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[ /Moderating ]
I think the financial sector shoulders the brunt of the blame for diving so deep into so many complicated financial instruments without really a) understanding the risks of the individual products, and b) realizing that all these instruments were inter-connected, which mean you had one big steaming pile of systematic (i.e., undiversifiable) risk.
But I have very little sympathy for home buyers who took on too much debt for homes they couldn’t afford in the first place. My mother was offered pretty much that exact same pitch, to refinance her home, offering way more than her original purchase price. She told the guy a) he was crazy, no way was the house worth that much, and b) she couldn’t afford it anyway. ‘Unscrupulous’? Perhaps - but that does not negate the responsibility of the consumers that willingly took on debt they could not afford.
People that get taken in by confidence cons, or Nigerian email scams, are trying to get ‘something for nothing’ - and most of the time when they get taken in, its their own damn fault.
I’m sure there are many people out there that simply got stuck in a bad situation with their home loans and then a crappy economy putting them out of work - but far too many people my mom knows back home were simply stretching waaay beyond their means. I have very little sympathy for such consumers.
And your range of choice is defined by your income. The poor just manage to shop at Walmart, the wealthy are free to shop anywhere.
To the contrary, the more equality, the greater the freedom of choice for everyone.
I just want to emphasise this point. When I go to work, I hope I can do important, useful things and do them well. I realise that making money to support myself is important, but it isn’t my only concern. Any economic theory that assumes I am trying to maximise my income per hour (or whatever metric it uses) is ill-founded. I am doing the best I can - which means weighing up all sorts of factors - personal, social and moral.
Again, that’s not what “freedom” in “free market” means. “Freedom” is free to choose without government manipulation or distortion.
Freedom DOES NOT mean an abundant range of choices for everyone.
But hey, you don’t need anybody’s permission to redefine “freedom” to mean that your choices are limited by income. If so, there’s nothing to discuss. Be happy with your definition of “free market.” However, if you want to discuss what economists call “free market” and be taken seriously, you need to stick to the clinical definition of “free market.”
It’s unfortunate we have to use the word “freedom” because it has too many emotional connotations. I think you said you were a teacher? Surely you can understand that there can be 2 concepts that happen to use the same word.
(I’m waiting for someone to chime in insisting that “free” market isn’t possible unless everything costs zero dollars. How can it be “free” if products cost money? Right? Right?!?!?!!! :smack: )
Another misuse of “freedom of choice.”
Says it all, thank you, Wes.
Just one thing, I would rewrite
to
Those at the top were rewarded financially for packaging and selling shit as Shinola and let off the hook by saying, it all looked the same to us but unless the govt pays us for our shit at Shinola prices, the world will run out of shoe polish.
Oh? I was replying to
Call me obtuse, but is this
?
You’re making the mistake of comparing businesses using ex post facto categories of “operating system” vs “search.”
The founders of Excite search engine and Google (Sergi and Larry) made proposals to Microsoft about their technology. Microsoft and their ultra-smart CTO (Nathan Myhrvold) thought they didn’t offer any viable business value. Again, you can’t use ex post facto categories of “O/S vs search” to narrate that history: both Microsoft and Google in 1998 didn’t think of themselves as O/S vs Search.
Their market share will erode. Some paradigm shift will make them irrelevant. Maybe it will be mobile computing (iPhone, iPad, Kindle). Maybe open-source (Linux). Maybe it will be quantum computing. Who knows?
Vanderbilt railroads. They once dominated.
Did GM, Ford, Toyota become bigger by competing on railroads?
And today, do you beat car companies by making a better car? No, you try a different direction such as this: personal jet packs.
Only if you constrain your brain to only think in exactly the categories of existing businesses do you feel that government intervention is required. Smart and driven people have been instigating “creative destruction” and we have benefited from it.
Your own text has the answer to this dilemma. You don’t compete on “search” – you create something new that makes that category of “search” irrelevant.
The key difference (and possibly the most important) is that businesses (even dominant ones with monopolies) are subject to Darwinian evolution by way of changing consumer preferences. Government distortions (subsidies, taxes, tariffs) have no feedback mechanism to self-correct. If the governement were to provide a subsidy for companies to distribute Linux with Firefox, that subsidy would stay regardless of how shitty, bloated, and wasteful Linux+Firefox becomes. It becomes the government entity you can’t kill because of politics. Instead of LinuxFirefox growing because of technical merits, it only lives on because the constituents of the senator work on it. They would lose jobs if it went away. Microsoft, on the other hand, will die off (bankruptcy) or get acquired by somebody with a better mousetrap.
