Thank you, Ruminator for pointing out the argument distinctions. I found the information helpful.
Sam, I am revisiting the ecosystem.
I agree the economy is a self organizing system, an unpredictable machine. You may not know exactly how the machine will respond when it’s fiddled with, but you do know that left to its own end; the machine will consume everything in its path until it becomes slow, weak and hazardous.
Similarly, trying to manage an ecosystem can tilt the balance in favor of the prey or the predator to the detriment of the entire ecosystem. The mice become an easy meal for the owl but over time the owl may lose its instinct to hunt and eventually starve to death anyway.
Capitalism has an identifiable historical pattern of evolution. It always self organizes into monopolistic control of the market, which is the demise of capitalism and its social benefits.
If laws are a form of social control, and laws are used to control almost every behavior from wearing seatbelts to murder, why can’t laws control CEO behavior? As you point out, the economy is unpredictable, and it’s because of human behavior. Of course, people will always break the law, but laws are effective. There is the fear of punishment and the fear of being ostracized. Although laws may not completely eliminate fraud or tax evasion, they are a solid deterrent and the best way to shape corporate culture.
High employee wages force firms to find ways to increase profits and remain competitive other than downsizing. Limiting CEO pay with a progressive tax policy or linking pay to long term growth of the company will encourage investment in the firm and executive longevity. Improving efficiency with technology leads to innovation and makes companies competitive.
It seems to me that the absence of laws or rules promote corporate corruption and leads to the slow death of capitalism not imposing laws.
Hell, you can stay right within the boundaries of our own country (and borrow a natural born citizen from yours, Sam) and see the same thing.
Let’s take a look at some of the bizarre attempts to control prices and output via FDRs National Recovery Act.
For some especially enlightening reading, one could read up on Schechter Poultry vs. the United States. The arguments presented in the Supreme Court, as to why the government needed to get involved in the pricing and caging of chickens, was so outrageous that the court erupted in laughter. Some summary links below
And as for Mr John Kenneth Galbraith, I recommend the DVD Series ‘World At War’ by the BBC. The Beeb at its finest.
There is a particularly telling scene where they are interviewing Galbraith, who had been made head of the Office of Price Administration during WWII. He was puzzling over naptha, I believe. He had no idea where it came from, how it was made, or what is was used for. But goddamn it, he had to regulate it. It was his job to set prices for naptha and decide who got how much of it.
I can never tell by looking at his face what he’s thinking at that moment. Does he realize the joke is on him? Or does he think that it was just some really hard work, that he needed to figure out? Here’s one of the world’s most brilliant dudes struggling with centralized planning, when he was vested with full power to do.
And that’s sort of the whole point. You can’t do it. Does the fog lift at that moment for Mr JKG? Does the light go on? I never can tell.
I cannot answer for Ocean Annie of course. However, earlier you asked me, “What didn’t work about the ‘Robber Baron’ era? You seem to assert that on its face, somehow it was bad. That the evil of the ‘Robber Baron’ era is self-evident.” I think that question bears on this as well.
Left to itself unrestrained capitalism absolutely does lead to monopoly, or at least oligopoly. We know this because we have seen it during the Robber Baron era. Industries were dominated by a relative few. The chance for entrepreneurs to get in were almost non-existent. Wanted to get the ore you mined from A-to-B? You had one choice…and you paid that one company that owned all the transportation lines whatever they saw fit to charge you.
I suspect you and Sam, back then, would have been spouting the same mantra you are here and demand that meddling with the economy is a terrible thing. Perhaps for awhile having these monopolistic titans allowed for a certain amount of growth that would be difficult if there were 100 people playing in the same arena. However in the end these entities were decidedly anti-competitive. Innovation would go out the window. Lower prices due to competition would be gone. Pretty much all that is anathema to the ideal of a competitive, free market.
Are they an aberration? I’d say no. Even today we see a distinct drive towards consolidation and control in various industries such that some few exercise overwhelming power in the market. Doubtless you could point to some efficiencies that this nets us but I would argue that the downsides are even bigger. Having a few companies that are “too big to fail” I do not see as healthy in our economy.
