“Utilitarianism, with the potentially left-wing bits stripped out”

That second link 404’d on me.

Second link in the post appears to be broken.

The second link doesn’t go anywhere.

re: 3 , how does having the same money as germany get rid of the mafia and corruption? So far the ECB seem to have had no success solving this problem or any other.

As is common, I think utilitarianism is being used as a boo-word for consequentialism in general.

That said, I think O’Rourke is on to something. A couple of points:
(i) Exactly the same argument can be, and has been, made to claim democratic legitimacy for the Communist Party in China
(ii) The problem (obvious in China, but increasingly evident in the EU) is that, once people cease to view the consequences as sufficiently good to require no change, there’s no democratic way to change things. Either the existing dictatorial state rules by force, or the system collapse

This is for everyone on this website but especially John Q and Henry – what do you make of the argument that the whole point of the New Welfare Economics (Praeto optimality as criterion for policy etc.) is to create a form of watered down utilitarianism which is compatible with technocratic capitalism- a framework to enable economic management which is ostensibly value neutral, and quantitatively tractable- yet really prioritises the good of accumulation over all other goods.

I guess what I am saying is that this watering down of utilitarianism is but a special case of the general trend, of which the chief example is the framework of contemporary welfare economics itself?

Welfarism and maximization are necessary features utilitarianism. The view described in the article does not have the feature welfarism. Hence the view described is not a form of utilitarianism and should not be called utilitarianism. Not by Kevin O’Rourke, not by Henry, not by anyone. Adding homemade prefixes (bastardized, watered down, …) doesn’t help. Just stop doing it.

Bentham already some 300 friggin’ years ago wrote about the marginal diminishing utility (welfare!). As the Stanford Encyclopedia of Philosophy summarize Bentham’s view on DMU:
“While we might plausibly assume that, of two individuals with unequal fortunes, the richer of the two would be the happier, it does not follow that adding increments to that person’s wealth will continue to make him happier in the same proportion. It is in the nature of the case that the amount of increase in happiness will not be as great as the increase in wealth; the addition of equal increments of money will eventually bring successively less of an increase in happiness. Modern economists know this analysis as the law of “diminishing marginal utility”. One of its practical consequences for a utilitarian such as Bentham is that, where choices present themselves between giving an additional increment to a rich man or to a poor man, more happiness will result from giving it to the poorer of the two. Also, the analysis underscores why money cannot be a direct measure of utility, since the utility represented by a particular sum of money will vary depending on the relative wealth of the person who receives it. Moreover, it is evident that diminishing marginal utility is also a feature of the additional increments of pleasure a person may experience beyond a certain point; equal increments of pleasure will not necessarily add to the stockpile of happiness if a person has reached a saturation point.”
( http://plato.stanford.edu/entries/bentham/#DimMarUti )

“Here economics lecturers say various things to students at different points in the undergraduate curriculum, not all of them consistent with each other. They start by being purist: strictly speaking, they say, we can only prefer one policy outcome to another if it makes at least somebody better off, without making anyone else worse off; in other words, if the policy shift leads to what is known as a ‘Pareto improvement’.

But if economists took this injunction seriously, then they could never say that free trade was preferable to protection, or that the European Single Market was a Good Thing, since trade and competition produce both winners and losers. What is an economist determined to be useful to the world, by distinguishing between good and bad policies, to do?”

Nonsense.

The dynamic of properly function markets works by observing we can solve more problems, better, more efficiently by a process of specialization and exchange. Individuals can choose to access the potential benefits of markets by agreeing to compete constructively with other producers to solve problems for consumers. This competition involves a fascinating type of zero sum dimension within a larger positive sum game.

The “lose” in the win/lose relationship between competing producers is a form of non-interaction. The competitors don’t interact with each other, and the consumer didn’t interact with the “loser” either. Indeed, the loss is by definition actually the absence of an imagined or desired gain.

But to put it into perspective, this wasn’t a single phantom event. Every single human on earth can be said to have lost the opportunity. For example, we may choose to view the competition to quench my thirst as between Coke and Pepsi. But in reality, there are 7 billion people who are free to enter the market and offer to sell me a drink. When I choose a producer, every human on the planet “loses” out on this hypothetical or phantom or imagined gain.

Two of us gain and 7 billion lose? Hmmm, maybe something is wrong with how we are accounting for these supposed “losses”?

The confusion is that we are counting real gains (producer got profit, I got a refreshing drink) and counting them against opportunity losses. When producers choose to enter the market they are agreeing to the terms which is that they gain infinite opportunities when entering the market, most of which never pan out. The best producer exchanges one of his potential opportunities for a real gain and I get a real drink. This is a win win situation flat out full stop.

The other advantage of the market is of course the dynamic that it has on producers. The difficulty in winning sales acts as an incentive and signal to potential producers to either change their product, their production technique, their industry or their consumer target. As such it drives producers to problems which they are best, comparatively, at solving.

Of course, some people are incapable of solving any problem for others at a net benefit. For example, paraplegics or mentally disturbed people. In their cases, they may require non market solutions as they are incapable of surviving within a system of competitive division of labor and exchange.

In summary, counting lost imagined opportunities the same as actual gains and losses is simply bad accounting and economists should know this. At a minimum they could factor this out by counting the phantom opportunities gained when entering the market minus the phantom opportunities lost every time a consumer choice is made. The math comes out positive sum in either case.

Swami @ 16

I agree that the phantoms of imagined, counterfactual opportunity costs are not a productive way to discuss any problem in economics.

I will object, as well, to the model of the idealized market mediating specialization and exchange. As I repeat endlessly, there are very few actual markets in the economy, and talking about the economy as a “market economy” is inherently deceptive. If we are to dispense with the confusing counterfactuals, and point to actual processes and results, we must begin by letting go of the myth of the market.

What we have in a money economy — a capitalist economy, if I can use that label without inviting the pseudo-marxists among us to anthropomorphism — is competition to realize opportunities thru investment.

The opportunity to supply the world with carbonated, sweetened beverages, cheaply, is taken up by the expedient of large-scale, long-term sunk cost investments in systems of production and distribution. That is, if you will excuse the pun, the capital fact of the modern world economy and the 300 years of its still on-going industrial revolution(s).

Capital investment — sunk-cost investments in dedicated organization and equipment (and intangibles like reputation thru advertising) — are made strategically with an eye to changing costs and benefits, and capturing economic rents funding a return on that sunk-cost investment. The opportunities available at large are different post the initial investment, and continue to change as the scale of investment changes.

The “cost” of serving you a Coca-Cola has been significantly reduced, and strategically shaped, over time by 130 years of successive development and investment. Not everyone is equally well-placed to offer an alternative, which is another way of noting that Coca-Cola earns an economic rent on the sale of its products. Nor is everyone equally well-placed to make further investment. The capacity of the Coca-Cola Company to organize investments within the shelter of its ability to earn an economic rent on those investments, makes it possible to finance those investments. Most potential competitors have no such capacity, and so do not have the same “opportunities”.

Political power matters to bargaining over the distribution of income in these circumstances.

An ideology of “free trade” derived from the myth of a market economy is not a guide to these disputes, but rather a cover story for power, which cares not to be questioned.

14@ I commend your pedantry. Did you notice Henry’s title, per chance, which seems to me to pretty clearly confirm that Bentham’s utilitarianism does contain left-wing bits. Kevin, of course, makes no mention of Bentham whatsoever. You’re saying that utilitarianism that departs from Bentham’s view ‘can’t’ be Bentham’s utilitarianism. The fact is that many people today employ the term to mean something very different from Bentham’s use of the term. That’s bad, huh?

I’m no economist but this phrase from article jumped right out at me:

“According to the Kaldor–Hicks compensation criterion, a shift from one state of the world to another –say from protection to free trade – can be judged as beneficial to society if it would be possible for the winners to financially compensate the losers, and still
remain better off. The losers don’t have to be compensated – to make such a
claim would be to stray into political territory, off-limits to economists.”

The operative phrase “losers don’t have to be compensated” seems to hold several universes in my tiny mind.

jch, if you read the two papers by Paul Blustein that I linked @17, you’ll see that’s the wrong analysis. Among the Troika, the IMF were the good guys.

Colin Danby @ 22: Among the Troika, the IMF were the good guys.

Within the IMF, the economics side (reporting to the highly visible Chief Economist, Olivier Blanchard) often plays the reasonable (within strict neoliberal bounds) good cop, while the program side plays the bad cop, although even the program side can evidently do the math.

Yves Smith, in her tireless curating of articles and analysis by a variety of economists and other observers has emphasize this dynamic.

I rather like this one, which took down Olivier Blanchard, whom I have come to believe is well-intended, ineffectual and seriously overrated as an economist.
http://www.nakedcapitalism.com/2015/07/the-imfs-olivier-blanchard-writes-a-greek-tragedy.html

John- perhaps I’m being overly pedantic on the terminology*, but is the IMF really ‘technocratic’ either ? Afaik, going from past debt crises, the IMF response has generally been overtly political (ie it represented the interests of its main funders, the major western powers) The policy advice of the IMF is always more dependant on politics (internal and geopolitical) than the detached, problem solving logic of experts.

* looking it up, I guess ‘technocrat’ doesnt have to mean ‘independent policy advice removed from political interference’, but can just mean something like ‘non elected experts offering advice.’

I should have said something, too, about the essentially political nature of organizing the operations of, say, a bottling plant. There’s a hierarchy controlling the operation, selecting people and rewarding them with status, exercising and extending authority. It is intensely political. None of the internal transactions are likely to be the least like a “market”. If anything, it is probably more like being in the army or a civil service administering a public utility.

BW,

Earlier this week David Brooks wrote about the minimum wage and climaxed with the inevitable formulation “you can not intervene in the market without unintended consequences”.

