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I’ve been a (classical) liberal for most of my life and as a liberal I believe in the power of the market. There are a lot of misconceptions / straw men about free marketists and I’ll try to address some of them.
It’s important to note that there is no such thing as a ‘liberal’ or ‘free marketist’, we all differ in what we believe but in general we’re in favour of a market with the least amount of government intervention. So while I'm saying 'we' it is probably more accurate to say 'I'.
I find writing in English pretty difficuly so I hope I get my points across. Naturally I’ll have to compress my arguments because it’s only a blog post. My thoughts and ideas are a lot more elaborate and based on a lot more facts than I can possibly write here. If you want me to support or elaborate on some of what I write please do tell me and I'll try to respond.
1. Free markets rely on greed and selfishness
What happens here is that Self-interest and selfishness are used interchangeably.
Selfishness is being concerned, sometimes excessively or exclusively, for oneself or one's own advantage, pleasure, or welfare, regardless of others
en.wikipedia.org
Self interest in the words of Milton and Rose Friedman is something completely different:
Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards. Economics has been berated for allegedly drawing far-reaching conclusions from a wholly unrealistic ‘economic man’ who is little more than a calculating machine, responding only to monetary stimuli. That is a great mistake. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue. The scientist seeking to advance the frontiers of his discipline, the missionary seeking to convert infidels to the true faith, the philanthropist seeking to bring comfort to the needy – all are pursuing their interests, as they see them, as they judge them by their own values.
Of course in economic transactions the monetary gain will be the main aim. That is no greed. And while financial self-interest is one of the aims in life it is never the sole aim.
In the words of Adam Smith:
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.
The key points about markets are this:
1. The pursuit of own interest goes together with serving the interests of others.
The self-interest of the barber makes life easier for everyone else who doesn’t want to cut his own hair. In this way he’s both pursuing his own interests while still benefiting society as a whole.
2. Mutual benefits come about despite the individual being an unwitting and unconscious player
The profit motive provides incentives for people to do good even when they are not trying to. A selfish and uncharitable entrepreneur can benefit society by meeting the wants and needs of his customers. Indeed, he will have to meet their wants and needs if he is to prosper in business. He may understand the laws of economics or may be totally ignorant, but so long as he labours for himself, he ‘necessarily labours to render the annual revenue of the society as great as he can’ even though he ‘neither intends to promote the public interest, nor knows how much he is promoting it .
www.iea.org.uk
To summarize: Markets rely on self-interest not greed. Self-interest is not limited to monetary gain.
2. We believe people are perfectly rational
This is simply not true. Rationality is an important concept in economics and it does get used in models. There’s a whole subset of economics which deals with the (ir)rationality of the consumer. It’s called behavioral economics.
Take for example the concept of perfect competition. The theory suggests that in a market with perfect competition market participants will keep undercutting each other until there’s no profit margin left and goods are sold at cost price. This is obviously not true. The point is though that supply and demand respond to each other and that competition reduces prices.
3. Markets are perfect
Like I already mentioned we don’t believe in markets with perfect competition. Ronald Coase offered an explanation for the existence of firms in his article ‘The Nature of the Firm’ in 1937 (Won a nobel prize with it too). In a market with perfect competition there would be no need for firms. In his article he explains the reason firms exist are transaction costs. It’s an interesting read so I recommend you at least take a look at the wiki.
en.wikipedia.org
Anyway the point is economics has had a theory to disprove the market of perfect competition for 80 years now and nobody is seriously disputing this.
4. We’re against government regulation/ intervention
There are actually some people who are against any government intervention and regulation in the market. They are actually a fringe and most of us do see sense in some government regulation/intervention. What we actually want is to reduce government regulation/intervention to a minimum.
What often happens is that there’s a market failure somewhere and then we immediately look towards the government to fix it. What should happen though is to compare the costs of the market failure with the costs of the government intervention and then you can make a decision to let the government regulate or not. We believe that often the government intervention will be more costly than the market failure itself.
5. We’re against welfare
This contains a grain of truth. Just like the last point there are people who are against welfare. Most of us aren’t completely against it though. Just like most other people I don’t like poverty and I don’t want people dying in the street of hunger. There are alternatives to the existing (socialist) form of welfare. The best example for me is Friedmans negative income tax (which reminds me I had an argument with LegalLord about it and I forgot to respond to him so sorry for that if you read this).
One model was proposed by Milton Friedman. In this version, a specified proportion of unused deductions or allowances would be refunded to the taxpayer. If, for a family of four the amount of allowances came out to $10,000, and the subsidy rate was 50%, and the family earned $6,000, the family would receive $2,000, because it left $4,000 of allowances unused, and therefore qualifies for $2,000, half that amount.
en.wikipedia.org
Basically the negative income tax is a minimum income which replaces all other welfare. The benefits are that it doesn’t reduce the work incentive as much as current welfare, it guarantees a basic income and it is relatively simple.
Here’s a review on the academic literature on the negative income tax and what we can learn from it:
www.researchgate.net
THere are of course a lot more misconceptions but these were the main ones I could come up with in a short span of time. I hope you enjoyed the read.