Ideally the market should punish those companies for screwing up but they are saved. Also, going back to the OP, the people who steered their companies to disaster are rewarded hugely. To me that is a broken mechanic. The incentives need to be re-adjusted because as it stands the current incentives provably do not net a desired outcome by anyone.
It would be great if the market self-adjusted itself to produce proper incentives but clearly it does not and has not.
Make sure you understand the point of the research: it’s not that the relationship between income inequality and economic growth is negative, it’s that the relationship between income inequality and economic growth is not positive. That’s an incredibly powerful statement.
There are numerous social ills associated with income inequality (e.g., my other links); but the primary argument of those arguing for the sort of unrestrained capitalisim that results in this sort of inequality is that it’s worth tolerating because it’s a side-effect of economic growth (or even that it’s a necessary condition for economic growth). If you show that income inequality has a negative relationship for economic growth then you’re left with the sobering fact that high income inequality is a pure social ill. There are no positives associated with income inequaltiy, but there sure are a whole host of negatives.
To be honest, once you’ve shown that income inequality doesn’t help economic growth I’m left wondering just what sort of argument you could make in favor of it.
No, it’s not. If the relationship is not strong–and your cite admits that is the case–then it is statistically insignificant. Worded differently, any relationship you calculate is likely to be something other than zero, which may imply, well, nothing, depending upon the significance. Below a certain level, it’s statistical noise, the equivalent of a sample that shows that coins flipped on Tuesdays come up heads 50.3% of the time. The relationship between “heads flipped” and “Tuesdays” is greater than 50%, a non-zero, so to speak. And that is not an incredibly powerful statement. *Your cite *specifically disavows the notion of any statistically strong relationship between income equality and economic growth.
So, again, what economic benefit is gained from the OP’s proposal?
This sounds like anarchism and far more Utopian than any social democratic theory or regulated capitalism. This idea that no government and economic freedom will result in individual liberty doesn’t translate to the real world.
This isn’t a fair characterization of my views, Sam Stone. I believe every person has the right to get rich and earn a high wage. Risk, talent, skill should be rewarded and social mobility, income and success should be based on merit. I actually believe capitalism is the best economic philosophy.
What I am against are rules that protect capital at the expense of labor and policies that result in the transfer of most of the nation’s wealth into the hands of a few powerful ruling elites. Money is power.
You are right, and I completely agree. I intentionally distorted the issue to make a point. But economic policy is the most powerful way to shape society.
Well, I would never advocate for the government to choose what companies succeed or fail, but this is exactly what the government has done for years.
I think regulation is a balancing act that constantly needs adjusting for the best outcome. Central planning is not efficient but the suggestion of any form of economic planning is over demonized. The desperate need for energy is a good reason to consider some planning.
If you really really really really need to see the words “statistical significance” spelled out for you in black and white then you can read this paper [PDF].
Or, if you love statistics, you can read this paper.
So, your argument seems to be that if you misread the word “weak” in creative ways, then…what? When you read the above papers and it is explicitly spelled out for you that there is a statistically significant negative link between income inequality and economic growth, what are you left with?
I don’t really, really need anything. Your first cite indicated there is NOT a strong correlation. I was merely pointing that out. Did you think it said something different? As for this one:
And:
And this:
And this:
The U.S. is not politically or socially unstable, and fertility rates have declined or remained roughly stable (we’re 124th in fertility rate in the world, below the average), however valuable this tortured work might be in extrapolating economic growth in Somalia. Are you actually reading this stuff, or just scouring Google scholar and pulling out papers based on their titles?
This one references your second cite, and it’s basically a re-working of the same theory, which posits that increased taxation associated with unequal distribution of income (and in this instance, land) impedes growth. I am not going to read through another 30-page cite from you, so allow me to concede without further discussion, that I fully support decreasing taxes to promote economic growth.
Stop it. YOUR CITE indicated there was a weak relationship. It required no creative interpretation. Your second cite (which tortures the statistics due to the unavailability of required data) has the same limitations and comes to roughly the same conclusions. I’m not reading the third, which will probably make two of us. You are offering as a given that which is specifically refuted, or at least not strongly supported, by at least some of your cites. I’m just pointing that out.
