Economic Discussion (Taken from 'Control' thread)

[GenghisTron]

Originally Posted by uBeR

What you ignore in your economic examples is that there are certain facts that are virtually undisputed in any serious scholarship. Take the example of externalities. Every serious economist recognizes that, in a free market system, there exists what are referred to as externalities. It's because the academic literature, which is thorough and established, objectively tells us these things exist and that they ought to be controlled for fairly obvious reasons. It's objective, not subjective, in other words.

That's not true at all. There's considerable debate (especially recently) about externalities, and if they even exist. It's been proposed that eternalities themselves don't truly exist, and the true problem is transaction costs. Here's a paper from 2008 that casts some speculation about externalities and how they should be handled. If that wasn't enough, there's Ronald Coase, who theorized the Coase Theorem and also realized that the problem isn't externalities, but transaction costs.

Also, if you actually read Dahlman's paper (I'm assuming you won't), he even concedes that externalities are thoroughly contested on numerous grounds. Externalities are hardly 'undisputed', 'objective', or 'thorough and established'. Perhaps it's taught in Econ 101 in every public school that externalities exist, but they also teach you that muslims hate you because of your freedom.

Please, don't preach in an authoritative tone, when you clearly don't know what you're talking about. Wait, are you one of those arm-chair economists who, because he hears Paul Krugman say something, it must be true?

Originally Posted by uBeR

Laws are therefore created to limit these undisputed negative externalities, e.g. pollution.

Again, more authoritative dogma.

Originally Posted by uBeR

That's objective.

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance." - Rothbard

[uBeR]

Your hypocrisy on ad hominems is duly noted, but your fallacious arguments will be ignored so that we can focus at the issue at hand, i.e. externalities and the inefficiency of free markets. Everybody, everybody who's going to be honest anyway, recognizes that free markets are inefficient. I was educated at a freshwater school, and even the hardcore right-libertarian professors there acknowledged market inefficiency. They were honest. The reasons are manifold. The existence of externalities is but one of them. Even Dahlman admits that externalities exist, but says there are merely the result of transactions costs, which is true enough. Merely renaming externalities, however, says nothing about market efficiency. Dahlman calls it normative, but we already know things like pollution and global warming happen, so we can judge that on its face value. Mark failure abounds around us, and we can each point to personal examples from our own experiences. Again, for those not familiar, that's the mainstream neoclassical consensus among economists, something Coase himself would readily admit. Coase, remember, does not deny the existence of externalities (or whatever euphemism you wish to use), but says they are the result of poorly defined (or lack of) property rights and other transaction costs (zero transactions costs is an absurdity--making his theorem rather inapplicable and irrelevant--which even Coase admits, if you've read him). There are ton of other sources that create market failure--if we were to leave markets to their own devices, that is--which leads us to the simple if inconvenient conclusion that free markets are inefficient. Again, this is widely recognized by honest economists.

[stray kitten]

listening to an academic talk about economics is similar to listening to a quadriplegic from birth talk about deep sea diving.

[GenghisTron]

Originally Posted by uBeR

Your hypocrisy on ad hominems is duly noted, but your fallacious arguments will be ignored so that we can focus at the issue at hand,

You're projecting, bro.

Also, what 'fallacious' arguments are you talking about? I have given you nothing but proof. Externalities, and their existence, are not as profound as you make them out to be.

Originally Posted by uBeR

i.e. externalities and the inefficiency of free markets. Everybody, everybody who's going to be honest anyway, recognizes that free markets are inefficient.

That's not true, at all. You seem to think that Economics is like politics, where it's easy to point out objectively right and wrong maxims. In Economics, this couldn't be farther from the truth. There are, as you know, many, many, many different interpretations of Macro (and even Micro), and the many assorted fields between the two.

Your authoritative tone on something that is far from settled, is intellectually dishonest. It's one thing to have a particular opinion on Economics, and it's another to parade around like a douchebag pretending like you're right and using such awesome debating tactics as appealing to the MAINSTREAM or a refined school of thought, and implying that somehow they're objectively right. Bro, if people many times smarter and more knowledgeable about this stuff than myself, and you, cannot even agree, despite a century and a half of rigid scholarly work, then I think it's best to lay off the Kool-aid for a while.

