to keep the shipping lanes open and trillions in bailouts, etc. etc.?

In short, how do the supposed “advocates of free markets, free trade and free enterprise” define those things?

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J Thomas 08.22.14 at 3:41 am

There are obvious conflicts involved with the words in question. And, again, who or what is “free” in the various equations?

I have studied this some. It is an incomplete philosophy, and because it is incomplete everybody involved can be free.

Kind of like feudal chivalry. Everybody has rules of behavior they are supposed to follow. It says what the rules are, and it does not particularly say what to do when other people break the rules.

With free enterprise, you know who you are dealing with, and you know what property is yours and what is theirs. Knowing that, you can swap stuff when both agree. Nobody ever forces somebody else or stops somebody else from doing stuff, except of course they would not think of touching your property without your permission and you would not touch theirs. When everybody agrees what the rules are and everybody follows them, then everybody can trade freely.

If they disagree what the rules are, or if they disagree whose property belongs to who? Then it starts breaking down. Maybe there’s violence, or maybe people can agree on a way to settle disputes without violence. But that’s outside the system which works while people agree.

Can a company exist without government in the capitalist system?

Sure, why not?

Is it recognized as such?

Put it this way. If I say I have a limited-liability company, and you say you want me to personally back my company’s debts to you, then either we work out a deal that’s OK with both of us, or we don’t do business. It’s recognized by all the people who recognize it and who do business with it on that basis.

Are its business operations recognized as legal without government?

People who agree what the company owns, can trade with it. If they disagree about ownership then they need to work out that disagreement somehow, and if the method they use to decide or enforce a solution involves coercion then it’s outside the scope of the incomplete system.

When it does business, what is the currency of exchange, the store of value, the method of accounting?

Whatever is convenient. In some times and places, people have lacked money and done their accounting with accounting-books. They did deals that might involve thousands of ounces of gold when there weren’t a hundred ounces of gold in the whole community. But they were really trading in kind and the gold was just an accounting fiction.

My grandfather used to run a country store up in the mountains. He did most of his business on credit. He had a big safe and he ran an unchartered bank. At the end of every year, between Christmas and New Years he would settle up all his debts. There’s a story that one year he took a roll of bills that would choke a horse, and he went to pay all his debts, and somehow he lost the money on a mountain road. He walked that road until he found it. Mostly nobody had much cash, and what he paid quickly wound up back in his safe or somebody’s safe.

People can run their accounting entirely on paper if they trust each other. And when they depend on that, it doesn’t pay to cheat. What you get out of cheating people isn’t worth much if the system breaks down.

Who prints that and sets the value of that currency?

When it’s people who know and trust each other, that isn’t very important. One of my aunts told me that my grandfather used to make cardboard coins he distributed. But my father said that was ridiculous. They moved out of the mountains when he was six so I’m not sure he knew.

Is there a standard for international transactions?

If you have nations and trade between them, then unless it’s all smuggled the nations will get involved. That’s outside the scope of capitalism.

What is “free” about commercial arrangements that are so dependent upon those standards, not to mention endless taxpayer supports, including R and D, public infrastructure, education, transportation, courts, police, fire and rescue, treaties, trade agreements, wars to keep the shipping lanes open and trillions in bailouts, etc. etc.?

When two people choose to make a trade or not make a trade, without coercion, just between the two of them, that’s a free market. If they do it in front of a bunch of other people who can make their own offers on either side, that’s even better. People can agree to do that sort of thing, and agree what the rules of the game are. When it comes to government courts to enforce rulings on people who don’t agree about the rules, or for that matter to require trades or forbid trades against the traders’ wills, when some people are doing piracy or blocking trade routes while others are fighting to keep them open, when some businesses are getting subsidies paid for by taxpayers, etc etc etc, that’s outside the scope of the philosophy. It all happens. People can disapprove.

If some people decide they want to be vegetarians, and they grow vegetables and trade them with each other and have some communal meals etc, that’s their business. If they decide that nobody should eat meat and they try to rescue meat animals from their owners and kill carnivores etc, then some other people will fight them. Free markets are supposed to be about ways that people can choose to interact, but it isn’t clear how to enforce free markets on people who don’t want them. I don’t think there’s very much in the theory about how to deal with that.