 
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Nice post, I always find economics to be such a fascinating subject.
I think the regulation part is where so many people get caught up because lets face it, even in a highly efficient free market there are still issues and unfairness. The problem is that trying to fix those issues with regulation usually comes with a slew of hidden cost, many of which are almost impossible to predict and don't show up until perhaps years later. The problem is that politicians operate on a fairly short term basis, reelection usually comes around every two to four years, so they can implement what is perceived as a fix to unfairness in the market and get reelected. But the negative ramifications of the "fix" don't show up until perhaps 10 years down the road and the politician is already out of office sipping martinis on the beach.
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money is the root of all good.
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United Kingdom13775 Posts
Oh, so that was what you meant by negative income tax (that discussion was a while ago, and admittedly I barely remember who said what). A lot better in that it doesn't pretty blatantly contradict what economics says should happen with a pure income effect. Still, I'll believe it's a good program when it is shown to be so with some higher degree of certainly, and as a replacement for socialized welfare rather than a complement.
A lot of free market approaches could be justified at least theoretically using an argument like the First Welfare Theorem. It works pretty decently at some level, at the very least, in that most aspects of an economy are effective with just free markets (something that is often underappreciated by more strongly socialist economies). However, there are also at least a few counterarguments to be made:
1. It's not good in industries where social welfare runs contrary to profit. The people benefit from an inexpensive and well-regulated medical system that efficiently provides healthcare to all, but healthcare/pharmaceutical providers do not (fewer visits/pharmaceuticals, cheaper preventative care? what a loss of profit). Education is the same. It might be worth noting that countries with strong socialized medicine and education (even poor ones like Cuba) are disproportionately better than market-driven ones like the US.
2. It's remarkably short-term. Individuals acting in their own self-interest lead to good results sometimes, but they also run the economy into the ground every so often. Especially with global capital markets (e.g. the stock market). Discouraging government involvement often leads to, in real economies, a failure to resolve problems that could have been prevented before they even arose (e.g. global warming, which for strongly market-driven reasons has been poorly addressed as of so far).
3. It tends to hold simplicity as a virtue, in a world that is definitively not simple. Convoluted economic situations are difficult to solve, and this approach often just seems to favor letting "market magic" solve the problems, more often than it is justifiable to do so. For example, replacing all socialized programs with a negative income tax as described just might price poor people out of some basic needs, if there is no socialized program to address their needs. I could easily see healthcare becoming so expensive that the negative income tax wouldn't be enough to cover it, as soon as the government steps aside.
I see the justification for a classical approach to economic policy, though I'd just say that I mostly disagree with it. Though perhaps I could agree that a lot of socialists do underappreciate the usefulness of markets in many situations.
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I think the problem is that there a lot of misconceptions on both sides. Many people on the left will assume that any apology of the free market means full out libertarianism with 0 government intervention.
Yet there are a few things that I disagree with you even though I'd say that you come off as one of the more reasonable people who have argued this point.
1- The distinction between selfishness and self-interest IMO deserves some nuance. First, let me say that I agree with the general notion that one of capitalism's greatest strengths, if not the main driving force behind it is the fact that the tendency for the fulfillment of one's self-interest also tends to be favorable for the greater good. You mention the barber, people's lives are improved by the trade of certain goods and services and that is one of the strengths if mercantilism and to some degree it's improved under capitalism. I know that I can better my personal situation by coming up with a revolutionary because that'll pull in a lot of wealth, so I do that and it gives people a tool that they want, everybody wins.
However I think you'll agree with me when I say that there are a lot of ventures right now which are not about providing a service that truly helps people. A lot of people are purely selfish and manage to thrive in capitalism at the detriment of others. One reason is they offer an essential service that could be better distributed through other means. This can be because it's a monopoly for instance and the control of supply which allows an enterprise to increase their financial gain, often at the detriment of the greater good.
Pharmaceutical companies for instance will say that they can't give away medication for free because without funding they cannot pay to develop new drugs. There are also times in history when they used that type of reasoning to justify leaving millions to die (overall) in order to increase their short term margins.
To name yet another example, there's a service called a payday loan, which you can read about. It's a lending service which is incredibly predatory. It profits off of interest rates sometimes over 1000% annually, but since they're short term loans the customers don't notice how much money they're losing. Many of the payday loan businesses put their customers into crippling debt on purpose and by design.
Many proponents of the free market will say if there's a demand for something, no matter how predatory, it's the free market. If people want to ruin themselves then that's their prerogative. The problem is that some of these predatory practices ultimately break people. By making a treatment cost $10,000/month to run an obscene profit which allows a company to pay huge salaries and bonuses, you cripple a family and condemn them to spend their resources on that instead of stimulating the economy by buying other shit, and preventing them from living a satisfying life. By making people pay a 1750% annual interest rate without telling them you lower the buying power of a person through trickery for personal gain (even though there may be some very fringe genuine usage scenarios to payday loans)
This is where government should come in. When the market comes up with these things which clearly don't benefit anyone and even screw people, it may very well be helpful to have an authority saying it's not ok to protect people when the market doesn't, especially when the market COULD but chooses not to in order to increase its margins which funnel the money into yachts and beachhouses. Point being, yes self-interest can favor the common interests, but greed very much is still a thing. And greed can make markets misbehave. Let's not forget how hard it is for some industries to consider their externalities and some of the challenges that are inherent to their long term survival. All these are when realistically government needs to step in - to break up monopolies and oligopolies which indulge in behavior that doesn't favor the general population.
