The "Magic Market" Myth

[Paulie]

They have not included unfettered markets though.

You're babbling on and on about unfettered markets when they haven't even existed.

You're trying to claim they don't work, but there's no precedent that's ever been set to even prove such a claim.

It seems more likely to assume that government intervention is causing problems, since we can be certain that that's been involved in our economy as long as we've been a nation.

You need to chill out and take a breath. Then come back and make a decent argument about something that actually EXISTS.

 

[Zoomie1980]

The free market is not a magic market. The Invisible Hand is just a convenient symbol. The market does work beautifully without magic. What people call magic is related to the fact that in reality all the different pieces of the free market dovetail together so perfectly, often by definition and design and not happenstance or accident.

And recessions and even occasional depressions are a NATURAL PART of a free market system. If you enjoy the extreme euphoria of massive profits during asset bubble creation you have to be willing to live with the high unemployment and 50% losses when those bubbles pop. It's all part of the natural order of the market system.

Regulation has it's place which is to curb extreme excess and keep the bubbles from getting ridiculously big so the crashes are not so extreme. Problem is, no one was really complaining and never does when even idiots seem to be making money.

No one wants restrictions and regulation then, but as soon as it goes south, which it ALWAYS does, everyone screams for regulation to make the pain go away. Problem is, the WORST POSSIBLE time for new regulation and restrictions is during the down phase.

 

[FistyTheBadger]

And recessions and even occasional depressions are a NATURAL PART of a free market system. If you enjoy the extreme euphoria of massive profits during asset bubble creation you have to be willing to live with the high unemployment and 50% losses when those bubbles pop. It's all part of the natural order of the market system.

Regulation has it's place which is to curb extreme excess and keep the bubbles from getting ridiculously big so the crashes are not so extreme. Problem is, no one was really complaining and never does when even idiots seem to be making money.

No one wants restrictions and regulation then, but as soon as it goes south, which it ALWAYS does, everyone screams for regulation to make the pain go away. Problem is, the WORST POSSIBLE time for new regulation and restrictions is during the down phase.

First, I NEVER want regulations, and I do not want the pain to go away. Part of the free market is that when it is allowed to fail and people figure out that their life is in their own lone hands, they learn from their mistakes and the bubbles of the past give discipline for the potential bubbles of the future. Bubbles and popping is not necessarily the natural order of things. They could just be teachers for when the system would incline itself to stage an encore.

 

[Zoomie1980]

First, I NEVER want regulations, and I do not want the pain to go away. Part of the free market is that when it is allowed to fail and people figure out that their life is in their own lone hands, they learn from their mistakes and the bubbles of the past give discipline for the potential bubbles of the future. Bubbles and popping is not necessarily the natural order of things. They could just be teachers for when the system would incline itself to stage an encore.

No, bubble creation is caused by a fundamental, instinctual level of human nature. You keep putting donuts in front a hard core dieter, day after day, week after week, year after year, at some time they will break down and gorge themselves. We can't help ourselves no matter how painful the lessons are because with every cycle there are loads of NEW investors who have yet to be burned....

 

[mash107]

No, bubble creation is caused by a fundamental, instinctual level of human nature. You keep putting donuts in front a hard core dieter, day after day, week after week, year after year, at some time they will break down and gorge themselves. We can't help ourselves no matter how painful the lessons are because with every cycle there are loads of NEW investors who have yet to be burned....

Unfortunately, it's the Federal Reserve that's tricking them. They say, with artificially low interest rates, "Here, have another donut. It's on the house!" and act surprised when the victim has a heart attack.. but obviously, the solution, is more donuts!

I'm sorry you don't like to see people free, Truthmatters. There's no question, empirically, you have no basis, as Toro proved. Morally, the whole basis on free markets is the mutual agreement and exchange between two free people; opposed to centuries prior where the rich and powerful exploited the poor for labor, and this was enforced by the Monarch in power. Now, a lot of us would be damned to let be the rule, once again. It was freedom in markets that brought an end to that. If the government steps in and forces us to act a certain way, and spend a certain way, and support warfare, and support welfare, why, as people that yearn to be free, should we not oppose that? It's really archaic to think that government can do whatever with its "peasents" as they please, and that's why we're in this mess.

 

[Toro]

No, bubble creation is caused by a fundamental, instinctual level of human nature. You keep putting donuts in front a hard core dieter, day after day, week after week, year after year, at some time they will break down and gorge themselves. We can't help ourselves no matter how painful the lessons are because with every cycle there are loads of NEW investors who have yet to be burned....