Thanks to continued efforts to unlearn my capitalist-libertarian upbringing, I can begin to see that this is pure Religion, even a kind of ritualistic incantation (I’m not being metaphorical): there’s a clockwork mechanism called The Market that can only be Intervened in (rather than, say, engineered or designed) by causing a cascade of defects to the otherwise benign mechanism.
My question is this: could you further clarify? Perhaps by a kind of reductio ad absurdum argument: What would it look like, institutionally, if Coca-Cola really were produced and distributed within a market. I realize you touched on this somewhat directly above. Could you elaborate or suggest non-technical literature that elaborates on the gulf between what an actual market society might look like and the actual institutional reality that David Brooks purports to describe?

Thanks.

Ram, rather than rehearse the textbook case, why not respond to the post I linked?

Bruce,

Thanks for the lengthy reply and clarification of your views. I can assure you that I’ve spent decades designing products, bringing them to market, pricing them, and trying to sell them in a heavily regulated industry within a large “political” corporate bureaucracy. You are preaching to the choir.

That said, I stand behind every paragraph on my initial comment. Nothing you said affects the dynamic of which I was referencing. Indeed, I am not entirely clear why you assume they would. If you believe I am overlooking something, it would be productive to quote me and point out specifically why it is wrong.

Peter T @ 33:

On your first two, the result I’m referring to is invariant to how we compute benefits and costs, except to say that people are willing to pay for changes that make them better off, and to prevent changes that make them worse off. Define benefits as total willingness to pay for a change, costs as total willingness to pay to prevent it. Then everything else goes through, without us having to spell out how the benefits and costs are actually calculated. Of course, to actually do cost-benefit analysis we have to do that, but the point I was making isn’t committed to any specific algorithm.

Your third point is an interesting one. The framework I’m considering is one where society is choosing between different configurations, and people’s preferences range over these configurations. You’re considering the possibility that the range also over the mechanism of social decision. Certainly people have such preferences, as revealed in their political acts, but I’m a consequentialist, so I interpret those preferences as mixtures of preferences over outcomes and beliefs about consequences, and these beliefs may be mistaken. But you’re right, I’m presuming consequentialism.

Peter T,

Yes, but don’t think about money playing its conventional role here. In this setting, payment is a kind of voting mechanism, and money is votes. If society, given its distribution of votes, is willing to put more votes for something than against it, it is a benefit-cost improvement. And every benefit-cost optimum is a Pareto optimum and vice versa (though not every benefit-cost improvement is a Pareto improvement).

The analysis here is really about weighted decision mechanisms. Some decisions dominate others, and some can’t be dominated. Any non-dominated decision can be implemented with a certain set of weights on the deciders. Replace “weight” with “money”, and “decision” with “configuration”, and you get welfare economics. Replace “weight” with “prior probability” and “decision” with “rule”, and you get statistical decision theory. It’s not really an economic fact, it’s a mathematical fact about the nature of optimization.

Note that all of this is totally separate from questions about whether markets are good at optimizing benefits net of costs, or any other mechanism. It’s just a way of thinking about the problem of optimization itself. And it’s useful in economics because it allows us to break one very hard problem down into two separate, still quite hard but somewhat less hard, problems–viz, efficiency and distribution.

http://www.nytimes.com/2015/07/26/opinion/greece-the-sacrificial-lamb.html?partner=rss&emc=rss&_r=0

gabrielfgm,

Excellent observation. Daron Acemoglu has made this point nicely in several places. The concern is that, if we deregulate the labor market, this will generate a level of inequality that will put some individuals in a position to undermine efficient policies (which threaten their privileged position) and equitable policies (that threaten their wealth and political power). Suppose, however, that we made the following deal: every time we pass a policy that (we think) increases efficiency, but also increases inequality, we pair it with an increase in the generosity of transfers. This way, economic and political inequality will not change, while efficiency will increase. Would you (and others) be more favorably disposed to the policy recommendations of economists if they met this standard?

Ram,

Seems like this pretty much describes the actual trend in most of the western world for the last century or so (informally). The benefits are the safety nets (and all their ensuing advantages to human welfare) and public goods built into most modern economies. The costs are of course potential negative dynamics of zero sum wrestling over the fruits and costs of the distribution, and the effects on incentives (free rider issues).

Once the nature of the game fundamentally shifts to a zero sum dimension, all is lost. As my initial comment above reveals (which rejected the win/lose framework of market competition the author of the article proposed), markets may have pros and cons as a problem solving system, but they are essentially and empirically positive sum, value creating processes. This is not necessarily the case with redistribution.

Also, we need to be careful about assuming we know what the proper level of inequality is. In other words, we aren’t necessarily at the magic number today, nor is the magic number perfect equality.

Swami @ 34

I do apologize for what may appear to be a bit of a shaggy dog story, and one where I seemed to omit the punchline.

In your first comment @ 16, you took O’Rourke to task for his rather confused whining about Pareto improvement and his claim, “trade and competition produce both winners and losers”.

You recalled the logic of gain or benefit from market exchange, competition, specialization and trade, and made some points about the nonsensical introduction of an infinite regress of counterfactual speculation about opportunities lost, as “costs”.

I don’t think O’Rourke quite knows what he’s talking about either, and the careless, sloppy claim, “trade and competition produce both winners and losers” reflects that. Comparative advantage is a very robust argument to the effect that trade and specialization in the context of competitive market exchange sets up the framework of a positive-sum game. Increased specialization and trade, in almost any circumstance (within that context), yields a gain, and more than that, mutual benefit to the participants.

O’Rourke appears dazzled and confused by the scholastic stylizations of formal economics — Stolper-Samuelson, Kaldor-Hicks, Pareto improvement, yada-yada. Who can blame him, really? That sort of thing is meant to transform fundamental insights into esoteric jargon. Falling down that rabbit hole, as O’Rourke demonstrates but doesn’t quite realize, takes one into a surreal landscape, where reasoning takes on strange powers and nothing is as it ordinarily seems. Be that as it may.

My objection to your comment was no defense of the indefensible O’Rourke.

My objection to your account of “market” competition, specialization and trade is that it rather conspicuously left out the role of capital investment as a strategic means of changing costs and bargaining positions.

You have a coherent account of competition, trade and specialization in the context of market exchange, and make some claims about the dynamics of “properly function[ing] markets”. But, you omit the most conspicuous dynamic of the last 300 years: capital investment embedding technological advancement. You talk confidently about a “market” that scarcely exists, except as the most strained bit of poesy.

The actual developed world economy is an economy of bureaucratic hierarchies. Very little exchange takes place in the context of an actual market in the economics sense of exchange with competitive bidding determining an equilibrium price. The “market” dynamic that you so confidently expounded in your first comment scarcely exists, and the dynamics that do exist, you ignored.

It is weird to me that you could spend your career working competently at a high professional level in a corporate bureaucracy, and still believe that a myth of competitive market exchange explains and justifies our actual economic system. I suppose that is somehow in the nature of myth.

I tried to take up the soft drink example you proposed, as an illustration. You wondered: “I am not sure if you are suggesting that the world would be better or that markets more be more free if everyone had identical opportunities to enter this market as a full scale producer. “ I wasn’t suggesting a counterfactual or a moral imperative; I was pointing out the factual.

I deliberately did not resort to emphatic declarations about what’s right or wrong policy, with regard to our actual economy of bureaucratic hierarchy. People leap too easily, too quickly to simple moralism to see the mechanisms, as it is. That’s one of the ways the Myth of the Market keeps going: people like the confident moral judgements it legitimizes, while failing to notice that it is mechanically and descriptively a lie.

I will note in closing that many actual policy problems and dilemmas follow from the dynamic of sunk-cost capital investment changing costs and bargaining positions and the necessity of business securing sources of economic rents (in property rights), in order to earn a return on their investments. This is how a “free trade agreement” like the proposed Transatlantic trade and investment partnership referenced in comments above, becomes in fact and detail about intellectual property and making democracy safe for corporate investment planning.

The economists are instructing us into the myth of a market economy and inviting us to evaluate the logic of international agreements on trade in light of that myth, in light of the supposed dynamics of properly functioning competitive markets. (Markets that mostly don’t exist, and ceased to exist as much as a century ago or more.) But, the actual details of such an international agreement have to do principally with the needs of an economy organized around sunk-cost investments and hierarchies and economic rents.

Intellectual property claims are pretty nearly pure political claims on economic rents. I wouldn’t say that IP or economic rents are per se some evil things. That’s just mind-numbing moralism. Large business corporations — private enterprises organized as hierarchies (bureaucracy), not “markets” — organize much of the most remunerative economic activity in advanced economies, and they are organized around the property rights and structures that allow them a claim on economic rents. There’s no necessary relationship between the social value of what they do or what they invest in, and their capacity to collect an economic rent, but the ability to collect an economic rent determines if they are able to finance investment (i.e. to capture a return on sunk-cost investment) or able to operate as a bureaucracy. Movie studios depend on their extensive rights under copyright law for example, and pharmaceutical companies their rights under patent and trademark law. It isn’t surprising that they would be deeply interested in international agreements to extend and strengthen these claims.

Are there “winners and losers” in tweaking the international rules that govern these claims on economic rent? Is there a clear moral imperative of mutual or general gain from strengthening the claims of established business corporations to IP economic rents?

I don’t think the myth of the market is helping us much in identifying the public policy interest in “free trade” agreements that are focused on IP and protecting the economic rents of corporate capital investment planning. I don’t see this as a problem stealth utilitarianism and cost-benefit analysis, either. YMMV.

CS @47

I don’t see how “the existence of an opportunity for profit is the gift of the state”?

Your model includes fixed costs, and therefore presumably, capacity constraints on producers. If prices are below the marginal cost of production, we can expect that only a very few producers will produce inventory—only those who estimate their marginal cost of production incorrectly. While the law of large numbers will guarantee some supply at this level, the capacity constraints implied by the existence of fixed costs will prevent the market from clearing at this price.

Therefore, there will be unsatisfied demand that will allow the price to rise slightly, resulting in a classic supply/demand equilibrium. Although, at this level some producers will be losing money after accounting for fixed costs.

The most efficient producer will be able to sell at the higher price, collecting an economic rent that has the potential to cover the fixed costs associated with production.

I’m not sure how you get from here to these rents being “gifts of the state”, but I am happy to learn.

