You don’t observe a frequent knee jerk like anti-markets reaction from comments across HN?
What are good examples of their “disbenefits”?
What are good examples of their “disbenefits”?
On top of that, it's interesting that we only use the market concept at the meta level. Vanishingly few of the businesses that compete in the marketplace are internally arranged on market principles. Instead they follow bureaucratic and oligarchic principles internally. And when the survival of the state is on the line because of war, we don't trust markets to allocate resources to get important things built quickly - rather the state takes power to directly cause some things to be built and other things not to be.
Although the market gets praised for being good at allocation of capital, I would say it's good in the way evolution is good at finding things that can survive. It might find great solutions that a planned process wouldn't, but it'll take a long time and a lot of things will die in the process.
Some companies do approximate market operations internally, any company that has a notion of internal billing or where teams talk about internal customers is to some extent like this.
Companies not using market principles internally isn't a strike against markets, if you believe Coase's theory of the firm i.e. companies form at the break even point on transaction costs
Markets definitely have their issues.
Here are a few:
* The most obvious one is the fact it's an overhead, it doesn't produce goods or services by itself. That's not a major issue, but for example in the US ~5% (~7M of ~150M) of the workforce is dedicated to this overhead.
* It's prone to internal instabilities. Too often, the markets disconnect from the underlying economic reality, sometimes with only mild effects (for example, that time petroleum prices went negative), sometimes with more serious ones (2008).
* It can lead to overly quantitative views, ignoring the qualitative. It's the "metrics becoming the objective and thus compromising the value of the metric" (example: tech stock prices).
* It over-emphasizes individual interests over the collective one (think for example: environmental issues & global warming).
Markets definitely have their issues. But so far, the other systems we experimented with (planned economy) were even less able to cope with the incredibly difficult task of balancing an economy.
Lastly, it is to be noted that we are not operating in a pure market economy.
We are in an hybrid system where States (hopefully representing their people) definitely have a lot of say in economic matters and that's probably for the better.
I may have misunderstood the situation at the time or am now misremembering it but I thought:
Some crude futures were about to become deliverable, meaning people who had been speculating on the price and have no fundamental use for unrefined petroleum were going to receive it. Normally they sell the soon-delivering futures for some later-delivering futures and lose or make relatively small amounts of money in the difference.
But there was no one to sell to, because COVID had reduced processing capacity and demand for gasoline. So all these traders who had no use for crude were about to be stuck with it. It's a noxious, volatile, dangerous chemical that requires special handling.
As the date approached it became important to find somewhere to _put _ the stuff, so much so that traders were paying people to take it off their hands. Which seems like a very elegant mechanism?
Like, I don't want crude oil at my house. I'm not gonna worry much about the price to get it taken away, probably.
And at that moment the market was paying for someone to take the crude, meaning anyone who could bring additional storage or processing capacity online very quickly was delivering something valuable.
I was using this example to illustrate the disconnect between the market (which was trading oil like some immaterial stuff) and reality (oil is definitely a product you need to store properly, plus oil storage is not infinite).
In fairness, because it occurred during COVID, i.e. a really abnormal situation, this is a bit of a weak example.
The worst issue that the Soviets and other attempts at central planning failed to account for was flexibility and buffer. Say a natural disaster hits and you need an extra amount of concrete for reconstruction, but all the concrete production was already allocated for something else and the plan is considered sacrosanct. Or some innovation (e.g. refrigerators, cars, washing machines) proves to be way more popular than expected, but there is no way to adapt the plan, and so you had to wait years for a Trabant car.
Ironically, Western-style "free markets" eventually converged towards the same issue with the unholy invention of "just in time" manufacturing. Both capitalism and communism sought to eradicate "inefficiencies" and destabilized their entire foundation doing so.
https://chris-said.io/2016/05/11/optimizing-things-in-the-us...
HN discussions:
I find HN one of the most balanced online forums on most subjects.
What are good examples of their “disbenefits”?
The race to the bottom is all around us.
You live in SF by chance?
Because globally and historically that’s absolutely not what the data says about markets.
So much for fresh fruit & vegetables, so much for the Amish bakeries that would distribute baked goods through the local groceries.
But hey, cheaply-made goods from China are more widely available.
You should contemplate why the market caused resources to be allocated this way, instead of your preferred way, as usually the market allocates resources more efficiently than any single person could ever hope to achieve.
It may turn out that the negative changes you perceived are more than balanced by other positive changes that you weren't able to perceive. In your example, the lives ot Chinese people who benefitted from those changes may have improved a lot more than whatever setbacks you may have experienced. Or maybe people around you can now buy things they couldn't afford before.
That said, this is not always true, as markets don't take into account externalities.
