Economics: What might work, what should work, what has worked (command v. open market)

[Ser Scot A Ellison]

7 minutes ago, felice said:

Separation of powers? In the system I'm proposing, the people with the actual power to make economic decisions are employees, working according to guidelines set by a democratically elected government. If an employee acts corruptly, they can be fired, but the government has no authority to interfere with their day-to-day decision-making. If an MP does try to put pressure on an employee to act corruptly, that's a criminal offence and a huge political scandal that the opposition parties will have a field day with.

And were those countries paragons of righteousness before nationalisation? Or were they corrupt hellholes to start with that nationalisation didn't miraculously cure overnight?

But its all of them... can you provide any examples of nationalization of the full means of production that didn’t end up in cronyism and corruption?

[Martell Spy]

1 hour ago, Scott de Montevideo! said:

I’m not saying it can “never” happen.  I’m saying it hasn’t happened yet.  And that, for me, is telling.

Man has yet to travel to Mars.

[felice]

37 minutes ago, Scott de Montevideo! said:

But its all of them... can you provide any examples of nationalization of the full means of production that didn’t end up in cronyism and corruption?

Can you provide any examples of successful powered heavier-than-air manned flight from before the 20th century? Should the Wright brothers not have tried because earlier attempts failed?

Not a single conversion to socialism by a wealthy, stable, democratic, low-corruption country with modern information technology has ever failed to result in a happier, more well-off population, reduced pollution, and the total elimination of corruption.

[Ser Scot A Ellison]

1 hour ago, Martell Spy said:

Man has yet to travel to Mars.

Man has attempted command economies several times..

[SeanF]

12 hours ago, felice said:

Separation of powers? In the system I'm proposing, the people with the actual power to make economic decisions are employees, working according to guidelines set by a democratically elected government. If an employee acts corruptly, they can be fired, but the government has no authority to interfere with their day-to-day decision-making. If an MP does try to put pressure on an employee to act corruptly, that's a criminal offence and a huge political scandal that the opposition parties will have a field day with.

And were those countries paragons of righteousness before nationalisation? Or were they corrupt hellholes to start with that nationalisation didn't miraculously cure overnight?

It seems to me pretty constant that people who are granted monopolies will abuse their power as monopolists, however nice you might intend them to be.

Whichever party wins an election will expect the State venture capital monopoly to pursue the winning party's objectives, and to reward those constituencies and those groups which favour the winning party.

That's why it's best not to concentrate so much economic power in the hands of one institution.

 

[Gorn]

The problem with centrally planned economies (and I say this as a socialist) is that an economy of an entire nation is simply too complex for any one organization to control or plan for effectively in the long term. Even if everyone in that organization is an uncorrupted idealist fully devoted to their jobs, simple outdated information or unintended consequence of their actions can be sufficient to cause disaster. Marx's ideal planned economy where supply perfectly matches demand in all fields is simply not possible, at least until we develop a sufficiently advanced AI.

This is not to say that central planning within a single industry, or with specific short-term goals (such as WWII wartime economies) cannot be successful.

[felice]

9 hours ago, Gorn said:

The problem with centrally planned economies (and I say this as a socialist) is that an economy of an entire nation is simply too complex for any one organization to control or plan for effectively in the long term.

That's why I'm not suggesting central planning.

[felice]

9 hours ago, SeanF said:

Whichever party wins an election will expect the State venture capital monopoly to pursue the winning party's objectives,

Well yes, that's the point of democracy.

9 hours ago, SeanF said:

and to reward those constituencies and those groups which favour the winning party.

If government-run organisations are always going to punish citizens who supported the opposition, I'd be more concerned about the army than the VC Department. But somehow we haven't had the Republicans ordering drone strikes on Democratic caucuses yet...

[maarsen]

On 7/22/2018 at 5:42 PM, Scott de Montevideo! said:

But its all of them... can you provide any examples of nationalization of the full means of production that didn’t end up in cronyism and corruption?

Scott look at the situation you are in now. You live in a country that prides itself on having the least government interference in the markets. Then you elect a knucklehead from the party of business that does more than any command economy dictator to screw up his country. There is a middle ground between the two view points but your guess is as good as mine as to where to draw the line. 

[lokisnow]

2 hours ago, felice said:

Well yes, that's the point of democracy.

If government-run organisations are always going to punish citizens who supported the opposition, I'd be more concerned about the army than the VC Department. But somehow we haven't had the Republicans ordering drone strikes on Democratic caucuses yet...

