Free Market: How would it work

Great Debates
21

Of course, there was breathtaking poverty and disease everywhere, because people were poor. and science wasn’t very far advanced. It had nothing to do with capitalism.

What did have something to do with capitalism is the fact that Britain is now a modern, wealthy nation, while other countries that stayed away from capitalism remained poor.

Rather than going back 200 years, how about we examine the effects of freer capitalism today? Let’s look at Hong Kong - the British governor adopted a policy of Laissez-Faire, and Hong Kong has had one of the freest markets and smaller governments of any developing nation back when it was getting going. The result: Despite having virtually no resources of its own, it’s now one of the wealthiest areas on the planet.

Or we could compare the economic performance of the U.S. with countries that were more controlled by the state. Compare the economic performance of the EU with that of the U.S. - not that long ago, the standards of living in France and Germany were equivalent to the U.S. Since the rise of the social welfare state in those countries, their economic performance has declined, and now the standard of living in the U.S. is something like 20% higher.

Wherever you go, you find the same thing: Countries that adopt free trade and keep the government out of business boom economically, and those that try to manage their economies, control their trade, and make decisions from the top down stagnate.

And those of you who think that in an unbridled capitalist system prices would skyrocket, wages would plummet, and we’d all be victims to robber barons need to ask yourself this: How come prices don’t rise now? They’re mostly unregulated. How come people make more than minimum wage now? How come the goods we buy are much better than minimum government standards (where there are any standards at all)? As I said before, we have plenty of examples to draw from, because the vast bulk of market activity in the U.S. are completely unregulated by government.

22

The flaw in your analysis is that it’s not a zero sum game. And you can’t get away with calling it a “near-zero sum” game either. It’s like me calling you a “near-communist” because you advocate state intervention in the economy.

23

Good lord, 2sense. Here is what you said in post 33 in response to my own quote you keep bothering me with:

You did not ever suggest moving away from plurality elections, you suggested eliminating the EC and moving to a popular vote. Here is an example of a popular vote:
Candidate 1: 35%
Candidate 2: 40%
Candidate 3: 10%
Candidate 4: 5%
others: 10%
Who wins the election?

As I think I’ve made clear, I don’t feel very good about equality in voting because I feel that leads to decidedly unequal outcomes. There are several ways to compensate for this. One is changing our voting system and counting method, which effectively gives a slight preference to less popular opinions. Another is the EC which effectively gives a slight preference to smaller districts. Of the those two, I would prefer a different voting system and counting method, but I’d strictly prefer either of those to a direct popular vote.

24

That’s true, but the increase in the size of the “pot” is small compared to the size of the “pot” itself no matter what exact figure we choose to measure that increase with (eg. GDP). This is what I (and influential game theory economists like Al Roth) mean by a “near-zero sum” game.

25

Only if you arbitrarily restrict the timeframe. The Nominal GDP (ie, inflation adjusted) for the US in 1970 was $1.04T. In 2000 it was $9.82. That’s almost a 10x increase in just 30 years.

26

$9.82 Trillion, that is. :slight_smile:

27

Oops. Obviously the wrong thread there. Sorry about that.

However, I did want to reply to this thread.

And it had nothing to do with reforms?

What interests me is that the conditions free marketeers want are available all over the world right now. For some reason, these poor countries with almost no government aren’t swelling up with investors. I would love to know: why is this the case, if government is so bad?

What businesses want is a way to obtain property and protect property. This requires a strong court system. Oops! Taxes! They’d also like (in modern times) a great road, sewer, and electricity system. Government control again. Businesses need a lot of things to operate that it isn’t good business to operate. Some have proposed that businesses and private industrialists etc would, of their own free will, build roads because it makes sense, and they could profit from it. Yet again, I say, there are plenty of places in Africa that need roads and banks and electricity and running water, if it is such a profitable venture, by all means, go there. Who is holding you back? Kerry? Bush?

28

Quite so, but in exploring how a given system “works” I’d suggest that we must arbitrarily restrict time frames to accounting periods which are rather more manageable than most of a working life expectancy. equating a game “turn” with a financial year, say. Advantage-facilitating-consolidation is a lesson common to many different kinds of game over different timescales - we must ask whether the consequences of such are acceptable. In this case, what good is a slightly higher annual increase in pot-size if a powerful player eats that increase up while the losers remain in dire straits?

29

Firstly, one needent postulate that government is “bad” to prefer free market solutions. One can argue for free market solutions purely on the philsophical grounds of freedom being an end in itself or on utilitatrian grounds of their being more efficient or effective than government solutions.