But still, we don't know of any system of global resource allocation better than letting markets do their job while governments try to control their externalities.
In this context, if you start using the words "creation", "production" or even "availability" rather than "extraction", I think your perspective will change drastically.
Governments need to regulate to prevent harm, we all agree. Yet they claim it’s the markets doing it! No, markets do what is most efficient and optimal given the rules they can operate within. Governments are the failure point for basically all the serious problems. Instead of making neutral evidence based rules as regulations, politicians tend to reach for redistribution to buy votes, which when combined with scapegoating markets, is a winning combination to remain in power. Unfortunately history shows, unambiguously, it’s a losing combination for the society.
The private sector is bigger than the public sector, both in terms of dollar expenditure and in terms of political power. Politicians have to be vetted by rich people (the campaign finance process) before they are even options for election. If you're wealthy enough to monetize policy changes, it's easy to lobby with positive net expected value, if not, it isn't. The whims of the wealthy are in the driver's seat, the will of the people is not.
Quick exercise. Many people are confused about the social class they inhabit. Tax policy is the easiest way to demonstrate the actual reality, because whoever is in charge always decides that someone else should pay the taxes. Take out last year's 1040. I want you to look at 3 lines: Line 1, what you earn from working, Line 7, what you earn from owning assets, and Line 9+3/4, your unrealized capital gains. Line 1 has high tax, Line 7 has low tax, and Line 9+3/4 has no tax. Who do you think decided these tax levels? Populists? Do you feel in charge here?
> markets do what is most efficient and optimal given the rules
Markets don't maximize value in the colloquial sense, the value that they optimize is wealth-weighted. Feed a starving orphan? Zero market value because the orphan has no wealth to pay you. Merge up all the banks so they can load up on risk and arrange for bailouts when they go bust? Enormous market value because it makes rich investors richer, the single most weighted value in all the world. The market will ejaculate capital and connections all over this brilliant value-creating enterprise. Oh, and part of it will involve bribing public officials so you can even blame the government for allowing you to rob the plebs. Lol.
Ok, so the markets don't do what people want, they do what wealth-weighted people want. What rich people want. Is that so bad? You and I still get enough weight in the process to live a decent life. Besides, Warren Buffet seems pretty humble and someone has to be diligent about the high level investment decisions, right? Well, here's the problem: financial assets are a moral hazard. Cynically, capitalism entitles rich people to get paid for being rich. Passive income is the ultimate luxury, the most valuable commodity, and rich people indulge exorbitantly. Even Warren Buffet. Especially Warren Buffet. When his passive income streams are threatened, the happy investment grandpa turns into a nasty selfish asshole out to bust the balls of the people doing the real work at the companies he owns (seriously, look into the terms of the BNSF negotiations) because on the opposite side of a passive stream is (arguably) a stream of unreciprocated labor. The counterargument is that Labor Theory of Value is clearly bunk because there's more to value than labor, but just as clearly there is moral hazard in letting someone who doesn't produce the surplus value decide what to do with the surplus value. Wouldn't they just stuff it in their pockets? Yes. That's literally what the stock market is. The entire private sector is organized explicitly for the purpose of stuffing pockets and everything else is merely an emergent consequence of that.
Maybe that's ok. After all, every contract is individually agreed to, right? Problem: one side gets much more control over the rules of the game than the other, so consent is dubious. On the first day of business school they teach the prisoner's dilemma, where freedom to control the rules of a game trumps freedom to choose inside of a game. In theory, competition keeps businesses is check, but in practice businesses do everything they can to avoid competition, some successfully, so does it really?
In any case, every system needs investment and investment is all about reducing consumption today (which rich people are in a unique position to do) in order to spend the money instead on a factory or a risky venture or something that is expected to make the world better tomorrow, returning a cut to the investor, rewarding success and punishing failure. This is good for everyone, right? Well, yes... when it plays out that way. But markets are amoral. They don't really know if you created value or extracted value and they don't care. The money in your pocket doesn't care if you are a highway robber or robber baron or someone who worked hard for that money. As far as markets are concerned, "create problem, sell solution" is just as legitimate an enterprise as solving an actual preexisting problem. Better, even, because fundamental value creation is hard and you have to compete, while monopolization is all about not competing. What do the best performing market sectors over the last few decades have in common (health care, housing, and education)? Monopolized scarcity. Is this really best for society? You notice how business school tends to focus less on building a better product and more on building a better moat? They know what they are doing, and while it's the best strategy for them, is this really the best way to run society? By maximizing free money for the rich and observing that a somewhat functional society springs up as a side effect?
Capitalism is great at growth and terrible at stewardship. It wins a land grab but it leaves behind a nasty class structure. Is it worth it? I have no idea. I just try to win. I'm a lot less certain than I used to be, though.
