a small contradiction

Posted by spshapiro on March 16, 2017 (04:50PM)

It has been noted by Adam Smith that capitalism does best when each actor is allowed to pursue his/her own self interest. This is known as the invisible hand thesis. The idea is simple in concept, if not in actuality, when everyone acts in their own best interest the result will be the best will win the completion, which will in turn produce the best possible society and that will benefit all the members of society. Lets put aside that those that are the less than strongest participants in the economy might also be among those that we wish to preserve, this thesis argues for the least amount of regulation possible.

This idea is relevant today in reference to the healthcare debate. It is argued, by some, that if only there was unfettered completion among the insurers that premiums for healthcare would go down and the coverage would go up. As has been noted before, there is difference between the theory and the practice of this idea, but there are only three possible ways of distributing healthcare. First, would be a highly regulated single payer system. Second, would be a system without regulation; third, a system with some regulation. Every modern democracy, save the US, has adopted the first type. Adam Smith would choose the second, and in the US we have had some version of the third. No matter whether we keep the ACA or go with any Republican alternative, it will be a healthcare system with some regulation. So all the fighting will be only over how much regulation we wish to permit.

There is one more thing to throw in the mix; there is a movement to “Buy American, Hire American.” This clearly clashes with the percepts of Adam Smith. This notion would introduce favoritism not based on who is providing the best product or service, but on the basis of who the provider is or where the product comes from.  I guess on that basis we all would have to give up pasteurized milk and penicillin. For several decades the big three car makers produced inferior products and marketed them on a “Buy American” basis. That concept eventually not only became untenable; it lead to their near death experience. I might buy my neighbor daughter’s girl scout cookies for less than economic reasons, but I will not lead my life’s economic decisions on that basis. Any thought that “Buy American, hire American” will prove to be a successful political campaign is likely to fall flat when put into practice.

Posted by SuccessfulGuess on March 17, 2017 (02:33AM)