Pfft we all Know it won’t be republicans ordering drones to come into our homes to kill families while they sleep.

it will be libertarian amazon tech corporations ordering that. A mere logical policy of  efficiently inhuming non-performing customers to improve their quarterly market penetration percentage and thereby boost stock performance.

duh. Standard operating procedure. Every billionaire will be doing it.

[OldGimletEye]

9 hours ago, SeanF said:

It seems to me pretty constant that people who are granted monopolies will abuse their power as monopolists, however nice you might intend them to be.

Maybe they could just argue like Robert Bork, US Conservatives, and the Republican Party that monopolies really aren’t that bad because they increase consumer welfare because of  increasing returns to scale or something like that.

9 hours ago, SeanF said:

Whichever party wins an election will expect the State venture capital monopoly to pursue the winning party's objectives, and to reward those constituencies and those groups which favour the winning party.

Interestingly enough, the Ministry of Plenty, libertarian edition, is telling us it’s going to be a banner year this year in production because of corporate tax cuts. It’ss interesting that the libertarian overlords are increasingly looking like old Soviet Commisars.

9 hours ago, SeanF said:

That's why it's best not to concentrate so much economic power in the hands of one institution.

Or perhaps in the hands in one group of people. The US badly needs a strong labor movement.

[Spring Bass]

1 hour ago, OldGimletEye said:

Or perhaps in the hands in one group of people. The US badly needs a strong labor movement.

I agree with that. The US would really benefit from sector-level bargaining unions, or even broader levels of collective bargaining like the Scandinavian countries. Countries that have that have been much more resistant to explosive income inequality than countries without it. 

We even have an US-local example of how it can be done. Hollywood essentially does sector-level bargaining through an employer association with the guilds representing classes of workers (from the Directors' Guild all the way to the Screen Actors' Guild, and so forth). 

[Iskaral Pust]

I agree.  I strongly dislike the corrupt cabals that unions become but the US has been severely lacking any labor bargaining power.  Corporations have formed a tacit oligopsony in the labor market and have been resolute in holding the line.  The new minimum wage laws in some cities have helped, but momentum has slowed.  I am watching carefully to see if the tightening labor market will cause companies to start competing for labor through wages.  Only a handful of jobs, like long haul truck drivers and pilots, are starting to see big inducements.

Of course the danger is that the people who most need a wage increase might find themselves replaced by automation if their wages go higher.  It only takes automation in one low skill sector — say vending interfaces in retail, fast food and casual dining — to increase the supply of low skilled workers in other sectors that didn’t (yet) automate. 

[DMC]

On 7/22/2018 at 12:04 PM, Scott de Montevideo! said:

My point is that in those countries where the MOP is fully nationalized... corruption seems endemic.  That being the case such a strong correlation is hard to discount.

You keep saying this like it means something when it doesn't.  Cite Venezuela, Cuba, USSR, and Maoist China all you want, those don't signify a strong correlation, they're four case studies.  Corruption 'seems endemic' under a host of different contexts.  You know why?   Because corruption is endemic in government and politics.  

You're right, a totalitarian state economy is not the way to go.  No one disagrees with you on this.  The opposite would, actually, be pure anarchy.  No police power, no schools, no roads, no libraries.  Pretty sure the success rate for that is 0 for 0.  Such a strong correlation is hard to discount. 

Point is, the argument you're not quite making but seem to be hinting at is it's better when economies are more privatized and less centralized within government.  But that's simply not the empirical evidence in terms of the countries that engender the highest level of democratization, which seems to be what you're going for.  Not sure if that's my number one concern about an economic system myself, but the data is the data.  And the data clearly suggests the more centralized and socialist of an economy one has as a industrialized democracy, the higher Freedom House score one will get.

[OldGimletEye]

Just an aside from the public ownership of capital debate, here is some commentary I have about the state basic econ education in particular.

Since most people might get one or two courses in econ and that is what they remember, a lot of what is taught sticks with people. And arguably the way it gets taught often leaves people with conservative or right wing views, which need not be the case, I don’t think.

1. The price is always right.

No it is not. Our current idea of pricing theory is based on rational choice theory. In short consumers are completely capable of picking what they want. Um, well, not always. Healthcare highlights nicely where this goes off the rails. 

Before, complaining about user cost under the ACA, Republicans were actually for raising out of pocket expenses, making the argument that if consumers were better shoppers of healthcare, then the price of healthcare would fall. The problem here is there a variety of studies that show consumers don’t know very well what medical services are of high value and which ones are low value. The upshot being that when out of pocket expenses increase consumers are just as likely to forgo high quality care as they are low quality care.