Herodotus wrote about phoenician sailors who traded up and down the coast. They’d set out their wares on the beach, and people would trade entirely consensually. But then a princess came to look at their stuff with her handmaidens, unguarded, and the sailors grabbed the girls and sailed away quick before anybody could catch them. They looked into selling the girls for ransom or selling them to the highest bidder, elsewhere. The boundary between free trade versus grabbing what you could get and running like hell was not completely inviolable even back then.

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chubs 08.22.14 at 4:45 am

“The deal is that some physicists have asserted…”

No.

They have shown that if information is not conserved then time doesn’t work the way that physics now believes it to work, and, if physics is wrong about time in this way, then it is wrong about pretty much everything, even at the classical level.

Look, as someone who doesn’t really have mastery over this topic, I can see when someone else has even less. The beads of sweat are forming on your upper lip. Your saying that the conservation of information is an assumption physicists make wrongly and foolishly in the face of your caricature of their own understanding of quantum uncertainty is clear evidence that you’re grasping beyond your ken.

I mean: you’re actually saying that the very people responsible for developing quantum mechanics don’t understand the implications of their own work as well as you do.

I don’t get why anyone would behave this way.

62

jkay 08.22.14 at 8:43 am

I like the Smith in support too, because he was LIBERAL and SOCIALIST PINKO. He wrote lots of pay is best, so he rightly didn’t like aristocracy.

Oh, but Reagan’s our only God, I forgot.

63

TM 08.22.14 at 1:09 pm

chubs 44: “physicists figured out the the idea that information can never be destroyed underpins everything else in physics”.

But information isn’t even a physical concept! At least when I learned information theory (and physics), it wasn’t. Your statement is either very interesting or completely cranky. Do you have any references for that claim?

JeffR 53: What you are describing is explicitly forbidden by quantum uncertainty! (OMG – I’m agreeing with BB!) There is no known physical process that would retrieve the information from the burned manuscript.

57: “Printed words in a book are informationally redundant enough to beat quantum effects for a good long time.” How long, like, a microsecond? In any case, for information conservation to work as a law of physics, a “long time” isn’t enough.

And how do you explain the writing of the manuscript in terms of information conservation? Somehow, the information already existed at Big Bang? What about the law of entropy?

chubs 61: Let’s not resort to authority. If you can explain this, please do. If you can’t, say so. You shouldn’t be surprised that extraordinary claims are met with skepticism, especially in the absence of extraordinary evidence.

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mattski 08.22.14 at 1:14 pm

J Thomas, @ 54 you write:

Regardless, people who believe in free enterprise should agree to set a maximum size on corporations and encourage competition by getting them to split up when they get too big.

If a size limit is imposed on corporations then how can this be described as “free?”

@ 60 you write:

I have studied this some. It is an incomplete philosophy, and because it is incomplete everybody involved can be free.

What does this mean? Are you being careless with words?

Seems to me you haven’t really gotten a handle on Minor Heretic’s point about free markets being an oxymoron.

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ZM 08.22.14 at 1:18 pm

I think when physicists use ‘information’ like that they mean character. Like all the atoms of your body remember the information to keep being your body and not turn into the chair when you sit down on a chair.

With the diamond demonstration I think they teleported the character of one diamond on to a different diamond removed in distance.

(Disclaimer: My understanding could be wrong since it is hard to make sense of physicists)

66

Collin Street 08.22.14 at 1:43 pm

I don’t get why anyone would behave this way.

Because he has a fucking mental health problem, is why he does this.

What more do you want, a note from his mother in purple crayon?

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J Thomas 08.22.14 at 2:02 pm

“Regardless, people who believe in free enterprise should agree to set a maximum size on corporations and encourage competition by getting them to split up when they get too big.”

If a size limit is imposed on corporations then how can this be described as “free?”

Free enterprise is a game, played with rules. It’s possible to argue that the rules of the game make it fair. And having it be fair is one of the major reasons to play that game instead of some other game.

(Another possible reason is that it might reward everybody more than other games, even if the rewards are dramatically uneven.)

One of the fundamental arguments in favor of free markets is that nobody gets coerced. If two people both feel like they’re better off to make a trade, they do it. If they don’t think they’re better off, they don’t make the trade. Nobody is forced to do something they’d rather not do, because the other guy threatens to do something bad to them.

And given free competition, everybody is encouraged to do things better and more efficiently. If you have more stuff people want that you can trade, then you benefit and so do they.