I think its both. You can't have a bubble without cheap money, and the government helps in the creation of money. However, technological innovation is also a cause of bubbles. Had the Internet not been commercialized in the 1990s, we would not have had the tech bubble and would not have had the monetary response of the government which inflated home prices.

Technological innovation --> Technology / stock bubble --> Ultra-low interest rates from the Fed to respond to stock market collapse --> Housing bubble

This is not unique. Technological innovation often brings a frenzy in capital markets. Radio stocks went bananas in the 1920s, biotech stocks in the 1980s, etc.

 

[editec]

Of course, the unfettered "free market" is a mythical a beast as the communist uptopia.

Since no market can exist without a society, and no society can exist without some form of governance, an entirely "free" market is a logical impossibility.

But I will sign onto the theory that the less government can interfer with a market, the more productive (and resilient) it is likely to be in most cases.

But as we can see, an unfettered free market seems to be a snake that inevitably eats itself.

Why?

Well, I think that once enough capital amasses into the hands of a few, they inevitably devote that money into making more and to the best of their ability to preventing others from making any.

And since all markets exist within the framework a society, and all societies have some gorm of government, the winners in the market end up controlling the government too.

Thus those controlling the market end up controlling the government, and they use that control to do what? To making that market NOT FREE, but controlled to their benefit.

To a large extent that is exactly what we have been seeing happening in the last 40 years.

 

[Paulie]

I think its both. You can't have a bubble without cheap money, and the government helps in the creation of money. However, technological innovation is also a cause of bubbles. Had the Internet not been commercialized in the 1990s, we would not have had the tech bubble and would not have had the monetary response of the government which inflated home prices.

Technological innovation --> Technology / stock bubble --> Ultra-low interest rates from the Fed to respond to stock market collapse --> Housing bubble

This is not unique. Technological innovation often brings a frenzy in capital markets. Radio stocks went bananas in the 1920s, biotech stocks in the 1980s, etc.

Green stocks are next.

 

[Paulie]

Of course, the unfettered "free market" is a mythical a beast as the communist uptopia.

Since no market can exist without a society, and no society can exist without some form of governance, an entirely "free" market is a logical impossibility.

But I will sign onto the theory that the less government can interfer with a market, the more productive (and resilient) it is likely to be in most cases.

But as we can see, an unfettered free market seems to be a snake that inevitably eats itself.

Why?

Well, I think that once enough capital amasses into the hands of a few, they inevitably devote that money into making more and to the best of their ability to preventing others from making any.

And since all markets exist within the framework a society, and all societies have some gorm of government, the winners in the market end up controlling the government too.

Thus those controlling the market end up controlling the government, and they use that control to do what? To making that market NOT FREE, but controlled to their benefit.

To a large extent that is exactly what we have been seeing happening in the last 40 years.

IT WASN'T AN UNFETTERED MARKET!!

What the fuck!!

Ed, how can you call it an unfettered market when there's a central bank setting our interest rate for us? A true unfettered market would not include a quasi-governmental agency setting targets for rates of interest. We would decide our OWN rates of interest through supply and demand.

It's impossible to say something still wouldn't have happened with credit freedom, but that's enough of a reason to kill the claim that unfettered markets don't work. Because we DON'T REALLY KNOW if they don't work, because we've never seen one in action.

You give me freedom of credit without a central bank controlling monetary policy, setting rates, printing money, etc. If that doesn't work, I'll say you're right. Until then, it's impossible to claim it doesn't work because there's zero proof that it doesn't.

 

[Toro]

Green stocks are next.

Possibly. But oil has to go much higher first. I'm thinking about going long oil.

 

[Paulie]

Possibly. But oil has to go much higher first. I'm thinking about going long oil.

I'm waiting for it to come back down under $35. I'd love to get it at $30, which could be a possibility now that the holiday driving season is over. But anyway though, I'm right there with you. I'll probably take a USO position. What's your usual oil position?

 

[Paulie]

I don't have much equity allocation at this moment. I'm in DXD at DOW 8,600 which I took about 2 weeks ago, my metals of course, a little Walmart, and I'm about to go long oil.

I'm going to have some fun money to play around with pretty soon and I'm looking to grab a solar stock, a CNG stock, a little PG and JJ to hedge against a drop in my DXD. I think those two are the strongest DOW stocks. I'd like to grab a little GE too, but I feel like I missed the dip.

Nothing really big. Maybe a $5,000 investment across the board.

 

[Toro]

I'm waiting for it to come back down under $35. I'd love to get it at $30, which could be a possibility now that the holiday driving season is over. But anyway though, I'm right there with you. I'll probably take a USO position. What's your usual oil position?