Originally Posted by uBeR

I was educated at a freshwater school, and even the hardcore right-libertarian professors there acknowledged market inefficiency. They were honest. The reasons are manifold. The existence of externalities is but one of them.

Is this supposed to pass for a legitimate argument...?

Originally Posted by uBeR

Even Dahlman admits that externalities exist, but says there are merely the result of transactions costs, which is true enough. Coase, remember, does not deny the existence of externalities (or whatever euphemism you wish to use), but says they are the result of poorly defined (or lack of) property rights and other transaction costs (zero transactions costs is an absurdity--making his theorem rather inapplicable and irrelevant--which even Coase admits, if you've read him).

Yes, Dahlman and Coase both say that externalities do exist, but the point is that it's more productive to look at transaction costs.

Moreover, it was Mises that suggested that the 'problem' of externalities would be solved if our economy had more robust property rights and contract law. Because of our lax property rights, (and our attitude towards economics in general--privatizing profits and publicizing losses, precisely the side-effect of having lax property rights and contract law, notice the trend here) a business is free to profit off their activity, whatever it may be, but they are not beholden to take responsibility for the negative side effects.

In a true libertarian society with a liberalised economy, there would be robust property rights, contract law, and of course, central to libertarian thought, there would be a homesteading axiom. The combination of the three would force companies who (for example) extract natural resources to become more liable for their actions, but more importantly, it would provide incentive for them to make sure their equipment is properly inspected and safe.

In the case of the recent BP spill, you have a number of factors that incentivized BP's (lack of appropriate) behavior. First of all, they're a corporation, and with that status, comes the legal status of being an LLC. There is essentially a cap to the amount of damage they're responsible for. Then of course, you have regulatory capture. The MMS was in the back pocket of BP. Thanks to our wildly bureaucratic and fascist regulatory structure.

You also have the fact that BP was originally supposed to be nationalized by Iran. It is formerly the Anglo-Persion Oil Company, owned by the British, and operated out of Iran. It's very history is one full of corruption. Long story short, Iran was mad about how BP was exploiting Iranians, and they moved to nationalize it, http://www.amazon.com/All-Shahs-Men-American-Middle/dp/0471265179.

I'm sure an oil company that has the CIA actively defending it, is going to be a prime example of how the free market works.

Anyways, enough about BP.

Originally Posted by uBeR

Merely renaming externalities, however, says nothing about market efficiency.

No one is 'renaming' anything. You seem confused sir, or you're (again) misrepresenting what I, or Coase/Dahlman said.

Originally Posted by uBeR

Dahlman calls it normative, but we already know things like pollution and global warming happen, so we can judge that on its face value.

Slippery slope...

Originally Posted by uBeR

Mark failure abounds around us, and we can each point to personal examples from our own experiences. Again, for those not familiar, that's the mainstream neoclassical consensus among economists, something Coase himself would readily admit.

Since you're such a spokesman for neoclassical economics, do you care to explain the knowledge problem in Central Economic Planning, as well as the economic calculation problem?

Originally Posted by uBeR

There are ton of other sources that create market failure--if we were to leave markets to their own devices, that is--which leads us to the simple if inconvenient conclusion that free markets are inefficient. Again, this is widely recognized by honest economists.

This is a common misunderstanding. People such as yourself think our country is run by a free market standard. First of all, this is patently wrong. In this country, property rights are sub-standard. I don't think anyone can deny that property rights are critical in an economy of any flavor.

On top of very weak property rights, you have an economically fascist policy towards regulation. Regulation is not meant to make things... regular (in this country), it's meant to protect business insiders. Our regulation is so hard to understand, and it's so bogged down by legal chinese, that entire bureaucracies have to be maintained just to interpret regulation, and that doesn't even include enforcing it.

How is this free market?

Our Government creates an environment that is hostile towards entrepreneurship and rewards inefficient monopolies. In a free market, monopolies would not exist, save for a few, naturally-occurring monopolies. Today, we have leviathan corporations that are supported by anti-market IP and tort laws, which make them invincible. Companies like Microsoft, and virtually all the large Telecom companies would not be so huge. In a true free market, it would be impossible to maintain a monopoly unless you constantly innovated and were deadly efficient.

How is this free market?