I think we're roughly on the same page. The interesting part about capitalism is that it scales fantastically, for a while and as long as the bills aren't due you can improve your standard of living and those around you considerably. But some day those bills will be presented, it can be during your generation, your kids or two or three down the line. And that's when you find out about the stewardship component. But by then it is too late. It's a study in how local optimization can cause global catastrophe.
Extrapolating into the future then is probably going to show an even larger percentage of consumption per capita compared to the budget, and that at some point in time will result in a shortage. The people that will live through that will look back at us as the incredibly wasteful denizens of the 20th and 21st century that wasted resources on a scale that at that point in time probably will be criminal.
Sustainability is more than just a nice slogan, it is sooner or later going to be our end-game and the earlier we start doing this for real the longer the species will exist and the more comfortable the members of the species will be.
When you say that at some point in time there will be a shortage, what do you mean, exactly? A shortage of what?
The way I understand capitalism is that shortages, in a sense, don't actually exist in free markets (except temporarily if there are unexpected disruptions), because capitalism is mostly a system of allocating the resources that are available, in the most efficient way that we know of.
Or another way of thinking about it, is that there is always a shortage of almost everything, because we could always take advantage of more resources if they were available.
So what do you mean exactly?
Every resource that came as a gift with the 'bare' planet (before life began and exposed by various tectonic processes) follows these stages. So the more of nature we leave in one piece and the more we work in a sustainable manner (maximize recycling, for instance) the longer humanity will survive in a recognizable form. The only other way that I can think of is to go off-planet.
Take, for example, Hayek's rather more honest commentary on vacations and human rights generally:
>[The 1948 Universal Declaration of Human Rights] is admittedly an attempt to fuse the rights of the Western liberal tradition with the altogether different concept deriving from the Marxist Russian Revolution. It adds to the list of the classical civil rights enumerated in its first twenty-one articles seven further guarantees intended to express the new ‘social and economic rights’. (…) The conception of a ‘universal right’ which assures to the peasant, to the Eskimo, and presumably to the Abominable Snowman, ‘periodic holidays with pay’ shows the absurdity of the whole thing. (…) What are the consequences of the requirement that every one should have the right ‘freely to participate in the cultural life of the community and to share in the scientific advances and its benefits’. (…) It is evident that all these ‘rights’ are based on the interpretation of society as a deliberately made organization by which everybody is employed. They could not be made universal within a system of rules of just conduct based on the conception of individual responsibility, and so require that the whole of society be converted into a single organization, that is, made totalitarian in the fullest sense of the word.
https://redsails.org/concessions/
The decay we witness today is simply the rollback of concessions copied from socialist states and artificially bolted onto capitalism to reduce socialist ferment. The consequences are predictable.
The "right" is also in the Universal Declaration of Human Rights and International Covenant on Economic, Social and Cultural Rights; see https://en.wikipedia.org/wiki/Right_to_rest_and_leisure
Ironically, a lot of this dates back to the Haymarket Riot in Chicago in May 1886 (over the eight-hour-day movement), which led to May Day being a worker's holiday in much of the world...but US politics meant they got an alternative holiday in September.
As RedCondor points out, "who pays for it" has it backwards, companies gain value from the work of their employees, so effectively it is just giving back some of what they "pay" the company in labour.
People aren’t machines. We have a complicated social contract that says companies may employ labor so long as they meet certain requirements for safety, health, and treatment.
It’s not unreasonable to see time off as part of the deal. Who’s paying for your bathroom breaks? Same answer.
Insofar as there are disagreements, because capitalist "geniuses" don't think their riches should be subject to democracy, we have a struggle between socialism and capitalism.
In reality a mob of people end up producing nothing without capitalists and markets. There is a joke that the IQ of a mob is roughly the highest IQ in the mob divided by the size of the mob.
How can you possibly be saying this and "the wisdom of the crowd in markets is all-knowing" in the same thread?? Did you forget to say "and multiplied by the wealth of the mob"? :)
And flavors of socialism are very successful so far. Most first-world countries (particularly in Western Europe) have adopted aspects of it and significantly improved individual quality of life compared to those countries who haven't.
Nice strawman.
Well... let's see until we have the capitalist end game before we draw that conclusion, there is a fair chance that it will make the failures of socialism look like a picnic.
> I suspect in the future it will be view a bit like refusing to teach other scientific subjects, like evolution.
Economic systems aren't science, they are just means of organizing large numbers of people in ways that are hopefully sensible. A system that maximizes for growth can work, for a while, but isn't long term sustainable. So depending on your horizon you may think it is a great idea or a terrible one. Markets aren't bad per-se, but they have the potential to lead to catastrophe and if you don't acknowledge that potential and deal with the risk then the chances of it happening increase.