Bruce @46
I think you are being too fair to swami. The key question is “what is the counterfactual”. Swami’s counterfactual is total autarchy. While you could literally read O’Rouke as meaning that, any rational person would assume that he was talking at the margin, and noting that changes in the regulatory/tax environment will leave some people as losers. I don’t think this is controversial.

Reason @50

I don’t find that controversial either. Policy changes will indeed create relative winners and losers. I was taking exception to his comment that markets are themsleves inherently zero sum. They aren’t. Here was the snippet I was riffing on in my initial comment….

“But if economists took this injunction seriously, then they could never say that free trade was preferable to protection, or that the European Single Market was a Good Thing, since trade and competition produce both winners and losers. What is an economist determined to be useful to the world, by distinguishing between good and bad policies, to do?”

P.S. The fact that some process is positive sum in general, does not mean that it is a pareto improvement and there are no losers. It is only absolutely true that the move from (individually) no trade to (voluntarily) some trade is a positive gain (because it is voluntary). But once there is already some trade and reducing barriers results in trade diversion, this universality of the improvement disappears.

What’s interesting about Bruce’s argument, if I understand it correctly, is that it logically implies that Jim V’s group was doing the wrong thing. If the most important person in the corporation is the CEO (his perceptions and motivations drive the corporation), the correct thing for others to do is to behave as if they’re in a military hierarchy, as he says, and to accept the CEO’s worldview for themselves. To think otherwise would be immoral or improper. Presumably he allows that the CEO (of GE and of smaller companies) behaves according to a market, as Jim says, and doesn’t himself act within a military style hierarchy, where in fact decisions are made top down, somehow. I’m sure Bruce will correct me if I have it wrong.

I think I get the idea that sunk-cost investments can create pricing power, and guarantee market share, at least for a time, and that the profits accrued may thus be thought of as a form of economic rent. It also seems plausible that defending the initial advantage of those who’ve made such sunk-cost investments can result in all sorts of successful assaults on what we’ve otherwise been disposed to think of as a market’s pricing power. What I’d like to hear about, though, is BW’s take on the effects of so-called disruptive technologies.

Microsoft, for example, required little in fixed-cost investment, had a marginal cost of production close to zero,, but was nevertheless able to destroy the value of quite a lot of other companies’ sunk-cost investments, and collect colossal rents on what amounted initially to some pretty shaky intellectual property. Now, the environment has changed again, and were it not for other people’s sunk-cost investments — enterprise client-server architectures etc. — Microsoft might already be toast, and may yet be, if they can’t eventually figure out how to swim in an Apple/Google ocean.

And what about Uber, AirBnB and such? Write a smartphone app, charge folks with a car and some spare time, or an empty room in their house in Miami or Honolulu or Paris to use it, and bingo! taxi and hotel companies in cities all over the world go berserk. The founders’ biggest investment, far bigger, one presumes, than the salaries of their programmers, seems to be for lawyers to fight regulatory bans. (The regulatory agencies for all sorts of good and bad reasons, seem to be appalled by these revoltin’ new developments, and determined to wipe them off the face of the earth.)

Is this a phenomenon with limited economic effect, or will it, if some of our new-age prophets are correct about information being the new capital, affect a much broader range of economic activity than it does now? Does it threaten the ability of industries with large sunk-cost investments to extract rents from their customers and to secure assistance from governments in defending those rents? Is this just a modern take on the race to drag the newest and fastest spinning machine into your cotton mill before any other capitalist rival can get his hands on one, or is it something new, different, and world-changing? (I’m thinking of BW’s Coca-Cola example, and contrasting it with the successful rise of microbreweries. They’re no threat to Anheuser-Busch, but if I read his analysis correctly, they shouldn’t have been able to exist at all, unless somebody at A-B was asleep at the switch 45 or so years ago.)

Bruce:

I confess I’m not getting it. You think the importance of hierarchical bureaucracy, which I think we agree operates only within firms, not between them or between them and government or them and customers or them and investors, is so great that we should stop talking about markets (which operates only between firms, I think we agree, and perhaps wrt customers) in favor of bureaucracy. So: we should emphasize that competitive markets are a thing of the past, old fashioned, in the new administered society? We should reeducate people like Jim who think they should have the market in mind, rather than mindlessly obeying the higher ups, in the real hierarchical nature of reality? Or should we stop before that?

john c. halasz @ 61

Pfui Teufel! I’ve never drunk Budweiser, and wouldn’t even if the only alternative were swamp water. I doubt, though, that the demographic I represent has much influence on the marketing decisions of Anheuser-Busch InBev, or any other multinational corporation. I don’t think BW needs defending either, and certainly not from me. I’m just asking: if we ain’t got markets like some people would like us to think we got markets, but on the other hand, if the nature of production, consumption, and marketing-whether-we’ve-got-markets-or-not is changing radically, what’s coming next? Will it be more of the same until the end of time, or is there really something radically new afoot? Or both, or neither? I’m not trying to argue with the teacher, I’m just looking to unconfuse myself a little.

jch @ 63

And turning everything into piecework at the lowest piece-rates possible, yes. In that, though, they’re not so awfully different from their more established brethren. The nature of their innovation may make getting away with it easier for them for a time, but not forever, I suspect. That’s another discussion, in any case, but one I expect CT will re-visit from time to time. I can’t think of any issue more likely to produce humongously long comments threads.

BW 57 et al: Sorry, I don’t get it. I am about your age and remember the era of three television channels and three automakers. I can’t see CEO’s seeking economic rents actually controlling the economy, unless the atomization and molecularization and acceleration of consumption, production and markets is a means of domination. I kinda wish you would show a little empirical work on an actual micro market or sector.

I continue to work bottom-up, from the individual to those micro-social structures she creates or is forced into, her self-perception and articulation of desire etc. I want to look at the call-center worker and see her in the regime of accumulation. CEO’s don’t interest me much.

No, ADD would be me. Maybe Bob really does not understand current accounts then.

blog commenting as something akin to singing in the showe

Think of it as singing in the shower which is recorded on tape and made permamently accessible to billions of people.

I want to look at the call-center worker and see her in the regime of accumulation.

What a lovely sentence.

Coming in late to the thread and this comment won’t deal w the OP (whose links I haven’t read). But I have to say something re the bianca steele /Bruce Wilder exchange in the last several comments here.

BW is saying, ISTM, what he frequently says: that truly competitive markets in the textbook sense are rather rare, and that most prices set by big enterprises are not market prices in the textbook sense but “administered” prices, set by firms (and their bureaucracies) in some way that does not relate in any direct way to supply and demand. I’m a bit younger than BW and I’m not an economist, but I first heard or read the term ‘administered prices’ when I was in college or possibly even high school, from which (h.s., I mean) I graduated 40 years ago. This is not new. Galbraith and others popularized the notion of administered pricing a long time ago. The phrase got into the culture to the point where non-economists became conversant with it, even if (like me) they probably couldn’t produce a very precise definition of it.

To what extent prices are ‘administered’ in the Wilderian/Galbraithian sense in an economy dominated in significant part by oligopolies I don’t really know (a non-trivial extent, I suppose), but I sort of take it for granted that perfectly competitive markets are rare. If there’s an early frost in Florida and the supply of oranges drops, the price of Florida-produced orange juice will likely go up; ditto for the spot market for gasoline, as BW said. But these examples are prob. more the exception than the rule. That’s the part of what BW is saying, at any rate, that I understand.

The rest of the stuff about corporate hierarchies seems to be related in some way, but I’m not sure the points are intrinsically connected in the way BW seems to think. A big corporation w a relatively flat, non-hierarchical structure could still ‘administer’ prices, istm, particularly in any sector of the economy where there’s not a lot of classic price competition, i.e. quite a few sectors of, e.g., the U.S. economy. Or so it seems to this non-economist.

I don’t know whether this is helpful or reasonable or whatever, but…

I come at this from reading Chomsky, who would say “real capitalism would never be tolerated by our Corporate Elite. The standard mythology about free markets is invoked as an intellectual bulwark against social democratic impulses. Free markets for thee, various modes of state intervention (“socialism”) for me. And [this is exactly what BW is on about] the vast amount of economic exchange that takes place in our supposedly free market economy are transfers within firms that are essentially centralized beaurocracies.” End paraphrase.

Perhaps you could look at Vodka production vs. Tequila in the USSR and say, “hey, here’s a beaurocracy producing x and not y based on consumer demand: Capitalism!” That would be ridiculous, of course. But how less ridiculous is it to make the same claim for our economic system when compared to the idealized version of private exchange that the term ” free market economy” is invoked.

What’s the point then? The point is that what Very Serious People tell us is reasonable economic policy is itself obfuscation. Raise the minimum wage? Unintended consequences…intervention…harumpf! But the system that we actually have is full of unintended consequences due to “interventions” (to keep a system with certain beneficiaries afloat). Create a beaurocracy that democratizes drug development, production, and distribution? Statism…inefficiencies…market discipline…harumpf! But the system we have is already full of beaurocracies lovingly-protected from true markets, and they do just fine thankyouverymuch.

So, given that the rhetoric of free markets is 1) not an accurate description of reality and 2) typically invoked strategically to limit potentially democratic aspirations (or at least aspirations that get in the way of the 1%), we should ditch it as a mode of lazy, submissive discourse.

I sort of find the arguments of Swami – and I know of at least one commenter on another blog who adopts a similar style interesting. I wonder who they think they are arguing against? (Perhaps they have lived under communism which would explain a lot.) They seem always to be arguing for the idea of capitalism (as set out in first year micro textbooks), as though it is that pure simplified, almost touchingly naïve concept was under dire threat instead of being the dominant and destructive narrative. We mostly just want to channel the monster so it flows in a less destructive path, a bit like flood engineers.

@77

Not that it matters, but I would prefer “jumped up IT specialist,” if you don’t mind.

“This clearly refers to the evaluation of the difference between free trade between nations as against trade between nations with tariffs, not the difference between trade of any sort and no trade of any sort. I regard you interpreting it in the more extreme way as taking liberties.”