But the difference between free enterprise with businesses that can have unlimited size compared to free enterprise with a limit on size, is a whole lot like the difference between no-limit poker and poker with a limit. With no limit, the player who starts out with a much bigger stake has a great big advantage and he can clean out the other players faster than he could through skill alone. With a limit, it takes him a lot longer and more skillful players might even get ahead if his skill is not good enough.

If businesses are allowed to grow without limit, then it might easily turn out that a business that achieves a monopoly in one area then uses the capital it acquires from monopoly to get monopolies on other products too. It could eventually become practically the only business surviving, like the USSR government. That would not be a good thing.

But if companies split up when they get too big, then they can compete with each other as well as any other competitors. When one business was run so well that it doubled in size, two businesses at the original size which both inherit the methods are likely to both double again, and four companies can all double again, until the other, inefficient, competitors are gone. This is a good thing.

Free competition allows businesses with good practices to grow, and spread. If they have stockholders who get stock in both daughter companies, the stockholders should do well too. Maybe not as well as they would from giant monopolies that are good at sucking money from suppliers and customers, but true value for their money.

Free markets work better when people actually have choices. Monopolies don’t give choices to people who trade with them. And when two monopolies need to trade, there is no market to indicate reasonable prices to them. They are on their own, they can try to intimidate each other or trick each other, there is no free market, there is only them.

It’s possible to apply the word “free” to mean that there should be no rules. But that’s silly. When there are no rules, the biggest army usually wins, perhaps in a series of bloody victories, usually followed by some sort of dictatorship. That isn’t freedom. People play the game with rules they agree to.

I usually want poker with a reasonable limit because I usually don’t have a much bigger stake than the other players. And I like it better when skill is the main thing, and not wallet size.

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J Thomas 08.22.14 at 2:04 pm

Dammit, I forgot the keyword moderation. 2nd try.

“Regardless, people who believe in free enterprise should agree to set a maximum size on corporations and encourage competition by getting them to split up when they get too big.”

If a size limit is imposed on corporations then how can this be described as “free?”

Free enterprise is a game, played with rules. It’s possible to argue that the rules of the game make it fair. And having it be fair is one of the major reasons to play that game instead of some other game.

(Another possible reason is that it might reward everybody more than other games, even if the rewards are dramatically uneven.)

One of the fundamental arguments in favor of free markets is that nobody gets coerced. If two people both feel like they’re better off to make a trade, they do it. If they don’t think they’re better off, they don’t make the trade. Nobody is forced to do something they’d rather not do, because the other guy threatens to do something bad to them.

And given free competition, everybody is encouraged to do things better and more efficiently. If you have more stuff people want that you can trade, then you benefit and so do they.

But the difference between free enterprise with businesses that can have unlimited size compared to free enterprise with a limit on size, is a whole lot like the difference between no-limit pcker and pcker with a limit. With no limit, the player who starts out with a much bigger stake has a great big advantage and he can clean out the other players faster than he could through skill alone. With a limit, it takes him a lot longer and more skillful players might even get ahead if his skill is not good enough.

If businesses are allowed to grow without limit, then it might easily turn out that a business that achieves a monopoly in one area then uses the capital it acquires from monopoly to get monopolies on other products too. It could eventually become practically the only business surviving, like the USSR government. That would not be a good thing.

But if companies split up when they get too big, then they can compete with each other as well as any other competitors. When one business was run so well that it doubled in size, two businesses at the original size which both inherit the methods are likely to both double again, and four companies can all double again, until the other, inefficient, competitors are gone. This is a good thing.

Free competition allows businesses with good practices to grow, and spread. If they have stockholders who get stock in both daughter companies, the stockholders should do well too. Maybe not as well as they would from giant monopolies that are good at sucking money from suppliers and customers, but true value for their money.

Free markets work better when people actually have choices. Monopolies don’t give choices to people who trade with them. And when two monopolies need to trade, there is no market to indicate reasonable prices to them. They are on their own, they can try to intimidate each other or trick each other. There is no free market, there is only them.

It’s possible to apply the word “free” to mean that there should be no rules. But that’s silly. When there are no rules, the biggest army usually wins, perhaps in a series of bloody victories, usually followed by some sort of dictatorship. That isn’t freedom. People play the game with rules they agree to.

I usually want pcker with a reasonable limit because I usually don’t have a much bigger stake than the other players. And I like it better when skill is the main thing, and not wallet size.

69

mattski 08.22.14 at 2:39 pm

I usually want pcker with a reasonable limit because I usually don’t have a much bigger stake than the other players. And I like it better when skill is the main thing, and not wallet size.