Also, in a free market, corporations wouldn't exist. That's a big one. Corporations are insulated from risk by the mere rule of law. Corporations are the same as LLC's, but they basically have shareholders. The LLC status allows them to get away with not absorbing the full damage that they cause. For instance, most recently, you have BP trying to lobby Congressman to 'cap' their liability. This special privilege is only possible because of our Government. The existence of a corporation creates systemic moral hazard. The only way a corporation (as we currently know) would exist in a true free market, is if there was robust contract law and property rights, and they were bound contracts, rather than their own whims.

Again, I ask, how is this free market?

Then, you have the Federal Reserve bank, following in the tradition of Greenspan, and keeping the interest rates low for far too long, creating malinvestment, and fueling the boom/bust cycle.

How is this free market?

You then have a government who, not only creates and endorses monolithic corporations, and guarantees their safety from competition (plus the inherent removal of liability that comes from being a corporation in the first place), you then have a Government so beholden to them, that they will be 'bailed out' when they make huge mistakes that nearly collapse the economy.

How is this free market?

I could go on, and on, and on, and on, about the perverse incentives created by our Government to act contrary to market mechanisms and forces, but my goal here is not to write a dissertation. You should already know that these incentives and conditions exist. I shouldn't have to explain them to you. It seems to me that you've only been showed one side of the coin. Perhaps you should take some time and do some reading on your own. dabble in the Austrian side of libertarianism. Wait, keep an open mind, what am I thinking?

It was Adam Smith, himself, who said that Governments provide the illusion that their purpose is to help the poor, when in fact they're a tool of the rich to protect their own interests. It was also Milton Friedman who said that economics with monopolistic competition are not efficient, and when you have a Government that readily legislates for it's corporate buddies, it's no wonder you seem to think the free market has failed. What we have in this country, by definition, is a mix of corporatism and state capitalism. Blaming the market for the failures of Government is laughable. I don't know any honest person that can say to my face (and knows what they're talking about) that our economy is 'free market'. Even your boy Dylan Ratigan talks constantly on his show about how this country isn't capitalist, nor is there a free market.

You're trying to judge free market economics based on false platitudes. You have a bad sample, and you're using that sample to paint (with a broad brush) a narrative about an entire economic ideology. Using your (faulty) logic against free market economics, I could re-apply it, and say that leftism is responsible for the deaths of 200 million people in the 20th century, and therefore anyone who supports radical leftist government systems (socialism/communism) endorses murder.

Just like communism, and socialism--free market capitalism has never been implemented as it was theorized, and therefore trying to judge the merits of a system that has been warped and entirely changed (before even having a chance to work on it's own), as an argument against that very system's true ethical and philosophical underpinnings, is nothing short of a logical fallacy. This is the kind of stuff that you expect from mainsteam ideological Americans. For someone supposedly 'educated', such as yourself, it's sad to see you stoop to such a low level. If you had an ounce of intellectual honesty, it would be mighty hard for you to truly suggest that the climate was perfect for capitalism to thrive in America.

Also, when can I expect a reply in my 'Control' thread? I've been patiently awaiting a rebuttal.

[GenghisTron]

And an aside--The Keynesian/Humanist approach doesn't account for the implicit harm of their own policies (CEP, the externalities of externalities, unintended consequences, opportunity costs, etc.) and is primarily concerned with the explicit benefit caused by their approach. Austrians take a different approach, and realize that explicit benefits also precipitate implicit negatives on the economy, and adjust accordingly.

[uBeR]

OK, "bro," don't get so mad. If you can't even make an intellectual argument without resorting to calling people "douchebags," then perhaps this might say something about your argument. Let's look at it.

You say there are a lot of different views, schools, or thoughts in economics. This is true. But I never said there wasn't. What I said was that externalities (or whatever euphemism you wish to use) exist, along with other forms of market failure, which is indicative of the inefficiency of markets, in particular free markets. This is according to neoclassical economics (which both laissez-faire and Keynesian economics rely on). You say I should look at Austrian economics. I say no I shouldn't.