Secondly, “almost no government” is not what free marketeers want or claim is necessary. Anarchy does not lend itself to civilization anyway. A strong goverment of laws dedicated to protecting freedom and property is necessary for free markets to work.

30

Quick drive by again…just want to keep my thoughts in the thread…this one is going much better than the communist thread. :slight_smile:

To continue in this vein…nor are most free market capitalists claiming that ALL taxes are bad. What they want is less government interference. Government still has a role…as John Mace said anarchy is not condusive to either civilization nor free market capitalism. If you look at some of those poor countries with little or no government it becomes obvious why there aren’t hordes of investors breaking down their doors…and instead such investors went to countries like India instead. Its one of the reasons why hordes of investors didn’t break down the doors into Mexico…though they do have a strong government to corruption in said government is so rampant that it’s almost not worth the gains in cheaper labor to work there.

Again, there isn’t really any problem with SOME taxes. Certainly one of the central functions of government is the court system. The military also springs to mind…its something that is required (unfortunately) in the real world if a nation wants to protect its interest (and if you are the US, everyone else’s). Roads, city sewer systems and electricity systems though COULD be privatized…easily. Subsidies need not be paid to the air line industry or the rail road industry (for example) either. Certainly this would change the way all those services operated…only roads, sewer systems, electrical networks, airline routes, rail networks that ran at a PROFIT would survive. This would mean that many roads, sewer systems, electric branch lines, certain air/rail routes or schedules, etc that are currently maintained at a loss ‘for the public good’ would not survive of course. Trade offs.

-XT

31

Not at all. I purposely chose a working life as a NON-arbitrary timeframe. The time it takes for the earth to orbit the sun has no correlation to the welath creating (ie, non-zero sum) aspect of an economy-- bringing new products to market. A year is indeed an arbitrary timeframe.

Again, based on zero-sum conditions, which simply do not exist in a free market economy.

32

Good luck with that, really. I hope it works out well for them. Until enough workers get fed up with what they’re offered versus what they know they can get, it just might.

Ah, corruption, the blissful merging of self-interest and government. I wonder how something like that happens…? :wink:

And retain the same mobility the population already has? Or is this a cost you feel we should bear just to live up to some free market ideal? Because I know another thread where someone (can’t remember who :stuck_out_tongue: ) didn’t like the costs they’d have to bear in other systems for other ideals.

I find this to be an extremely narrow view of how such services should operate, if you don’t mind me saying so. There are indirect benefits of keeping an airline afloat. I do agree with you that the time has come to let some airlines start failing… slowly.

I think “trade off” is a bit of a light word for what you propose, but ok. And here I was just thinking how great it would be to actually have sewer systems everywhere, and controlled water supplies, and cell phone towers… not to force companies to run at a loss, but to just operate at smaller profit. Sometimes I get the feeling people think that companies are always right on the edge of failure, that these execs are just sweating 24-7 to eek out a meager salary of $7.35 an hour so that they can keep all these people employed. A few years ago UPS reported something like 4 billion dollars in profit… and their employees, in a union of course, got a little miffed that the company made such a huge profit and didn’t share it with them. Negotiations began immediately, as you might imagine. And I think they were right to do so, as you also might imagine, since they were part of that success.

Without a clear negotiations mechanism, an organized workforce seems, to me, to represent a greater inefficiency than taking in a hit in Wyoming that you’ve covered in Seattle. Because when your employees, en masse, get pissed, you get strikes. When lofty ideals suggest these striking workers are just moochers trying to steal your property, you get sabotage. Or worse.

This strong court system… who is it going to protect, again? Property owners? Does a free market have any conception of workers’ rights?

33

Well, I agreed that any choice of timeframe is arbitrary, and suggested what might be a useful equivalent of a game “turn” here. Strictly, capitalism is modelled by trillions of turns between billions of players over all time - any model must arbitrarily limit some variables. Advantage-facilitating-consolidation is a feature of many different models, even ones in which the pot does increase significantly after lots of turns. My point was that focussing on “progress” (ie. the bringing to market of new products) is myopic if vast numbers of players benefit from it far less than they would from addressing the monopolising influence of powerful players in positions of considerable advantage over them.

34

The choise of a timeframe can be made meaningful by matching the timeframe with some key aspect of the system under consideration. But this discussion is really tangential to the OP.

Monoploies are the beg boogey-man of anti-free traders. But monopolies are almost impossible to achieve and maintain w/o collusion with the government. If monopolies were the only objection, I’d say go ahead and enact strong anti-monopoly laws. Since monopolies are virtualy non-existent, those laws will have a negligible affect on the overall system, and are among the least intrusive of all types of law directed at economic activity.