Me too. See comment # 28 on this thread.

My point was, we call it a “free market” but the reason it works well is because it’s not really free. It works well–when it does–because people follow the rules. And the rules are subject to change. Some rules work better than others. Some rules may help some players at the expense of other players thus precipitating political battles, etc. Hopefully, a majority of the population thinks the rules are fair. But it is virtually guaranteed that some members of society will perceive some of the rules as TYRANNY.

And that is why there is no such thing as a “free market” although for the sake of rhetorical clarity I think it might be sensible to distinguish “free enterprise” from free markets with the understanding that free enterprise takes the existence of rules and their enforcement as a necessary condition for commerce.

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Belle Waring 08.22.14 at 3:24 pm

Brett Bellmore: You have piqued me. My ire overcomes my guilt at not having posted lately. “This is the part, of course, where you cry, “No true Scotsman!”, and I point out that there really are people who aren’t Scotsmen.” To this, and to you assertions about quantum physics, I can only say, shut the fuck up, Brett.

71

J Thomas 08.22.14 at 3:37 pm

#69 Mattski

Mattski, I agree with you right down the line. Except that I’m not sure it’s worth changing the names things are labeled to make the names more descriptive. It mostly causes confusion in the short run when we try to do that. Possibly the long-run results are worth it? I doubt it, but possibly.

Like, to me North Korea looks like mostly a traditional kingdom, a lot like a traditional korean kingdom. But they insist on calling it the Democratic People’s Republic of Korea. If we were discussing it with some north koreans, and they insisted on calling it that and each time we insisted that it should really be called the Marxist Kingdom of North Korea, I doubt it would help further the discussion.

Hopefully, a majority of the population thinks the rules are fair. But it is virtually guaranteed that some members of society will perceive some of the rules as TYRANNY.

In theory, if you don’t like a particular free market you should be free to find some other market to buy and sell in. You are free to follow the rules or make up your own game and persuade others to play with you.

In practice, if you find another market it will usually be smaller, and it will offer you worse deals because when prices change on the larger market the smaller market must follow the larger market’s lead with a time delay — which loses them money to arbitraders unless they rig the odds to stop that. It’s arbitragic. If you think about it too much you may feel arbit rage.

It’s sad, but if freedom means you get to do whatever you want no matter what anybody else thinks about it, you really need to own a lot of land with no neighbors.

72

Plume 08.22.14 at 4:44 pm

Mattski @68,

My point was, we call it a “free market” but the reason it works well is because it’s not really free. It works well–when it does–because people follow the rules.

You’ve somewhat qualified the “works well” assertion, but I think you still leave a false impression here of the system’s effectiveness. There is no evidence to support the idea that “free markets,” as they have been so far constructed and implemented, “work well.” Unless by that you really mean “works well for a tiny fraction of society, and an even smaller fraction of the world overall.”

Piketty’s book shows that. Marxian economists and critics have been proving that to be the case for more than a century. As mentioned before, even liberal economists show that on a daily basis — the Stiglitzs, Krugmans, Bakers and Quiggins of this world — though they don’t really follow the logic of their own critique, because they remain supporters of the system when all is said and done.

Would be interested in your fleshing out the part implied by “when it does.”

73

mattski 08.22.14 at 6:09 pm

Plume,

Unless by that you really mean “works well for a tiny fraction of society, and an even smaller fraction of the world overall.”

Would you care to put a number to “tiny fraction?”

74

Plume 08.22.14 at 6:39 pm

Well, in America, the richest 400 hold more wealth than the bottom 60% of the country combined. The bottom 75% takes in just 32% of all income, while the top 1% is in the 20% range. Our median income for individuals (not households*) is roughly 28K. Roughly 90% of Americans make less than 100K a year. One family, the Waltons, holds more wealth than the bottom 40% of the country combined. The top 1% holds 42% of all wealth in America.

*Households include all the people under that roof, so it’s not the best indicator of income or wealth.

Though it depends on where you live and the size of your family, of course, I’d say a very conservative cutoff point for “works well” would be that six figure mark. That’s just 10% of the country, and one could argue that 100K is insufficient for that designation. A more flexible number is probably in the range of 250K for individuals, and that puts a person roughly in the top 1%. Perhaps we could split the difference and go with 5%.

(I’m using “roughly” here a lot because there is some minor give or take involved, depending upon the sourcing. But it’s not significant.)