I've read work by Austrians. It's usually all garbage, which is the reason why Austrian economics is not mainstream, is considered heterodoxal, and why no one takes them seriously anymore. There's a reason for this, namely that it's patently off-base. What's the Austrian response to externalities anyway (for now ignoring other obvious causes of market failure)? Rothbard says they don't really exist, because prices in the market reflect precisely what everyone wants. Is it true? Of course it's not. Maybe we could say externalities don't exist when all market participants are perfectly rational, perfectly informed, and experience no transactions costs. Nothing comes close to reflecting this. They also say Pigouvian taxes are wrong because they don't rely on price mechanisms (and current market prices already reflect exactly what everyone wants), so it doesn't reflect what people want because it's just big bad government imposing its will on us pawns. Well, that's not true when the Pigouvian tax is implemented through democratic means, for example, representing the will of the people.

So, anyway, what was my argument? That externalities exist and they represent the inefficiency of markets, particularly free markets. Your response? Yes, they exist! Well then. That settles the issue. You say it's a problem of transactions costs. OK, sure. So what? The result is the same. Inefficient markets. Call it what you want, but you're going to get the same thing.

In telling me to explain the problems of economic planning and calculation, you create a grave (but false) dichotomy between free markets and planned markets (in other words, laissez-faire capitalism or state capitalism). Of course, it doesn't take a genius to figure out the absurdity of such a dichotomy. It should be clear that just because I think free markets are inefficiency that I automatically support state capitalism Ã* la the USSR.

Also, your suggestion that I was somehow calling the United States a free market is totally off-base. Your entire tirade about the unfree nature of Americans is duly noted, but completely irrelevant. I'm not judging free markets based on the U.S. or any other country. The U.S. is not a free market, and the closest things we have reflecting free markets are Third World countries (which is for a reason) who have its doctrine rammed down their throats. But that doesn't mean you can't talk about free markets. Nothing I've said here depends on the U.S. as a model. We can talk about free markets despite the U.S. not being one. Neoclassical economics tells us exactly what I've been saying. Externalities, including those resulting from transactions costs, exist and they are Pareto inefficient--especially so in unregulated, free markets (even if they don't really exist anywhere). In fact, the less measures there are to prevent externalities (like pollution standards), i.e. the freer the market, the more prevalent externalities are likely to be. The "market forces" you laud are the very source of economic inefficiency.

As for the other thread, you'll have to excuse my low interest in your nonsensical psychobabble, as I'm currently moving and don't have the time or energy to entertain all of your silly notions at the moment.

[GenghisTron]

Originally Posted by uBeR

OK, "bro," don't get so mad. If you can't even make an intellectual argument without resorting to calling people "douchebags," then perhaps this might say something about your argument. Let's look at it.

uBer, stop projecting. You initiated the ad homs, not me. I'll agree to stop ad homs as long as you do, just uh, realize that your post in the previous thread was a monument to intellectual dishonesty and ad hominem attacks. It was kind of repulsing, tbh.

Originally Posted by uBeR

You say there are a lot of different views, schools, or thoughts in economics. This is true. But I never said there wasn't.

Right, but what you are trying to do, is claim that something is objectively true, when that's not the case. Your only argument for backing up the fact that externalities exist, was that that the mainstream supports it. That's my contention. The simple fact is, economics is not a 'hard science'. Every passing year, we come across new theories and new data that shake the foundations of what we previously thought. Economics, as Rothbard pointed out, is a process--a process of understanding human psychology. No one has a monopoly on the ideas in Economics, it is still a hotly contested field of ideas.

Originally Posted by uBeR

What I said was that externalities (or whatever euphemism you wish to use) exist, along with other forms of market failure, which is indicative of the inefficiency of markets, in particular free markets.

This is according to neoclassical economics (which both laissez-faire and Keynesian economics rely on).

Not true. Unless you're using a broad interpretation of 'laissez-faire', then no, you're wrong. Modern day laissez-faire (Austrian) is endogenous, whereas neoclassical economics are exogenous. Neoclassical economics rely on multiple theories that have been proven bunk, and even some Top 20 Econ school professors are moving away from Neoclassical orthodoxy.

Originally Posted by uBeR

You say I should look at Austrian economics. I say no I shouldn't.

I've read work by Austrians. It's usually all garbage, which is the reason why Austrian economics is not mainstream, is considered heterodoxal, and why no one takes them seriously anymore.