He has already addressed this: if you read the last bit you quoted, you will notice that he does distinguish between “good” regulation (which moves the economy closer to a free market, with greater knowledge and accounting for the costs of externalities) and “bad” regulation, which seeks to overrule the market entirely.
Would people please start reading before accusing libertarians of being anarchists?
Yes, I do think it said something different. I think it said that the relationship was statistically significant but the absolute value of the coefficient was small. That’s my reading of the words confirm and weak. If they meant that the realtionship was statistically insignificant, don’t you think they would have said so? That finding would directly contradict fifty years of economics studies, and would probably be worth mentioning.
Exactly. This is my point.
This doesn’t hurt my point.
This strengthens my point.
But the coefficient is still statistically significant, so my point stands.
Nothing in this quote hurts my point, so I don’t know why you bothered.
In both cases the impact of income inequality is statistically significant, so my point stands.
Wait, the coefficients of MID are very low and imprecisely estimated? Might one say that the impact of income inequality on economic growth is weak? Wait, bad idea. You’ll probably assume that by weak I meant purple or something.
I know, they should instead study all those rich countries with high income inequality. Wait, what? There aren’t any? That might be meaningful.
The proper way to put me in my place would be to get on Google Scholar yourself and pull out all those papers that list all the positive effects of income inequality, and then cite them right back at me. P.s. If you can’t find any, that might be meaningful.
Two academic papers say similar things, cite similar sources, and even cite each other? There’s probably a conspiracy here.
Only if you assume that weak means statistically insignificant. But that raises the question of why they didn’t just say statistically insignificant in the first place. It’s probably meaningful that they didn’t.
There is simply no evidence that this is true, either for a free market economy OR for a natural ecosystem. You continually make assertions like this with no substantiation whatsoever. If you want to make this claim, it’s up to you to back it up.
Really? It should be easy to provide some examples, then. Without just hand-waving about ‘robber barons’.
Also, you need to distinguish between coercive monopolies and natural monopolies. A natural monopoly is one in which one company becomes dominant simply because it is better at providing what people want than anyone else, so it displaces its competitors. This does not mean it can wield monopolistic power, because the minute it stops being better than everyone else, it loses its monopoly. Such monopolies are not harmful to the economy.
I would like examples of capitalist systems that, without government interference, devolved into a state of monopoly or oligarchy such that prices were maintained higher than what the market would otherwise determine. Since you claim that this happens all the time, there must be many such examples.
This is a silly argument. You could just as easily say, “If laws are a form of social control, and used to control almost every behavior, why can’t we have laws preventing people from leaving their homes without government approval? Why can’t we have laws preventing you from having more than one child? Why can’t we have laws telling you what kind of job you can have?”
The answer is because we are not a tyranny, and therefore state power is supposed to be limited. The state being what it is, it will always push the boundaries of those limits, and it will have plenty of enablers in the populace who are willing to give up their rights or the rights of others for some supposed social benefits. But luckily so far, state power is not absolute.
It’s unpredictable, but that doesn’t means it’s chaotic or anarchistic. The english language is an example of an spontaneously ordered construct - no one knows exactly what it will look like in 100 years. It’s unpredictable. There are no governing bodies, no government plans to ‘guide’ the language. But even so, we can be sure of one thing - whatever form the language takes, it will be a form that serves the needs of the population of that time in a pretty optimal fashion.
That what a free market economy does. The economy is nothing more than the order that arises when individuals seek their own happiness, just as the English Language arose out of the need of millions of people to communicate with each other in sophisticated ways.
If government ‘planned’ the language, and passed laws mandating how we used it in order to prevent the ‘chaos’ of the language mutating, do you think we’d have a richer, better language today? Would we see the almost limitless types of expression that we have today? Or would it be dull, drab, and distorted by the wishes of powerful people?
Actually, there is a ‘scientifically planned’ language - Esperanto. There are a couple of hundred people in the world who learned it as their first language - because their parents tried to make them native Esperanto speakers. It’s been around for about 120 years, and has had no success whatsoever in becoming an international second language, which was what it was intended for.