2- I think there's a lot to be said about government intervention during financial crises. I'm no economist, but to me Keynes just makes more sense. I think that with how incredibly complicated the financial and speculation markets are, certain companies rise and fall not necessarily just based on good or bad management, but also based on how the investors and stakeholders feel at any given moment for reasons which may be real or imagined. The stock market is fickle, the short term gains game is misleading. If some huge company is having financial trouble during a recession for instance due to a shortage of liquidities that can have a shitload of justifications, it may be detrimental to the market in the long run. "Letting the market correct itself" is not instantaneous. The economy would correct itself perhaps unless it collapsed. But the transition period where enterprises would have to rise from the ashes of dead businesses could take years. I think that letting the market correct itself is part of what made the great recession so horrible. I would rather correct behind the scenes within reason, because the transition/correction itself causes poverty, whereas temporary financial difficulties can be overcome. Time is money, and it costs a lot of time to rebuild administrative structures and all that, so there is much to gain by flattening the cycles and avoiding explosive growth followed by explosive depressions.
3- The negative income tax sounds great but it comes with many of the problems people criticize with the current progressive tax system. You have a 10k allowance, if you make 6k you get 4k. Why would I work for 6k if I get 10k either way? There needs to be some sort of incentive to work, so already the free market people are annoyed with the disincentive to work. What about the different costs of living by region? 10k is not enough in the city, do those people have to move? That helps certain people with wealth to find higher paying job in the city. What about people who have children, do they get a bigger allowance based on various criterion? And it'd be easy enough to declare a revenue much smaller than what I actually earned too... Having a flat floor as a progressive tax is a fucking amazing thing to do but in countries with millions of people with vastly different socioeconomical situations, it's not actually practical on its own. And moreover, I don't believe that it achieves the desired effect. It'd be expensive, it'd be used wrong (some guy would not work and gamble his $5000 allowance away whereas a conventional social program may have forced the guy to go get treatment for his addiction and it would've cost $5000 in psychiatrist fees. Very complicated.
Anyway that's how I see it. I think that social democracies do an adequate job of finding the middle ground between the benefits of a free market economy as well as the benefits of a management of society which puts human lives ahead of everything. Some of the things that social democratic countries do have negative impacts, but I honestly think that there are some extremely important and crippling problems that the free market fails to solve organically and that government intervention can help with. It's just very important to be careful when designing solutions for problems.
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On May 20 2016 04:55 SlammerIV wrote:
Nice post, I always find economics to be such a fascinating subject.
I think the regulation part is where so many people get caught up because lets face it, even in a highly efficient free market there are still issues and unfairness. The problem is that trying to fix those issues with regulation usually comes with a slew of hidden cost, many of which are almost impossible to predict and don't show up until perhaps years later. The problem is that politicians operate on a fairly short term basis, reelection usually comes around every two to four years, so they can implement what is perceived as a fix to unfairness in the market and get reelected. But the negative ramifications of the "fix" don't show up until perhaps 10 years down the road and the politician is already out of office sipping martinis on the beach.
Yes, and the liberal solution would be to do as much as possible outside of the political sphere. While I am a huge fan of democracy I think most of the day to day business is better left to private persons. The actual stakeholders. More often than not democracy is a tyranny of the majority (though we have some good safeguards like constitutions of course).
Unfairness is also pretty subjective. While I am no fan of someone becoming a billionaire from starting Facebook who am I to say that he doesn’t deserve it? The millions of people who use Facebook every day apparently think value is being added to their life.
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On May 20 2016 07:20 JimmyJRaynor wrote:
money is the root of all good.
I must be pretty bad then since I have almost none ^^.