75

mattski 08.22.14 at 6:54 pm

Plume,

I make less than 50K and yet I feel I’m able to live a decent life. That is anecdotal evidence, but it suggests your “tiny fraction” is hyperbole. And since I’m pretty familiar with your opinions I’m confident that it IS hyperbole.

As a craftsman and sole proprietor operating in a basically unfettered market I find that I’m able to make a reasonable wage, and I’m able to distinguish myself from competitors who offer lower prices but inferior quality. I make a modest living but the market works pretty well for me. Fwiw.

76

Brett Bellmore 08.22.14 at 6:55 pm

“Well, in America, the richest 400 hold more wealth than the bottom 60% of the country combined. “

As I think I’ve pointed out before, the people running the government want it this way, for their own convenience. Fewer points of control in the economy, ease of extracting rent.

If you ran a dairy, which would you prefer to milk? A cow, or 25,000 mice? Why, the cow, of course.

But that doesn’t mean that the dairy is run for the convenience of the cow. It’s run for the convenience of the farmer.

The political class are the farmers, in America. They don’t eat the grass, they milk the cows. The wealthy are the cows.

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mattski 08.22.14 at 7:03 pm

even liberal economists show that on a daily basis — the Stiglitzs, Krugmans, Bakers and Quiggins of this world — though they don’t really follow the logic of their own critique, because they remain supporters of the system when all is said and done.

Here’s what I see: I see a person whose heart is in roughly the same place as Stiglitz, Krugman, Baker & Quiggin, but who thinks he knows better than they do. I think Joe, Paul, Dean & John know better.

78

J Thomas 08.22.14 at 7:04 pm

There is no evidence to support the idea that “free markets,” as they have been so far constructed and implemented, “work well.”

You may be expecting too much of them.

Ignoring the question whether people deserve to have the things they trade, a market links up buyers and sellers. That’s it.

Buyers and sellers get to see the going rate. Sellers who see the going rate requires them to sell at a loss, find they can’t afford to keep selling. They will go do something else. Buyers who can’t afford the product learn to get by buying something else. This provides feedback that people can use to make choices.

In practice, it tends not to work so well. A simple simulation model will show why. When new buyers and sellers enter the market according to an exponential distribution, their numbers will randomly get out of proportion. Sometimes there are an excess of buyers, other times an excess of sellers. Other things equal, the price will jerk up and down randomly, so that one buyer gets a good deal and very soon another buyer gets a very bad deal. Buyers and sellers can handle that by sitting and waiting for their time, never knowing how long it will take.

In practice markets are dominated by market-makers. Somebody who can store the product, buys when the price is low and sells when it is high. The market runs smoother because of him. Prices don’t jump around as much. He can get a nice profit for doing this, too. He can get a great big profit, though he takes some risk.

Many markets are so totally dominated by market-makers that traders are officially not allowed to trade with each other — all transactions are done with the market-maker and nobody else. He makes a lot of money off the trades.

Well, but you could start your own market and compete with him, right? Ah, you’ll do very well once your market is bigger than his. While his is the big one, he can push prices up or down at will, and you must stumble along trying to follow him. You lose until you have grown bigger than him. All you have to do is keep losing money and making it up on volume, until….

Supply-and-demand does strange things when it’s markets themselves competing. Just like a dating service or a singles bar, what the market itself is selling to its customers is other customers. Men generally want the singles bar that has the most women in it, right?

Sometimes market-makers can manipulate prices and win *big!*. Sometimes they try and fail and go bankrupt, and must let somebody else have a turn doing the same thing. Sometimes conditions aren’t right to let them manipulate, but when it works…. Is this what we want a market to do? Well, it could be argued that the people who gamble on the crooked games are fools, and it’s good for the economy to efficiently separate fools from their money. I don’t like it.

Despite the occasional obvious pricing failures (failures if you assume there is a purpose to provide useful prices to people who would benefit by knowing), free markets that are infested by market-makers still do a better job of feedback than command economies that refuse to accept feedback. So that’s something. If those are the only two alternatives you’re willing to consider, then free markets are the best. Meaning, they can’t possibly be the worst but could perhaps be the second-worst.

79

The Temporary Name 08.22.14 at 7:10 pm

The political class are the farmers, in America. They don’t eat the grass, they milk the cows. The wealthy are the cows.

That is desperately weird.

80

Ze Kraggash 08.22.14 at 7:49 pm

Nah. The rich are farmers, the political class are their PR department, we are the cows.