Why you think this matters to the debate is beyond me. Yes, the threat of having someone jail me or shoot me if I don’t do what they want is a pretty good behavior modifier. Can’t argue with you there.
See, then you go and throw around completely unsupported statements like that, and it’s hard to take your arguments seriously. Really? The threat of force is the best way to shape corporate culture? Have you even thought that statement through? God help me if I ever have to live in a world where the main force in shaping corporate culture is the law.
You have it exactly backwards. The main force shaping corporate culture is the market. There is no question about it. My company expends 99% of its effort not in making sure it meets the letter of the law, but in trying to beat its competitors at providing goods and services that people will pay for. We spend our time on safety issues not because it’s against the law to sell unsafe products, but because our brand is worth billions and it only takes one or two highly publicised lapses in safety to destroy it. We spend our time chasing quality by implementing standards like ISO 9001 and coming up with new quality systems not because the government mandates it, but because our customers do.
None of our tens of thousands of employees make the government mandated minimum wage. Why? Because the forces of the market are stronger than the force of government in this case.
My company is big enough that it has been accused of having monopolistic power. It has had mergers threatened by government because someone felt it would make the company too powerful. It has been in many markets where it was the major player and sometimes had an overwhelming market share. And yet, I have NEVER heard anyone suggest that we should exploit that power and stop trying to be the best at what we do. Quite the contrary - when the company reaches that kind of success in a market, everyone seems to work twice as hard to try to maintain it.
Your world of corporate robber barons and government as our protector from corporate chaos and intimidation is completely alien to me. I simply have never seen anything like it. Or rather, I have, but only when companies are granted monopoly power by government. My cable provider absolutely sucks, but it has a monopoly on cable service in my city. Canada’s cell phone rates are way higher than anywhere else, but our cell industry is strictly controlled by the government.
Can you explain why, if it’s in a company’s best interest to limit CEO pay as you suggest, that they aren’t doing it? I can’t think of too many other ways in which companies give up competitive advantage like that.
Once again, you’re engaging in debate by simply stating your conclusion as if it is self-evident.
And quite frankly, I think the company is better able to tell what is in its own best interest than are a bunch of bureaucrats in Washington.
Perhaps you could explain Hong Kong then? At the end of WWII, Hong Kong was dirt poor. Its population wasn’t well educated, and it had an open borders policy where poor immigrants were allowed to come and work wherever they could. The British governor of Hong Kong established an explicit laissez-faire policy towards the Hong Kong economy. Taxes were capped at 15%, businesses could be formed by filling out a one-page form There were no tariffs, no subsidies, and no government borrowing was allowed.
Hong Kong has the highest per-capita income in the world today. It has its share of monopolies - all of them state sanctioned. In its wide-ranging laissez-faire economy, monopoly power did not take over.
There’s another data set you can look at to see if free markets lead to monopoly power - you can look at black markets around the world - some quite large. You can even look at illegal drug suppliers - the only way they maintain monopolies is through the threat of violence, or the actual killing of their competitors. Without the threat of violence, drug seller’s profits erode as more competitors come onto the scene.
I simply see no evidence that left to itself free markets will devolve into monopolies and cartels. Not so long as governments still protect people from force and fraud.
At no point did I say ‘no government’. Government will protect you from intimidation, and fraud, and broken contracts, and ensure that there is transparency so both sides of the transaction have as much information as possible about the costs and benefits involved. Government will protect third parties from having externalities imposed on them. Government will work to keep markets operating efficiently. And governments may even enter the market in some cases if an honest market failure can be identified and can’t be corrected, so long as a suitably high bar is maintained.
That’s a long, long way from anarchy. But what government will NOT do is seek to modify markets that are operating efficiently, seek to change the allocation of goods and services in an attempt to ‘improve’ it. The government will not bail out companies or give subsidies to companies, overriding the judgment of the market. The government will not punish selective areas of the economy through targeted taxes in order to push the population to a solution it thinks the population should adopt.
The government will not ‘create jobs’. The government will not stand in the way of the free flow of goods and services across borders through the use of taxes, subsidies, tariffs, or burdensome inspections and regulations designed more to protect certain industries than the public at large.