The position I'm thinking of taking is a costless option position on the USO where I'd sell deep, long-dated out of the money puts and buy deep, long-dated out of the money calls.

Don't try this at home, kids.

I'm up to my eyes in stocks right now so I'm going to wait. I think it may still be too early for oil. But that, and shorting Treasuries are the two Big Trades I'm stalking right now.

 

[Agnapostate]

It is curious that American conservatives dismiss anarchists and young progressives as utopian dreamers and naive idealists despite espousing an economic theory that has never been able to materialize, despite Friedman's futile attempts to point to medieval Iceland and the American Wild West.

I shall again say, as I always do, that perfect competition is rejected as a fallacy even by orthodox economists. What else could have prompted the development of monopsony theory? It has long been time to move past a utopian understanding of market exchange.

 

[Paulie]

It is curious that American conservatives dismiss anarchists and young progressives as utopian dreamers and naive idealists despite espousing an economic theory that has never been able to materialize, despite Friedman's futile attempts to point to medieval Iceland and the American Wild West.

I shall again say, as I always do, that perfect competition is rejected as a fallacy even by orthodox economists. What else could have prompted the development of monopsony theory? It has long been time to move past a utopian understanding of market exchange.

I think it would be near impossible to have a properly functioning free market with the utilization of fractional reserve lending. It would require that everyone had strict monetary discipline, which will obviously never happen.

In the least though, a currency needs to be backed by something of perpetual REAL VALUE.

 

[Agnapostate]

I think it would be near impossible to have a properly functioning free market with the utilization of fractional reserve lending. It would require that everyone had strict monetary discipline, which will obviously never happen.

In the least though, a currency needs to be backed by something of perpetual REAL VALUE.

Yes, a reversion to them thar' shiny trinkets is in the works, I'm sure.

 

[Paulie]

Yes, a reversion to them thar' shiny trinkets is in the works, I'm sure.

I highly doubt it.

 

[Toro]

It is curious that American conservatives dismiss anarchists and young progressives as utopian dreamers and naive idealists despite espousing an economic theory that has never been able to materialize, despite Friedman's futile attempts to point to medieval Iceland and the American Wild West.

I shall again say, as I always do, that perfect competition is rejected as a fallacy even by orthodox economists. What else could have prompted the development of monopsony theory? It has long been time to move past a utopian understanding of market exchange.

You are correct in that there is no such thing as perfect competition, which brings the optimum efficient outcome. There is, however, imperfect competition, and most competition tends towards an efficient outcome.

What we do know to be empirically true is that economies that are more free are wealthier, and that countries that initiate freer economic policies are more likely to grow faster.

But there is definitely market failure at times.

 

[Paulie]

Isn't it safe to conclude that most market failure is caused by excess leveraging?

 

[Agnapostate]

You are correct in that there is no such thing as perfect competition, which brings the optimum efficient outcome. There is, however, imperfect competition, and most competition tends towards an efficient outcome.

What we do know to be empirically true is that economies that are more free are wealthier, and that countries that initiate freer economic policies are more likely to grow faster.

But there is definitely market failure at times.

On the contrary, empirical evidence has borne out the reality that anything near perfect competition or a legitimately free market is a conceptual illusion, which is why I find it odd that anarchists and other libertarian socialists are portrayed as naive utopianists.

We are aware that socioeconomic afflictions increased during the neoliberal regimes of Reagan and Thatcher, yet we should also retain an awareness that the capitalist model has genuine efficiency problems, a fact recognized even by orthodox economists. To maximize both socioeconomic utility and standard forms of production and manufacturing efficiency, we'd need a socialist economy, specifically a decentralized, libertarian socialist economy, governed in the libertarian municipalist manner of Murray Bookchin.

Empirical evidence against the socioeconomic benefits and efficiency of a socialist economy is not abundant, as the anti-socialist will inappropriately refer to the state capitalism of the Soviet Union and similar models. On theoretical grounds, I find it similarly odd that Ludwig von Mises's economic calculation argument continues to be recycled when Enrico Barone formulated a Pareto efficient model of a socialist economy years before Mises formulated his respective argument. (Though some claim that he overextended the usefulness of shadow pricing.) Similarly, Mises reverted from his theoretical criticisms to practical criticisms when Oskar Lange and Fred Taylor were able to devise a model of a socialist economy that he, Hayek, and the rest of the Austrian school were unable to effectively rebut. Even Joseph Schumpeter was able to casually dismantle Mises's argument in Capitalism, Socialism, and Democracy, which ultimately aimed to demonstrate that a socialist economy and society was inadvisable.

Hence, I would argue that the merits of a socialist economy should certainly be considered more thoroughly.