The Fundamental Rules of Economics

… wrong thread

That’s great. Keep your understanding of me to yourself. I’d rather talk about issues and ideas than be personally psycho-analyzed on the internet.

I don’t want you or anyone else deciding what is or isn’t desirable for other people. I’d rather let them choose.

I’ve always been baffled by people who sneer at ‘excessive choice’. And yes, that aspect of freedom is ‘desirable’. I’d rather have a world with 18 different types of mustard and 20 different small cars and lots of choice in clothing and everything else than live in a world where our ‘betters’ decide what mustard we will eat and what car we must drive. Choice is freedom. It’s also what keeps brands competing with each other and striving for constant improvement.

Better to be dominated by one government purchaser? Or have my choices made for me by voters who don’t like how I live? No thanks.

Also, you neglect that there is not just choice within supermarkets, but choice OF supermarkets. Where I live, there is an Asian supermarket across the street from the mainstream supermarket, and I’ve never even heard of most of the brands they carry. There is an Italian bakery in the same mall. About a block away is an Italian food store. There is also an upmarket supermarket with premium brands if you don’t want the other stuff. Plenty of choice for all, at all price points.

But I’m not sure why being ‘dominated’ by ten companies bothers you. If they aren’t acting as a monopoly, who cares? That factory I mentioned with the paper box problem is owned by one of those ten companies. They dominate because they are super-efficient, and economies of scale keep their prices down and make them more competitive. There is nothing wrong with that, especially since if you don’t like their products there are a lot of alternatives.

So what? If Charmin is inferior to what is available elsewhere, Walmart will lose some market share. If it isn’t, it doesn’t matter. But I suspect that what’s really going on is that the ‘big’ manufacturers are the only ones who can manufacture and deliver products on the scale required by Wallmart, and do it with the low margins Walmart demands.

Walmart’s efficient supply chain management was responsible for cutting about a half point off of inflation in the 2000’s, benefiting everyone and the poor especially. And all of it was to the benefit of customers who could buy decent goods at lower prices than had been achieved before. Poor single mothers in particular have found Walmart a godsend. Walmart is a great example of capitalism helping the poor.

Well, duh. Walmart is a gigantic international chain. Any company that can supply goods to 10,500 stores across the world is by definition not a ‘small player’. How could it be otherwise? Good thing capitalism allows for Walmarts and for smaller stores that can and do provide local goods. Isn’t choice wonderful?

Walmart’s brand is high efficiency delivery of low cost goods to lower income peoole. Why should they have to complicate their business model to carry more expensive local brands in each store? Because you think more local goods should be there at higher prices? If you don’t like Walmart’s mix of goods, don’t shop there. If enough people agree with you, Walmart will shrink and alternatives will grow.

And if they don’t and enough people want products they don’t carry, they can go to a store that does. Do you have a Whole Foods in your area? Any other boutique grocers? Why do you demand that Walmart change their entire business strategy to suit you?

The great thing about capitalism is that it is democratic in a very literal sense. You ‘vote’ every time you buy something. Unlike government, it’s not exclusionary. It’s the ultimate in ranked-choice voting. People can vote for two different products, and both can still exist in the ratio that people voted for. Your choice doesn’t stop me from having my own choice.

It sounds like you’ve decided that some people’s choices are bad (Walmart is very popular, but you don’t like it), and so you’d rather have a world where government is powerful enough that people like you can stop other people from making the choices you don’t like and force them all to adhere to your standards for where they should shop and what mustard they should buy.

You think there should be more local food on shelves, so you would force Walmart to provide it, even if it drives up prices for others. I would tell you to just shop somewhere else and leave other people alone to decide for themselves.

Yours is a world -I- do not want to live in. The difference is that the world I want doesn’t stop you from living the way you want, but your chosen world takes away my choices.

I worked in a supermarket for three years in Jr. High School, stocking shelves, wrapping produce and yes, throwing away expired food.

The waste in supermarkets is due to the end delivery nature of the business. When you bring in perishable goods to a thin market (the neighborhood), you expect some spoilage. It happens in open air markets, food collectives, etc. But trust me, supermarkets go to great effort to avoid waste as much as possible. It’s just a very difficult problem. Are you suggesting that government could deliver food more efficiently? Or that government planners could force the system to change in a way that would reduce spoilage? Do you not think that supermarket owners have a great incentive to not throw away products? That they don’t try their level best to reduce spoilage while still being able to stock shelves on time? Or that they are better judges of how their store runs than some distant bureaucrat with an idea?

But the waste I was talking about is in manufacturing. You have no idea how much effort goes into eliminating every tiny bit of waste in production. I mentioned the paper boxes - that type of analysis and re-invention of process to improve efficiency goes on constantly, everywhere. There is a massive industry of software, consulting engineers, and machine makers working constantly to eliminate waste and improve efficiency wherever it can be done. I spent my career in that industry, and wrote some of the software. I even wrote a chapter in a book on data standards for communicating material and specification information across suppliers for OEE (Overall Equipment Effectiveness).

