Economics: I, Pencil

[Ed]

If it's a matter of course, then it should be no problem to provide evidence.

Sure, go steal someone elses property and it would be a snap.

You know, on the few occasions when I was interviewed by the media they got it so damn wrong that it made me pretty cynical about everything else that was reported upon. This is sorta similar to me. You really don't know what you are talking about in an area that I am intimately familiar with and I know it. It leads me to question your other pronouncements in areas with which I am less familiar.

So, I bid this fine discussion a fond adieu.

 

[shanek]

Sure, go steal someone elses property and it would be a snap.

What does that have to do with what you claimed? And how does it constitute evidence?

You know, on the few occasions when I was interviewed by the media they got it so damn wrong that it made me pretty cynical about everything else that was reported upon. This is sorta similar to me. You really don't know what you are talking about in an area that I am intimately familiar with and I know it. It leads me to question your other pronouncements in areas with which I am less familiar.

So, I bid this fine discussion a fond adieu.

Yep...just like the woo-woos do. I once had a co-worker who claimed to work at one of the most prestigious evolutionary labs doing carbon-dating and left and became a creationist when he got tired of the fraud, covering up the evidence showing that the Earth was really only 7,000 years old. And he reacted exactly this way when I kept asking him for evidence.

Well, everybody got a gris-gris, I guess...

 

[Chaos]

What, you're saying that laws against (say) murder are an intervention in the free market???

It's called the free market for a reason, y'know.

They´re an intervention. And a good one, too, in case of murder. And not only there.

 

[Ed]

What does that have to do with what you claimed? And how does it constitute evidence?

Once more for the cheap seats. The data on product movement (you know, all that scanner stuff?) is collected by two private companies who licence it for lots of money. Licence, not give. The title remains with them. That is the data that one could use. You would either have to licence it (for millions, I would guess) or steal it. Even then, I am not sure that pissing off their customers is an acceptable use. Not wooish, just facts.

So, seeing that you have virtually zero knowledge of this area, are we to assume that your pronouncements are based entirely on your theoretical constructs?

A gris-gris? Is that like "suck an egg"? It seems that "suck an egg" is a general expression of dismissal. Another one is "rat's ass". No idea what that means either. Odd expressions.

 

[shanek]

They´re an intervention. And a good one, too, in case of murder. And not only there.

Okay, so, how are you "defining" intervention, free, and market? Because you seem to be using a very weird definition of at least one of these terms. Unless you think murder is a free market transaction.

 

[shanek]

Once more for the cheap seats. The data on product movement (you know, all that scanner stuff?) is collected by two private companies who licence it for lots of money. Licence, not give. The title remains with them.

Yes, they gather the data, then companies have to pay to access this data. What does this have to do with colluding to fix prices?

 

[Ed]

Yes, they gather the data, then companies have to pay to access this data. What does this have to do with colluding to fix prices?

Forget it. If I have to repeat something from a page ago it's hopeless.

OK, you are right, I am wrong.

 

[The Central Scrutinizer]

If it's a matter of course, then it should be no problem to provide evidence.

I too have worked with IRI data, and believe me, they are not going to give it away. You are in way over your head on this one.

 

[digitalmcq]

Nice dismissal of the facts and papering-over of your strawman.



This is ridiculous, and I don't even need to look at this report to see that. Argentina's problems came about because their government mismanaged their fiat currency, trying to tie it to the dollar, exactly what caused the depression of the 30s in Britain.



Well, geez, all you had to do was type the title into Google and hit "I'm Feeling Lucky." Hardly a huge time investment.

http://www.imf.org/external/np/res/docs/2003/031703.pdf

Argentina is only mentioned once:



Notice that it also mentions Brazil as another example, whose problems were mostly caused by indexing, a completely horrible government policy which led to intense hyperinflation.

Now, what is this report really about? Check out this paragraph from the summary:



In other words, the problems are caused by unsound macroeconomic policies, bad governance, and bad institutions. I've already mentioned the problems with Argentina and Brazil. It's laughable to blame the problems with these countries on the free market, and borderline dishonesty to say that this paper does so.

Read Milton Friedman's "On The Positive Methodology of Economics". He accepts that neoclassical economics assumptions are flawed but dismisses this as a valid criticism of the theory. He asserts that what is important is economics' predictive ability.

