The Fundamental Rules of Economics

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.

“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?

As far as I know, this famine didn’t have a name.

Well, fair enough, but, like, when did it happen?

The “Starving Times” were generally held to be 1609-1610 but food scarcity persisted for a while to the point the colonial authorities did attempt to mandate what each farmer should plant and harvest.

For example, there are some laws passed about a decade later a the first General Assembly of Virginia. They’re available at the Library of Congress site. Starting from page ~18, there are requirements for each farmer to have a spare barrel of corn stored per person, to plant a given number of mulberry trees, hemp, silk flax, etc. They did want to encourage diversification so farmers would not plant tobacco alone.

The corn requirement is clearly as a reserve against food scarcity, which, while not to the extent of 1609, was a concern into the middle of the 17th century. There were also attempts to limit or encourage tobacco cultivation, for obvious reasons. It didn’t require each farmer to grow corn but certainly it would probably encourage the habit - otherwise, a few corn growers could corner the market.

Similar rules/laws were applied (though with varying levels of adherence) for decades. As were policies to avoid busts in tobacco prices (not entirely successful though).

Basically, not really a ‘free’ market in the traditional sense but still largely free. There was plenty of government intervention to avoid the worst outcomes.

It’s a problem that you are going to have when you have demand for a wide selection of fresh goods. It is impossible to perfectly match the supply to the demand, and rather than allow a customer to leave unsatisfied, a market would rather dispose of what the customers didn’t want.

What I am saying is that there are a lot of people at Kroger and WalMart HQ who are trying to find ways of cost effectively reducing waste.

Do you really think that these choices are left to the local managers?

No, what you said was:

Now claiming you were talking about manufacturing waste is a complete resetting of the goal posts.

Yes, you mentioned your glorious innovation that reduced packaging costs by a few percent.

Now, is that something that is used by your local mom 'n pop corner store, or is that industry intended for the large players like Walmart and Kroger, so that they can more efficiently direct their stores?

It’s pretty ridiculous that right here you are saying that you spent your career in an industry that does exactly what you are saying can’t be done.

Did he actually make purchasing decisions? Was he setting prices, and negotiating with vendors? Was he determining the marketing campaigns of the store? Did he even have discretion over how much shelf space an item got? If he wanted to add a product, could he do so without approval from above?

No, he filled out an inventory report so that the people above him would have information to inform their decisions on what to send to the store.

Right, data comes from the local stores, but that’s not where the actual decisions are made.

Which is why you see a mom 'n pop market on every corner, and not a Walmart or Kroger.


As small a redundancy as possible in order to handle small surges. If they have the redundancy to handle anything larger than that, they are uncompetitive to those who don’t. Which is why when we get a shock to the supply chain, everything gets backed up.

Any time you start talking about “miracles” you admit that you are engaging in magical thinking. That there is some arbitrary number out there that settles this equation doesn’t mean that anyone actually knows what it is, or is acting on it.

Tell that to the people at Walmart who set the prices for their goods.

Okay, you’ve finally come back from pure strawman territory, where you seem to be claiming that any govt involvement in the “free market” is no different from central planning, so maybe we can get back into some semblance of rationality here.

What govt interventions are acceptable? The free market tells me that dumping my toxic waste into the river is the most profitable way to make my product. The govt comes in and sets policies that cost me money, making me dispose of my waste in a more environmentally responsible way. Is that acceptable?

If not, then we are never going to agree. If so, then it’s not a question of whether the govt can and should get involved in order to improve outcomes, it’s only a matter of where and when that’s most effective.

That’s a debate I’m willing to have, what I’m not willing to have is constant whining about a system that no one here is actually advocating.

And is anyone here advocating that? If not, then what point do you think you are making here?

Right, the free market is sociopathic. The govt, for better or worse, is its conscience, or at least, the only thing that can act as one.

Then there’s the point that there really is no such thing as a free market. A true free market requires zero barriers to entry, so that if any part of the market is underserved, the price goes up, signalling new players to enter to provide that good or service. But it there are barriers to entry, then when prices go up, the owners of that capital that produce those goods and services just make more money.

Which is why most small businesses are things like restaurants and personal services, things with low (but still non-zero) barriers to entry. There aren’t too many start-up chip fabricators.

To take an example from the more luxury side of things, let’s talk about GPUs. Due to crypto mining as well as a desire to play high end games, Nvidia was not able to produce enough chips to meet demand. Now, they could have expanded their operations, and then a few billion dollars and several years later, they would be able to produce more chips. This would have had the effect of driving down the price for their chips, making it harder for them to recoup their costs of increasing their operations. They have no real incentive to meet demand, and no real competition to pressure them to do so. (There is AMD, the only other player, but that’s an oligopoly at best)

That’s what generally happens in a “free market”, capitalists become entrenched, put up barriers to entry, and their profit comes directly from their inability to meet demand, and the lack of potential competition to pick up the slack. It is inefficiencies in the market and lack of actual “free” part of that market that they can exploit.

And that’s all fine and good, no one needs a GTX 3080 graphics card.

But what happens when it is something that people need, like food, clothing, shelter, healthcare, or education? Should we really depend on the “miracles” of the free market to do their deus ex machina to get those goods and services to appear in the right places in the right quantities for the needs of the specific population in the area? Because if so, they are failing.

That’s where libertarians never have a good answer, and instead change the subject to sputter and whine about the failures of command economies.

Going by what one sees on shows like Shark Tank, the number of entrepreneurs looking to break into the food product market are beyond measure. There’s a bazillion people out there who are convinced their recipe will make them millionaires.

For the most part, though, we DO rely on the free market to provide food, clothing, and shelter, and it does a very good job. Where people are missing those things, the best solution is almost always to give them money to buy them on the free market.

But you also named education and health care. In those cases, there are overwhelming issues of externalities and market failures. Government-provided basic education and health insurance clearly work better, which is why most countries do it that way.