Author Topic: Since we're posting arguments now...  (Read 3316 times)

Virgil0211

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Since we're posting arguments now...
« on: May 04, 2009, 07:51:25 PM »
I think I'll post one of my own. This was with "TheDudeFromSomewhere".

TheDudeFromSomewhere: Hello,

Well, first about Shane. I personally dislike the way he debates and this is also the way he draws out so much hostility. He is way too fast in drawing conclusions about the intelligence of people. He never even considers to be wrong and to me the worst is that he can't take his own medicine. (And in his newest video he is just wrong on basic economics BTW. A recession does not occur when aggregate demand exceeds accregate supply. If aggregate demand exceeds aggregate supply, the prices rise (which eventually leads to inflation), so every supplier has an incentive to provide more goods and expand production if possible, which he can do using the revenue accruing form the excess demand. Last time I checked, expanding production and increasing investment constitutes a boom and not a recession!)

I myself would define myself as a "communist" in that I would like the communist ideal to be brought about. I am NOT a stalinist and I am quite happy that the Soviet Union went down. I am very much in favor of free speech, individual freedom etc. They are essential part of the ideal. In fact, the idea of communism (as postulated by Marx) is an extension of democracy to the economic arena in the recognition that to have practical freedom, you also need economic freedom and equal economic opportunities.(I realize, Libertarianism claims that the free market is exactly that, but there I disagree!) There is a real difference between the people that are supporting Soviet Union style socialism and people that are aiming for an egalitarian society. And admittedly I do not know how to reach that state of society. At this point I just try to achieve the best organization of society and according to current knowledge, some free market mechanism seem to be the best way. In other areas intervention is needed. I you are interested in talking to a non-dogmatic communist (which I hope I am), you can feel free to reply.

Now, while it is true that the market has a certain regulative that forces agents to do well, there are instances where the market fails precisely because agents have only their own self interest in mind. If you look at "negative externalities" in economics you will find that exact idea. If you look at informational assymetries, you get the same problem. You can read up on this in a nice article by George Akerlof "The market for lemons"(not sure about the precise title, but "lemons" is in it! It is a classic piece of economic literature, where a market, where all agents are rational and all are interested in their economic well being, can still fail. And the example is in used cars, which seems quite realistic.
Next, governments also have an interest to do well. Or rather, they can. It depends on the kinds of institutions you set up. If you assign direct responsibilities, set realisic targets and impose punishment for abuse, you will get an efficient outcome and public enterprises can work just as well. A couple of years ago I read a couple of articles about the state run enterprises in the UK and they came to the conclusion that the proportion of well run enterprises to badly run enterprises was about the same as in the private industry. And when the government decided to impose stricter targets for the badly run enterprises and hired capably managers, they did even better. Ironically that was in the run up to privatizations and after the privatization many of those companies actually were run worse than under public ownership. The railroads in the UK are a prime example. After some 20 years of private ownership the system became so unsave (after a couple of horrible accidents) that the state was compelled by public pressure to repatriate at least the rails (not the trains which are still private for the most part).
Essentially, it all comes down to how the government tries to get involved. If it goes about it in a smart fashion for example by using price mechanisms when it comes to pollution or by hiring decent managers and give them enough freedom to run the business etc., then the government can do just as well(or even better than) the private business. Of course if you just let some stupid official impose some upper limit for production, you are asking for trouble. There is a whole field of "public economics" and "economics of regulation" that studies exactly how a government can go about intervention in a smart way!