Yes it can but not using the typical tools.
The following government interventions are wrong:
[ul]
[li]slapping a tax of $500 on every copy of Microsoft Windows so that it encourages buyers to look at Apple Mac or Linux.[/li][li]subsidizing with rebate checks for Apple Mac or Linux.[/li][li]nationalizing Microsoft to become a non-profit government agency that dispenses operating system software to its citizens[/li][/ul]
The type of government interventions that make more sense are infrastructure ones that don’t favor any particular business. For example, passing laws that makes information more freely available.
Examples might be reducing the patents on software from 20 years to 5 years. Or require that all proprietary document formats (.XLS, .DOC, etc) be made public after 3 years with no penalties for reverse-engineering. In other words, you equalize through lowering the friction of INFORMATION instead of tinkering with taxes and subsidies.
(… about the phrase, “freedom to choose (products, services, people)”)
No because I was still using “freedom” to talk about freedom from government distortion. I wasn’t talking about abundant choices.
You are “free” to choose movies vs a local play for your evening’s entertainment. Sum up all the voluntary choices of you and your neighbors and inevitably, the movie stars will make more money than your community Shakespeare stage actors. You now have an inequality.
Let’s say somebody feels that stage actors shouldn’t be poor and struggling while movie actors make millions. Ok, so the government slaps a tax on all DVDs, pay-per-view cable downloads, cable premium channels, all movie theaters, and all TVs on sale at Best Buy. Instead of DVD costing $14.99, it now costs $99.99. Instead of a movie ticket costing $7.99, it costs $50.00. The collected taxes are then distributed to the Shakespeare and Broadway theater stage actors union. We keep increasing taxes on all movie consumption until it “equalizes” out with local stage plays. You’ve equalized 2 groups by removing the “freedom” of people to choose their entertainment based on undistorted pricing. Again, “freedom” is about absence of government intervention.
Like rewarding all the big players in our financial infrastructure melt-down.
Such as the Patriot Act?
You seem to have trouble following what I’m talking about. You specialize in leaving hit-&-run blurbs with no substance.
I disagree with Voyager on almost everything but at least he puts together a coherent string of sentences to discuss.
Let’s rewrite the scenario.
Let’s say somebody feels that 75% of the population shouldn’t be poor and struggling while 1%makes billions. OK, so the govt slaps a 10% flat tax on net worth. Very fair, the guy living in his car is taxed at the same rate as the folks in Beverly Hills.
Proceeds go first to those living below the poverty line. Leftovers can be applied to our infrastructure. That would really jump start our economy.
And as far as my reference to the Patriot Act goes, my point is that the govt is quite willing to intervene to make the electorate more transparent to the govt but when it comes to making govt transparent to the electorate, an absolute necessity for any citizen to intelligently exercise his freedom of choice, (I will add here, if the govt suddenly became transparent, our citizen would find there had been no choice at all), mum’s the word.
Viewed myopically from the prism of our current times, the free market does indeed appear to be an unstoppable “juggernaut”. However, it is important to keep in mind that historically, for a variety of reasons, many goods and services which are now firmly within the realm of the free market were once out of its reach.
For example, the enclosure movement in early modern Europe transformed what was formerly held in common (outside the free market) into the private holdings of wealthy elites, with devastating social consequences. Another example involves the issue of intellectual property. In 18th century Europe, the notion that Bach or Mozart would’ve been able to demand recompense for the performance of their compositions by others would have been absurd. Today, they would in all likelihood be multi-millionaires by virtue of their creations.
This is not a one-way process. For example, chattel slavery is now illegal in most of the world. The trading of human beings as goods is now considered to be outside the realm of market transactions, whereas for millennia it was the norm. Moreover, some things have been initally outside the market’s reach, then were within it for a while, and are now once again excluded; I am thinking particularly of the trade in church offices.
My main point is that the market’s reach goes only as far as we, as a society, allow it. The market’s scope has constantly been in flux, and always will be.
A second point that I’d like to make is that I’ve seen little mention in this thread of the corrosive effects on political stability of extreme income inequality. In days of old, this often took the form of armed insurrection. Nowadays, through the mediation of democratic structures and mass suffrage, this can take the form of popular dictatorships. As historian Will Durant noted:
"If our economy of freedom fails to distribute wealth as ably as it has created it, the road to dictatorship will be open to any man who can persuasively promise security to all."
This.*
:o Thanks. I was trying to channel Maeglin, who, from what I’ve seen on these boards, knows a lot more about economics than I ever will.
