The Proposition that Markets are Self-Correcting

[Procrustes Stretched]

The Proposition that Markets are Self-Correcting

Show the evidence.

 

[Procrustes Stretched]

I like this opinion:

Capitalism’s Fault Lines
By JONATHAN RAUCH
Published: May 14, 2009
“This recession,” President Obama said recently, “was not caused by a normal downturn in the business cycle. It was caused by a perfect storm of irresponsibility and poor decision-making that stretched from Wall Street to Washington to Main Street.” Richard A. Posner is having none of it. A perfect storm, yes: but a storm of responsibility and reasonable decision-making. The Crash of ’08 happened because businesspeople and consumers did what markets and society expect them to do. Don’t blame capitalists or, for the most part, government. Blame capitalism.

http://www.nytimes.com/2009/05/17/books/review/Rauch-t.html
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I also like this:

In Posner’s eyes, we are living through a second depression. The root causes were a failure of monetary policy (the Fed kept its short-term interest rate too low between 2001 and 2004), a failure of regulatory oversight (the Federal Reserve and the S.E.C. were “asleep at the switch”) and a failure of intellectual rigor (economists claimed that the enlightened self-interest of bankers and shareholders would suffice to prevent such a crisis).

After the crisis began, matters were made much worse by the “colossal blunder” of allowing Lehman Brothers to fail.

http://www.nytimes.com/2010/05/09/books/review/Ferguson-t.html
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got some catching up on reading to do...

 

[Treeshepherd]

In a tribal society, you don't even need money. Resources flow like a river from those who have to those who have not. The system is based on kinship-based organization resulting in naturally occuring reciprocal exchange.

Modern society cannot function in that way because we're all different people with different beliefs and upbringings and we're all thrown together into something that could loosely be characterized as a society. The beauty of the free market, in such a case, is that it is superior to any other model in terms of correctly arriving at accurate prices. There is a glut of supply in the oil and marijuana markets, prices fall. When there is a lack of qualified IT programmers, wages for that sector rise.

Simplistically, where we ran into trouble leading up to 2007;
We artificially drove down the cost of borrowing money. We thought it was important in society for people of modest means to own homes. We thought it was imperative to stimulate credit card consumerism. So, the cost of credit was artificially pushed down and banks were backstopped by the American taxpayer.

If you want to talk about whether Lehman should have been bailed out... really, that's a debate about whether or not to preserve a sick patient on life support. We enacted TARP, bailed out GM and AIG, did the America Recovery Act, kept borrowing rates near zero, and added trillions of dollars to the debt. We saved a sick and dying patient. We preserved the status quo on Wall Street. We averted what would have been a temporary dumpster fire of a world economy.
If you ask me, we should have let nature take its course. We should have allowed for a total reset. But, that would never have been politically feasible.

"Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There is never a democracy that did not commit suicide." - John Adams

 

[Procrustes Stretched]

In a tribal society, you don't even need money...

Liar!


you actually lost me in your first sentence.

 

[Treeshepherd]

Liar!


you actually lost me in your first sentence

Knee-jerk much? Many ancient economies functioned without money.

"In a gift economy, valuable goods and services are regularly given without any explicit agreement for immediate or future rewards (i.e. there is no formal quid pro quo).[7] Ideally, simultaneous or recurring giving serves to circulate and redistribute valuables within the community.
There are various social theories concerning gift economies. Some consider the gifts to be a form of reciprocal altruism. Another interpretation is that implicit "I owe you" debt[8] and social status are awarded in return for the "gifts".[9] Consider for example, the sharing of food in some hunter-gatherer societies, where food-sharing is a safeguard against the failure of any individual's daily foraging. This custom may reflect altruism, it may be a form of informal insurance, or may bring with it social status or other benefits." - wiki

Somehow you got hung up on that minor point and essentially ignored the main body of my answer to your question. Maybe there is someone else in USMB who has something interesting to say about the self-correcting mechanisms of a truly free market.

 

[Procrustes Stretched]

Liar!


you actually lost me in your first sentence

Knee-jerk much? Many ancient economies functioned without money.

that isn't what you said before. Liar!

 

[Treeshepherd]

Liar!


you actually lost me in your first sentence

Knee-jerk much? Many ancient economies functioned without money.

that isn't what you said before. Liar!

I don't engage in these sort of tit for tat "caught you lying" thread exchanges, especially when I'm accused of trying to willfully deceive without any example given. Incomplete thoughts casually posted to message boards do not constitute lying.

If this thread is to go anywhere interesting, clearly someone other than Dante is going to need to enter the conversation.

The point (if anyone else is interested in the subject) is that in a modern society we have two choices or paths to follow. On the one hand, we can artificially draw up a rule system based on perceived values. For example, we might declare that education is a priority of society. We hold state lotteries where part of the proceeds fund education. Additional taxpayer subsidies are provided to assist students with tuition. Or maybe, government decides to repay banks for student loans that default.

Artificial tinkering invariably leads to imbalances. In my example of education, you could arrive at a place in society where too many people have decrees in the liberal arts, and not enough people have the skills to fill manufacturing and mechanical jobs. With the lottery, you might end up with an unsavory dependency between education and gambling. And you might find that banks are too willing to lend money to students, which both drives up the cost of tuition by adding artificial demand and undermines good banking practices by the security of a taxpayer backstop. The law of unintended consequences becomes evident.

A truly free market arrives at prices according to basic laws of supply and demand. Prices are self-correcting, and the values of society tend to be addressed in a balanced manner. Given that modern society is made up of seemingly random components (as opposed to an ancient society based on kinship, a common cosmology and a common way of life), we require prices to inform us what value should be placed on a good or service.

 

[Procrustes Stretched]

I don't engage in these sort of tit for tat "caught you lying" thread exchanges...


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okay