35

A free market is a wonderful thing, certainly the most potent economic tool ever devised. However, there are some problems it is structurally incapable of solving, and it is unclear to me how advocates of laissez-faire see those issues being resolved.

  1. Negative externalisms. Sometimes some of the costs of production aren’t borne by a manufacturer. The classic example is air pollution, where a factory can spew out gobs of pollution at no significant cost to itself, yet a significant cost is borne by the community around the factory in the form of decreased air quality. Pollution isn’t the only negative externalism, but it’s probably the most serious one. Could any free marketeer here explain to me how an issue like air pollution can be dealt with absent governmental regulation? The only mechanism the market has to deal with the situation that I know of is via boycotting the polluting companies, but since the customers of the companies are quite likely not the same people as those bearing the costs of pollution, it’s unclear how that could possibly be effective.

  2. Positive externalities. Just as sometimes the costs of something aren’t borne by its producers, sometimes the benefits of something can’t be recouped by its producers. Many items that are arguably of this sort have traditionally be produced to some extent or other by governments - roads, education, health care, etc. An educated populace will result, other things being equal, in a more productive workforce and greater wealth for all. However, since the benefits of education accrue in a sort of distributed fashion - that is, I’m not the only one who benefits from my education - it will tend to be underproduced in a laissez-faire environment, since if I’m rational I’ll only invest in education to the extent that it will be directly beneficial to me, and not to the extent it will be generally beneficial. That’s not to say that no education would happen, just that people would get off the marginal utility curve a little earlier than would be mandated by looking at a collective cost/benefit analysis rather than an individual one. Similarly, affording everyone access to health care results in common goods like fewer epidemics, etc. Roads and other infrastructure are arguable similar in producing generalized benefits that make them collectively rational but individually irrational to produce (or at least, to produce to the extent desirable). Or, for a less common example, a truly fair, balanced, and incisive press will keep politicians honest, but it seems that the current market forces lead away from fairness and incisiveness in the press and towards political theatre of an unilluminating sort. While positive externalities don’t generally result in acute problems like unbreathable air, it’s not clear to me why laissez-faire advocates think that an unfettered free market will result in optimal output when benefits are externalized.

  3. The Tragedy of the Commons. Sometimes the profit-maximizing rational thing to do for the individual is collectively irrational. The name of problem comes from the overgrazing of commonly held pastures in medieval times (which interestingly wasn’t actually a problem) but the best current example is probably overfishing. While overfishing stocks is clearly economically irrational in that it reduces longterm (and even shortterm) opportunities for profit, any individual fisherman who wants to maximize profit will overfish, because refraining from overfishing on his part won’t prevent overfishing, and overfishing on his part won’t significantly impact his profit opportunity next year anyways. His profit opportunities next year (and next decade) are determined almost exclusively by the actions of all the other fisherman, and so the profit-maximizing rational thing for him to do is to catch as many fish as he possibly can. Since the incentives for all fishermen share this structure, all the economically rational fisherman will catch all the fish they can, and in a few years no one will catch any fish at all. How, exactly, can an unfettered free market avoid shooting itself in the foot in such situations?

  4. Distribution problems. The free market is sublimely indifferent to how goods are distributed. It only cares about how many goods are produced. This is what’s at the root of what John Mace and SentientMeat are discussing. The one side argues that since in any negotiation the side which enters at an advantage has the leverage to get a better bargain for itself, laissez-faire markets will always result in the well-off exploiting the less-well-off. The other side points out that since the pie is always getting bigger, the fact that the well-off keep getting more pie doesn’t mean that the less-well-off will end up with less pie. I expect that this discussion will go unresolved, but it’s worth pointing out that there is some point at which unequal distributions result in increased crime, and possibly even revolutionary activity, and it would seem collectively rational to avoid such extremes, even if the market wouldn’t do that on its own. While an unfettered free market may avoid such extremes, there’s nothing in particular about its structure which will actively prevent such extremes either.

36

The “not a zero sum game” canard is tiring. Just because a game is not sero-sum doesn’t mean it suddenly becomes fair, however we choose to define “fair”.