So, no social policy, no industrial policy. Keep the markets working, keep the peace, attempt to maximize the freedom of action of the citizenry as much as possible, then stand back and let free people live their lives and choose their own paths into the future. You haven’t the right to do otherwise in order to meet some social goal that you think is correct. The people can decide what their lives should look like just fine, thanks.
Clearly, you are not. This whole thread is about infringing on someone’s right to earn a high wage. You seemed to be in favor of the concept. No one who is can possibly lay claim to respecting someone’s right to keep the income they earn.
What you’re really saying is that you believe people have a right to earn a high wage - so long as they pass Ocean Annie’s tests and are deemed worthy.
You’ll have to elaborate. Just what rules are protecting capital at the expense of labor? Be specific, please. What policies transfer wealth to the powerful ruling elites? I mean other than the really ruling elites, the government.
I suspect what you mean by ‘rules protecting capital at the expense of labor’ is ‘not enough rules protecting labor at the expense of capital’. Can you name some rules that specifically protect companies against labor?
There you go again. Ask the prohibitionists how much power economic policy had to shape society. Ask homeowners and people paying for the real estate meltdown just how much power Fannie and Freddie really had to override the rules of the market and provide home loans to people who the market had decided didn’t rate the risk?
The best time to plant an oak tree was forty years ago. The second-best time to plant one is right now. If you don’t advocate for the government bailing out companies, you can start by opposing the current one.
Oh? And how’s the government done in that regard? Let’s see… There’s an ethanol subsidy which is currently stimulating the production of a dirty energy source that is more expensive than alternatives and not very good for the earth, either. Governments have erected tariffs to prevent the purchase of Brazilian ethanol, which is much more energy efficient. There are laws discriminating against nuclear power. There are conflicting gasoline standards across the country that make the refining and distribution network very inefficient. There are brownouts happening because government couldn’t manage to provide the power people demand. Billions was spent on Yucca mountain, and now it’s been canceled. Offshore drilling has been banned. In my lifetime, I have heard six different Presidents promise to end the U.S.'s dependence on foreign oil, which is now at an all-time high.
Yes, government’s track record on coming up with new energy sources is just stellar.
The obvious example is the American industrialists and the Gilded Age indicated by Whack-a-Mole, and, as you alluded, there were state sponsored monopolies criticized by Smith and other liberal thinkers.
The need to protect competition is an old idea. American anti-trust law is rooted in a common law principle called the doctrine of Restraint of Trade.
I actually thought the tendency towards monopoly was accepted and defended by free market capitalists, many have criticized anti-trust laws and challenged them in court.
I imagine it depends on what those anti-trust laws target. If a company monopolises the market by selling such a good product at such a good price that nobody wants to buy the competitor’s product, that’s perfectly fair, and will only last as long as they continue to out-compete any new entrants to the market. There’s only a problem if the monopoly is maintained by methods that do not require that they continue to sell the best product or at the best price, such as unfair business practices or preferential treatment by the government.
Just to be helpful, I should point out that this definition, and the resulting analysis, are unique to you. I would suggest that you find out what the phrase* natural monopoly* means to everyone else before you use it again.
Depends on how you look at it. It’s the inverse of saying that a specific type of industry is more efficient if there is one major player, isn’t it? A typical example in the past has been Microsoft Windows, where the company who wins is the one who ‘won’ the competition, because the market is more efficient when everyone uses the same operating system. I would think that a company that can dominate the competition simply by being better at supplying what people want is going to be the result of natural monopoly, or there would always be competition. But perhaps it’s not the best use of the term.
Sounds good. So, what percentage of markets/industries will require regulation?
I know, lets play a game; we’ll list some industries and you explain how well they will function in the absence of regulation. Here, I’ll start:
Foodstuffs
Insurance
Banking
Automobile
Medicine
Sounds utopian. Do we have any examples of countries that function this way? If not, why not? If so, how’s life there compared to the comparitively more heavily regulated northern European countries. For fun, compare the quality of life in your utopia to the quality of life in, say, the Netherlands. Where would you rather live? Why?