Alright! I think this is enough for now!
Regards,
TheDude


Me: 1: That's not what the video was saying. A recession occurs when the equilibrium between short-term aggregate supply and short-term aggregate demand is artificially shifted to the right without a corresponding increase in long-term aggregate demand. Such a change, while a boom, is only temporary and will inevitably lead to a contraction or recession to bring the three values back into equilibrium. The reason for this artificial increase in spending/investing was due to the Federal Reserve's practice of printing money. Because we have a fiat currency, the Fed can do this without tying such money to assets. Once the money is injected into the economy through member banks, the banks feel less inclined to invest wisely, so they loan out the money more easily. People who wouldn't have obtained loans before find them easy to obtain. Thus, this artificial boost in spending and such. It only lasts for a short time until the value of the money decreases with inflation and such. During the Free Banking Era, banks were allowed to print bank notes and use them to invest in such a manner, but such a practice tends to be unhealthy for a bank, and thus it goes out of business. Under our current monetary policy, all banks participate in this at once, and thus they all fail at once. If you want a really good example of the free market working well, look at Sweden's free banking era. They had one bank failure over the course of 70 years, and that was due to an incident of fraud. Shane is correct in his assertion that an artificial increase in short term aggregate supply and demand will lead to an initial boom and then a recession.

The problem with such interventionism is its initial intent, in the best of circumstances, is to prevent behaviors that would usually be in poor health for the company itself. Doing so simply protects companies that would and probably should have gone out of business in the first place and increases the costs of doing business for those who wouldn't have participated in such activities as it tends to cost money in order to comply with government regulations. That's simply what happens when regulators have the best of intentions. The reality is that because politicians can set the rules of the game, the richer players will attempt to exert influence on them to get the rules bent in their favor. Look at the competition between Time Warner/Comcast and the digital satellite providers. Antitrust laws prevented the latter from growing large enough to compete with the former while the former was allowed to grow past such restrictions as they were "building infrastructure". In the end, regulations primarily benefit the large companies who can afford to absorb the extra costs of compliance and manipulate the rules in their favor. Ever heard of the e-cigarette? It was an electronic alternative to cigarette smoking that had no secondhand smoke, no carcinogens, etc (nicotine is still one of the most addictive drugs that we know of, but this is still a preferable alternative). Recently, they put forth a bill in congress that would add nicotine products to the umbrella of FDA regulation. Not only would the bill grandfather in tobacco products already on the market, but it would require that this safer alternative be tested under FDA guidelines before it could be sold. What about that doesn't scream "corruption"?

As far as regulatory agencies such as the FDA and government mandated insurances for banks and such, these organizations really aren't necessary. Underwriters Laboratories is a very effective free-market alternative to other regulatory agencies. They're less expensive, and generally better at testing products than their government-inspired cousins. It's very hard, if not impossible to sell a product tested under UL's umbrella without it getting approved. The FDA takes too long, too much money, and takes the unnecessary step of outlawing the sale of anything it doesn't approve of. Again, this benefits larger companies who can absorb the higher costs. I would much rather UL expand to start testing drugs and keep the government out of such areas. The only place I could see government having any place would be if a product were sold fraudulently, like if the risks weren't listed on the bottle or the effects were fraudulently stated. During the free banking era, various private investment insurance agencies had begun popping up to give banks some protection for malinvestment while being more selective with their membership and what they would cover. The main problem with government agencies and intervention is the lack of competition and the force that it uses to obtain support. The lack of competition means that there's less incentive to perform. The force means that there's even LESS incentive to perform because they don't need to earn the money first. The force also attracts those who will use greed to get whatever they want. The free market is a bit like throwing the "One Ring" back into the fires of Mordor, although doing so wouldn't destroy Sauron. It would just render him powerless. =P

The problem with the "negative externalities" example is that it assumes that the person who's affected by the practices in question doesn't assert his property rights. For example, if one firm lives upstream while another lives downstream and the former dumps chemicals into the river, negatively affecting the latter, it assumes that the latter won't sue and that the river is publicly owned. Expanded regulations aren't really necessary. What's necessary is for better protection of personal property rights. If people sue a factory for dumping chemicals into the air, this disincentivizes the company from doing so in the future, as well as others from performing the same practice. There's an organization in Britain known as "Fish Legal" which uses such common law protections to represent property owners whose lands have been damaged by pollution.