I like how you don't need to look over the report to know that I'm wrong. Maybe you should apply for the million.

Here's another revealing quote from the paper:

"International financial integration should, in principle, also help countries to reduce macroeconomic volatility. The available evidence suggests that developing countries have not fully attained this potential benefit. Indeed, the process of capital account liberalization appears to have been accompanied in some cases by increased vulnerability to crises. Globalization has heightened these risks since cross-country financial linkages amplify the effects of various shocks and transmit them quickly across borders. A type of threshold effects appears here as well - reductions in volatility are observed only after countries have attained a particular level of integration.

The evidence presented in this paper suggests that financial integration should be approached cautiously, with good institutions and macroeconomic frameworks viewed as important. The review of the available evidence does not, however, provide a clear road map for the optimal pace and sequencing of integration. For instance, there is an unresolved tension between having good institutions in place before undertaking capital market liberalization and the notion that such liberalization can help itself import best practices and provide an impetus to improve domestic institutions."

The basic message of this paper (which I have actually read) is that it is unclear if financial liberalization is beneficial. It can, in some cases, contribute to crises and macroeconomic instability. This is a far cry, though, from the argument that the unregulated free market is the wonderful thing that libertarians make it out to be.

 

[digitalmcq]

And the list of strawmen comes:







Absolute rubbish. Some people can and will purchase from firms with higher prices, and there are valid economic reasons for doing so, such as superior quality or better customer service or just plain convenience.



I've claimed otherwise in so many threads it's pathetic to bring this up as any kind of point I subscribe to. Although the profit motivator is great, there are other reasons people go into business.


Do some people just not want to learn?

Shanek, from now on the argument "I've debunked this is so many thread its ridiculous"doesn't work - I don't sit around all day waiting for you to post your pearls of wisdom for the world.

 

[digitalmcq]

Then it should be no problem for you to provide evidence supporting this claim. Can you?

No problem at all. I'm surprised that you have trouble accepting that there is a difference between perfect competition and other forms of competition.

Anyway, just pick up any introductory Econ book and flip to the chapter on imperfect competion. I'll use William A. McEachern's 'Microeconomics.'

He writes (see 237-238) that imperfect competition can lead to higher prices for the consumers and higher profits for the firm. Oligopolies can collude, they can follow a 'price leader' to ensure price stability, etc. You wouldn't classify this as distortion?

 

[digitalmcq]

And the list of strawmen comes:


Shanek:
Nope. They just have to, on aggregate, behave according to certain overall patterns. And every single piece of evidence shows that they do.

DMcq:
I'd like to see some of the evidence that proves this. The pattern that neoclassical economists assume is the one that I have described (and is not as well supported as you think). Bring on your evidence.


Shanek:
I've rebutted this one so much it's ridiculous. Like the creationists, they just keep coming back with oft-rebutted points. No, perfect information is not required. Consumers don't need to know anything except what price they're willing to pay for a certain good or service.

DMcq
What you're describing is a revision made to neoclassical econ by March and Simon. People do not engage in endless searches for the best possible price (option, whatever). They search until they find an acceptable price. This is called 'satisficing'. However, neoclassical models still use perfect rationality as an assumption.

Shanek:
Ridiculous. Transaction costs figure into the supply curve.

DMcq
No, they don't - at least not in the models. Read Oliver Williamson's The Economic Institution's of Capitalism. Williamson is an 'insitutional' economist who has brought this issue into the debate.

Shanek:
Absolute rubbish. Some people can and will purchase from firms with higher prices, and there are valid economic reasons for doing so, such as superior quality or better customer service or just plain convenience.

DMcq:
OK, maybe I sould have been more clear here. People do not search for the best possible option (I should have said this instead of price). People 'satisfice'. However, this has implications for the models that assume that people look for the best deal that they can get (whether it be price, quality, etc). If people don't know about a better option then they cannot take advantage of it.

Shanek:
I've claimed otherwise in so many threads it's pathetic to bring this up as any kind of point I subscribe to. Although the profit motivator is great, there are other reasons people go into business.

DMcq:
Did I write that 'Shanek assumes these things'? I wrote that neoclassical economics assumes these things (and that libertarians buy into an extreme version of neoclassical econ). Economists treat firms as 'black boxes' (with the exception of instit. economists but they accept rationality, etc). In the models, economist assume that firms are motivated to maximize their profit. Firms are sometimes out to maximize profit but this is not always the case. This should be treated as a variable and not a given.