Here’s a non-zero sum game: hold 'em poker, no blinds, yet the value of what the blinds would be magically appears after every hand in the pot. An excellent example of a game with incomplete information. If all players use the same strategy (we don’t even have to assume that an optimal strategy exists), the player with the deepest pockets wins in the long haul, statistically speaking. Every player attempts to minimize losses by folding in proper situations and only rarely bluffing, and every player attempts to maximize wins by sticking out their good hands with favorable pot odds. The total number of chips increases after every game, but you could also make it increase after every transaction by tossing the big blind in after the flop, turn, and river, or after every round of betting, etc.

The game gets interesting when the lead player decides to loan someone some chips who would otherwise be out. It’s a relatively safe loan since some of the chip leader’s earnings are from the “free” blinds, and since no one has to pay blinds, and since everyone is just about as good… but no longer can they all be using the same strategy. The person in debt to the chip leader needs better pot odds:hand odds than others in order to cover his debt. He sees less hands through to completion, increasing everyone else’s chance of winning.

But let’s make game number two. The game almost inspires shadenfreude when the players aren’t equal. The chip leader can make loans to anyone who needs it from his stack of “free” blinds, further decreasing their odds of entering hands (since they’d need better pot:hand odds), further increasing his take of the free blinds, and still having the safety net that when any of his opponents manage to stumble on a good hand that he’ll get some of the earnings anyway. After his initial lead, his chances of weathering randomly bad hands become very good. The more people he has “working” for him, the more likely he is to stay ahead because, as before, he will see more hands through than the others since the necessary odds for them to stay in will go up, and the necessary odds for him to stay in will go down. They fold more often, and he collects more free money.

Who here would volunteer to play the first game, and everyone sits down with the same number of chips? Who would volunteer to enter the first game after there is a clear chip leader? Who would volunteer to enter the second game, knowing that you weren’t the best player, even if everyone started out with the same number of chips? Who would volunteer to enter the second game after a clear chip leader emerged?

Oh, final rule: you can’t quit playing. Remember, your survival is at stake.

Maybe we should try game three, instead. Instead of the free money going just into the pot for anyone to win, the free money is split up between the people who stuck though to the end of the hand. The winner always gets 60% of it, and the rest is shared between the losers (those who didn’t fold but had a worse hand). Feel like playing now?

Game four has a casino dealer that collects 20% of every pot, but otherwise plays like game three.

Game five has a casino dealer that collects a percentage of the pot based on who won and how much they had in chips at the time of winning, but otherwise plays like game three.

Game six has a casino dealer that collects a percentage of the pot based on who won and how much they had in chips at the time of winning, and distributes some of that to the losers. The rake never exceeds 40%. It otherwise plays like game three.

Game seven has a casino dealer that collects a percentage of the pot based on who won and how much they had in chips as a step function where some money means no rake, the next level of money means a 10% rake, the next level means a 20% rake, and so on, up to a maximum of 40% with no ceiling. It otherwise plays like game six.

Game eight is like game seven except that it sometimes uses its rake to replenish the lower quality chips, and definitely replaces cards so that they can’t be marked from hand to hand. Oh, forgot about cheating, didn’t you?

Game nine is like game eight, except now players do have to pay their blinds.

Game ten is now like game nine, except that if a player has to leave the table momentarily the casino can use some of its rake to cover the player’s blinds… but the player automatically folds all hands when this happens.

Game eleven has the chip leader encounter a new player who is better than him but with far, far less chips. He is allowed to hire this new player to play with his bankroll and his cards, and promises he can have 10% of every winning pot added to his own earnings. This player is, of course, playing his own hand still.

Additional rules to be added on to various games: fixing the loan percentage. Allowing players to make outside bets about who will win the hand. Forbidding players to make outside bets on their own hands. Only one hole card is face down. Add as necessary.

Which game do you want to play? Why? What rules get made that would stop you from playing the game? Why?

We forgot to play the non-zero sum part right in all of this and just had a constant influx of free chips that were or were not distributed in some way based on winning. Would it really make a difference WRT which game you’d prefer to play if we said that the free money came from some percentage of bets instead of just being a flat amount?

Just because wealth is increasing doesn’t mean a damn thing to most of the players after a clear chip leader emerges. It does change the dynamics, yes, but in the medium to long term, the chip leader has better odds and deeper pockets. That is what it takes to win poker.

I understand, of course, that poker is not the best model for an economy… but it is a good way to illustrate that spontaneous wealth generation isn’t a recipe for equality, or even floating all ships. Without knowing whether we were excellent players or not in game two before sitting down, we would be a very stupid gambler to sit in on it when better games exist. Game one and game two have their purity in their favor, if that is a measure of “good games”. I don’t believe so, but the question I really intend to address is the non-zero sum aspect. Only in particular circumstances does it actually mean more than squat.