I'm aware of "informational asymmetry", but I'm also aware of free-market solutions to it. To apply specifically to used cars, we have Carmax used vehicle reports. We also have the option of purchasing only from certified dealers. In other scenarios, like securities and bonds, an insurance agency will usually pop up to ensure reduction of informational asymmetry.

Well, part of the problem with that example is it doesn't specify quite exactly what the industry was or how the government was involved. Government waste, abuse, and inefficiency comes from several factors.

1., typically, the government will make itself a monopoly, removing competition (not to be confused with competitors. The two are separate.). This removes some incentive to do well. A good case for comparison would be the US postal service. They have a monopoly on the delivery of letters and paper mail. This service is handled terribly, with it sometimes taking weeks for a letter to be delivered. However, they do not have a monopoly on the delivery of packages and parcels. The competition forces them to work more effectively, and thus their package-delivery service fares much better than letter delivery. I recently ordered a figurine of an anime character from a state halfway across the country, and I'm going to receive it in less time than it would take for that same person to send me a letter.

This above situation would cause a lack of efficiency whether the service was directly tied to the government or simply given a government contract. Private ownership isn't a magic bullet to solve all problems (which is what some Republicans say). It's the circumstances under which that ownership occurs. If the government were to make all taxes and all services voluntary, itself being barred from using force to achieve its ends, then it would become just as competitive as any private sector player. The free market isn't about private industry versus public. It's about competition and the use of force.

2. Support from tax dollars- If the agency or organization will receive tax money regardless of their performance, then this makes for even less incentive to do well. Their profits aren't as completely tied to their performance as would be the case in a private industry.

And I should clarify- These factors don't guarantee horrible performance by government, although the lack of their presence does often lead to poor performance. Quite simply, removing these influences means that the performance of an agency is dependent on the work ethic and character of those in charge. The free market doesn't eliminate this. On the contrary, it rewards it when those traits lead them to perform better services. However, good intentions don't ensure great performance, and a person can perform a job well even without such good intentions.

I don't think government's involvement in economics needs its own field of study. The rules of reality will apply no matter what the situation or who's playing the game. Master Chief doesn't suddenly get stronger shields and more powerful weapons just because someone else picks up the controller.

I honestly liked the idea of communism when I was younger. It had a certain humanistic, reaching our fullest potential quality that I found inspiring. There are quite a few problems that I found with it later, though. For one thing, the "labor theory of value" is completely nonsensical in practical application. The value of any product or service is dependent on supply and demand, and this won't change unless you use government to force a price for a specific product. That leads into another problem with communism- in just about any instance, instituting a communist society would require the use of force. Unless the desire to take care of one's personal wants and desires were replaced with a desire to put society first in every person in the area that would become communist, and some physiological change were made in the human brain to prevent such urges from reverting, then the government would have to force participation in this system with its constituents.

I think part of the problem with the whole "free market VS socialism" debate is that there seems to be this strange concept that the government is the only venue through which charity can take place. It's like modern liberal policies have this intellectual monopoly on charitable behavior. The free market would free up private resources that could be given to private charities, which are subject to the same kind of competition and requirement to earn funds that private companies are. A good example would be healthcare. Back before the HMO act of 1971 (which was a TERRIBLE idea), we had quite a few more charity hospitals around, many of which have since gone strictly private or closed down due to operational costs. A better policy for those with more "left-leaning" ideals would be to go out and convince those with large amounts of money of the benefits of donating to charity. Warren Buffet and Bill Gates alone have donated billions of dollars to charity, and the US gave about 275 billion dollars in private charitable donations last year (I think. I know that was the value for a recent year, I'd have to double check which one it was.)

Anyway, I think I've ranted enough. Thank you for your time.

Virgil0211

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Re: Since we're posting arguments now...
« Reply #1 on: May 04, 2009, 07:51:42 PM »

TheDudeFromSomewhere: Hi!