No, it is primarily an argument for increased technocratic involvement in redistribution across nations in the EU. I went back and reread the article twice… Slowly. Let me summarize it.

The author suggests the EU has replaced local democracy with increasing rule by technocrats. The justification for the EU is greatly economic in nature — it will lead to increased GDP. However increased GDP cannot be justified on strict utilitarian grounds as you cannot compare utilities yadda, yadda, Pareto, Kaldor-Hicks, yadda yadda, Robinson Crusoe.

A political scientist by the name of Majone suggests that technocrats should focus their domain of influence on non redistributive policies which increase aggregate welfare and improve the conditions of almost all involved participants (and can thus be decided by unanimity). Redistribution according to Majone establishes unavoidable conflict and should thus be decided democratically (by majority rule). The author objects to Majone because he wants the technocrats involved in redistribution too, otherwise we have policy making with all the “left-wing bits left out of it.”

Essential to the author’s arguments are that larger networks of trade do have a zero sum dimension and thus are not different in essence from redistributive policies. Basically he is stomping up a cloud of dust around the issue of whether we can prove trade networks are utilitarian even though he admits utilitarianism is unprovable. Somewhere along the line unprovable becomes no different from win/lose redistribution, and if there is some type of winners and losers in free trade then we should just go all the way and admit that the unelected technocrats need to be empowered to redistribute too. Got to make sure we get all the left-wing bits in!

“I sort of find the arguments of Swami – and I know of at least one commenter on another blog who adopts a similar style interesting. I wonder who they think they are arguing against?”

I am arguing against the assumptions of the linked article, pretty obviously. I disagree with the author on his characterization of the differences between voluntary trade and technocratic redistribution. Isn’t that the point of this discussion? I could very well be wrong, and am open to counterarguments. Preferably counterarguments that are directed on what I say rather than sweeping dismissals that because I happen to disagree with people here I am naive and under the hypnotic influence of an all powerful myth.

“The fact that some process is positive sum, does not mean that it is a pareto improvement and there are no losers. It is only absolutely true that the move from (individually) no trade to (voluntarily) some trade is a positive gain (because it is voluntary). But once there is already some trade and reducing barriers results in trade diversion, this universality of the improvement disappears.”

The English common law defense of allowing the zero sum dimension of competition between producers goes back to at least 1707 where a judge Holt argued that producers do not have a property right in their customers, thus “stealing” of customers by offering a better alternative was not just acceptable, but good overall from a social perspective. In my initial comment, I suggested if we shift frame of reference or justification standard from Pareto to “problem solving capacity” then clearly larger networks of voluntary specialization and exchange can clearly solve more problems better and more efficiently all else equal to smaller networks. The author pretty much alludes to the same point with his Crusoe comment before waving it away as “messier in the real world.”

Of course the real world –with its networks of hundreds of millions — of people is indeed ‘messier,’ that is probably why Majone recommends the use of technocrats to help sort through the messiness of this inherently positive sum process (and pretty much everyone agrees it is overall a positive sum process, even you as above). My point is that there is something extremely different between overseeing the domain of voluntary interactions between rational adults and redistribution. Categorically different. And I suggest the author of the art is muddying that with hand waving about winners and losers based upon competition among producers. Common Law would seem to have long agreed with Majone and me.

“They [refering to me] seem always to be arguing for the idea of capitalism (as set out in first year micro textbooks), as though it is that pure simplified, almost touchingly naïve concept was under dire threat instead of being the dominant and destructive narrative. We mostly just want to channel the monster so it flows in a less destructive path, a bit like flood engineers.”

So this is a web site where you and “mostly” everyone else agrees that voluntary trade is a destructive monster, and needs to be not just controlled, but controlled and channeled by you? And that those disagreeing can be dismissed as “touchingly naive”?

Well I agree that markets need to be controlled. If any of my comments come across as naive, please do me a favor and quote me and offer your correction, rather than the all too common practice of using the spirit of my comment to riff against some imaginary dragon.

“Coca-Cola can produce and distribute its soft drinks very, very cheaply because it has this vast sunk-cost investment in an apparatus for production and distribution,”

No. Coca-Cola doesnt even own most of the production/distribution system, its just a brand and marketing people. Drink topstar or any other no-name discounter cola and get a product that wins all blind taste tests for a quarter of the price. Also, suppose the 130 year ongoing brainwashing through ads is also kind of a sunk cost.

hix @ 84: “No”

No, they cannot produce their product cheaply? Because they do. And, no they do not own all of their production and distribution system — no firm in any industry ever does, not even Ford in the heyday of the River Rouge. Coca-Cola does own a pretty big chunk of the key production facilities though, which are fantastically efficient in a technical sense. Taking over and squeezing out what used to be a large subsector of efficient, large-scale independent bottlers has been a widely recognized feature of the industry’s evolution over the last 30 years. Where have you been?

hix @ 84: “suppose the 130 year ongoing brainwashing through ads is also kind of a sunk cost.”

Not “also kind of a” — IS! Their advertising is and pretty much has been since near their beginning, a key strategic lever. People, who look at the early history of the company are often astonished to find how much money they poured into advertising even in their earliest days, distributing syrup to Georgia soda fountains.

As a matter of industrial organization theory, that sunk-cost investment can be an effective barrier to entry against competitors for a firm that also has a unit cost of production advantage over its competitors. That unit cost of production advantage can be small, but it is necessary. Otherwise, it is not possible to recover the costs of the advertising, and the advertising bill sinks the firm financially, while failing to deter or disadvantage potential competitors. That’s all a bit wonky to demonstrate in game theory.

hix: Drink topstar or any other no-name discounter cola . . .

Good advice for the economically minded, who like cola. Also good advice: drink water from the tap.

It is pretty rare, I think, that anyone certified as an economist ever asks these days about the social efficiency of the kind of competition Coke and Pepsi engage in, with its massive commercial propaganda encouraging questionable nutritional behavior and cultural creation. Good on hix for bringing it up.

hix @ 68:

Maybe even you could develop a learning curve:

http://blog.mpettis.com/2015/06/internal-and-external-balance/

The thing about sunk costs is that they sink. –snip– Even outside the go-go of digital hightech the mundane world of manufacturing has been on a long, long path to reducing labor costs.

The quoted bits, especially, have helped clear up some of the fog, thanks. Prophecies I don’t need — not as long as I have some idea of where those imprudent enough to be making them are getting their material. Reading the good sense provided here helps with that, for which I’m grateful.

Swami, @82
I don’t think you really understood the point of the OP (maybe you read it too closely rather than getting the main drift). The main drift is that just concentrating on maximising “growth” is not really maximising anything that people actually care about, and putting the technocrats in control may make subsequent redistribution impossible. It is like the catch 22 with pareto improvement, you can make everybody better off if you redistribute, but if you do actually redistribute they say you undercut their “efficiency” improvements.

The point is that we are never at equilibrium, that all sorts of history are built into existing wealth and investment (including investment in work skills, work tools, family and jobs) and changes can’t be make instantaneously without hurting people. That (as Bruce Wilder never tires of pointing out) uncertainty and risk are major issues if people are being forced by technology to make large up front investments, and pretending that competition is the solution to all problems is naïve. Sometimes you need to reduce uncertainty not increase freedom to make the economy more dynamic – there I’ve said it.

The key word in this is “efficiency” which means many different things to different people. We really need to ask – “efficiency” AT WHAT. What is the target – where do we actually want to go. More people need to ask this rather than just accepting drift.

john c. halasz @ 88

Michael Pettis is great. I wish there was some snappy, bumpersticker way to bring home the Pettis hypothesis that wage suppression in Germany is driving unemployment on the periphery.

bianca steele @ 87

I’m going to think about recasting how I talk about control structures and functions in the economy in light of your comments.

reason @ 92

The circle-jerk of formalizations that O’Rourke identifies may be confusing and even pointless for anything except what b9n10nt identified as reactionary harrumphing, but it really is a weakness of O’Rourke’s argument that he doesn’t square himself clearly with the idea that expanding trade is a positive-sum game. Ultimately, I can’t get past feeling O’Rourke has some good bits of rhetoric, but not the important “drift”.

Ultimately, the problem is that the technocrats cannot figure out what is properly technical, and leave people to pursue their ambitions. Their ideology leads them to believe the Single Market will fail if Greece has early pensions or Lisbon has rent control. But, they can’t or won’t take responsibility for banking regulation, the payments system or managing capital flows or the current accounts of member states.

Bruce, more seriously. Have you read francis fukuyamas New books on “the origins of political order and decay”? I’m reading through the first one at the minute and it has passages that are positively wilderian (in a good way)

I did, and I read (most of) The Great Rebalancing. (though admittedly am still not good on the specifics) My understanding of his argument is that when wages dont grow in line with productivity a country’s savings rate will increase (due to the discrepancy between goods produced in an economy and household income), and so will the capital account deficit as excess savings are invested abroad .

He basically says there is no perfect way to measure aggregate utility therefore we cannot perfectly measure the value or utility of economic growth. In no way does he make any serious argument that economic growth isn’t good or isn’t something people care about.

These are the same claims. “care about” == “utility”. You don’t get it, but that’s kind of the defining factor in “being wrong”, and taking “I don’t get it” as evidence of correctness is kind of like taking the blood spurting from the bullet holes as evidence you’re in rude good health.

ronan @96
Bruce… Have you read francis fukuyamas New books on “the origins of political order and decay”? I’m reading through the first one at the minute and it has passages that are positively wilderian

Bruce W. has occasionally been given, although not on this particular thread, to ruminations on cycles in history and use of the word “anacyclosis” (or something close to that; I suppose I shd look it up one of those days). Not sure Fukuyama wd go for that (though I haven’t read F’s ‘Origins’), but curious what you might have been referring to.

Anacyclosis ?

“Polybius’ sequence of anacyclosis proceeds in the following order: 1. Monarchy, 2. Kingship, 3. Tyranny, 4. Aristocracy, 5. Oligarchy, 6. Democracy, and 7. Ochlocracy.”