A key characteristic of capitalism and competition is that it drives a never-ending cycle of efficiency improvement. And it does it from the bottom up, where the problems are and where the people who can solve them live.

This is why your mold example shows the opposite of what you pointed out. They optimize for them only. There is less freedom coming from the ones that ‘are our betters’ unless government intervenes (not all the time, but enough to prevent monopolies or duopolies), as it is clear that the ones controlling the market do optimize things for their own benefit, then they do not have an incentive to do the right thing.

Yet another “Susanita” argument, in this case it is a willful omission of the point being made, assuming for a moment that yes, Wallwart saves a lot of money for poor people, that should not be a reason to look away from the corruption being reported. The corruption that was pointed out when Charmin does that with the shelf space, while the store may lower prices, the point is that lack of competition eventually does keep prices up. Point being that the prices then would be even lower if there were better chances given to the competitors of Charmin.

Have YOU ever worked in a supermarket? The one I worked at had a manager who made purchasing decisions. We counted inventory constantly (pre-bar code days), and there were formula for how much stock to order based on how,quickly it was depleted. Sometimes the manager would go with his gut based on experience and local knowledge central planners don’t have.

Inventory management is complex. Sometimes corporate buyers make decisions from head office, sometimes local buyers do. But even when the company is ‘centrally planned’ and send the same product to every store, they will have their decisions informed by local conditions. No buyer worth his salt is going to keep sending Kosher fish to a store that never sells any. The data on demand comes back quickly, and plans are modified.

But as I said earlier, companies are not immune to the fallacy that central planning is ‘efficient’. Companies that centralize decision making wind up at a competitive disadvantage. I mentioned Boeing. I could also mention GE Digital’s failure with their move to a ‘center of excellence’ rather than letting decision-making happen by engineers in the field. Being a corporation doesn’t stop you from being stupid. Luckily the market does. Boeing is losing market to SpaceX and others. GE Digital went downhill after their attempt to centralize, and competitors like Siemens and Allen Bradley and smaller software players grew.

That’s just wrong. See my supply chain chart above. Modern supply chains evolve redundancies in part to handle surges in demand. But the important point is the coordination mechanism. Here’s what happens:

A surge in demand for tires occurs. If tires are in short supply, the price goes up. This reduces demand for tires in other areas where demand has not increased, while stimulating production of tires where there is excess demand.

If the tire manufacturing industry is short of rubber, the price of rubber rises. This stimulates production of rubber, while also signalling to,other users of rubber to conserve or move to alternatives.

This force propagates through the economy. An increase in car demand can, through the rippling of prices through the economy, change demand for elastic bands, which can stimulate the use of alternatives, which leads to more zip-loc bags, or whatever. Demand is increased or decreased in industries no planner ever could have thought of, while production, mining and all other aspects of production change to match the new reality.

This is because prices are the information bus of capitalism. Prices are a miracle - they distill everything you need to know about supply and demand for your specific thing into one number, constantly changing, affecting behaviour of millions of people in a gigantic, complex computing system called the economy. The emergence of a price is the result of millions of calculations by individual free agents with their own cost functions. Almost like a neural network.

This is also why one of the worst interventions a government can make is to fix prices. Price fixing destroys the information needed to make economic calculations.

That’s what Gosplan tried to,do. They had thousands and thousands of such people trying to determine the right amount of production for everything. Theynwere dedicated professionals trying to,make it work, and they utterly failed. Central planners in China are failing hard. There are entire enpty cities as monuments to the failure of Chinese central planning.

And again, try to imagine the complexity. That one single factory I mentioned has 50,000 suppliers. Each one of those suppliers has its own supply chain. Do you really think a person can go through that and assign production numbers to every,one of those in a coherent fashion that won’t lead to shortages and gluts of material? And then somehow make sure they all get the raw material they need to mke those quotas - and also manage the changes to other industries caused by the re-allocation of materials?

Now do it for the thousands of other factories and every company in their supply chain. And re-do it constantly, because demand is fluidmand ever-changing.

Oh, and since you’ve done away with prices and competition, forget about efficiency improvements, because no one will have a vested interest in putting in the work.

We need government. We need rational, stable rules. Complex systems only function against a bedrock of universal, simple rules. We need someone to watch for predatory monopolies, for externalities like pollution, and for national security. We need a civil society, and a social safety net. We need law courts to settle torts and police to prosecute fraud and other economic crimes.

But their activities should always be for the purpose of improving the functioning of the market, not to replace it. Industrial policy is a big NO. Nationalization is terrible. Central planning by coercive government is the last thing we should want.

