Economics: I, Pencil

[shanek]

Right, and the prices are effectively fixed.

Laughable. The prices are "fixed" by competition and market forces. They have competition. There are competing products that drop the price. Denying this is just silly.

 

[shanek]

The data exist to support my contentions.

And yet, you can't seem to come up with this actual data...only claims that the data exists. Just like the UFO nuts.

 

[digitalmcq]

I'd just like to point out a couple quick things. Libertarians subscribe to an extreme version of neoclassical economic theory that makes many unrealistic assumptions about the economic behavior of individuals and the overall state of the market. In order for a truly free market to exist the following must be true (and this is just a partial list off the top of my head):

1) individuals must act as atomized utility maximizers. They must not be subject to any outside influences (culture, societal norms, traditions, etc).

2) Individuals must have access to 'perfect information.' Economic Actors (EAs) must know all of the product options available to them along with the prices of each option.

3) There are no transaction costs (this assumption is removed once one moves into 'institutional economics' - see anything by Ronald Coase or Oliver Williamson). That is to say that there are no costs associated with a purchase or the search for information.

4) All EAs must only purchase from the firm that offers the lowest price. It would be irrational for an EA to buy from one store when another sells for less.

5) Firms always act to maximize profits (rather than firm survival or stock price).

6) There is always perfect competition and few barriers to entry. There are many small firms that cannot influence the price of their product.

7) There are no externalities (or impacts on EAs not included in a specific exchange).

There are quite a few others but I think this is enough to demonstrate that such assumptions are unrealistic. As soon as these do not hold then the theory breaks down. This is not to say that neoclassical economic theory does not have its uses as it certainly does. However, there is no market on the planet that conforms to the assumptions listed above.

 

[Ed]

Laughable. The prices are "fixed" by competition and market forces. They have competition. There are competing products that drop the price. Denying this is just silly.

Sorry, you don't know what you are talking about. Unless you look at pricing zone by zone, store by store, product by product, you can't see it. It looks random to the unsophisticated observer.

It simply isn't.

 

[digitalmcq]

Re: Re: Re: Economics: I, Pencil

Division of labor isn't a market force?

It can be but this doesn't have to be the case. Any modern industrialized country relies on a division of labor. The Soviets had a DOL (it just sucked). Market forces can (though they don't necessarily have to) impose some minimal level of efficiency upon firms and their DOL.

 

[Ed]

5) Firms always act to maximize profits (rather than firm survival or stock price).

.

This is as often true as not, in my experience. The fact is that any number of forces can be at work in large companies. What really matters is what is promised to the street and you simply don't know that.

 

[digitalmcq]

Do you not have any evidence for these assertions of yours?



[list of items deleted]

Ed, all of those items have competing brands sold right next to them on the grocery store shelves. Try again.

But there is a difference between 'competition' and 'perfect competition.' If one large company (or group of companies) controls large portions of the market (or simply has access to large amounts of capital - say through other successful divisions) then market forces can break down. This is pretty basic stuff.

 

[shanek]

I'd just like to point out a couple quick things. Libertarians subscribe to an extreme version of neoclassical economic theory that makes many unrealistic assumptions about the economic behavior of individuals and the overall state of the market. In order for a truly free market to exist the following must be true (and this is just a partial list off the top of my head):

And the list of strawmen comes:

1) individuals must act as atomized utility maximizers. They must not be subject to any outside influences (culture, societal norms, traditions, etc).

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

2) Individuals must have access to 'perfect information.' Economic Actors (EAs) must know all of the product options available to them along with the prices of each option.

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.

3) There are no transaction costs (this assumption is removed once one moves into 'institutional economics' - see anything by Ronald Coase or Oliver Williamson). That is to say that there are no costs associated with a purchase or the search for information.

Ridiculous. Transaction costs figure into the supply curve.

4) All EAs must only purchase from the firm that offers the lowest price. It would be irrational for an EA to buy from one store when another sells for less.

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.

5) Firms always act to maximize profits (rather than firm survival or stock price).

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.