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On May 20 2016 10:15 LegalLord wrote:Oh, so that was what you meant by negative income tax (that discussion was a while ago, and admittedly I barely remember who said what). A lot better in that it doesn't pretty blatantly contradict what economics says should happen with a pure income effect. Still, I'll believe it's a good program when it is shown to be so with some higher degree of certainly, and as a replacement for socialized welfare rather than a complement. A lot of free market approaches could be justified at least theoretically using an argument like the First Welfare Theorem. It works pretty decently at some level, at the very least, in that most aspects of an economy are effective with just free markets (something that is often underappreciated by more strongly socialist economies). However, there are also at least a few counterarguments to be made: 1. It's not good in industries where social welfare runs contrary to profit. The people benefit from an inexpensive and well-regulated medical system that efficiently provides healthcare to all, but healthcare/pharmaceutical providers do not (fewer visits/pharmaceuticals, cheaper preventative care? what a loss of profit). Education is the same. It might be worth noting that countries with strong socialized medicine and education (even poor ones like Cuba) are disproportionately better than market-driven ones like the US. 2. It's remarkably short-term. Individuals acting in their own self-interest lead to good results sometimes, but they also run the economy into the ground every so often. Especially with global capital markets (e.g. the stock market). Discouraging government involvement often leads to, in real economies, a failure to resolve problems that could have been prevented before they even arose (e.g. global warming, which for strongly market-driven reasons has been poorly addressed as of so far). 3. It tends to hold simplicity as a virtue, in a world that is definitively not simple. Convoluted economic situations are difficult to solve, and this approach often just seems to favor letting "market magic" solve the problems, more often than it is justifiable to do so. For example, replacing all socialized programs with a negative income tax as described just might price poor people out of some basic needs, if there is no socialized program to address their needs. I could easily see healthcare becoming so expensive that the negative income tax wouldn't be enough to cover it, as soon as the government steps aside. I see the justification for a classical approach to economic policy, though I'd just say that I mostly disagree with it. Though perhaps I could agree that a lot of socialists do underappreciate the usefulness of markets in many situations.
1. I do not disagree here. While I am not sure on healthcare since I’ve never really went deep into the topic and am uncertain myself I do agree on education. IIrc Milton Friedman defends public funding for education via the ‘neighborhood effect’. The neighborhood effect is that education does not just benefit the person himself but society as a whole. He was only for subsidized education until university though while I would include university. The way he (and I) would do it is via a voucher system where you can still choose your own university / school. Although I have to say the way it is in NL is not bad either. Government runs the school system but you can still choose to go wherever you want.
2. Global warming is indeed an example where government intervention is perfectly justified. There is simply no private market solution for this at the moment and the consequences are incredibly damaging to human society. I would favour a world wide carbon tax instead of the trading schemes and all the subsidy systems which we have now.
3. I don’t think we hold simplicity as a virtue but what often happens is that we make new rules for every exception which creates only more exceptions while making the system more expensive. As I already mentioned I am not sure about health care myself. There is probably a case for at least some government intervention though since we don’t really want people dying without being able to afford treatment. From a more utilitarian perspective I can even see a case for government intervention since early death does impose a big opportunity cost as well after all.
So yeah while I love free markets I also agree that there are some cases where we need government. I’d do it differently and less complex than how it is done now though.
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On May 20 2016 13:16 Djzapz wrote:
I think the problem is that there a lot of misconceptions on both sides. Many people on the left will assume that any apology of the free market means full out libertarianism with 0 government intervention.
Yet there are a few things that I disagree with you even though I'd say that you come off as one of the more reasonable people who have argued this point.
1- The distinction between selfishness and self-interest IMO deserves some nuance. First, let me say that I agree with the general notion that one of capitalism's greatest strengths, if not the main driving force behind it is the fact that the tendency for the fulfillment of one's self-interest also tends to be favorable for the greater good. You mention the barber, people's lives are improved by the trade of certain goods and services and that is one of the strengths if mercantilism and to some degree it's improved under capitalism. I know that I can better my personal situation by coming up with a revolutionary because that'll pull in a lot of wealth, so I do that and it gives people a tool that they want, everybody wins.
However I think you'll agree with me when I say that there are a lot of ventures right now which are not about providing a service that truly helps people. A lot of people are purely selfish and manage to thrive in capitalism at the detriment of others. One reason is they offer an essential service that could be better distributed through other means. This can be because it's a monopoly for instance and the control of supply which allows an enterprise to increase their financial gain, often at the detriment of the greater good.
Pharmaceutical companies for instance will say that they can't give away medication for free because without funding they cannot pay to develop new drugs. There are also times in history when they used that type of reasoning to justify leaving millions to die (overall) in order to increase their short term margins.
To name yet another example, there's a service called a payday loan, which you can read about. It's a lending service which is incredibly predatory. It profits off of interest rates sometimes over 1000% annually, but since they're short term loans the customers don't notice how much money they're losing. Many of the payday loan businesses put their customers into crippling debt on purpose and by design.
Many proponents of the free market will say if there's a demand for something, no matter how predatory, it's the free market. If people want to ruin themselves then that's their prerogative. The problem is that some of these predatory practices ultimately break people. By making a treatment cost $10,000/month to run an obscene profit which allows a company to pay huge salaries and bonuses, you cripple a family and condemn them to spend their resources on that instead of stimulating the economy by buying other shit, and preventing them from living a satisfying life. By making people pay a 1750% annual interest rate without telling them you lower the buying power of a person through trickery for personal gain (even though there may be some very fringe genuine usage scenarios to payday loans)
This is where government should come in. When the market comes up with these things which clearly don't benefit anyone and even screw people, it may very well be helpful to have an authority saying it's not ok to protect people when the market doesn't, especially when the market COULD but chooses not to in order to increase its margins which funnel the money into yachts and beachhouses. Point being, yes self-interest can favor the common interests, but greed very much is still a thing. And greed can make markets misbehave. Let's not forget how hard it is for some industries to consider their externalities and some of the challenges that are inherent to their long term survival. All these are when realistically government needs to step in - to break up monopolies and oligopolies which indulge in behavior that doesn't favor the general population.