The free market can only deliver on its promised benefits if the conditions are right. Economists assume away large portions of the larger world in order to simplify their econometric models. The problem is that these assumptions are unrealistic and can lead to conclusions that are incorrect.

(

 

[digitalmcq]

Well, since you wouldn't provide any sources, I was left to Google for myself, and it appears that you are quite wrong.

http://www.webster.edu/~corbetre/haiti/misctopic/deforestation/gill.htm



So there's no timber industry to speak of, and forests are managed by the Haitian government, on treaty with the US. But then, who's been cutting down all the lumber?

http://www.andromeda.rutgers.edu/~dspencer/IntroEcon/Sec04Sp04/GroupPHaiti.htm



So Haiti doesn't even have a free market, but a corrupt government that's been selling out their forests to log purchasers.

Government has its fingers all through this one.

If I got this wrong then I apologize. I had been given this example by an economist who studies trade and development. He had said that Haiti had cut down most of its forest and sold the lumber to the US (I think it was for something almost comical - I want to say baseball bats but I could be wrong). They did it in a way that was unsustainable and the results were the mudslides, etc. I must have just gotten my facts wrong. I'll look into it a little more.

 

[shanek]

Read Milton Friedman's "On The Positive Methodology of Economics". He accepts that neoclassical economics assumptions are flawed but dismisses this as a valid criticism of the theory. He asserts that what is important is economics' predictive ability.

I haven't read that, but I have read Free to Choose, and based on that I'd have to say that you've likely misunderstood whatever Friedman's point was. He most certainly favors a free market economy.

I like how you don't need to look over the report to know that I'm wrong. Maybe you should apply for the million.

No, I just need to know certain facts.

"International financial integration should, in principle, also help countries to reduce macroeconomic volatility. The available evidence suggests that developing countries have not fully attained this potential benefit. Indeed, the process of capital account liberalization appears to have been accompanied in some cases by increased vulnerability to crises. Globalization has heightened these risks since cross-country financial linkages amplify the effects of various shocks and transmit them quickly across borders. A type of threshold effects appears here as well - reductions in volatility are observed only after countries have attained a particular level of integration.

The evidence presented in this paper suggests that financial integration should be approached cautiously, with good institutions and macroeconomic frameworks viewed as important. The review of the available evidence does not, however, provide a clear road map for the optimal pace and sequencing of integration. For instance, there is an unresolved tension between having good institutions in place before undertaking capital market liberalization and the notion that such liberalization can help itself import best practices and provide an impetus to improve domestic institutions."

That merely has to do with the integration of a developing country's banking system, or the creation of it to be integrated, with the world's banks. And since most countries have a central bank run by the government, this is an issue. What you think it has to do with your point I'm at a complete loss.

The basic message of this paper (which I have actually read) is that it is unclear if financial liberalization is beneficial. It can, in some cases, contribute to crises and macroeconomic instability.

Well, again, that goes back to the problem with Argentina and its currency or Brazil's inflation indexing, stuff like that. Not the kind of thing we're talking about here.

This is a far cry, though, from the argument that the unregulated free market is the wonderful thing that libertarians make it out to be.

It's a far cry from refuting that idea, too.

 

[shanek]

Shanek, from now on the argument "I've debunked this is so many thread its ridiculous"doesn't work - I don't sit around all day waiting for you to post your pearls of wisdom for the world.

Even when I then reiterate the point? No, this is just a pathetic dismissal. The point is, though, that there is NO WAY anyone could have possibly attributed those claims to me in any honest way.

 

[digitalmcq]

I haven't read that, but I have read Free to Choose, and based on that I'd have to say that you've likely misunderstood whatever Friedman's point was. He most certainly favors a free market economy.

I didn't say that he doesn't favor a free market. I said (and this was very clear) that he accepts the fact that the assumptions made by economists are unrealistic. As I said above, he doesn't see this as important. I do.

 

[shanek]

No problem at all. I'm surprised that you have trouble accepting that there is a difference between perfect competition and other forms of competition.

I have no problem accepting there's a difference. I said above that's not the point, so I don't know why you would stick to it other than persisting in a strawman argument.

I'm wanting you to support your claim that market forces break down at a certain point.