I’m not saying of course people aren’t capable in determining whether they would prefer to drink Coke over Pepsi or whether they would prefer to listen to Vanilla Ice over Justin Bieber. And that is a good thing about markets as it gives people choices. But not all value is subjective. People that are sick want to get better. Even though consumer theory is framed in subjective choices people want to get objectively better. And if the information is difficult to understand or comprehend then rational choice theory doesn’t quite work.

2. Every market is a competitive market.

This model is taught to every Econ 101 student and perhaps leaves them with impression this how mostly market works. But, really it should be emphasized this is an idealized situation, one model among many, there is no a priori reason to assume this how any market works.

3. Hey man, I’m just earning the “value of my marginal product”.

This one allows you to be the contrarian conservative/libertarian hipster at cocktail parties. If somebody complains about the pay of CEO’s, you as the conservative contrarian hipster, can simply assert that CEO’s are simply being paid “the value of their marginal product”. It gives you the chance to once again show those low down no good lefty hippies how ignorant they are of basic economics.

Quote select passages from Ayn Rand and this and you can show what an edgy “out of the box” thinker you are.

Or maybe your just looking to pick up a side gig writing opinion pieces in the Wall Street Journal.

But, in the case of CEO’s, there is no particular reason to believe that CEO pay is really linked to the value of the marginal product as the idea that corporate boards and CEO’s deal at arms lengths transactions is pretty laughable. And certainly one would be hard pressed to find anything in the economic data where growth has increased alongside CEO pay.

And then of course, the way many CEO’s are compensated brings in classic principal-agent problems.

For conservatives the value of marginal product is often paired with theory of “just desserts”. Of course even if people were just paid the value of their marginal product, what marginal product a person earns can often be just a matter of dumb luck, like how they might have been born into this world.

4. Class? What class issues?

Entry level econ students are often taught they can simply sum individual demand curves to derive market demand curves and those market demand curves are simply a function of price and income. But, the conditions, that you can do this are restrictive. The distribution of income will often matter.

Similarly, the purely competitive market model is likely a very bad model for how labor markets actually work and how wages are set.

3. “The Auctioneer”

This is one you probably don’t encounter in Econ 101 textbooks and probably won’t encounter until you take an intermediate or advanced course. And it particularly drives me fuckin crazy the way it is handled.

Whenever General Equlibirum theory is discussed in more advanced micro text books this particular idea gets center stage. And the basic idea is that there is this guy who basically sums up all the demands and supplies in every market and then declares a set of prices that will clear each market and nobody is allowed to trade until this guy establishes prices in every market (to include future an contingent markets).

The irony of this whole situation is this GE concept is used to show Adam Smiths “invisible hand”, but ends up using a “central planner” ie “the auctioneer”  to make the whole thing work.

People of the Chicago School of Economics Persuasion (Prescott, Kydland, Fama, Cochrane, etc etc) love to point out their New Keynesian rivals who use the “Calvo Fairy” isn’t “micro founded”, but yet some how the “auctioneer” a central planner is. Now I have some issues with the “Calvo Fairy” but it certainly isn’t a bigger ass pull than the “auctioneer”. And at least it has the virtue of producing more realistic results.

Joan Robinson use to constantly complain about things being done in “logical time” as opposed to “historical time”. And she was right. Micro still doesn’t give us a very good account how economic actors change prices in real time. And that is still one of its biggest theoretical failures and, in my opinion, that needs to be fixed. And until it is fixed, there is no reason to necessarily prefer only “micro founded” models over aggregate relationships.

And to the extent that firms and people are setting prices in real time to optimize, it means that in reality there are few cases where firms or people take prices “as given”, which undermines point number 2.

4. We like marginalist theory to explain prices and incomes, but we don’t like it for what it might imply about redistribution.

While conservative sorts of people certainly like what marginalist theory implies for theories of income distribution, labor and capital, being basically compensated by their scarcities, they seemingly don’t like it for what it might imply about re-distribution. If poor people have higher marignal utilities than rich people then redistribution could increase welfare at the expense of growth.

Of course in the real world, the Republican Party’s claim to superior “supply side business friendly growth” has about zero fuckin empirical basis.

5. Ceteris Paribus means everything else remaining the same, but it usually isn’t the case that everything remains the same.