I will take you up on the other issues, but at the moment I just cherry-picked the one that seemed most pressing to me(remind me on occasion) :
Just a quick note on the recession-boom issue! The video is, as you will agree with me, way too simplistic and therefore factually wrong. First of all, Shane did not say anything about the causes of the demand shift. (at least not in the video) And he did not mention for a second that a (short term) boom would come. Also, an expansion in demand (for whatever reason) will cause investment to take place, because companies see profit opportunities that they can capitalise on. Therefore an expansion in demand actually can increase the long run supply. This means that it is not necessarily true that a recession will occur afterwards. Also, it doesn't matter how high or low the long run demand is. It will eventually always equal long run supply. Diagramatically, that corresponds to a 90° cross.
Also, the causes for the current recession are not so clear cut as Shane makes them out to be. The questionable banking practices(derivatives) of disguising the risk inherent in assets had just as much to do with it as too easy credit. And the banking practices are an example of an unregulated market at work. The ceasing of credit to flow has halted operations of business, which put people out of work, which lowered(!) demand for other goods. Now, while during the last Bush years excess demand was possibly overheating the economy, it fell drastically at the wake of this crisis. Way below healthy levels. Some demand for consumption is needed in order to make investments worthwhile. Who in his right mind would invest in productive capacities, if there is noone to buy the stuff? So, Shane's call for even less consumption is exactly the wrong thing to do! This is the roughly the narrative of the current situation. Bad credits have been given before without such problems. The problem is that banks have bad credits and do not know to what extend. This is holding up the banking system. Which leads me to the next point. Shane boldly named the video "What should be done about the economy?" and he does not at all adress the problem of the banking system not doing its job! Think about it! If we save (curb demand which is already at an unhealthily low level) and put it in the bank, the bank is going to have more money that it doesn't lend, seeing that the banking system is not working at the moment. The banks are not lending because they don't have the funds. They are not lending because they don't trust each other and the main way to channel savings is interbank lending, because the bank taking in your savings is not the same bank that gives entrepreneurs the credit. So, to conclude I think that this video is economically wrong, misleading and potentially dangerous.

Regards,
TheDude

P.S.:(In the comment section Shane claims that the Free banking Era in the US had not a single depression/recession. I looked this up. The FBE is defined as 1837-1861. In 1837 a six year long depression started, in 1857 there was a recession. This makes Shane's claim factually wrong!)


Me: The demand shift was caused by an artificial inflation in the monetary supply by the federal reserve. Shane mentioned this in the video when he was illustrating the shift in the equilibrium between aggregate short term supply and aggregate short-term demand.

I think he omitted mentioning the short-term boom because it's pretty much assumed that such a boom would occur. The focus was on the recession that comes afterward.

The problem with that evaluation is that it doesn't take into account that the new money isn't tied to any assets, and thus doesn't account for the decreasing value of the money used to make the investments. This discourages investment and encourages spending, which accounts for the disparity between demand and supply. An increase in demand usually makes for an increase in supply, yes, but not under these conditions.

The main reason such practices were profitable is due to the easy credit as well. If you have a lot of free money to throw around, you aren't going to be as careful with it as you would be if you didn't have a lot of money. And no, this isn't an example of an unregulated market. During the Free Banking Era (in America and in Sweden), banks who participated in this typically went out of business.

Investment is based on future demand, not current. The problem is that, despite the fall in demand, it is still higher than it needs to be. The current monetary policies, for whatever reason, are trying to sustain it. That's part of the problem. Although, someone did criticize Shane for using the neoclassical top-down model of economics to explain the crisis.

http://www.youtube.com/watch?v=3yaJoiUxr-k&feature=channel_page

A bank that doesn't lend doesn't make money, and thus goes out of business. The demand for a bank to place your money in and handle investments will lead people to either start new ones or buy the assets of the old ones.

That first recession, if you can call it that, was related to a speculative bubble related to monetary policy. This wasn't a result of the banks failing. The second one was from a similar bit of malinvestment from England in our railroad system, also due to their monetary policy. I agree, the American example of a free banking era isn't the best one. A far better one is the Swedish free banking model, which had even less government involvement than ours (ours was technically one where banks had to be state-chartered instead of federally chartered, whereas in Sweden there were no such restrictions). They had one bank failure in over 70 years, and that was related to an incident of fraud.