Despite the fact that it's obvious you have read nothing by Austrians, and have a very shaky understanding of the Austrian school, your critique of it being considered 'heterdoxal' is yet again an indictment of your own confirmation bias. Just because something is outside the mainsteam means jackshit. As a liberal, you should realize that orthodoxy is bullshit. Remember how in my 'Control' thread, you tried to use John Stuart Mill against me, oh right, here's what JSM had to say about that;

The despotism of custom is everywhere the standing hindrance to human advancement, being in unceasing antagonism to that disposition to aim at something better than the customary, which is called, according to circumstances, the spirit of liberty, or that of progress or improvement.... Custom is there, in all things, the final appeal; justice and right mean conformity to custom.... All deviations ... come to be considered impious, immoral, even monstrous and contrary to nature.

Besides, laissez-faire economics used to be considered 'orthodox' and 'mainstream' long before Keynes came around. Wealth of Nations was written in 1776, and Keynes wrote The General Theory in the 1930's.

Pro-tip: There's tons of schools of thought that are 'heterdoxal', your attempt to use it as some sort of way to discredit by association is kind of sad.

Also, I'm interested in knowing what you've supposedly 'read' by Austrians?

Originally Posted by uBeR

There's a reason for this, namely that it's patently off-base. What's the Austrian response to externalities anyway (for now ignoring other obvious causes of market failure)?

I already gave you a general outline in my last post. Mises said externalities in an Austrian free market would not exist because there were be robust property rights and contract law, based on the homesteading principal. So, say you find an oil deposit that you homestead (Make use of, when no one else is using). Using these principals, by contract, whoever homestead the deposit would be contractually-obligated to be fully liable for any damage caused.

Another problem with externalities, is the fact that we have corporations. Corporations enjoy reduced moral hazard because they get special treatment by Governments (LLC status which caps their liability, for example).

The point is, if you force a company to be fully responsible for their actions (Through a contract) it will be in their best interest to not cause a potential negative externality. Some things, like over-fishing, are already being addressed by market mechanisms. Catch-sharing is addressing the once widely accepted negative externality of over-fishing or 'The tragedy of the commons'.

Originally Posted by uBeR

Rothbard says they don't really exist, because prices in the market reflect precisely what everyone wants. Is it true? Of course it's not.

No, Rothbard does not say that. Again, you're either being taught factually incorrect things about the Austrian school, or you just plain don't know what you're talking about.

Originally Posted by uBeR

Maybe we could say externalities don't exist when all market participants are perfectly rational, perfectly informed, and experience no transactions costs. Nothing comes close to reflecting this.

That's funny you say that, because a lot of mainstream Neoclassical economists think that agents are perfectly rational, they maximize utility and profits, probability distributions, efficient market hypothesis, etc.

Whereas the Austrians don't believe all agents are rational, etc., vis a vis the subjective theory of value/Marginalism. It's clear you don't understand Austrian theory, or were wrongly taught about Austrian theory in your mainstream school. Sad.

You should try reading some, expand your horizons. Wait.. I thought that's what colleges were for?

Originally Posted by uBeR

They also say Pigouvian taxes are wrong because they don't rely on price mechanisms (and current market prices already reflect exactly what everyone wants), so it doesn't reflect what people want because it's just big bad government imposing its will on us pawns. Well, that's not true when the Pigouvian tax is implemented through democratic means, for example, representing the will of the people.

You're wrong. Rothbard teaches us that Pigouvian economics are bunk because the only way you can truly judge what an individual likes and dislikes are through his own actions. A mathematical model cannot and does not account for the subjective likes and dislikes of every individual. I'm curious who taught you that, because it's so far off-base, it makes my head hurt in confusion.

Also, 'democratic means' really is a joke. Again, a 'democracy' cannot and does not account for the individual likes and dislikes of every person, and therefore is not capable of accounting for what people want and do not want. A dictatorship of the proletariat (democracy) is still a dictatorship.

Originally Posted by uBeR

So, anyway, what was my argument? That externalities exist and they represent the inefficiency of markets, particularly free markets. Your response? Yes, they exist!

Wow, now you're pulling a Scuzzy. No, I don't agree externalities exist, well let me rephrase that--externalities exist when there's perverse incentives set in place by Central Economic Planners that create undue moral hazard by corporations, whereas if we had a free market based around strictly-defined property rights and contract law, externalities would not exist.