2- I think there's a lot to be said about government intervention during financial crises. I'm no economist, but to me Keynes just makes more sense. I think that with how incredibly complicated the financial and speculation markets are, certain companies rise and fall not necessarily just based on good or bad management, but also based on how the investors and stakeholders feel at any given moment for reasons which may be real or imagined. The stock market is fickle, the short term gains game is misleading. If some huge company is having financial trouble during a recession for instance due to a shortage of liquidities that can have a shitload of justifications, it may be detrimental to the market in the long run. "Letting the market correct itself" is not instantaneous. The economy would correct itself perhaps unless it collapsed. But the transition period where enterprises would have to rise from the ashes of dead businesses could take years. I think that letting the market correct itself is part of what made the great recession so horrible. I would rather correct behind the scenes within reason, because the transition/correction itself causes poverty, whereas temporary financial difficulties can be overcome. Time is money, and it costs a lot of time to rebuild administrative structures and all that, so there is much to gain by flattening the cycles and avoiding explosive growth followed by explosive depressions.
3- The negative income tax sounds great but it comes with many of the problems people criticize with the current progressive tax system. You have a 10k allowance, if you make 6k you get 4k. Why would I work for 6k if I get 10k either way? There needs to be some sort of incentive to work, so already the free market people are annoyed with the disincentive to work. What about the different costs of living by region? 10k is not enough in the city, do those people have to move? That helps certain people with wealth to find higher paying job in the city. What about people who have children, do they get a bigger allowance based on various criterion? And it'd be easy enough to declare a revenue much smaller than what I actually earned too... Having a flat floor as a progressive tax is a fucking amazing thing to do but in countries with millions of people with vastly different socioeconomical situations, it's not actually practical on its own. And moreover, I don't believe that it achieves the desired effect. It'd be expensive, it'd be used wrong (some guy would not work and gamble his $5000 allowance away whereas a conventional social program may have forced the guy to go get treatment for his addiction and it would've cost $5000 in psychiatrist fees. Very complicated.
Anyway that's how I see it. I think that social democracies do an adequate job of finding the middle ground between the benefits of a free market economy as well as the benefits of a management of society which puts human lives ahead of everything. Some of the things that social democratic countries do have negative impacts, but I honestly think that there are some extremely important and crippling problems that the free market fails to solve organically and that government intervention can help with. It's just very important to be careful when designing solutions for problems.
Yeah I can agree that there are a lot of misconceptions on both sides. It’s why I try to read some left stuff as well. I’ve read Stiglitz ‘The Price of Inequality’ for example and the communist manifesto.
1. Yes selfishness exists and it is often put to bad use. I would argue that selfishness is a human trait though and it will exist in any system. I believe that out of all systems capitalism is the only one which can use selfishness and put it to good use. You are right though that there will always be people who profit on the back of others.
I am no fan of pharmaceutical companies myself. I would probably get rid of the patent system or drastically reduce the time patents run since this is where a lot of abuse comes from. The argument that it would reduce R&D doesn’t seem very convincing to me. The first movers advantage is very real and big pharma companies usually buy up competitors who created a good medicine instead of developing it on their own anyway. There’s also this thing in the US where the government cannot negotiate on the price of drugs. What kind of market is that where one of the parties cannot negotiate lol. It’s just a huge subsidy.
I am not sure about payday loans since I’ve never thought about it in depth. I think what we should ask ourselves is why don’t big banks do it? Why do only specialized institutions provide payday loans while there’s such a huge profit margin. If you’ve found the cause for that you’ve probably found a huge barrier to entry into the market. Take it away and interest will start to fall. Payday loans do have some real uses for people who need a bit of cash at the end of the month.
2. Keynesian was pretty widely used at the start of the crisis. Government deficits in 2009 were massive. To give some examples the UK had a deficit of 10,71% of GDP, Greece 15,15% and Spain 10,96%.
data.oecd.org
The financial crisis is pretty complex in the sense that while the financial sector was pretty deregulated there’s a lot of intervention in the housing market. The Fed providing liquidity in this case might have been the best course of action in this case. I would argue that the main cause of the financial crisis (and the fact that debt is so prevalent) is how debt is treated by the tax system. Because of the fact that equity is taxed while debt is not there’s a huge incentive for companies and private persons to increase leverage. The crisis is for me a perfect example where we’ve been forced into huge interventionism because of a problem we’ve caused ourselves.
edit: I have to add a bit here since it looks like I am putting the sole blame for the crisis on government. THis is not the case. Predatory lending is a disgusting practise and whatever incentive government gives people are responsible for their own actions.