81

mattski 08.22.14 at 8:02 pm

That is desperately weird.

Thank you!

82

Plume 08.22.14 at 8:04 pm

Mattski,

Here’s what I see: I see a person whose heart is in roughly the same place as Stiglitz, Krugman, Baker & Quiggin, but who thinks he knows better than they do. I think Joe, Paul, Dean & John know better.

It’s not a matter of “knowing better.” That, of course, echoes the right’s talking point, “you think government knows better.” As if some unfounded claim of “elitism” of one kind or another is argument enough. It’s also a sort of passive-aggressive attempt to stifle debate.

As I’ve mentioned before, I think liberal economists see many of the problems inherent in capitalism. Of that group, I’d say Stiglitz “gets” the ravages of inequality the most. But they just can’t break free of the idea that the system that perpetuates inequality, deepens it, extends it, and accelerates our date with ecological Armageddon, is the only system possible. That it somehow makes sense to keep the system that causes the problems (in the first place) they realize need fixing.

Richard D. Wolff is excellent on the topic of the difference between economists who are celebrants of the system in place, and those who are critical of that system. His decision to study Marxian economics was based on the realization that a critical stance was essential for understanding how a system actually works, whereas the assumption that it is the only game in town is detrimental to an accurate understanding, etc. Wolff, as a leading Marxian economist, is also generous and “catholic” in discussing the importance, for purposes of a healthy education, in studying both celebrants and critics. I recommend his books highly. Though if you are pressed for time, his YouTube videos are excellent as well.

83

Plume 08.22.14 at 8:06 pm

Mattski,

That said, would still like to know what you mean by “works well,” or “when it does,” etc. etc. I answered your question regarding percentages. Would now appreciate the fleshing out of your assertion.

84

mattski 08.22.14 at 8:13 pm

Plume,

“Works well” means goods get to market. “Works well” means goods change hands, they don’t just sit on shelves. “Works well” means innovation leads to better goods, less costly goods. Note: just because there is lots of cheap dreck on the market doesn’t mean quality goods are not also available. But they cost more as they should.

I’ll grant you that surviving on minimum wage is tough. If you don’t have money in your pocket then the market doesn’t do you much good. But if you can manage a middle class income then your money can buy quite a bit of good stuff.

85

J Thomas 08.22.14 at 11:33 pm

#76 Brett Bellmore

The political class are the farmers, in America. They don’t eat the grass, they milk the cows. The wealthy are the cows.

#79 The Temporary Name

That is desperately weird.

#81 Mattski

Thank you!

You are Brett Bellmore’s sock puppet?

Or are you thanking The Temporary Name for saying Brett’s claim is weird?

86

J Thomas 08.22.14 at 11:52 pm

#84 Mattski

So, a free market provides an opportunity for traders to trade.

“Works well” means goods get to market.

Traders actually try to trade.

“Works well” means goods change hands, they don’t just sit on shelves.

They find each other.

“Works well” means innovation leads to better goods, less costly goods.

They don’t get stuck providing “standard” products, except when they do. (Commodity markets tend to produce standard stuff. If you buy a railroad car of wheat it should be no better and no worse than another railroad-car of wheat. So if a car has extra-good wheat, they mix in enough bad wheat to bring it down to meet the standard.) If you produce something better, you want to differentiate the market, arrange to sell it as something special and not a commodity. And you can be rewarded for making things cheaper. If you work for a big business they may easily decide to keep the price the same because (for example) they want the product to fit into its proper place in a line of products, an elite product at a high price, a good product for a pretty high price, an adequate product at a moderate price, a mediocre product for an average price, and a nearly-worthless product for a below-average price. If your product is too cheap then it will cut into profits at the next-lower level. But you still can be rewarded for bringing in more profit even if your product is not less costly for buyers.

A market succeeds if people choose to use it to buy and sell, and it doesn’t somehow discourage them from innovating.

Does this seem like a very low bar? I think so. And yet, when markets compete head-on, one will tend to win the whole thing. A second market can survive if location matters, and it can serve its local area better than a distant market, or if it trades at times the main market is closed, or if it accepts trades from people who have been thrown out of the main market, or if government intervenes to help it survive.

It follows that the market most people choose must be the best market, just like the winner of a no-limit pcker game must be the best pcker player.

87

chubs 08.23.14 at 12:53 am

TM @63

“Do you have any references for that claim?”
” Let’s not resort to authority. “

Are you saying this? Is this real? Is it real life?