Also, in my last post, I wrongly said Coase admitted externalities existed. Coase, in his paper 'The Problem of Social Cost', concluded the same thing (roughly the same, at least) Mises did. With sufficiently-defined property rights, and low transaction costs, the business in question would more readily internalize a potential externality. So I was wrong earlier, Coase does in fact say that externalities don't exist--my apologies!

Originally Posted by uBeR

Well then. That settles the issue. You say it's a problem of transactions costs. OK, sure. So what? The result is the same. Inefficient markets. Call it what you want, but you're going to get the same thing.

Once again, you're completely misrepresenting everything I've said on this topic. Please, get some intellectual honesty. It's not that hard. I've gone over the same thing multiple times with you, then you pull a Scuzzy and completely misrepresent what I've said so far. Maybe you just have a bad memory? I dunno.

Originally Posted by uBeR

In telling me to explain the problems of economic planning and calculation, you create a grave (but false) dichotomy between free markets and planned markets (in other words, laissez-faire capitalism or state capitalism). Of course, it doesn't take a genius to figure out the absurdity of such a dichotomy. It should be clear that just because I think free markets are inefficiency that I automatically support state capitalism Ã* la the USSR.

You're missing the point. The Knowledge Problem and the Economic Calculation Problem are an affront to all forms of Central Economic Planning. Doesn't matter if it's socialism, communism, or some prototype. The central point of these two theories remains constant--a central planner, or a group of central planners, cannot account for the intricacies of the market. Quite simply put. Hayek and Rothbard/Mises obviously have gone in far greater detail, but it's clear that people are not omnipotent enough to correctly account for the intricacies of the trillions of nearly invisible interactions that occur in a market. Which is why CEP simply does not work.

Originally Posted by uBeR

Also, your suggestion that I was somehow calling the United States a free market is totally off-base. Your entire tirade about the unfree nature of Americans is duly noted, but completely irrelevant. I'm not judging free markets based on the U.S. or any other country.

The U.S. is not a free market, and the closest things we have reflecting free markets are Third World countries (which is for a reason) who have its doctrine rammed down their throats.

Oh god, I hope you're kidding.

According to virtually every major index for economic freedom, Third World countries run by dictators and rival gangs (surprisingly!) rate near the bottom, and countries with advanced economics that have sufficient property rights, legal systems, etc., are near the top.

If you're going to make such an extravagant claim, it's usually best to back it up with some facts.

Originally Posted by uBeR

But that doesn't mean you can't talk about free markets. Nothing I've said here depends on the U.S. as a model. We can talk about free markets despite the U.S. not being one.

I'm apologize for assuming you were using the US as a model, because there are a lot of people who hold the same ideas and criticisms of the 'free market' as you do, and commonly use the US as an example. As we both realize, anyone with a shred of intellectual honesty realizes this is simply not the case!

Originally Posted by uBeR

Neoclassical economics tells us exactly what I've been saying. Externalities, including those resulting from transactions costs, exist and they are Pareto inefficient--especially so in unregulated, free markets (even if they don't really exist anywhere).

Neoclassical economics also tell us that all agents are profit and utility maximizing.

And again, you're trying to authoritatively dictate that something which is very much a contentious topic, is objectively true, and there are no alternatives. Objectivity. Get some.

Originally Posted by uBeR

In fact, the less measures there are to prevent externalities (like pollution standards), i.e. the freer the market, the more prevalent externalities are likely to be. The "market forces" you laud are the very source of economic inefficiency.

Again, you're making extravagant claims without providing a shred of evidence. I mean, it's clear you're wrong, but I'd like a launching point from which to destroy this erroneous idea of yours.

Originally Posted by uBeR

As for the other thread, you'll have to excuse my low interest in your nonsensical psychobabble, as I'm currently moving and don't have the time or energy to entertain all of your silly notions at the moment.

That's funny you say that, because you proposed a number of arguments which were completely and totally factually incorrect, and I called you out on it. Oh right, but I'm the one spewing psycho-babble.

No one says you have to respond right away, shit, it took me a week to reply to this thread. It's lame to type up a huge post, respond to someone's rebuttal, and then have your rebuttal totally ignored because it's 'psycho-babble'. Sounds to me like you're making excuses.