3. The incentive to work is that if you work for 6k you get 2k extra. For every dollar you’re below the 10k you only get half (or whatever percentage you want) a dollar in welfare. A negative income tax would be paid to an individual and there’s room for a top up when you have kids.
Different costs of living and declaring smaller revenue are indeed valid issues but these are already at play with current welfare. Declaring smaller revenue is only beneficial at the boundary between paying tax or receiving tax since a higher wage has additional benefits like a higher future pension.
It’s also important to note that a lot of the costs of living in a city are because of the inflated housing costs caused by excessive regulation. So a lot of the disparity between costs of living can already be solved by deregulating this.
I don’t see how it would be more expensive than our current welfare system where a lot of the liabilities are hidden.
Misuse of the funds received are a real issue yes but the solutions offered by conventional often do not work. In NL for example when you’re eligible for unemployment benefits you have to actively look for work. Sounds good but what happens in practice is that you’re only required to send an x amount of letters to the employer while you don’t even have to accept to go there even if you’re invited to come work there. It sounds good in theory but doesn’t work in practice.
My main problem with social democracy at the moment is how they hide the real costs of the policies they actually run. Government debt is only a measure of past cash flow. It only measures the shortfall in cash flow which we’ve had in the past. Future liabilities are not considered while these are very real. Any company who would calculate their liabilities like a government would be sued for fraud.
For example, if the government borrows £50,000 to pay the salary of one extra teacher this year, then that additional indebtedness will be clear to taxpayers and securities markets alike. But, if the government makes a commitment to pay future pensions that have a present value of £50,000 and which involve exactly the same future cash flows as servicing the debt issued to finance the additional teacher, there will be no additional borrowing recorded. The Government Debt Iceberg x However, the commitment to pay the future pension may be just as binding as the commitment to service government debt.
http://www.iea.org.uk/publications/research/the-government-debt-iceberg
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1- There are probably many reasons why big banks don't do payday loans. One of that recollecting what you're due will often take a degree of force. More importantly it's because I assume big banks preferred sustained long term income that comes from financially healthy patrons, and also they need to maintain a good reputation (which lol...) by not having those predatory programs which ruin customers anyway. If a big bank starts offering one product which is viewed as anti-consumer, the entire bank will be labeled as anti-consumer. And for what? They'd much rather handle mortgages which, while arguably overly expensive, is actually a useful service.
2- I'm not knowledgeable enough to talk about this. I can imagine how you might argue that we've had our hand forced into interventionism through previous decisions, but I don't really understand through what mechanisms.
I think that broadly speaking, one of the mistakes people make is they look back in history and they don't see how violently the economy was swinging around before the New Deal era. Naturally, it was slower paced to an extent, but it seems reasonable to say that the speed of communications and the sheer mass of money that can be transferred instantaneously could have a role in speeding up the cycles. Even so, there's something to be said of the level of comfort we've been living in since those days. Even the 2007-2009 crisis was a drop in the bucket in the comparison to some eras of economic hardships of the past which happened before government got very much involved with the economy.
3. I think the negative income sounds like a good solution, but I'd argue it's a partial solution. Many of the current subsidies and social programs actually exist to deal with the fact that the cost of living is higher in some places, and there are costs associated to having a child for instance. Plus let's not forget the prohibitive cost of healthcare, with or without the free market, it's clear that cartels are driving the price of healthcare up.
Also you mention how NL requires people who are on welfare to look for work but the social program fails when the person doesn't accept the job. That's just the failure of the program which could be reformed. People frown on reforms because they often fail but some are better than others.
Nonetheless I agree with much of what you say. Cheers 
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United Kingdom13775 Posts
You could also think of the negative income tax as posited to be a $5000 dollar handout, with a 50% tax hike on the first $10000 of income earned. I'm sure that Milton Friedman at least found an economic model under which this works to increase labor productivity if he suggested it as a policy. However, it's almost certainly going to come bundled with the almost famous "ambiguity in aggregate effects" problems that always comes up in economics. These things are always hard to implement because people behave in ways that are difficult to quantify.
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i want canada to abolish income tax and increase GST to make up the revenue difference.
On May 20 2016 16:16 RvB wrote:I must be pretty bad then since I have almost none ^^.
be more productive, be ruthless in negotiation and earn more money
to quote my favourite economics professor..
"you want a lot; produce a lot"
at the end of every friday lecture he said "have a productive weekend".
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On May 21 2016 07:35 JimmyJRaynor wrote:i want canada to abolish income tax and increase GST to make up the revenue difference. Show nested quote +On May 20 2016 16:16 RvB wrote:On May 20 2016 07:20 JimmyJRaynor wrote:
money is the root of all good. I must be pretty bad then since I have almost none ^^. be more productive, be ruthless in negotiation and earn more money to quote my favourite economics professor.. "you want a lot; produce a lot" at the end of every friday lecture he said "have a productive weekend".
Then the students lived sad productive lives. I think there's something profoundly sad about that sort of thinking and I wish people like you could realize that for many people, it's really not limited to that.
Then again I don't expect someone who likes Ayn Rand to actually think about other people.
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Getting this really interesting blog back on topic...