6) There is always perfect competition and few barriers to entry. There are many small firms that cannot influence the price of their product.

Again, ridiculous, not to mention downright dishonest since I've already eludicated otherwise here.

7) There are no externalities (or impacts on EAs not included in a specific exchange).

Incorrect, and irrelevant.

As soon as these do not hold then the theory breaks down.

That just isn't true. None of these are necessary for the market forces to apply.

Do some people just not want to learn?

 

[digitalmcq]

You say government didn't "effectively" regulate it, meaning that they did regulate it in some way. So what did they do? How about some facts here? How do we know this is a market failure and not a failure of ineffective regulations?

The government didn't do anything. Firms made money by selling off the lumber. People died in the massive mudlsides that resulted when Haiti was hit by those recent hurricanes. The country's ecology has essentially been devastated.

 

[shanek]

Sorry, you don't know what you are talking about. Unless you look at pricing zone by zone, store by store, product by product, you can't see it. It looks random to the unsophisticated observer.

It simply isn't.

I never said it was random. Different zones are in different economic situations. It isn't collusion but market forces that determine the best prices for particular locations. And stores use lower prices on some goods (which they may even sell at a loss) to attract customers who will also buy the goods with higher markups; the particular goods they do this with vary from store to store.

 

[Ed]

But there is a difference between 'competition' and 'perfect competition.' If one large company (or group of companies) controls large portions of the market (or simply has access to large amounts of capital - say through other successful divisions) then market forces can break down. This is pretty basic stuff.

Truely. The fact is the the most prized characterisc is predictibility. If you get that fact, market strategy on a macro scale is dead easy to develop. And when you are dealing with old, established catagories where demand is pretty constant there are only two ways to screw yourself, pricing and distribution. So guess what you fix?

 

[shanek]

But there is a difference between 'competition' and 'perfect competition.' If one large company (or group of companies) controls large portions of the market (or simply has access to large amounts of capital - say through other successful divisions) then market forces can break down. This is pretty basic stuff.

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

 

[digitalmcq]

And the list of strawmen comes:



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



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.



Ridiculous. Transaction costs figure into the supply curve.



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.



Again, ridiculous, not to mention downright dishonest since I've already eludicated otherwise here.



Incorrect, and irrelevant.



That just isn't true. None of these are necessary for the market forces to apply.

Do some people just not want to learn?

Ummm, actually, these are the assumptions worked into almost every economic model. When they are assumed then wonderful things happen. When they don't they the market does not function in the way predicted. You need to spend less time reading libertarian literature and start talking with some real academic economists.

I recently read a study that came out of the IMF that reported that liberalization of financial (ie. the introduction of market forces into developing country markets) led to macroeconomic crises and instability. Massive speculation and capital flight hurt several developing countries (including Argentina). This is the IMF we're talking about here - there is no stronger advocate for the free market and liberalization of all kinds. I don't have time to find the link but the study should be available on the IMF web site. It's called 'Effects of Financial Globalization on Developing Countries: Some Empirical Evidence. It was written by E. Prasad, K. Rogoff, and M. Kose.

I agree with you that there are certain people that just don't want to learn.

 

[Ed]

I never said it was random. Different zones are in different economic situations. It isn't collusion but market forces that determine the best prices for particular locations. And stores use lower prices on some goods (which they may even sell at a loss) to attract customers who will also buy the goods with higher markups; the particular goods they do this with vary from store to store.

They certainly do collude to maintain prices in a zone. That is my point.

 

[shanek]

The government didn't do anything. Firms made money by selling off the lumber. People died in the massive mudlsides that resulted when Haiti was hit by those recent hurricanes. The country's ecology has essentially been devastated.

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

There is no organization of a lumber industry in Haiti. There are no logging activities of any size and logwood is the only forest product of any importance. Logging methods for this species, are quite primitive, and consist in cutting down the trees, hewing off the sapwood, and loading the heartwood on small donkeys. The wood is then taken to a speculator, or middleman. There it is weighed and paid for and taken to the port, where it is sold for export.