Soooooo... Any thoughts?

MrBogosity

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Re: Since we're posting arguments now...
« Reply #2 on: May 04, 2009, 08:12:39 PM »
Sounds like you've got it right to me!

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Re: Since we're posting arguments now...
« Reply #3 on: May 04, 2009, 08:20:13 PM »
@Shane:  Would it be more helpful if I posted my arguments like this, with the differing colors from here on in?
"When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth, and tell the whole world—'No. You move.'"
-Captain America, Amazing Spider-Man 537

Virgil0211

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Re: Since we're posting arguments now...
« Reply #4 on: May 04, 2009, 08:40:26 PM »
Yay! I've earned my first negative point on my bogometer! :Happy jig:

@Surhotchaperchlorome (just rolls right off the tongue, eh? =P): It probably would, but your debates are alot longer than this. Summaries with small quotations might help a bit more. Although that could have more to do with the fact that I'm too lazy to do that much reading at once.


Virgil0211

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Re: Since we're posting arguments now...
« Reply #5 on: May 04, 2009, 08:45:33 PM »
Well, yet another reply.

I see! Different continent, same problems! Finals coming up here, too. Hope you do well!
Just very short, as I have to revise as well.
Omiting the boom is a major mistake in terms of an economic analysis. If you leave out details which may overturn your entire analysis, you are asking for trouble.
It doesn't really matter where a shift in demand comes from for the purposes of investment. If it is really just demand (and not a supply shock) it shouldn't have any long lasting effects, though as I mentioned an increase in demand can have beneficial effects on long run growth by inducing investment. There is no such distinction between "original" and "artificial" shift in demand. There are all kinds of shock to short run demand. Fashion and fads can induce a shock to demand just as much as a loose monetary policy. There is nothing structurally different from such an "artificial" shock to demand to any other kind of shock! Those other shocks in demand also put inflationary pressure on the economy. The difference between the two, if any,is that after a monetary induced demand shock the economy doesn't need to deflate as after the other kind. And seeing that deflation is just as bad as inflation, I would put that on the plus side. Of course if a government tries to use monetary policy too much to induce growth they render the Phillips-relationship obsolete and enter a hyperinflationary dynamic.(This is where the Lucas-critique will apply!) Also, you assumed implicitly that businesses would anticipate the rise in the price level and hence not invest, but that would apply to any kind of demand shock. Further, I think you are taking the rational expectations hypothesis a bit too literally. Prices can be sticky in the short run for a number of reasons. (fixed contracts, non-indexation etc.) When it comes to future expectations of profits, you will find that companies' evaluation of the future profit prospects has a very high correlation with current demand, no matter how the demand came about. Essentially, if demand is high at the moment, companies often assume it will also be high in the future. This may be erroneous, but people are in general that myopic. Also, it is reasonable to not invest if you don't know how long the current downturn is going to be. So, even with rational expectations you will have a positive correlation with current booms and investment activity.
Additionally, even if savings get invested, this doesn't mean immediate recovery, because investment needs time to become productive. You put some demand on investment goods, but that won't increase production that much.
The reason the current monetary authorities are trying to sustain a modicum of demand, (which I really doubt is too high... judgement call I guess!) is because a further reduction in demand will put even more people out of business and then even less investment will take place, because the profit prospect look even worse.
And you didn't really address the problem of banks not being able to lend, because the savings don't get channeled.The problem is that in the next years we are stuck with the banking system as it is. There will not be new banks jumping out of nowhere. The Credit cycle is broken for the time being. Neither you, nor Shane adressed that problem. How are the savings supposed to get invested, if the banking system doesn't work as is the case?