Partial equilibrium analysis is a useful tool and it’s often a good first step to get a handle on a problem. But, one must always remember, everything isn’t likely to be the same.

Often used in to show the horrors of taxes, by showing welfare losses in basic text books, partial equlibrium analysis can give some misleading results as there isn’t any discussion of what is actually done with the money. How many conservative sorts of people would rely on basic partial equilibrium analysis to defund the military? Not many I’d imagine.

[Ser Scot A Ellison]

14 hours ago, felice said:

Well yes, that's the point of democracy.

If government-run organisations are always going to punish citizens who supported the opposition, I'd be more concerned about the army than the VC Department. But somehow we haven't had the Republicans ordering drone strikes on Democratic caucuses yet...

No.  Democracy shouldn’t be about a winner take all spoils system.  It should be about the winning parties taking the actions they believe are best for the good of everyone in a given nation.

[maarsen]

6 hours ago, Iskaral Pust said:

I agree.  I strongly dislike the corrupt cabals that unions become but the US has been severely lacking any labor bargaining power.  Corporations have formed a tacit oligopsony in the labor market and have been resolute in holding the line.  The new minimum wage laws in some cities have helped, but momentum has slowed.  I am watching carefully to see if the tightening labor market will cause companies to start competing for labor through wages.  Only a handful of jobs, like long haul truck drivers and pilots, are starting to see big inducements.

Of course the danger is that the people who most need a wage increase might find themselves replaced by automation if their wages go higher.  It only takes automation in one low skill sector — say vending interfaces in retail, fast food and casual dining — to increase the supply of low skilled workers in other sectors that didn’t (yet) automate. 

Unions as corrupt cabals? As a union exec I have to disagree. The one thing union's have is a surfeit of democracy. EVERYTHING comes to a vote. Including when to break for lunch. If a union decides to do something counterintuitive to what is normal, rest assured the members or delegates voted to do just that. 

[Ser Scot A Ellison]

5 hours ago, DMC said:

You keep saying this like it means something when it doesn't.  Cite Venezuela, Cuba, USSR, and Maoist China all you want, those don't signify a strong correlation, they're four case studies.  Corruption 'seems endemic' under a host of different contexts.  You know why?   Because corruption is endemic in government and politics.  

You're right, a totalitarian state economy is not the way to go.  No one disagrees with you on this.  The opposite would, actually, be pure anarchy.  No police power, no schools, no roads, no libraries.  Pretty sure the success rate for that is 0 for 0.  Such a strong correlation is hard to discount. 

Point is, the argument you're not quite making but seem to be hinting at is it's better when economies are more privatized and less centralized within government.  But that's simply not the empirical evidence in terms of the countries that engender the highest level of democratization, which seems to be what you're going for.  Not sure if that's my number one concern about an economic system myself, but the data is the data.  And the data clearly suggests the more centralized and socialist of an economy one has as a industrialized democracy, the higher Freedom House score one will get.

No.  Nationalization of limited sectors of a nation’s economy makes sense for those industries where competition is next to impossible, power generation (for exampe).  My point in starting this discussion was to question and talk about Felice’s idea that all investment capital should flow from the State.  That seemed, when I started the thread (and still seems), to be a terrible idea.  I’m not saying a libertarian society with super small government and no regulation is the way to go.  

Pragmaticly such a society cannot protect individual liberties in a manner that would suit libertarian interests.  The irony is that in human societies a relatively robust State is necessary to protect individual liberties.  Weak States don’t do that.  Super strong States where the MOP may not be owned by private individuals also don’t do that.  We need a happy medium of a relatively strong state that respects individual liberties and private property rights but is pragmatic enough to nationalize where nationization makes sense in very limited scopes.

[Ser Scot A Ellison]

10 minutes ago, maarsen said:

Unions as corrupt cabals? As a union exec I have to disagree. The one thing union's have is a surfeit of democracy. EVERYTHING comes to a vote. Including when to break for lunch. If a union decides to do something counterintuitive to what is normal, rest assured the members or delegates voted to do just that. 

I believe IP’s point is that US Unions do have a history of corruption.  Not that corporate interests don’t also, but then Unions are corporations too.

[maarsen]

5 minutes ago, Scott de Montevideo! said:

I believe IP’s point is that US Unions do have a history of corruption.  Not that corporate interests don’t also, but then Unions are corporations too.

Scott, singling unions out for corruption when any group of people  gathered together, or in an association, has the potential for corruption is somewhat disingenuous. A group of hockey moms, if enough money is involved, has just as much potential to be corrupt.