So you will always end up with fiction dressed up in a scientific coat. It looks and talks like science but it really isn't. There are no testable hypothesis, there is a ton of politics and there will never be consensus.
I encourage anyone on the fence between this libertarian and I to read the "Concessions" essay I linked up above.
Isn't this more a side effect of corporations, advertising and corruption rather than markets themselves?
Overwhelmingly unaddressed externalities.
except for incentivizing action to tilt the odds, which is weirdly amoral. if you bet on a bad thing happening, you can cash in by making it happen yourself.
It depends on what's at stake. One example is predicting someone's death.
> if you bet on a bad thing happening, you can cash in by making it happen yourself.
Yes, and that could be a huge problem, don't you think? It creates an incentive for a bad thing happening that wouldn't exist otherwise.
I say this as someone who is in huge favor of markets but also hates their externalities.
Slave trade.
Sweatshops.
1000 different environmental catastrophes.
You know, the reasons we have regulation. We had markets FIRST, then we got regulation on top of that, and we never looked back.
But somehow the narrative is markets are “bad”, they obviously aren’t as they seek out information and efficiency, which is a good thing. Markets are the one’s you should thank for telling you child labor, slaves, and sweatshops are a problem, and the environment issue, so you pressured your government to regulate those issues. Without free markets the alternative would be the government doing all those horrible things, which btw they certain used to.
People are mixed up, the primary problem is government failure to regulate and be transparent. It’s very difficult for governments to admit they create the problems so academics and politicians find the boggy man of markets.
Kennedy understands this topic well and while it’s unlikely he will win, I deeply hope he can somehow.
We need more markets for more things with clear and clean regulations build based on empirical evidence and scientific and not created by lobbyists involved in regulatory capture.
The mainstream opinion is "markets are ok as long as they are well regulated".
The only narrative that is trying to compete with that with any success is "markets are perfect without any regulation". Which provokes the rebuttal you refer to.
I've yet to see anybody claiming seriously that "markets are inherently bad and can't be saved". Even in communism there were markets, as abysmal as that system was (and I lived in a communist country for 6 years).
If our markets right now were regulated enough - we wouldn't have global warming problems. Clearly there's a lot of externalities that aren't priced-in. So - there's too much market and too little regulation.
The issue is politicians tend to push redistribution and direct action of the government over rules and regulations.
The only reason people like us are able to sit and argue on HN is because we aren’t worried about finding dinner for our 8 kids tonight. We live privileged lives. By demonizing the very thing that allowed us to move past these things you are basically attempting to pull up the ladder so no other unfortunate people can come up after you
The fact that you are asking this with a straight face tells me everything I need to know. Even the most rabidly capitalist person recognises that there are many severe problems with capitalism (they usually argue that it's simply better than the alternatives).
Regulatory capture[1] and rent-seeking are also examples where markets can fail. There are plenty of others.
Markets are just tools for the exchange of economic activity. Nothing more, nothing less. But as a society, we tend to ascribe all sorts of greater meaning to them that make it harder to recognize where they come up short and actually do something about it. If knee-jerk anti-market reactions are bad, then might I propose that knee-jerk pro-market reactions are just as bad, insofar as they gloss over or outright ignore the negative aspects of markets as we've implemented them?
Imagine a screwdriver. It does one job: turn a screw. If you have the right one, matched with the corresponding screw drive--let's just assume a Philips screw--at the right size, it does its job perfectly. But it'll get less effective as the tip and screw sizes diverge. What about other screw drives? There are a bunch of types where a Philips will sort of fit, and you'll probably be able to turn the screw, albeit with more effort and a greater likelihood of camming out and damaging the screw or your screwdriver. A flat-head screwdriver gets used and abused in all sorts of fun and interesting ways. You can use a flat-head screwdriver to pry open a can of paint, but an actual paint can opener is still less likely to distort or damage the lid or slip and injure you. At some point, you open the tool box and grab another tool. Maybe it's another screwdriver, because you're turning another screw. Or maybe it's a different tool altogether, one designed for the specific task at hand.
Markets aren't so different, if not quite as narrowly-defined as a screwdriver. They work well in some areas, less well in others, and in some, they simply can't function. All to varying degrees. Recognizing their failures and limitations allows us try and develop policies that address their worst parts while maintaining their more desirable parts.
One neat part of anonymous online prediction markets using unregulated digital currencies is how they exist outside this crony capitalist system.
It’s not markets to blame. It’s bad government!
It takes two to perform regulatory capture -- unless one of them can buy votes from lawmakers. And guess what the "market" found was most efficient?