Swami @93
“My take on the Majone snippet and how it addresses your point is that economic affairs (properly constructed) are decided between parties who gain pretty much unanimously and thus can be administered differently than the win/lose dynamic inherent by definition in redistribution”

Sorry but there is a hole the size of elephant in that little argument – it is the words “decided between parties”. But what about the unrepresented (in the decision) but affected parties?

Swami @107
???? But that is not the argument at all. The argument is not about the temperature but about what is to be done. You are saying that saying our navigation device is inaccurate, is not the same as saying we are lost. True. But he point is that if the navigation device is inaccurate we shouldn’t be following it. That is another point entirely. Thanks for the analogy it is very useful.

Reason @ 106

I addressed this point in my initial comment @16, and provided several supporting arguments in later comments.

But to answer your objection specifically, any interaction with significant negative externalities would NOT be mutually unanimous and thus I assume not covered under his quote. I assume we all agree here.

My argument above was that this does not apply to harm to prospective producers based upon lost opportunity. They do not have a legitimate claim on prospective interactions which have not yet been agreed to. I think I laid out the case pretty clearly in @16.

Certainly we can all come up with exceptions and caveats, and common law has indeed developed for centuries addressing these. The point is that the overall dynamic is different between mutually agreed upon interactions without negative externalities, than with win/lose acts of redistribution. Thus they need to be handled differently, with a higher burden of consensus required for the latter.

Swami @110 – you have lost me completely – what the hell has common law to do with anything? How do private arrangements (which privately are mutually unanimous) include externalities? (And externalities effect NOT ONLY other producers, but other consumers as well – basically the system is complex and everything effects everything.)

I agree with Swami: O’Rourke’s rhetoric muddles the issues, whether he intends to, or not.

Pareto efficiency belongs to economics as scholasticism — it is like trying to measure temperature with a drawing of a thermometer. All of the dichotomies proposed by the process of formalization are false in the way a drawing is false: the drawing is a representation not the object itself. And, guided by the highly abstract reasoning of Pareto and Ricardo, not a recognizably accurate drawing of a specific object, but more like some surreal, perhaps Cubist sketch of a Platonic Idea of some category of objects. It should not be surprising that a stroll thru such a meta-land ends in a hall of fun-house mirrors reflecting a dizzying regress of counterfactual speculation.

Challenging that scholastic nonsense does not confront the mundane problems of economic cooperation at all. Certainly, it is no refutation of the insight that the wealth of nations is enhanced by the extension of specialization and trade.

As Swami has pointed out, falling back on undifferentiated “winners and losers” and giving a moral claim of compensation to obsolescence because we are so transcendentally existential in our new perspective, that we cannot recognize increments of technical progress, doesn’t seem sensible.

There have always been good arguments for separating concern for the general or public good from individualistic preoccupation with pursuing private good. They may have been hijacked on the High Street of Abstract Theory by Pareto, but they don’t go away, because philosophers get easily confused. The problem of the democratic deficit emerging in Europe is not that the technocrats have tried to take the politics out of policy, it is that they’ve tried to take power out of politics.

Lurking in the shadows of these abstract arguments is the incubus horribilis of the self-regulating market and it is about to have congress with the corpse of government paralyzed by debt obligations and unable to avail itself of the deus-ex-machina of a tame Central Bank. This has little to do with Ricardo’s comparative advantage and Pareto’s concept of efficiency.

Swami,
when you back to the O’Rourke argument, the bit about Majone was about what could be safely delegated to technocrats, and O’Rourke was arguing that the preconditions have been forgotten (near uninamity of benefits) via a sleight of hand called Kalder-Hicks. You cannot now turn around and criticise his argument on the basis that Majone’s conditions are in fact satisfied without real proof – and I don’t think you have any. I consider externalities to be a pervasive fact of life.

Consider the circumstances we had a few years where years of neo-liberalisation (in the European sense) had reduced once substantial stock piles of grain combined with a couple of poor seasons in key countries resulting in a substantial vulnerability of the global food supply.

Now consider financial markets and the possibility for instance that somebody or some firm or some group of bodies and/or firms who had commited to supply large amounts of grain in futures contracts started buying large amounts of grain on the spot market on the basis of long-range weather forecasts. Momentum speculators join them. The forecasts for the next year were actually good and some (fuddy-duddy) farmers respond to the spot market rather than futures markets so the futures markets actually fall as a result of this buying. But poorer people, for whom the grain in question is a staple start finding their budgets under strain. Some people start suffering malnutrition, or cannot pay their rents, some of the poorest of the poor (living on the other side of the world) are faced with famine. Of course charities start publishing heart-rending pictures of these people starving and begging for donation from the charitable and from richer governments to avert the humanitarian crisis. So they buy the grain that has been stockpiled at a high price and those that caused the problems are paid by rich governments tax payers and the charitable.

Are you really so sure that private business (financial deals) and redistribution (charity and taxation financed gifts) are such independent and distinct aspects of policy? I don’t think there is an in principle argument for this, even if there may be one that can be made as a rough guiding principle. But taking the democratic hands off the steering wheel? It is just like driving and blindly trusting an inaccurate GPS navigation device. Sometimes you might end up in the harbour.

Reason @116

My initial argument was simply that producers gain hypothetical opportunities for sales when they enter a market, roughly equal to the hypothetical opportunity lost by all other competitors. It is a zero sum dimension of a voluntary positive sum game with gain going to consumers (which is the whole point of production) in improved variety of choices for price and quality. The “game” leads on average to better consumption (more problems solved better) for less.

Any cursory review of history post “wealth of nations” easily reveals this, with living standards, lifespan, education, nutrition, etc rising at levels incomprehensible to those pre Capitalism. This is indeed an expansion of the Robinson Crusoe explanation which O’Rourke waves away. It was a magician’s trick of focusing readers’ attention on the wrong thing to fool them. It worked.

The Pareto and Caldor-Hicks arguments are dead ends. Yes, an economist cannot be 100% sure of utility improvement unless at least one gains and none loses. But saying I can’t measure something perfectly is not the same as saying it doesn’t exist, and history shows that we can on net gain via in part to reasonably constructed institutions of voluntary division of labor and exchange.

The reality of human history is that we spent ten thousand years after the advent of agriculture “in the harbor.” Lifespans were the same or lower and standards of living worse than our forager ancestors. Markets, along with science and open access politics helped us get out of the harbor.

Part of the deal with accepting markets is that consumers no longer have a right to a certain price based upon custom, tradition, history or even need. As such the price of grain may go up, or down. On average, as above, price and quality have improved faster than under any non market system. Thus it has been not an awesome bargain in total, those sitting out of the process have greatly regretted it, and the debate is how those left out can enter the game and pull themselves out of the metaphorical harbor(China, Vietnam, N Korea, Cuba, India, Russia, Africa).

Of course high grain prices can create problems. As such most modern nations have non market systems to deal with this, including reserves, safety nets, etc.

@118:

Namaste, Swami. The reason many here don’t engage with your arguments and their rationality is that your offering fairly standard neo-classical boilerplate, which we’re all familiar with and often don’t find a terribly realistic, nor normatively justified representation of the actual workings of actual economies.

I’ll just pick om a few points.

” It is a zero sum dimension of a voluntary positive sum game with gain going to consumers (which is the whole point of production) in improved variety of choices for price and quality. The “game” leads on average to better consumption (more problems solved better) for less. ” -But why is consumption the sole point of production? Work serves no other purpose than delayed but increased leisure satisfaction? Might there not be other motives and satisfactions involved. such as enjoyment and develpment of vital capacities and skills, taking care for the world and others, ensuring a sustainable relation to the natural world, etc.

“Any cursory review of history post “wealth of nations” easily reveals this, with living standards, lifespan, education, nutrition, etc rising at levels incomprehensible to those pre Capitalism.” -“Cursory” is the right word. Why should the several scientific, technological, and industrial revolutions that have occurred in the past 2.5 centuries, be entirely ascribed to “market capitalism” and why should that not involve several conjunctural historical contingencies, with no “necessary” associations going forward?

“history shows that we can on net gain via in part to reasonably constructed institutions of voluntary division of labor and exchange.”- The intuition is that if market exchanges weren’t “voluntary”, i.e. yielding a positive sum surplus, then they wouldn’t occur. But how can the evolution of any extended system of division of labor and thus required exchange and technical specialization be described as “voluntary”? Further, just who is occupying the “voluntary” positions? Isn’t it much more a matter of interacting agents operating under constraint and respectively imposing their constraints on each other, depending on the differential positions they occupy and their access to “resources”, (which aren’t reducible to monetary budgets, nor subjective “utility”)? And don’t those interacting agents then generate systemic constraints, which then feed-back upon them, beyond their ken or intention, further conditioning and constraining them? So isn’t your use of “voluntary” basically ideological and superstitious, since it operates without any realistic account of human agency to begin with? The fact that there are increased more-or-less material surpluses and thus that there can be “positive sum games”, doesn’t obviate the “negative sum games” embedded therein, which might have nothing to do with optimizing “social welfare”, nor sustainability, especially amongst the lower orders and on the periphery. IOW what do you mean by “we”, Kemosabe?

But I basically think that Bruce Wilder is right with his more institutionalist and production oriented account of “free markets”, (which obfuscates the notion of “freedom”, however metaphysically construed, with the relative functional autonomy of economic systems). And which doesn’t confuse markets in goods, with “markets” in capital, labor and “land”, which are far more institutionally constructed. And I think “reason”, an otherwise quite moderate fellow, is entirely correct about the pervasive reality of “externalities”, (which can be both/either positive or negative), in economies. Just consider the case of traffic jams. And consider that a system that promotes individualistically private ownership of ” personal”autos not only promotes also such results, but under-invests in mass transit systems, which are not just much more resource efficient, i.e. economical, but allows those who don’t want to participate in fetishized status competition to actually afford to go somewhere.

B9 @119

Thanks for the reply.

“…whence comes your certainty about the beneficial world-enhancing effects of markets and Capitalism?”