No, it doesn’t. It’s a circle of things with straight lines connecting them. It’s logical and orderly. It’s exactly what I would expect a human planner to make.

Look again at that supply chain graph, and see if you can spot the differences. The supply chain graph looks like a spontaneous network, like the world wide web or a brain network or an ecosystem. They are vastly different things.

Sam, I will address your earlier post later. But the difference between these 2 graphics is how the artist chose to represent the information being portrayed. That is all.

Of course, but the issue now is that clearly the ones controlling what fuels we should use are corrupting the system so as not needing to ever respond to the externalities.

https://oversight.house.gov/news/press-releases/ahead-of-hearing-committee-releases-memo-showing-fossil-fuel-industry-is

“The documents I released today as part of my investigation into Big Oil’s efforts to deceive the American public about the climate crisis are explosive,” said Subcommittee Chair Khanna. “Internal emails and messaging guidance show that Big Oil’s climate pledges rely on unproven technology, accounting gimmicks and misleading language to hide the reality. The documents also show a culture of intense disrespect towards leading climate activists like Bill McKibben and influential climate groups like the Sunrise Movement. Big Oil executives are laughing at the people trying to protect our planet while they knowingly work to destroy it.”

The Committee’s memo found:

Contrary to their pledges, fossil fuel companies have not organized their businesses around becoming low-emissions, renewable energy companies. They are devoted to a long-term fossil fuel future.

Despite BP previously rebranding itself as “Beyond Petroleum,” internal documents highlighted how carbon capture and storage (CCS), one of the energy technologies touted by the company, could “enable the full use of fossil fuels across the energy transition and beyond.”

An internal Shell email discussing carbon capture, utilization, and storage (CCUS) warned an executive, “We want to be careful to not talk about CCUS as prolonging the life of oil, gas or fossil fuels writ large.”

Chevron pays lip service to a “just transition” to cleaner fuels but provided talking points to an executive asserting that “[o]il and gas” are the “lower carbon solutions that ensures a just transition.”

Big Oil’s climate pledges and green advertising focus on unproven technologies the companies admit are decades away from implementation.

No, the problem is that you have massively shifted the goal posts. I was talking about the effect of subsidies, and what happened after they were removed. You’ve now tried to shift to 45 years of agriculture policy, modern income inequality, etc.

The cites I gave you backed up every single thing I said. Subsidies caused uneconomic over-fertilizing, over-feeding, over-grazing, etc. The quality of ovver-fed veal declined, and the government was reduced to buying them and destroying them for fertilizer. All documented in my links.

When the subsidies were removed, the farms that were built on subsidies failed, but eventually the entire farming sector improved and waste was reduced. This whole cycle happened before 1995, but somehow you think that modern dairy practices and complaints about them are some sort of defense of 1985 farm subsidies that failed.

It sounds like we are in agreement then. I have no problem with regulating true externalities. I suspect we differ on how many there are and what should be done, but in principle we are on the same page.

In short, it’s okay to regulate externalities, both morally and practically. Morally because an externality is a cost imposed on someone against their will. Practically, because externalities make markets less efficient.

The line is drawn when someone says, “Oh, screw the oil industry and their executives. Let’s nationalize it. We’ll make it fairer and make it run better, because we are smart and good.”

Or, “The poor shouldn’t have to pay that much. Let’s fix the price at an affordable level.”

Or, “People don’t need that much choice for mustard. We should have the government mustard board pick the mustard we all should use.”

If we can agree on a fundamental difference between government action used to fix market failures and government action used to replace markets in favor of a command structure, then we only differ on specifics of what needs fixing, which can be debated.

It may or may not be. It has an ‘inner ring’ of CDOs that invest with each other, an ‘outer ring’ of additional CDOs. Lines are drawn between the CDOs that invest with each other. Now, the graph represents the relationship between CDOs. How were those relationships established? What made one CDO decide to invest in another? Did a central planner make all those decisions? Someone in a head office decided that CDO X should invest in CDO Y but not CDO Z? Are all of those connections part of a grand central office design, or do they represent individual decisions of traders or managers over time?

Whatever value those lines represent has to do with the decisions made in establishing that line. A connection made for no reason has no value. How much value is in each line really depends on that decision-making.

The point I tried to make is that a supplier connection can represent years of work making that connection efficient. It can be the result of engineering analysis of a precise problem leading to a choice of supplier, or work with an existing supplier to make a material usable. Supply chain management is a huge field, and intense effort is made to improve the supply chains over time. The complexity of them arises not from one factory choosing suppliers, but that the suppliers can also choose suppliers. It’s even common for loops to happen. Company A can be a supplier to company B for one product, while company B uses company A as a supplier for their own products. Happens all the time.