Anyway, just pick up any introductory Econ book and flip to the chapter on imperfect competion. I'll use William A. McEachern's 'Microeconomics.'

He writes (see 237-238) that imperfect competition can lead to higher prices for the consumers and higher profits for the firm. Oligopolies can collude, they can follow a 'price leader' to ensure price stability, etc. You wouldn't classify this as distortion?

Not having a copy of the book to check it, I can't really comment. I can, however, point you to a source we can both easily read and discuss:

http://www.stthom.edu/cbes/imperfection.html

It is widely acknowledged that there are two types of market structure: perfect competition and imperfect competition. (see: Mansfield, 167-187) On the supply side of a perfectly competitive market, a large number of individual sellers compete among themselves, without collusion, to provide consumers with a product or service. There must be no external legal, financial, or cost barriers to enter or exit the market; an important consideration because the fewer the competitors, the easier it is for competing sellers to engage in collusion or price-fixing. On the demand side, perfect competition occurs when individual buyers compete, without collusion, in full knowledge of the offers made by the sellers. Under perfect competition, the price a seller receives for its goods or services is, therefore, determined solely on the basis of what the buyers are willing to pay. Companies that offer the best product at the lowest price may be rewarded by earning a profit.

Imperfect competition may appear on either the supply or demand side of a market. On the supply side, imperfect competition, occurs when either a single seller (monopoly) or a group of sellers (oligopoly) operating in collusion, are capable of unilaterally controlling both supply and price of a product or service for which there is no substitute. On the demand side, imperfect competition, or monopsony, occurs when a single purchaser, or a group of purchasers (such as an HMO, or a group of HMOs) in collusion, are capable of influencing the price it pays a company for its product. When both trading partners are monopolies (bi-lateral monopoly) market forces resemble perfect competition.

So imperfect competition just means that not all suppliers and/or not all consumers are equal players in the market. But this should be obvious. There can be no doubt that Dell et al are higher players in the market for operating systems than you and I, and so they have more of an affect on Microsoft's business practices. This paper looks at the pharmaceutical industry as an example. And guess what it concludes:

In this paper we will argue that the high cost of pharmaceutical products in the United States is caused by imperfect competition, fueled, in part, by governmental interventions in that market...Pharmaceutical prices today are the end product of competition between pharmaceutical companies, HMOs, and Government.

And since HMOs are a creation of the government, well, you see first-hand how government regulations result in imperfect competition rather than create it, as both the HMO Act and other government intrusions into health care were supposed to do.

 

[shanek]

If I got this wrong then I apologize. I had been given this example by an economist who studies trade and development. He had said that Haiti had cut down most of its forest and sold the lumber to the US (I think it was for something almost comical - I want to say baseball bats but I could be wrong). They did it in a way that was unsustainable and the results were the mudslides, etc. I must have just gotten my facts wrong. I'll look into it a little more.

Well, the summary you just said sounds right as far as it goes, at least based on what little I read while Googling. But it was certainly the actions of the Hatian government, not the free market.

 

[digitalmcq]

That merely has to do with the integration of a developing country's banking system, or the creation of it to be integrated, with the world's banks. And since most countries have a central bank run by the government, this is an issue. What you think it has to do with your point I'm at a complete loss.



Well, again, that goes back to the problem with Argentina and its currency or Brazil's inflation indexing, stuff like that. Not the kind of thing we're talking about here.



It's a far cry from refuting that idea, too.

The problems come about as a result of being exposed to volatile (and unchecked) financial flows. Countries that open up their financial markets without adequate institional support (read: goverment) place themselves at the mercy of speculators and other volatilities. Things like indexing and monetary policy play a role but this does not eliminate the fact that liberalization can damage economies.

This paper supports my contention that the 'free market' (which by the way is nothing more than a theoretical construct) does not inevitably lead to prosperity. I didn't say that we should have soviet style socialism but you seem to think that the 'free market' is the answer to all the world's problems. The free market can lead to some benefits but there are problems associate with the models that predict these outcomes. The issue is not as simple as you think.

 

[The Central Scrutinizer]

Digitalmqc -

Ask Shanek why, if he is so committed to free markets, he entusiastically supports government intervention into the affairs of the Commission on Presidential Debates (CPD), a private company.

He continually dodges this embarassing tidbit, because he knows it exposes him as a hypocrite.