My view comes from extensive studies of the topic of the great enrichment of humanity post 1776. My position is that wide scale free markets are necessary, but not sufficient. Other important factors were printing, institutional innovation, science, and mindsets or world views. I could go on for hours explaining my take on the situation, but it probably would be more appropriate in a post on this particular subject.

“…can not history also attest to social policies that have at times hindered and/or abandoned market pricing in broad ways that have “raised sails, jettisoned ballast, and positioned rudders” toward material prosperity and social harmony?”

Probably. Markets are one particular type of problem solving system, which is particularly good at solving certain types of problems via extensive networks of cooperation and competition. As above it is not the only type of problem solving system, it is not appropriate in all circumstances, and as with all problem solving systems, they can create problems as well as solve.

I am not a libertarian and I in no way am suggesting that freedom and markets are the solution to everything. They are however the solution to lots of things.

“…when the branch sociology called “market economics” is developed and used by and for predominantly elite ends, we should rationally be particularly skeptical of its claims.”

Nonsense. The elites of ancient Egypt, Ming China, the Ottoman Empire and the Soviet Union did fine without wide scale markets. A distinguishing characteristic of market economies is the enrichment of the ninety percent of the population who lived in strict poverty as serfs, slaves or peasants. The average standard of living in places such as Australia and Sweden with extensive market economies is twenty to forty times higher than the average prior to “Wealth of Nations and the great enrichment. The places which liberalized their markets tended to grow while those that didn’t didn’t, and later as states shifted to the new model they began to see their population gain in prosperity and innumerable other ways. Hundreds of nations over hundreds of years paints a clear picture to anybody interested in observing real human welfare. Communist nations clearly drafted upon the solutions generated by the very system they hoped (using catastrophically poor judgment) to replace — machines, mass production, factories, capitalist generated prices, and capitalist generated and tested products. Even the leaders eventually recognized the futility of their vision, reluctantly bailing on their model.

The reason for the enrichment of the entire population, rather than just the elites as in pre liberal economies, is the insight Smith had on the Invisible Hand. In modern terms, voluntary market interactions tend to self amplify positive sum interactions. They allow us to solve problems for each other better together than apart. To become rich in a properly administered market you need to do it by enriching others (customers, employees and suppliers via positive sum, win/win interactions). See my initial comment for the affect on competing producers — it is still a positive sum game with overall positive sum externalities. However, markets are embedded in other institutions and mind sets and in no way stand alone. Necessary, not sufficient.

Good point Peter @121

Do note that the rules and management and institutional “constraints” (using John’s term) of each of these domains differs and should differ as they are different beasts. That has been my argument.

Me: “…when the branch sociology called “market economics” is developed and used by and for predominantly elite ends, we should rationally be particularly skeptical of its claims.”

You: “Nonsense. The elites of ancient Egypt, Ming China, the Ottoman Empire and the Soviet Union did fine without wide scale markets.”

But the fact that elites have at times neglected market liberalizations is unrelated to my point:  namely, the market liberalizations that do occur tend not (understatement) to come as a result of populist groundswells or concentrated interests of non-elite economic interests.   The bourgeois revolutions of 18th/19th C Europe were not tidy battles between “middle class” producers and aristocracy.  They were elite, non-democratic programs. (And, again, the market liberalizations were only part of  economic programs that these societies’ elites engaged in: whether programs included imperialism or tariff-based economic nationalism amidst other correlated developments that were occurring. These factors can’t definitively be teased apart from other aspects of economic history).  

“The places which liberalized their markets tended to grow while those that didn’t didn’t, and later as states shifted to the new model they began to see their population gain in prosperity and innumerable other ways. Hundreds of nations over hundreds of years paints a clear picture to anybody interested in observing real human welfare.”

And this is fine as a reasonable conjecture.   You mention that your experience in business gives you insight into the reality of consumer-driven production.   In parallel, my limited experience in the natural sciences gives me a parallel insight:  valid claims regarding discreet causation are constructed with painstaking care upon empirical/observational foundations that take our human propensity to deceive ourselves as a given.   In comparison,  the claim you are making (independent, voluntary agents being freed to engage in private economic exchange to the enrichment of their societies) simply isn’t grounded in empiricism.  A “thick” conceptual apparatus animates concepts of “voluntary”, “private”, etc… This isn’t hydrogen you’re measuring, in other words.  We would obviously expect the human sciences (sociology, economics,etc…) to fall far short of the singular epistemological achievements of the natural sciences: the insights of the former will be a product of their times and (serve, in part, to) give psychological comfort to their 
defenders and promoters.  Be Skeptical!

Swami @123:

Just to clear up a few points.

Positive and negative externalities are pervasive. That wasn’t the point I was making. Rather the point was the complicated ways in which “negative sum games” can be embedded in overall “positive sum” ones, such that “transitivities” aren’t guaranteeed or preserved. IOW cost and losses can be and often are displaced onto other parties.

The more general issue is whether capitalist industrial economies can be adequately represented as a system of markets. The opposition between markets and central planning is a short-circuit. Planning is obviously pervasive throughout the economy, (which is part of Bruce Wilder’s standard point about bureaucracy/hierarchy). And the institutional structures that enable markets, themselves a kind of quasi-institution, depend on planning processes as much on the regularities of “voluntary” transactions. In fact, markets, of themselves, don’t produce much by way of productive increases. They might stimulate and promulgate innovations, (though not all “innovations” are genuine ones, nor are their originators generally the ones who necessarily reap the rewards), but the planning and development largely occurs off-market in organizational and institutional structures and networks. Coordination and realization problems are endemic to any advanced production economy with an extensive and technically specialized division-of-labor. Relying on the supposedly adaptive and self-regulating features of markets alone, while ignoring their endemic dysfunctions, isn’t likely to be “optimal”.

The most basic theorem of capitalist economics is that the equalization of rates-of-profit between firms and sectors would produce a general equilibrium allocating investment such that output is optimal or maximal and supply matches demand. Needless to say, this is not an empirical truth, and it misses the dynamic disequilibria it gives rise to. In it’s crudest form, often dubbed “Say’s law”, it is manifestly untrue. But it’s important to note that the “freedom” in “free markets” is primarily concerned with the freedom of capital investment, and there is nothing to guarantee that the increase in private profits corresponds to some general social welfare optimum. In fact, there is a frequent divergence between private and public interests rooted in the system, and collective public “goods” can be significantly under-provided and the collective interests of capital clash with the well-being and developmental trajectory of the overall population. Specifically, the claim that lowering costs through increasing productivity provides benefits for consumers and thus raises the quantitative “standard of living”, ignores the fact that increases in consumption are specifically required to maintain or increase profits and bears a rather, er, contradictory relation to the desire to cut labor compensation. I’m assuming that the intentionality of capitalists, though not unconstrained, still plays a significantly privileged role in what drives the overall system, such that the private pursuit of profit will tend to win out over increases in social welfare. Markets themselves are constantly redistributing incomes and benefits together with costs; there are no final, once-and-for-all winners. But there is every reason to believe that left to their own devices, they will redistribute incomes in ways that are suboptimal, often severely so, in terms of sustaining demand and employment. (The Michael Pettis piece I linked to in this thread above makes that point rather subtlely. But John A. Hobson, an early neo-classical economist, already made that point in the 1880’s, though he spent the last 2 decades of his life as a member of the Independent Labour Party). So the very contrast you make between market outcomes and redistribution makes little realistic sense.

Keynes remarked, (perhaps unconsciously echoing Aristotle), that economics only concerns the material provision of life, and doesn’t provide of the ends or goods of life, just their prerequisite. Let’s just say that over-consumption for the sake of over-production might not be a sustainable developmental trajectory.

You hold to a static ahistorical model, in neo-classical fashion, and then make over-generalized claims, without any historical periodization or phases, nor geographical boundaries. What distinguished the emergence of capitalism from prior formations was its ability to recirculate economic surpluses rather than just expropriating them, thus generating a more efficient and replicable mode of expanding domination. The plunder of the Americas, for example, was enabled by and enabled early mercantile capitalism. And when early capitalism ran into a contigent set of technological innovations, inculcated by the world-view of modern natural science, rather than directly derived from it, indeed, a certain historical take-off did occur of rising productivity and increasing material surpluses. But only for a restricted part of the world and its populations. In fact, only about 1 bn of the current 7 bn of the population has significantly enjoyed its mixed blessings. Increased life spans and populations, a dubious blessing in many parts of the world, in terms of poverty and sustainability, are not simplistically the product of markets, rather than more general civilizational advances, (often accompanied by brutal “costs”). And as the finance brochures always say, past performance is no guarantee of future returns.

Thanks for the response, Bruce.

Please remember, this is a blog comment and I specifically mentioned not wanting to hijack this thread from O’Rourke’s article. But if you insist I will reluctantly expand on the nature of free markets and the great enrichment (the abrupt change in prosperity and living standards post 1800 or so).

By wide-scale markets — if I was to over-idealize the system for clarities sake — I mean a broadly decentralized system of institutions and beliefs defined by private property, impartial rules of contract and a general protection of the freedom to create, specialize, produce, buy, sell, employ, work for, invest, and use private property absent coercion and harm to others. Obviously each of these terms requires sub definitions, and every real society has caveats, exceptions and such. However, as a rule of thumb, the above definition gets you into the ball park.

It involves formal institutions to decide on these definitions and caveats (often courts and the rule of law) as well as institutions of money, personal property, contract enforcement, the control and punishment of “cheaters”, banks, insurance, stock markets, corporations and such. It also includes inter subjective norms and values including the possibility and desirability of increasing prosperity via mutual agreement of decentralized actors, and the idealized values of thrift, honesty, hard work, creativity, investment in the future, and constructive competition.

Some may find it easier to grasp the essential characteristics of markets by contrasting it to what it is NOT. It is not fundamentally about centralized planning and problem solving. Indeed the focus of centralized actions on economic affairs is to ensure the decentralized nature of the thing is preserved for this domain of problem solving. It also specifically rules out exploitation, cheating and coercion. Actors within the system are not allowed to harm others, nor to coercively restrict others’ actions, or to prevent entry or competition as defined by the system. Coercive monopolies, cartels (including employee cartels), slavery, guilds and such are all off limits. Just as importantly nobody is allowed a privileged position based upon class, incumbency, political connections, bribery, sex, race or whatever. It is an impartial “open access” game with the same rules applying to all. Prohibitions to compete is specifically considered a harm, where as the harm caused by competition within the rules is specifically defined as not a harm.