The complexity can have negative effects. For example, a supply chain manager can pick two different companies to supply raw materials for redundancy. But unknown to the manager is that the two companies are inter-related through a third company, and if the third one fails, both of the others do. Or the common failure could be many levels and thousands of connections down.

The graph I showed is very simplified. It only shows the first level of supply for one company for a single line of products. If I tried to show all the secondary and tertiary links, etc, you might get something more like this:

That’s actually a partial map of the internet, but it’s the result of the same ad-hoc, bottom-up organizational process. I have seen supply chain diagrams that look just like that. Each one of those bright ‘supernodes’ might be a huge factory, or a common supplier. It’s all completely unpredictable, complex, and dynamic. It changes by the minute.

They are both examples of Complex Networks.

From Wikipedia:

Sam, I’m sorry, I don’t think you got my point. My post regarding the CDO chart was literally a direct lift of sections of your supply chain chart & post, modified to fit my example. In both posts, we literally make the same argument, but yours is about food and mine is about Buffet’s ‘financial weapons of mass destruction’.

In short, Sam, the post was a parody meant to highlight how the same argument can lead to wildly different outcomes depending on the example being discussed.

My apologies, I perhaps should have tagged the post or something. I genuinely thought you would recognize your own words, not argue against them.

I recognized my own words. I thought you were using that graph to say it was identical to the other one in concept, so all my words should apply equally to it. I’m simply saying that the critical information about the graph wasn’t in evidence, which is how the connections were established in the first place.

But I’m happy to drop it.

…in a thread that wants to talk about the “fundamental rules of economics” it isn’t shifting the goalposts to ask the question “if these rules are so fundamental, shouldn’t they apply outside of a cherry picked example that happened 45 years ago?”

Those subsidies are still removed now. So what is the rule that is applying here?

If the “fundamental rules of economics” leads to massive income inequality, then maybe we need a system that doesn’t adhere to the “fundamental rules of economics”. Because that should be an important part of the debate, right? Some people were better off. But for many people, things have gotten exponentially worse.

But removing those subsidies wasn’t the only way to stop uneconomic over-fertilizing, over-feeding, over-grazing, and eventually pollution. There were other ways to go about this. I’m not arguing for subsidies. Just that there is more than one way to skin a cat, and if the fundamental issue you want to address is pollution, then destroying livelihoods and driving farmers to suicide isn’t the only way to go about it.

Except for the fact that I actually did a keyword search for “veal” in all of your links (that weren’t paywalled), and veal wasn’t mentioned once in any of them.

So I’m still waiting for a cite on that one. As I said: it isn’t my google-fu skills that are lacking here. I specifically went looking for information about the veal industry in relation to your claims. I came up with the same amount of citations you provided. So I’m still wondering where you got this information from.

Just to be clear here: some farms didn’t “just fail.” Some farmers killed themselves. There was a body count here. Don’t sugar coat this. I lived through this. The farmers had a gun to their heads and were given a choice: “adapt or die.” And some of them literally died. That some of the farmer did manage to adapt wasn’t the result of any “fundamental rules”. It doesn’t say anything about whether or not subsidies are inherently good or inherently bad. Subsidies don’t inherently cause pollution.

Did the fundamental rules of economics stop working in 1995?

And again: I’m not defending the farm subsidies. Just, I don’t think there are any fundamental rules at play here.

I believe this is true, however I also believe some of the narrative pushed by the pro free market side suggests that any and all intrusion by the government is unwelcome. For all the wonderful, and very legitimate, stories of free market successes, they ALL depend on effective government regulation.

The free market has allowed to exist truly reprehensible practices, only to be stopped by eventual government intrusion. Governments share the blame for these practices, moreso in fact because the government deliberately chose to allow the practices while the free market is not a conscious actor.

There are frightfully few markets that can be trusted without any government oversight, and equally few that should be completely run top to bottom by the Feds.

Yes, that is a free market. The Starving Time wasn’t caused by that, or was the reference to a different famine in Virginia?

I have never seen any evidence that free market puritans are any more educated in economics than are socialists. Time and again they demonstrate ignorance of things like market failure.

The unwillingness of conservatives to see that single payer health insurance is wildly superior to a pure free market is, of course, a classic example. It’s literally a case study in first and second year economics.

Yes, the events I was referring to were not the Starving Time, which happened earlier.

Ca you perhaps provide a link to the events you are describing, because the Starving Time is the only famine I can find in Virginia.

I provided a cite above: After the Fact: The Art of Historical Detection by James West Davidson and Mark Lytle. Do you have a problem with that work?

Well, my only problem with it is that I am not in possession of it, and it’s about a lot of things, so the book’s title and description are not useful in figuring out what events you’re talking about. Could you maybe just say what famine you’re talking about so I can study it from any sources I can muster up?