Or are you slyly performing your own brand of information paradox?

In any case, the most straightforward way to learn about this issue is to read about…the black hole information paradox.

You know, when I jumped into this conversation, I thought that the people on the side of information loss were taking an informed (ha ha) position on this well-known dispute, but it seems to have been the case all along that you’re a bunch of guys, who, having read no physics, simply decided what ‘information’ means in physics and that physicists are wrong about it.

Again, I find it extremely puzzling that someone would behave this way. And I have lost all interest in the conversation.

88

Layman 08.23.14 at 1:03 am

@ mattski

“I make less than 50K and yet I feel I’m able to live a decent life. That is anecdotal evidence, but it suggests your “tiny fraction” is hyperbole. And since I’m pretty familiar with your opinions I’m confident that it IS hyperbole.

As a craftsman and sole proprietor operating in a basically unfettered market I find that I’m able to make a reasonable wage, and I’m able to distinguish myself from competitors who offer lower prices but inferior quality. I make a modest living but the market works pretty well for me. Fwiw.”

‘Tiny fraction’ may indeed be hyperbole, but at $50k you’d be earning more than 75% of your fellow citizens, and nearly double the median income. Which suggests that even if it ‘works for’ you, you may be in quite a small minority…

89

mattski 08.23.14 at 3:23 am

J Thomas,

You are baffling me. I wish I knew what you are trying to say.

Layman,

First, I said I make less than 50K. Second, please provide a cite. Thanks.

90

J Thomas 08.23.14 at 4:36 am

#89 Mattski

You are baffling me. I wish I knew what you are trying to say.

I am recommending a fun game to you. It can be an educational game, but it is really fun.

It helped me learn how to do effective “inductive reasoning”. Most people are not very good at that, because they don’t practice much.

In the game, the dealer makes up a rule that decides which cards will play successfully and which will not. The other players try to guess what the rule is. They get ideas what it is and test them. And if you play and watch what the other players do, especially when you are the dealer, you will see that they instinctively play the cards that are most likely to confirm their ideas!

And then you might sometimes see somebody who keeps his hypothesis even after it has been disproven once! “It was just a fluke.”

See, it’s easy to make up a rule that’s partly right, or that wins a lot when other people have similar ideas which cards will play. When you play the cards that fit your rule or that don’t fit it at all, you don’t learn much when you are right. There’s an art to playing the cards that are most likely to surprise you.

Really and truly, I’m more interested in recommending this game than I am in insulting you.
Insults are kind of fun, but they don’t accomplish anything at all except to improve group cohesion against outsiders, which is not a worthy purpose for me. I kind of feel like apologizing for my previous insults. I enjoyed it, but I wasn’t being the person I want to be.

Anyway, I hope you’ll try out this fun game.

91

Layman 08.23.14 at 3:09 pm

mattski @ 89

“First, I said I make less than 50K. Second, please provide a cite. Thanks.”

Yes, I understood that, but I assume you chose the upper bound for a reason, e.g. That if you actually made less than 45K, or 40K, you’d have used those numbers.

Try the Wikipedia article on personal income in the United States. Read the section on income distribution.

http://en.m.wikipedia.org/wiki/Personal_income_in_the_United_States

92

Plume 08.23.14 at 6:40 pm

Mattski @75,

I overlooked this post:

As a craftsman and sole proprietor operating in a basically unfettered market I find that I’m able to make a reasonable wage, and I’m able to distinguish myself from competitors who offer lower prices but inferior quality. I make a modest living but the market works pretty well for me. Fwiw.

It’s ironic, of course, but you are exactly the kind of person who would benefit most from a change in the system. And the things I talked about earlier would greatly improve your lot. Leaving aside the suggestions regarding points, or even the structure of rotational civic duty (and full democratization), and focusing just on the mode of commerce . . . the society I envision is one of craftspersons, artisans, artists, teachers, small farmers, local markets, etc. etc. Sole proprietors who use the C-M-C and use-value model as opposed to the M-C-M and exchange-value model.

You are not a capitalist, if you are a sole proprietor, though you no doubt buy from and sell to capitalists. You do not make your living through the appropriation of surplus labor value, as you are your own labor force.

The more you reveal about your own situation, the less I’m able to understand regarding your support for a system that marginalizes what you do — and oftentimes seeks to crush you. Capitalism got its start by crushing craftspersons, farmers, local markets (and the masses in general), again, as shown by Michael Perelman in The Invention of Capitalism.

