

Capitalism at bay - donna
http://www.economist.com/opinion/displaystory.cfm?source=most_commented&story_id=12429544

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jsmcgd
Capitalism FTW! The current crisis, far from being a failure of capitalism is
actually a major success of capitalism. Because, despite contrary to the best
efforts of some people, the market place has not been hoodwinked and is
currently, of its own volition, revaluing assets inline with their true
values. That isn't to say that this readjustment won't be painful, for some
people it will, but that is not the fault of capitalism but the fault of
people playing silly buggers.

~~~
mkn
Permit me a moment of apoplexy.

I'm back.

 _[T]he market place [is] revaluing assets inline with their true values._

This begs the question of how the assets became overvalued in the first place.
The answer, though hard for market apologists to swallow, is that the market
did it. We can't simply presume that every good thing that happens is due to
the market and every bad thing is some unexplained phenomenon.

 _[T]hat is not the fault of capitalism but the fault of people playing silly
buggers._

This is the No True Scotsman fallacy. We can't say that "True Capitalism"
would have fixed this, but _people playing silly buggers_ are the cause of all
the trouble. News flash: The market is composed of people playing silly
buggers! This is the very crux of the point. "True Capitalist Markets" may
always value assets best when unregulated, but "True Capitalist Markets" don't
exist. Classical free markets are a mathematical construct in which all the
agents act rationally but with imperfect information. Real markets are real
constructs where the agents are silly stupid human beings with all their
irrational beliefs and psychological frailties. This is why there is an
emerging field called "Behavioral Economics." This is why there was an article
by Paul Krugman featured here the other day about why real markets failed
English Cuisine for a century or more.

The point can be beautifully summed up in a joke I read once: An economist and
his granddaughter were walking along when the granddaughter saw a $20 bill on
the sidewalk. Anxious for moral guidance, she tugs on her grandfather's shirt
and asks, "Should I pick up that $20 bill?"

"Nonsense," replied the economist. "If that were a real $20 bill someone would
have picked it up already."

~~~
jsmcgd
Hmmm. I don't think we're in disagreement. I never claimed the market is
perfect. My point is its miraculous tendency for self correction even in spite
of fraudulent practices and bad government policy. You cannot expect this kind
of silly buggery to fall under the jurisdiction of market forces and we don't.
That's why we have laws and tried and tested policy. When you violate this
that is when you get into trouble. And that is exactly what happened this
time. It wasn't business as usual that got us into this mess. However at least
we have a free market to get us back on track. Heavily socialist systems can
shield people from the truth of the problem and they can languish indefinitely
as a result (an extreme example: The Great Leap Forward). Free markets won't.

~~~
mkn
I appreciate your reasoned reply in the face of my (sometimes) animated post!
(I hope you could tell, even through the flattened nuance of a forum post,
that I was having a little fun and not being a jerk.)

However, I think that we really _are_ in disagreement. There _was some_
government policy that was bad for the market (easy money leading to bad
lending) but the creation of credit default swaps certainly has to fall under
"the (real) market."

This is my point about the No True Scotsman fallacy. Buying a credit default
swap certainly had to be a bad idea from the very beginning. You're insuring
an asset that you don't (necessarily have to) own. This falls right under the
classical definition of a "Moral Hazard." However, they _were_ bought by the
very agents (or at least agents indistinguishable by market theory from the
actual agents) that compose the market that is now correcting itself. The
agents were incapable of seeing the disaster ahead. This either means that
they weren't rational (in which case we don't have a 'market') or that they
were rational (in which case free markets really did get us into this mess). I
don't know which is more frightening.

The analogy is often made that free markets allow a kind of evolution to
occur. The fitness function is profitability/solvency, and the organisms are
investors, organizations, consumers, et al. I think this is a great analogy,
but it does have some interesting implications. Fraud happens in nature
(caterpillars that mimic ant pheromones to invade ant nests). Boom/bust cycles
happen in nature (algal blooms, even in the absence of agricultural runoff).
Parasitism happens in nature. All of these things have market analogues.
Indeed, all of those analogues figure highly in the current debacle.

While "[h]eavily socialist systems _can_ shield people from the truth of a
problem," they _can_ also shield people from the worst of market excesses.
There doesn't seem, to me at least, to be any kind of fundamental reason why
regulation and government action, socialist or otherwise, either has to shield
people from truth or is incapable of shielding people from what could turn out
to be very dire consequences.

 _Free markets won't [languish indefinitely]_

The Krugman article I mentioned (<http://web.mit.edu/krugman/www/mushy.html>)
actually talks about a case in which a free market will languish indefinitely,
namely, if nobody knows to expect any better than they're currently getting.
This is just one of the many consequences of the fact that the agents that
compose real markets differ significantly from the rational agents of
classical economics. I mean, presumably, people who advocate for free markets
aren't heartless and bloodthirsty. They advocate, fundamentally, because they
want what's best for everybody. I think it's important for them, in light of
their desire to do good, to take an honest look at the limitations of the
theory and ask, "Are we going to get what's best for everybody by blindly
implementing classical economic theory with disregard for the differences
between the model and reality? Or are we going to do better by implementing it
only so far as it goes and then putting other systems in place to ameliorate
the worst of its excesses in the fairest manner we can find?" This is
fundamentally a philosophical question, not an economic one.

~~~
jsmcgd
Great response. Don't worry I didn't think you were being a jerk before. In
truth I was enjoying advocating a contrarian position and I expected a
reaction. (I like to think I wasn't trolling(!) because what I said was my
honest opinion). Also I think for a forum discussion not to quickly disappear
down the toilet you have to assume the best of people.

Regarding what you actually said, I'll have to do some more
investigating/thinking. I will concede you seem more knowledgeable than myself
on this matter however the INTP in me won't concede defeat until my spidey
senses stop tingling! I'll let you know if it does.

(I do like the evolutionary analogy. I think they're extremely apt).

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dmix
It's satisfying reading an article on this subject by someone who (seems) to
know what they are talking about. I've been hearing so many opinions from so
many different sources, but few seem to really understand the big picture of
this issue; no doubt because it is very complex.

I found an interesting connection made between the internet bubble and the
housing bubble caused by interference from the Fed (the source has a
capitalist bias):

 _"Injections of liquidity to stop the meltdown in the wake of the failure of
Long Term Capital Management fueled the internet bubble. Injections of
liquidity to avoid a market crash when the internet bubble burst fueled the
housing bubble. Now, following the bursting of that bubble, the Fed is making
historically huge amounts of credit available to keep the economy afloat."_
<http://www.atlassociety.org/cth-43-2085-credit_crisis.aspx>

Another piece of the puzzle.

------
known
Capitalism will succeed only when race to the bottom is prevented in rest of
the world <http://en.wikipedia.org/wiki/Wage_slavery>

~~~
eru
Have you seen the recent wage inflation in China and India?