Again, I am only laying out the idealized, oversimplified version for clarity. Reality is messier, perfection is impossible and almost certainly uncalled for (there are great reasons to deviate from the simplified model). Just as importantly, one must remember that the domain of markets is related to a specific range of economic problems best solved via decentralized cooperation. Other types of problems (public goods, coordination failures, understanding of natural phenomena, etc) are best handled by other systems, and there is often extensive disagreement on which problem solving system is best for each problem.

Now, transitioning to the “great enrichment”… Do note that the proximity to the ideal of wide scale markets as above is in absolutely no way the only difference between Northwestern Europe and the other great states or empires of the 18th and 19th century. Other dramatic differences were relatively uncensored, inexpensive printing and wide scale literacy; political institutions; science and the enlightenment mind set; cheap backstop energy; and the “ghost acres” created by the new world. There is of course also the matter of Adam Smith first clearly and popularly laying out the vision of economics and the potential of markets. Even more central or core to the situation was the 1000 year competitive dynamic between multiple competing and cooperating states. A situation particular to Europe and essential to creating the institutions important to the rise in prosperity.

I don’t believe anyone can convincingly tease out the relative importance of any of these strands in the historically unprecedented rise in living standards and relative escape from Malthusian forces. The interactions were complex with extensive feedback loops. I could however argue extensively that they were probably necessary at the time. If you are interested, I could go on and take a shot at clarifying why the industrial revolution occurred first in Britain. But again, I fear we have already hijacked this thread.

Final note, by idealized I am not implying ideal as in this is how it should be, just ideal in description. Prescription is another matter.

Swami: if you insist

I didn’t mean to insist. Is it too late to take it back? ;-)

I am scarcely in a position to complain about anyone else launching into comment monologues on one’s own obsessions, having done it myself (and this comment is being held back from becoming an epic rant by the slender thread of uncharacteristic self-restraint on my part), but . . .

Swami: Final note, by idealized I am not implying ideal as in this is how it should be, just ideal in description. Prescription is another matter.

Not a credible “Final note” when so much of your comment is given over to proclaiming the Good News of capitalism. I don’t want to get into an ideological food fight, and certainly not over matters of tone. That really would be a serious thread hijack. But, I will reiterate your own statement: we should not confuse the how with the why.

This:

I mean a broadly decentralized system of institutions and beliefs defined by private property, impartial rules of contract and a general protection of the freedom to create, specialize, produce, buy, sell, employ, work for, invest, and use private property absent coercion and harm to others.

And this:

Some may find it easier to grasp the essential characteristics of markets by contrasting it to what it is NOT. It is not fundamentally about centralized planning and problem solving. Indeed the focus of centralized actions on economic affairs is to ensure the decentralized nature of the thing is preserved for this domain of problem solving. It also specifically rules out exploitation, cheating and coercion. Actors within the system are not allowed to harm others, nor to coercively restrict others’ actions, or to prevent entry or competition as defined by the system. Coercive monopolies, cartels (including employee cartels), slavery, guilds and such are all off limits. . . .

are simply paeans to ethical norms. “rules out exploitation, cheating and coercion”!!! Really!?? Do you ever read your own b.s.?

You make it sound as if the Industrial Revolution was just a smidge away from Christ’s Millennial Return, a golden age of unparalleled probity giving rise to a bountiful cornucopia. No Slavery Plantations feeding cotton to Satanic mills in your history of the Industrial Revolution. No Dutch or English East India Company, no Bank of England, no DeWitt Clinton and the Eire Canal, no Pennsylvania Railroad or Standard Oil — pretty much nothing recognizable as an historic fact or actual institution. And, nothing falsifiable either, because other domains, messiness, and “complex with extensive feedback loops”. Also, “probably necessary at the time” covers a lot of sins. Too bad about the Irish peasants, who starved to death as their absentee English landlords exported food, though.

OK, so I said I would restrain my impulse to rant, and maybe I’m not doing a great job on that front. I doubt it would profit us to continue the dialog, attached as you apparently are, to a fantasyland version of the industrial revolution(s) and capitalist development. I don’t know what you thought I could do with a definition of “markets” that relies so heavily on a false assertion of norms and ethical probity and so little on any observable fact, event or institution. We cannot have a conversation, as far as I can see, because you won’t come into the real world or talk about things we can both observe.

Swami @ 132:

Just to be clear.

1) If you’ve been around here long enough, you’d know that threads derail in terms of the OP often enough, usually just partially, constituting what amount to sub-threads, but sometimes totally. But days after the OP, derailment is not a worry.

2) Your claim to be engaging in some sort of pure, disinterested argument is philosophically naive, at best. Further, you have laid out recognizably standard neo-classical arguments, not original to yourself, and then claim that others are not responding to your own “pure” intentions, but misinterpreting them, and thus arguing sloppily. When, in fact, you haven’t laid out your own arguments all that clearly and when challenged, you retreat into the very sort of qualifications that others have made. Let’s call that an inverted form of strawman argument.

3) You made an opposition between a centrally planned economy and a decentralized “market” economy. That is a core issue in dispute here, because it amounts to a fallacious use of an “excluded middle”, when such a stark opposition is precisely being rejected. Of course companies plan: not news. But so do a lot of other organizations, and such planning is not only required to sustain “markets”, but to correct for their endemic dysfunctions. Fiscal policies, (i.e. beyond demands for austerity and “balanced budgets”), regulation of lots of externalities, public investment and public indicative planning and industrial policy, redistribution from “market outcomes”, preferably on a constant basis and through “automatic stabilizers” might well be required to sustain your “pure” logical ideal. But then the logical “ideal” of perfectly competitive markets, to which all goods are to be attributed, amounts to just a logical inversion of realistic analysis. You claim to have worked in the corporate sector managing billions of $ worth of projects. Fine, but that implies that you’ve been working for corporate oligopolies, perhaps multi-national ones, and the sort of “competition” involved there is precisely not of the competitive, “free market” kind. (But, in general justification follows behavior rather than vice versa, so perhaps such confusion is not surprising). And then you say that your logical ideal is descriptive and not prescriptive, which is a typically confused claim of standard neo-classical economics, itself descended from 19th century positivism, which perpetually tries to smuggle normative claims into what is ostensibly purely positive analysis.

4) You then revert to your claim of “necessary but not sufficient”, but without specifying at all what the “sufficient conditions” would be, (leaving it up the the rest of us to supply them for you?), which amounts to question begging and leaves the claim of “necessity” indeterminate. And a 10 fold increase in per capita income? Over what time span and with what distribution, (since per capita means just average)? And you then resort to sheer asseveration about health outcomes, when that is hardly attributable to “markets”, but rather just general scientific advance, (and in Africa, often spread by missionaries). The largest advances were often the result of the simplest ones, such as the discovery of the infectious causes of many diseases or the originally accidental discovery of anti-biotics. (Just to be provocative, Cuba has excllent health care, by all reports, both with respect to the quality of their doctors and and to the public provision afforded. The main problem is the level of undernourishment, due to straightened economic conditions). Education and literacy obviously have budget constraints, but they have been spread many places without the “virtues” of markets. (And did you know that the literacy rate was far higher in 16th century England, due to the Reformation than early 19th century England, due of course to much higher population?) And while it’s true that before the GFC the global economy was growing at its highest rate, since the demise of Bretton Woods, much of that was due directly and indirectly to China. Just how would you characterize that regime? And what do you make of the GFC and its rather tawdry aftermath? Is that just a blip on your radar screen, which will surely be corrected by doubling down on “markets”? Would that necessarily result in “convergence’? And though impossible to disentangle, do you see no difference between the expansion of financial “markets” and real productive investment?

5) Finally, you want to attribute declining wages in “advanced” economies simplistically to the “law-of-supply-and-demand” in labor “markets”, without acknowledging that the opening up of “1 billion workers”, (just 1 bn?), was a deliberately constructed political project. (The aim of Bretton Woods, at least in Keynes conception, was to allow each country some relative autonomy in forming its own economic policies to suit its circumstances, such that domestic employment and productivity wouldn’t depend on export competition and thus rampant current account imbalances). Often you seem to veer from the merely neo-classical to the outright neo-liberal worldview. Governments only exist to enforce the dictates of markets and any other function is illegitimate. At the limit, privatize everything for the sake of markets, including the very idea of a public realm and contestable public interest. I think such a doctrine is just a disaster, even on a purely economic level. Hannah Arendt modeled her peculiar conception of the political on totalitarianism, which for her was the apotheosis of the anti-political. Sheldon Wolin, perhaps in response to her work, which he would know well, has characterized neo-liberalism as “inverted totalitarianism”. Its anti-political character resides in its extreme economic reductionism, even more severe than what might be attributed to various strains of Marxism. But I myself, in an abstract, broad-brush way, am a republican. The maintenance of the res publica, the public thing, with popular sovereignty and participation, is an essential and “necessary” value. Regardless of any fetishization of GDP growth, at the expense of distributional, employment and natural resource constraints

Thanks for the reply, John.

“…you haven’t laid out your own arguments all that clearly and when challenged, you retreat into the very sort of qualifications that others have made. Let’s call that an inverted form of strawman argument.”

No, when challenged I have elaborated, and will continue to do so. I understand that it is easy to fall into the groove of arguing with what we think the person means or is going to say based upon prior experience. We all do it. Going forward let’s try to talk to each other. I think you did extremely well this round, and hopefully can return the favor.

“You made an opposition between a centrally planned economy and a decentralized “market” economy. That is a core issue in dispute here, because it amounts to a fallacious use of an “excluded middle”, when such a stark opposition is precisely being rejected.”