Thinking about Miss Rand's work inspires me to contemplate the fundamental nature of man. This means i'm thinking about other people.
I view the laissez-faire capitalism style of free market system congruent with the fundamental nature of man. Hence, its success.
also, do not tell me what my emotional state is.
most of the people i hang with... their proudest moments as teenagers occurred when they got their first job and saved up their money and bought their first crappy car. good times!
so do not try to spread your garbage about how productivity means sadness.
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Dear Mister LegalLord,
there seems to be a huge misunderstanding about not only what a market economy does, but mostly about the interaction between enterprises and government, and how a government works.
Quote: 1. It's not good in industries where social welfare runs contrary to profit. The people benefit from an inexpensive and well-regulated medical system that efficiently provides healthcare to all, but healthcare/pharmaceutical providers do not (fewer visits/pharmaceuticals, cheaper preventative care? what a loss of profit). Education is the same. It might be worth noting that countries with strong socialized medicine and education (even poor ones like Cuba) are disproportionately better than market-driven ones like the US.
Here you use the phrase "inexpensive" for a state regulated or state run health system. This is only inexpensive for the customer who visits hospitals for free and gets his medicament for free, too. For society as a whole it can be very expensive as seen as part of the GDP. You see: If it costs me nothing to see the doctor, I on average, will go to the doctor far more often then if I have to pay something, even with only minor injuries etc. In state run healthcare systems the taxpayer will have to pay for all these unnecessary treatments.
Quote: 2. It's remarkably short-term. Individuals acting in their own self-interest lead to good results sometimes, but they also run the economy into the ground every so often. Especially with global capital markets (e.g. the stock market). Discouraging government involvement often leads to, in real economies, a failure to resolve problems that could have been prevented before they even arose (e.g. global warming, which for strongly market-driven reasons has been poorly addressed as of so far).
First I know some farms around here that are privately owned for 6-10 generations in the family. That is anything but short term. It is often in the self interest of the father to keep the farm in good order so his son will be able to make a living out of it and not be forced to give up or sell it.
I cannot go in depth into the global warming argument, so I will only give a few pointers. Let us assume that global warming occurs, is man made, and by 2100 it will run according to the forecast of the IPCC. Then there are some results that will benefit you or me and some results that will hurt you or me. For simplicity let us assume there are only 3 outcomes: Polar bears become extinct, summers and winters will be warmer, and the sea level rises about 1 foot.
Polar bears becoming extinct is kinda sad (for me) but it will not diminish my general well being all too much. If it hurts you too much you can save them in zoos probably for a few million dollars per year. If the summers get warmer I may need to run the AC maybe 20 days longer but maybe I need to heat for 20 days less in the winter, so that costs would cancel each other out. If you live in Murmansk you will probably benefit, if you live in Miami you will probably loose some money. The rising of the sea level by about 1 foot until 2100 will cost a lot of money for dikes etc. to stop flooding. But according to all analysis I ever read these costs will be far less than the costs generated by reducing carbon emission on such a scale that the sea level will rise significantly less than 1 foot. Just to summarize: If it is much (10-100 times) cheaper to repair all the negative effects of global warming and just go on polluting than stop emissions now, that way is the rational way to go.
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Dear Mister Djzapz,
there seems to be a huge misunderstanding about not only what a market economy does, but mostly about the interaction between enterprises and government, and how a government works.
Quote:To name yet another example, there's a service called a payday loan, which you can read about. It's a lending service which is incredibly predatory. It profits off of interest rates sometimes over 1000% annually, but since they're short term loans the customers don't notice how much money they're losing. Many of the payday loan businesses put their customers into crippling debt on purpose and by design.
The very basic fallacy here is that you think of the government as a well-informed, benevolent, rational, monolithic entity without any self-interest. In my personal experience they are usually none of the above. I want to compare your example of payday loans with the situation of farmers in mainland china: When you need money you are free to go to a loan shark, but you can opt out too. Then you have the chance to pay back the loan shark and be free of him. If you cannot do that you are indeed in big trouble and (according to Hollywood) you might get your knees broken as punishment or whatnot.
Now imagine you are a farmer in China, and along comes a local member of the communist party and tells you to leave your land because his nephew wants to build a factory there. You have no chance to opt out, you have no chance to pay back. If you try to go to court about this you will probably go to jail or get beaten up/killed. So by comparison the loan shark looks like a really nice person, don't you think?
I will give you an example of how problematic government involvement in any market can get.
First notice that big firms usually can buy the laws they want. Here in Germany you cannot give money directly to a member of parliament, but many of those own law firms, and you can give money to the law firm that is owned by the member of parliament. The money of course ends up in the MoPs pocket anyway. (VW did this a short time ago to keep the emission scandal out of a committee discussion of Bundestag). As far as I know in the U.S. the Members of the House/Senators are offered jobs in the big companies after their tenure has ended, so then they can play golf while earning millions of dollars a year.