37

Quite so. But simply noting some in equality of outcomes is not sufficient to prove unfairness either.

Well, yes it is. But has anyone ever in any serious way suggested that wealth creation is some sort of randomly spontaneous phenomena? If so then you may have a point. If not, then you don’t.

Agreed. But one of those circumstances might just be those surrounding free market economics. :wink:

38

Really? So Underwriters’ Laboratory and the GSA just sit around all day, twiddling their thumbs?

From where I’m sitting, an unrestrained free market sounds like open season to sell low-cost (“profit-earing”) crap to a gullible market. If said crap products kill people or destroy property, it’s only a concern when the public finds out about it – and without government regulations, they won’t. Just look at the Ford Explorer, Dell Computers, and Roto Zip’s spiral saws, to pick but three examples.

39

Well, thats the beauty of a free market system…which you are missing. Workers are paid, not according to their ‘need’ but according to what the market AND the workers set as a fair wage for the work producted. In those countries today workers ASK little, and companies who are outsourcing to those regions PAY little (to increase profits and to cut the final cost of goods producted in an effort to capture more market share of whatever product is being produced)…its a mutual contract.

If said companies offer too little, then workers will go elsewhere to work…like to a competing manufacture. If workers are asking too much, but other workers are willing to work for that wage then those workers won’t be employed at that factory. Eventually, because of the influx of capital into places like India, wages will rise…not because of some alturistic (or forced) humanitarian reasons, but because companies will have to compete for those workers. At some point it will no longer be profitable for companies to outsource to places like India…just like its no longer profitable to outsource to places like Tiawan. However, by that time LOCAL companies will be producing on their own, and the economy of an India will be similar to the Japan’s and South Korea’s of today.

Allow an outside agency (oh, like say a Government) to have power over something and you sow the seeds of corruption. :wink:

Almost certainly not maintain the same options available as today. Certainly roads or flight routes that are seldom traveled (i.e. aren’t profitable) will be poorly maintained or intermittantly serviced (in the case of flight paths). You might not be able to get a flight on the hour to bumfuck North Dakota…there may only be one flight a week, or one flight a month there.

This isn’t a matter of ideals…its a matter of letting the market decide what services are profitable (and so will thrive) and what services aren’t (and so will either be discontinued or become intermittant).

I disagree. If an airline can’t compete then they should fall. However, what I’m saying is take off the artificial constraints currently imposed…as well as the artificial subsidies. Allow airlines to decide on their own schedules and flight networks (i.e. what cities they will service and on what schedule). Privatize the air traffic control system and allow industry standards for maintenance and service to take charge. Allow the market to set the wages of airline personnel (and everyone else) without any artificial MW laws or unions. If an airline goes bust then let it…no bailouts. They had exactly the same chance as the other airlines and failed. I can pretty much guarentee that several airlines will thrive in this environment…and several will certainly fall.

‘Just to operate at smaller profit’ ehe? Who defines how small my profit should be? How much of my work, effort and ability should be shackled to the ‘public good’?

The beauty of the free market though is if you, erislover, think that there is a market for ‘sewer systems everywhere’ (for example), then you could find the customers and build it. If you do a shitty job (pun intended), and if there is a market for it, then someone else will come along and steal your customers and dump you in the shit. :stuck_out_tongue:

Rewards should go to those that earned them. If the peasants and workers at UPS felt they got shafted because they did all the work while the big wigs sat around having orgies in the boardroom and lighting their fine cuban cigars with $100 bills, they they were free to take there services else where…say FedX or DHL. Or, since they had so much to do with making that profit, they were free to start a shipping company of their own and take market share from UPS. If UPS wasn’t paying a high enough wage, or wasn’t rewarding the people responsible for said profits they would rapidly find themselves out of workers willing to work for them…as they would all have gone elsewhere. I doubt this was the case however.

Reguardless, instead of market forces adjusting the salary’s of the workers and peasants at UPS, wage increases were extorted via the union. Perhaps UPS will be able to absorb said increases and continue as before, passing along to the customers some of that increase. Or perhaps FedX or DHL or some new comer in the overnight shipping game will come along, leaner and meaner and steal their market share by under cutting their prices. And then folks at UPS (the workers and peasants now out of a job) will scratch their heads and go, ‘but they had a 4 billion dollar profit a few years ago!! Must have been those greedy executives that dropped the ball. All we (the workers and peasants) wanted was to have them ‘Just to operate at smaller profit’…’

-XT

40

Actually, I don’t think that’s true. Midieval Iceland, IIRC, was one such society.