In no way do I believe or have I ever intended to imply that there is nothing between these extremes. The very notion of no middle ground is absurd. That said, it may be of value to characterize the ideal type, especially when specifically asked to do so. I was asked and I did.

“Of course companies plan: not news. But so do a lot of other organizations, and such planning is not only required to sustain “markets”, but to correct for their endemic dysfunctions.”

Agreed wholeheartedly. Again I never intended to imply otherwise. Not all problems are or can or should be solved by markets, and in general the institutional supports of markets are themselves not market generated. You are not arguing with a libertarian.

“…that implies that you’ve been working for corporate oligopolies, perhaps multi-national ones, and the sort of “competition” involved there is precisely not of the competitive, “free market” kind. (But, in general justification follows behavior rather than vice versa, so perhaps such confusion is not surprising).”

Again, one has to chuckle when you guys attempt to dismiss my viewpoint as deluded rationalizations. There should be a term for this rhetorical trick. Freudian Argumentation? I count three versions of this argument from three different sources.

My experience was entirely domestic in an extremely heavily regulated, extremely bureaucratic industry which in no way looked like some ideal market. However the market dynamics still dominated with myriads of corporate entities, some profit-driven and some not, competing within the regulated constraints for the voluntary act of cooperative exchange. I designed, marketed and priced new products focusing on superior consumer value, with the goal of enticing said consumers away from our competitors. They did the same. Consumers gained almost as if there was something like an invisible hand. Employees and stockholders got a lot of value too. Heck, I even had fun doing it!

“And then you say that your logical ideal is descriptive and not prescriptive, which is a typically confused claim of standard neo-classical economics, itself descended from 19th century positivism, which perpetually tries to smuggle normative claims into what is ostensibly purely positive analysis.”

Sounds like you’ve been practicing that line. I am well aware that people have contradictory values and that utilitarianism is RARELY the dominant value. To the extent people value health, wealth, education and such then markets are one well-proven addition to the recipe (you can easily support the argument with a consequentialist game theoretical or behind-the-veil argument). If, on the other hand, your goals are extreme egalitarianism, preservation of tradition, or some mystical property (heavenly rewards?), then markets may very well be antithetical to one’s goals. I will allow people to choose, and only recommend that they do so wisely.

“You then revert to your claim of “necessary but not sufficient”, but without specifying at all what the “sufficient conditions” would be, (leaving it up the the rest of us to supply them for you?), which amounts to question begging and leaves the claim of “necessity” indeterminate.”

The argument is a little deep for blog commentary. If you ask specifically I will elaborate, but honestly I don’t think the experts will ever be able to fuss out weights. The situation is simply too complex with too many feedback loops. It’s like arguing why Golden State was able to win the championship this year (actually it is much more complex than that). Was it defense? Offense? Coaching? The players? Which ones? Where is our empirical control group? How much of the results were contextual? Absent some of one factor how much more of another would be necessary to still take the championship?

In the end, we only have theories, and theories need to be tested and compared to their alternatives. In my case I am arguing that the recipe in the 19th C was as such and based upon this we should therefore do X going forward if we want to accomplish y. Others will provide alternative theories and goals and the alternatives will compete going forward, learning and improving along the way based upon both experience and values. (Not so different from what the NBA coaches are doing in preparation for next season).

I am not going to answer every one of your #4 questions due to overload. I will just encourage you to grok the cake metaphor above. The key to grasping the great enrichment post 1800 is that the rate of problem solving has to be greater than the rate of problem creation or humanity will not on net advance (and again, that is assuming we want to). If Malthusian forces, zero sum interactions and problem solving barriers dominate, then it doesn’t matter how many steps forward we take, as we will be doing as many or more steps back. History of the human race (pretty much of every species) is that movement forward is usually balanced by similar pushes back. One step forward, one back and the average standard of living doesn’t change a bit. Science, technology, institutions, markets and intersubjective norms and frameworks self amplify each other and in total determine how many steps forward we take relative to the steps back (some of which are side effects of the steps forward).

After 1800, societies began to learn how to make two forward for every one back. Or perhaps it was 102 forward for every 100 back. And yes, past results are no guarantee of future success. But we can learn from the past just the same.

“Finally, you want to attribute declining wages in “advanced” economies simplistically to the “law-of-supply-and-demand” in labor “markets”, without acknowledging that the opening up of “1 billion workers”, (just 1 bn?), was a deliberately constructed political project.”

I do so acknowledge and never meant to imply differently.

“Often you seem to veer from the merely neo-classical to the outright neo-liberal worldview [that] Governments only exist to enforce the dictates of markets and any other function is illegitimate.”

Huh? Again, you really seem to be arguing with some libertarian anarchist. I am unfamiliar with any successful society without an effective political state.

“At the limit, privatize everything for the sake of markets, including the very idea of a public realm and contestable public interest. I think such a doctrine is just a disaster, even on a purely economic level.”

I don’t think the market has a “sake” and though I probably do lean toward privatizing more than you probably do, I would agree that some things are best left to the state and to other institutions handled under completely different rules and constraints than markets. See what I mean about me scratching my head on who you are arguing with?

“Regardless of any fetishization of GDP growth, at the expense of distributional, employment and natural resource constraints.”

Again, I agree GDP growth should not be fetishized. It is important, but so are other things. The market just happens to be a good way to deliver a particular basket of goods.

“As to living standards in 19th C Britain, I think the empirical data shows that actual average incomes were a historically-unprecedented 4X higher than the worldwide average. ”

You do understand the difference between mean and median, I assume? And between GDP (a measure basically of market turnover) and “living standards” (which include non-market production) for that matter.

“If you want to argue whether any society EVER has substantially improved long term average living standards for the masses absent the ingredient of markets or by borrowing the creative organizations and products and processes of said markets, please take your best shot.”

The Inca?

Peter (and Reason)

But what society has ever lacked markets?”

You guys are just being cruel now. Anybody following this conversation knows that I am specifically referring to wide-scale markets as defined in idealized form as above:

Begin self quote
“…a broadly decentralized system of institutions and beliefs defined by private property, impartial rules of contract and a general protection of the freedom to create, specialize, produce, buy, sell, employ, work for, invest, and use private property absent coercion and harm to others…. It involves formal institutions to decide on these definitions and caveats (often courts and the rule of law) as well as institutions of money, personal property, contract enforcement, the control and punishment of “cheaters”, banks, insurance, stock markets, corporations and such. It also includes inter subjective norms and values including the possibility and desirability of increasing prosperity via mutual agreement of decentralized actors, and the idealized values of thrift, honesty, hard work, creativity, investment in the future, and constructive competition…. Actors within the system are not allowed to harm others, nor to coercively restrict others’ actions, or to prevent entry or competition as defined by the system. Coercive monopolies, cartels (including employee cartels), slavery, guilds and such are all off limits. Just as importantly nobody is allowed a privileged position based upon class, incumbency, political connections, bribery, sex, race or whatever. It is an impartial “open access” game with the same rules applying to all. Prohibitions to compete is specifically considered a harm, where as the harm caused by competition within the rules is specifically defined as not a harm.”
End self quote.

“In 1820 around 80 per cent of US workers were self-employed, a mass of farmers, craftpersons, merchants stitched together by innumerable local markets and by long-distance traders. By 1880, only 20 per cent were – the vast bulk had been corralled into corporations. And wealth had risen greatly (median welfare rather less so). So we have a conundrum – increases in wealth do not correlate in modern times with more market activity; rather it appears at best an irrelevance. And increases in welfare correlate even less so.”

Mutually agreed terms of employment and voluntary organizations of producers clearly is part of a widescale market and your “conundrum” clearly relates to confusion over the nature of prosperity or collective problem solving using the principles of division of labor and exchange. Indeed, the form of voluntary cooperation called a corporation is part of the idealized form. It is clearly one of the greatest organizational solutions of the human race. And median welfare has improved greater than average. Have you already forgotten about the improvement in childhood mortality, lifespan, literacy and such? The gains were substantially larger for the bottom quintile than the top.

Allow me to elaborate though on the nature of productive networks:

People can solve more problems together than separately by specializing in production and cooperating with other producers and then exchanging these complex solutions with each other. The power of these wide scale markets is that they allow much deeper level of specialized problem solving and a much broader level of problem solving (than can generalists or individuals such as farmers and artisans working alone). Even more importantly, specialists serving large markets can afford to invest (actually the investment itself is a form of voluntary cooperation among vast numbers) in capital to increase productivity and quality. And even more importantly, the competitive dynamic of producers competing to cooperate with consumers and other producers drives an arms race of infinite variety, quality improvement and efficiency gains. It is a complex dynamic self amplifying problem solving system based upon voluntary interaction and constructive competition.

The prosperity generated by markets — excuse me, widescale free markets as above — is the outcome of this process. It is a factor of the size, complexity, and constructively-competitive nature of this now global problem solving system. For you to act surprised that prosperity increased in the US through the 19th C is flat out jaw dropping to me. You view the trends of 1)prosperity increases, 2) more complex coordinated corporations, 3) larger exchange networks and 4) fewer solo farmers and artisans, as a “conundrum”?

“This is not to say that markets are unimportant. It’s to say that they are not the drivers of increasing wealth.”

Yes they are. You and quite a few others on this site apparently do not grok that increased prosperity is essentially a factor of solving more problems better, more efficiently and that decentralized* wide scale markets with impartial freedom to enter and exit are necessary to create the competitive arms race (for profit) which drives this process. Add the routine caveat that “markets” are sufficient but in no way shape or form sufficient as several dozen of my prior comments have stressed.

@142, Swami 08.04.15 at 3:47 pm:

You guys are just being cruel now.

I’d like to thank you guys for handling this. I’m usually not that nice when dealing with “jellyfish” arguments – you know, the kind that squirm around, shifting shape so that every attempt to nail down one little bit results in, “Ha! You missed me!”.

Plus, I’ll take this opportunity to point out that the greatest wealth is created by stealing – labor from slaves, land from indigenous peoples, retirement monies from Enron employees, oil/coal/lumber/livestock feed/etc. from publicly-owned land, the value of labor from workers, and so on – and markets help make that wealth liquid.