93

mattski 08.23.14 at 6:40 pm

Layman,

I used 50K because it’s a round number. My income fluctuates, but after looking at some data I would say I’m in the top 33%. I don’t think that qualifies as “quite a small minority.” But why are we quibbling? Did you think I was defending the status quo?

94

mattski 08.23.14 at 6:43 pm

Plume,

Well, we double-posted, so maybe we’re connected on the astral plane!

I love where your heart is, I just can’t get where your head is. Peace, brother.

95

Plume 08.23.14 at 6:48 pm

Mattki,

More than 75% of the population makes less than 50K, so if you’re in the top 33%, that would obviously put you well above that figure.

To me, it’s nothing less than obscene that our economic system generates incomes of more than a billion for a tiny few, whereas roughly 93% makes less than 100K.

I continue to be amazed that anyone can look at the data and not be appalled by the grotesque levels of inequality endemic to the capitalist system.

96

Plume 08.23.14 at 6:49 pm

Mattski @94,

Fair enough. Thanks for the good words. And, yes, peace.

Again, I really do respect what you do as a craftsperson and a sole proprietor.

97

mattski 08.23.14 at 6:50 pm

More than 75% of the population makes less than 50K, so if you’re in the top 33%, that would obviously put you well above that figure.

I think your math is wrong there.

98

Plume 08.23.14 at 7:02 pm

Mattski,

Whoops.

You’re right. I should have given up while I was behind.

99

Layman 08.23.14 at 7:42 pm

mattski @ 93%

I don’t mean to quibble – just pointing out that whether or not the market ‘works well’ for you, your experience isn’t the typical one.

100

mattski 08.23.14 at 8:17 pm

Layman,

The distribution of income/wealth today is pretty bad, I agree. But a ‘market economy’ isn’t defined by today’s conditions. We had a market economy in the 50’s & 60’s that worked substantially better for the population as a whole.

To paraphrase Lee Arnold from another thread, what we’re after is some sort of mixed economy. There’s no need to poop on markets. Rather, we need to shore up the social aspects of the system.

101

Brett Bellmore 08.24.14 at 11:16 am

We HAVE “some sort of mixed economy”. The argument is over whether the problems derive from the free market part of it, or the regulation part.

My own view is that the political class are deliberately driving us in the direction of greater income inequality, because it is useful for their purposes. More dependent people to buy the votes of by supporting them, fewer wealthy people to concentrate tax and rent extraction efforts on.

102

mattski 08.24.14 at 11:29 am

Brett, debating you is a lark because you’re a crazy motherfucker. But having said that,

There isn’t any such thing as a ‘free market.’

QED

103

Brett Bellmore 08.24.14 at 11:36 am

True, a free market is kind of a limiting case never seen in the real world. Like a “command economy”, which never completely exists, because of black markets and the like.

It still represents a useful abstraction, though.

104

Layman 08.24.14 at 1:25 pm

@ mattski

“The distribution of income/wealth today is pretty bad, I agree. But a ‘market economy’ isn’t defined by today’s conditions. We had a market economy in the 50′s & 60′s that worked substantially better for the population as a whole.”

We tend to wax nostalgic about the past, remembering the good while forgetting the bad. Generally speaking, income / wealth distribution was better in the 50’s & 60’s than now, but the poverty rate seems to have been a whole lot higher. I say ‘seems to have been’ because there’s not much solid data on it prior to 1960, but the curve from then on implies that something like 1 in 4 Americans lived in poverty in the 50s. Hardly paradise!

But I agree we need a mix.

105

Layman 08.24.14 at 1:30 pm

Brett Bellmore @ 101

“My own view is that the political class are deliberately driving us in the direction of greater income inequality, because it is useful for their purposes. More dependent people to buy the votes of by supporting them, fewer wealthy people to concentrate tax and rent extraction efforts on.”

Some questions:

1) Who are the political class?
2) What mechanisms do they use to force CEOs and hedge fund managers to keep more?
3) Do they have a clubhouse? Secret handshake?

106

mattski 08.24.14 at 2:26 pm

Hardly paradise!

We agree!

:^)

107

mattski 08.24.14 at 2:29 pm

It still represents a useful abstraction, though.

Yes, I agree. But let’s not make an idol out of it.

(And btw, Brett, thanks for not taking too much offense with my bad language.)

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