Blaming the inefficiencies of the current banking system entirely on the loose monetary policy I find a bit one-and short sighted. It did play a role, and I am not going to deny that. However, the bonus system in investment banking that rewarded risk taking but didn't punish failure, was certainly not conducive and this is an area where government did not play a role. Also, the banks were just stupid investing in thing they didn't understand, which again links into myopia. Those derivatives occured because of new calculation techniques due to more computing power. Technology fucked them over, if you will. The banks of the FBE wouldn't have been imune to that.
An additional matter. With increasingly electronic means of payment it becomes more and more questionable whether the standard quantiy theory of money really holds. The physical money supply may actually become quite pointless. Almost all monetary assets are already just an electronic footprint. And since many assets have become quasi liquid and denominated in dollars, the monetary base (by all standard measures) seems to be less and less important. I recommend the "Fiscal Theory of the Price Level"put forward by Woodford in various articles. There are a lot of questionmarks and problems with it, but it is the first monetary theoretic approach that takes this problem seriously. If you want to read a critique as well, I reccomend Buiter's article: "A young persons guide to Fiscal policy" (again, not sure about the actual titles of the articles, but if you google it, you should find it. They are both in the NBER-database.)

You are quite correct. The free banking era in the US is just a horrible example. The only stable thing were the interest rates and to be honest those really are one of the least important things. I care about real variables. During the FBA there was a boom but there were also recessions, which seems perfectly normal. A healthy banking system should have been able to overcome the depression and it was a depression, not just a recession, in less than 6 years. (the Great Depression only lasted for about 2 years and afterwards it picked up again!) Essentially the US FBA was nothing special in terms of economic performance, but we don't seem to have much disagreement there.
The Swedish banking system was quite stable and the one bank failing,I'm not gonna blame on the system. However, Sweden was a very poor country even towards the end of that era. It was poverty that drove so many Sweds to emigrate in the late 19th century. Again, the FBE of Sweden fails to impress as well! Stability, but continuing poverty.

I have seen parts of the video, but to be honest, Shane didn't really use the neoclassical model too well either, so while I acknowledge that there are problems with it, I don't find Shane's use of it too much of an indictement of it.

Right! This got longer than I though!
Oh well!
Regards,
TheDude

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Re: Since we're posting arguments now...
« Reply #6 on: May 18, 2009, 10:40:56 PM »
Ah, yes, TheDudeFromSomewhere.
He's the socialist I bothered Shane about regarding Europe's public school system (which I know Shane has described to be mostly a wash) as being far better than the USA's.
I find it ironic how in his first post he talks about how he "hopes he's not a dogmatic communist" yet he's just that.
He's been corrected on the externalities thing before, he still continues to spout that crap on Morrakiu's videos when talking about education (as shown in other topic).

@Surhotchaperchlorome (just rolls right off the tongue, eh? =P):
Oh, funny. :P
Yes, I have a weird username that's hard to remember:  That's one of the reasons I choose it.  :P
It probably would, but your debates are alot longer than this. Summaries with small quotations might help a bit more. Although that could have more to do with the fact that I'm too lazy to do that much reading at once.
I'll remember that advice for future reference:  Thanks. :)
« Last Edit: May 18, 2009, 10:45:34 PM by surhotchaperchlorome »
"When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth, and tell the whole world—'No. You move.'"
-Captain America, Amazing Spider-Man 537

MrBogosity

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Re: Since we're posting arguments now...
« Reply #7 on: May 19, 2009, 06:27:36 AM »
At least he's not as ridiculous as Ozymandyus over on League of Reason (which I'm starting to think is VERY misnamed), who tried to make out that, since I was against prohibition, I'm against laws against murder, too. I gave him several chances to admit that he lied, and then put him on ignore. Here's what he said:

Quote
Yeah, you're one of those crazy there should be no laws at all kind of people then? Because I'm pretty sure that prohibiting things like murder, beating, property damage etc stops a lot of people from doing a lot of things.

I explained to him--with links for support--that prohibitionism is a specific word about government prohibiting behaviors and has nothing to do with common law crimes. He kept lying, twisting, and even quote-mining the dictionary! I'd only ever seen creationists do that before!