I guess I should add that, in case it isn’t clear from my prior post, I am firmly against extreme income inequality, viewing it as a definite social “bad”. However, I also concede that a fair degree of income inequality is both inevitable and desirable for a dynamic society. The problem lies both in defining exactly where income inequality becomes “extreme”, and what we should do to alleviate it at that point.
The changing nature of the actual products used in exchange is irrelevant.
Today, we have no easy way to sell a fragment of our DNA sequence. Maybe tomorrow we will. Today we don’t monetize and exchange online avatars & web reputations. Maybe tomorrow we will. One example of imbalance today is that one person can dunk a basketball better than someone else. Tomorrow’s imbalance might be that John’s DNA sequence is more desirable for replication than Mike’s. The actual products, whatever they morph into in the future, is irrelevant. The “market juggernaut” is the intrinsic psychology of people. Humans value certain attributes, talents, products more than others. This fundamental behavior leads to a market expressing differing prices and inequality. The “juggernaut” is not about the particular snapshot of products in the year 2010, it’s the behavior of the people to place unequal weight on the items for sale.
You’ve added specifics into this discussion but they address a different question: the flux of particular products & services changes WHO is rich or poor at particular times. However, your specifics do not shed light on how to eliminate the root cause of inequality.
The point remains is that if you allow people to make free decisions–even with tomorrow’s unknown products & services, you will end up with inequality.
Yes, the best explanation of progressive taxation is that it’s actually a form of mob payoff money. Just grit your teeth and pay it.
I like Will Durant. But he’s wrong – at least with his method. If you want equality, you have to find a way to alter everyone’s brain behavior. Equality starts there.
Ruminator - thanks for your reply. I’m about to head out of work now, so I don’t want to rush a response to you. After I get home and have some dinner, I’ll tackle your points.
I don’t know about that, because income inequality seems to lead to democratic elections of left wing politicians rather than political dictatorship. That is what happened all over Latin America, which has extremely high Gini coefficient numbers.
However what you describe does aptly describe someone like Chavez.
http://www.time.com/time/world/article/0,8599,1146794,00.html
Nothing is wrong with inequality produced by the market that reflects a person’s worth.
The article says that a country with extreme inequality has serious problems. Really what they mean - the example of Moldova and the beggar in the photo - is that the countries that do not manage the floor level of poverty will have problems. As mentioned in a post above - we have welfare in most western countries. It provides a level of income that allows even the poor unemployable to have food and heat, and additional “luxuries” like their own apartment, TV, stereo systems, and sometimes even cars. OTOH, I would not recommend a life on welfare and the level of violence in such neighbourhoods is a reflection of many social problems, but includes the degree to which welfare income is lower than the norm.
The “equal opportunity” that everyone seems to agree is based on teh most socialist of principles, tax-payer funded education for all - a direct contradiction of the market system. Why? For precisely the reason mentioned in the article - to ensure that even though the market (through parents’ income) cannot provide it, the state sees an interest in an educated, literate, employable general public. Now, if we could get the public schools to make that happen…
Then, in general, the free market works. Programmers and network experts make good money, McBurgerFlippers make substantially less, and welfare pays much less. Skill, knowledge, and ability to deliver are generally rewarded when the employer is working within the market. (Except for places like civil service, where market is a often peripheral consideration…)
I am so sick of hearing about whiners from the US talk about inheritance taxes. IIRC, they are pretty much irrelevant unless you are passing on millions in cash. Since when did anyone go broke because their parents died and left them millions? More likely, it’s a problem for places like England where the stately homes and castles were acquired by the National Trust because the latest lord could not afford to pay taxes on them. So now the public can tour the castle every day, instead of one day a year.
The opposite problem that the debate is really about is the elite who do own the 95% of this (or most any) country’s wealth. In corporate America, the top elite in the boardroom have as mentioned, co-opted the levers of power to pay themselves beyond any reasonable rate. Add to that the industries - banking or Wall St comes to mind - that pay themselves exorbitantly with minimal oversight or control.
This is not free market; this is a group that are given free reign to set their own pay; it is the opposite of free market. When Wall Street was being forced to disclose its salary amounts about 20 years ago, the biggest lobbyists against the idea were the high-paid executives themselves. Look at morons like Donald Trump or read “Barbarians at the Gate” - the elite of the US system are usually nothing more that good schmoozers who talk others into risking their money and skim a hefty take for themselves. (Isn’t that the exact definition of the recent crisis?) Very few are people benefiting from a God-given technical talent like Bill Gates.
While the world needs salesmen and schmoozers, I seriously doubt they need to be rewarded to the extent of owning 80% of the nation’s wealth.