Now I suppose I own a firm in the market "production and care of invisible unicorns".Lets assume it is a 1 billion $/year market. A few years ago I had say 25% market share in my home country, and I started buying competitors and now I have 50% market share. Now lets say the rest of the Market is thousands of small businesses with 5-10 employees. I want to monopolize the market to raise the prices, but there is no way I will be able to buy up all these small competitors. It would be very lengthy and expensive. But there is a quicker and much much cheaper way: I give 100 Mio. $ to different Members of Parliament and hint at them that there has to be done something about workplace security in the invisible unicorn industry. I have already drafted a law saying that in every firm there has to be at least 1 full time security officer, at least 1 per 100 employees. My law of course goes thru, and presto, all the small firms have to raise prices by 10% - 20% just to pay for 1 additional employee for their 5-10 workers, while my prices only rise by 1% as I only need 1 security officer for every 100 of my employees. Lots of companies will leave the market, I will mob up the rest with aggressive pricing and voila, a monopoly
All you will see is a text in some paper stating that "At long last the government did the right thing and addressed the workplace security issues in the unicorn industry."
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United Kingdom13775 Posts
Dear Mister Platypus1,
there seems to be a huge misunderstanding about not only what a market economy does, but mostly about the interaction between enterprises and government, and how a government works.
On May 24 2016 01:09 Platypus1 wrote:
Here you use the phrase "inexpensive" for a state regulated or state run health system. This is only inexpensive for the customer who visits hospitals for free and gets his medicament for free, too. For society as a whole it can be very expensive as seen as part of the GDP. You see: If it costs me nothing to see the doctor, I on average, will go to the doctor far more often then if I have to pay something, even with only minor injuries etc. In state run healthcare systems the taxpayer will have to pay for all these unnecessary treatments.
1. Preventative treatment reduces the need for more expensive care later on, if you can prevent a problem that could get worse. People going to the doctor for minor and trivial injuries is a small portion of the total cost of healthcare (no one is bankrupted based on their $10 copay) but also the most important part of preventative medicine. Socialized countries with weaker advanced medical technology (by virtue of having been technologically less advanced even before implementing socialized medicine) have had comparable results to advanced nations by virtue of this.
2. The incentives of hospitals to make money do not always align with the well-being of the sick. If a cure for diabetes were created, that involved a $6k surgery, that would be very unprofitable for those who sell insulin and insulin pumps for $5k/yr per person. On the other hand, it encourages diseases to progress to the point that it becomes expensive to treat.
3. GDP will include the government payments for all services. That will probably be a smaller number than current medical earnings, but it will also remove a lot of the waste associated with payouts that do not benefit healthcare, increase efficiency due to economies of scale in common treatments (screening, flu shots, vaccines, etc.), and so on.
4. Poor health is a negative externality. You get sick with the flu, you infect other people at work, productivity (and GDP) decline. More money is lost than if the govt were to provide free flu shots to everyone, every year. So on with every other minor condition. This is the entire purpose of vaccinations and flu shots.
On May 24 2016 01:09 Platypus1 wrote:
First I know some farms around here that are privately owned for 6-10 generations in the family. That is anything but short term. It is often in the self interest of the father to keep the farm in good order so his son will be able to make a living out of it and not be forced to give up or sell it.
Ugh... this is such a terrible argument (anecdotal evidence, missing the point) that I have a hard time figuring out how to respond to it. I could start with that most parts of the economy aren't feudal and work more like a corporation, or go into how farmers can often compromise the long-term health of the farm by poor technique (depleting the soil with land-destroying cash crops, poorly leveraged capital, irresponsible behavior with farming futures, ignoring externalities like global warming). I don't think this is worthy of any more response than that.
On May 24 2016 01:09 Platypus1 wrote:
I cannot go in depth into the global warming argument, so I will only give a few pointers. Let us assume that global warming occurs, is man made, and by 2100 it will run according to the forecast of the IPCC. Then there are some results that will benefit you or me and some results that will hurt you or me. For simplicity let us assume there are only 3 outcomes: Polar bears become extinct, summers and winters will be warmer, and the sea level rises about 1 foot.
Polar bears becoming extinct is kinda sad (for me) but it will not diminish my general well being all too much. If it hurts you too much you can save them in zoos probably for a few million dollars per year. If the summers get warmer I may need to run the AC maybe 20 days longer but maybe I need to heat for 20 days less in the winter, so that costs would cancel each other out. If you live in Murmansk you will probably benefit, if you live in Miami you will probably loose some money. The rising of the sea level by about 1 foot until 2100 will cost a lot of money for dikes etc. to stop flooding. But according to all analysis I ever read these costs will be far less than the costs generated by reducing carbon emission on such a scale that the sea level will rise significantly less than 1 foot. Just to summarize: If it is much (10-100 times) cheaper to repair all the negative effects of global warming and just go on polluting than stop emissions now, that way is the rational way to go.
The effect of global warming is a large, negative externality that represents one of the best examples of a market failure known as the "tragedy of the commons" that is acknowledged by pretty much every economist, even the most laissez-faire ones. You are demonstrably wrong.
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EPT