A treaty signed in 1923 with the United States established the Service Technique, whose activities approach those of our own Department of Agriculture in the United States. The Service is under a Director General and is divided into three departments: professional education, forestry, and agronomy. Forestry projects are carried on by a Director of Silviculture.

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

Haiti is predominantly a capitalist-statist country, which means that Haitians practice capitalism but they give control over economic planning and policy to a centralized government. Because Haiti is “beset by extreme levels of political and criminal violence, lawlessness, and corruption,[1]” Haiti is currently one of the poorest countries in the Western Hemisphere. Moreover, the financial advisors of Haiti in the past did not see what the long-terms effects of their short-term actions. One of the things that they have done is they temporarily increased the income from exports of wood in the forestry industry. However, their methods have wrought devastation to their land by making the land untellable for their other exports- namely agriculture. Combined with the poor leadership of the interim financial advisors, Henri Bazin (Interim Minister of Finance) and Danielle St. Lot (Interim Minister of Commerce), Haiti maintains its status as being incredibly poor.

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.

 

[Ed]

And yet, you can't seem to come up with this actual data...only claims that the data exists. Just like the UFO nuts.

Look, this is stupid. Any reasonably experienced analyst at Nielsen Marketing Research or IRI knows this as a matter of course. There are painfully few things that I am expert on but marketing of packaged goods is one of them and even an unsophisticated analysis of the data would bear out what I am saying. I am sorry if this disrupts your world view.

Incidentially, promotion isn't a pricing activity, per se. It is graft to the retailers. You can do it or you can enjoy that attractive 2 package facing on the bottom shelf.

 

[shanek]

Ummm, actually, these are the assumptions worked into almost every economic model. When they are assumed then wonderful things happen. When they don't they the market does not function in the way predicted. You need to spend less time reading libertarian literature and start talking with some real academic economists.

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

I recently read a study that came out of the IMF that reported that liberalization of financial (ie. the introduction of market forces into developing country markets) led to macroeconomic crises and instability. Massive speculation and capital flight hurt several developing countries (including Argentina).

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.

This is the IMF we're talking about here - there is no stronger advocate for the free market and liberalization of all kinds. I don't have time to find the link but the study should be available on the IMF web site. It's called 'Effects of Financial Globalization on Developing Countries: Some Empirical Evidence. It was written by E. Prasad, K. Rogoff, and M. Kose.

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:

Obstfeld and Taylor (1997, 2002) show that financial flows from Britain and some of the more advanced continental European economies to the “emerging markets” of the day (such as Argentina, Brazil, China, Japan, Russia, and Turkey, but also many smaller countries) were very large. For the countries for which data are available, current account surpluses and deficits amounted to substantially larger shares of GDP in 1870–1913 than they do today. Total market capitalization for bonds denominated in pounds sterling issued by emerging markets on the London stock exchange was equivalent to about half of Britain’s annual GDP (Mauro, Sussman, and Yafeh (2002)). Secondary market trading was active and liquid, with daily yields reported in the press. Newspapers provided timely and abundant information on relevant economic and political events in emerging markets.

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:

There is some evidence of a “threshold effect” in the relationship between financial globalization and economic growth. The beneficial effects of financial globalization are more likely to be detected when the developing countries have a certain amount of absorptive capacity. Preliminary evidence also supports the view that, in addition to sound macroeconomic policies, improved governance and institutions have an important impact on a country’s ability to attract less volatile capital inflows, and on its vulnerability to crises.

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.

 

[The Central Scrutinizer]

Do some people just not want to learn?

Hello Kettle? This is Pot. You're black.

 

[shanek]

They certainly do collude to maintain prices in a zone. That is my point.

Evidence?

 

[shanek]

Look, this is stupid. Any reasonably experienced analyst at Nielsen Marketing Research or IRI knows this as a matter of course. There are painfully few things that I am expert on but marketing of packaged goods is one of them and even an unsophisticated analysis of the data would bear out what I am saying. I am sorry if this disrupts your world view.

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