....Ok, so I'm not 100% sure what this statement is trying to argue but I'm going to assume it's in reference to government regulations that you disagree with based on the most rudimentary interpretation of Adam Smith's basic economic model. I think the important thing to remember is that every idea is built upon and innovated, there are very rarely products or concepts that rise above this rule. Our constitution is a great example of that, the founders were aware that the constitution was more or less a starting point for the country's fundamental beliefs and should evolve over time; thus amendments. Adam Smith's model is not exempt from this rule as there have been many advents that have led to the need for regulation even within a capitalistic system. Three main examples of this would be monopolies, intellectual property, and the availability of perfect information. From these three I will take a look at monopolies, I could go into all three but they may be better saved for another post as I am going to attempt to be as specific as possible showing how regulation and structure are necessary to function properly in a capitalistic society. These three examples specifically are important for different reasons so if you'd like for me to explain the other two and their ties to regulation I'd be happy too. The idea of intellectual property and the availability of information would pertain more to your healthcare statement but what I'm going to focus on is more along the lines of globalization. I will first show how monopolies are regulated on a national scale by government and then show how they regulate themselves on a global scale. I will then try to show what happens to regions in the absence of capitalism with or without regulation and apply it to the current condition of the global economic climate. In a monopoly, control by a company of an individual good is so total that the entry of a competitor into the market becomes impossible. In this situation the pricing of said good is no longer subject to the guiding hand of supply and demand, as such the price is arbitrary and only acts as a way for the company to extract the maximum amount of money possible. Monopolies in discretionary industries such as entertainment and recreation are far less likely to form as the product is still subject to demand, people don't need an xbox so if the price is too high they simply won't purchase one. However, in the instance of what is called a natural monopoly, access to a resource of high demand is controlled by a single entity. Utilities are the best examples of natural monopolies we have, pay their prices or you don't have access to water, electric, or gas. Without regulations on such industries discretionary income would be greatly reduced to pay for access to resources and the result on the overall economy would be deflationary. The monopoly itself would experience great riches in the short run however the long-term negative effects on the economy would eventually lead to an inability of individuals to afford even the most basic of living standards and a total collapse. Keep in mind for later that it is also possible to have a monopoly over job availability. One step down from total monopolies are oligarchical monopolies where access to entry by a new business is very difficult as the industry itself is controlled by only a few major players. These monopolies fall into two categories, one of which allows the collaboration of price setting and production between the companies and one which does not. The one which does is referred to as a cartel. OPEC is the best example of this, they collaborate with each other to set prices and production levels at any given time. The reason the effect of this is not as negative as you may think is because oil is actually an extremely abundant resource and OPEC actually drives the global economy by creating artificial scarcity that forces the supply down and increases demand. Without these companies working together the price of oil may plummet due to the overproduction of one or it may lower prices too much forcing the venture to become unprofitable. To this end we can see that despite OPEC trying to drive up artificial scarcity in the last two years it is becoming more and more apparent that the days of oil may very well be coming to a rapid end. Alternative resources ranging from natural gas to solar power are beginning to enter the market greatly reducing the demand for oil, additionally all of the applications for oil are becoming more efficient year over year. Oil was not always such an abundant resource, in the beginning of the industrial era it was so scarce it became known as black gold. However as time progressed and hundreds of thousands of jobs were added worldwide to find and refine oil it became clear that the market had been overextended into. The world then faced two options, allow the price of oil to greatly decline or rig scarcity into the system. I'm not going to go too far into macroeconomic theory here but to truly understand what this would mean you would have to understand what the money supply actually is. Any item with intrinsic value that holds value in trade increases the money supply, the FED used to track this with M3. To allow the amount of oil in storage worldwide to devalue so rapidly would have essentially halted the progress of civilization through mass deflation, think the rapid devaluation of home prices in 2008. Worse now, It may be impossible to continue driving up artificial scarcity in oil which would have major shocks thru the world economy if we do not find another industry with which it can be firmly replaced, in truth this will more than likely be lithium which is used in batteries to store solar energy. That is why there was such a massive spike in the prices of lithium in 2016. It may have been a little preemptive however it is a good step in the direction of preventing a global economic crisis. The next problems which would need to be dealt with are the loss of jobs related to producing oil and the destabilizing of the middle-east. This is happening half the world a way but I think anyone in western civilization can see it is having a profound effect on our lives. I have a feeling the job loss problem will work itself out in most areas of the world with a shift in job allocations between resources, however the location of that shift is the biggest problem. Most countries have access to resources other than oil, however this doesn't hold true for the middle-east. Even though it is absolutely true the lions share from the mass production of oil in the middle east is mostly held among the few, it still provided jobs and very slight economic growth. Had there been governments in the region other than totalitarian dictatorships it is very possible that the middle-east could have developed enough in the past 60 or so years that it could sustain the production and export of goods, however in it's current state it is much too volatile. The formation of labor unions without threat of imprisonment or execution would have greatly served that purpose, and while I don't support the support of unions by the government as they are in the United States (The real reason the auto industry crashed and our education system is terrible), it does not bar the fact that the formation of a union without threat of persecution is a key pillar of capitalism. It is in effect the working class creating an artificial scarcity for employees when the market is over-saturated. Keeping all that in mind I do not think it is a coincidence that the reduction in oil prices has coincided with what many would call a mass exodus over the last 5 or so years. The internet was a major contributor to the "Arab Spring", however much of it was also a reaction to the declining productivity and opportunities within the region. Governments were toppled but that did not bring new resources to help stabilize newly inserted regimes and when opportunities are scarce people divide themselves into smaller groups which then clash for resources, usually under the pretense of another banner such as religion. It's more a thinning than a clash of ideals, the ideals are just how the thinning is justified. In these instances the beliefs of a few can take hold in many as the reason, prior to a couple hundred years ago Islam truly was considered a religion of peace, in fact the Ottoman Empire actually sheltered Jews from Catholics during the Spanish Inquisition. This does not negate what it has become in certain regions of the world but does serve to provide a narrative as to how it came to be and what a government that served it's people could have meant to the middle-east. So what can be taken away from this? On your first point, yes free trade is necessary between countries. Globalization is not new, it's been here since countries first began trading with each other. In a way, globalization is just capitalism where each nation is the individual and behaves in a way almost similar to OPEC. It's also 100% true China has been ignoring the system and it deserves to be put in it's place by the rest of the world. However, a strong push for the reduction in our trade deficit could have negative effects on the global economy and the reaction of trade partners may not be too friendly. The reduction in developing countries exports could have similar effects to the reduction of oil prices in the middle-east. Brazil was the 3rd fastest growing economy and just recently went full purge in the fallout of a slow-down. Also, similar to the way a utility company would face a boom-bust in a natural monopoly, the short lived success of nationalization would more than likely come around full end on us. The United States has a role in the global economy and as far as roles go we have the best one, and that role is to consume. We have been granted the permission to over-extend our national debt to our hearts content and still maintain our standard as the global reserve currency. No other country in the world is allowed to print money for the purpose of paying off bonds reaching maturation while simultaneously issuing new bonds. The Eurozone's attempts to manipulate it's economy in similar ways has had far less effective results. Is this to say the US is immune from trying to behave in economically viable ways? Absolutely not, the system requires the appearance of functionality, if the intrinsic value of the dollar becomes marred then the system crumbles. This makes it difficult to simultaneously "balance the budget" and provide the world with necessities such as military power since we're the only ones truly with the capability of doing so. Other countries can spend their budget differently because they do not have the same expectations placed on the with regards to being the economic and military authority - which by the way China has been trying to become and is one of the main reasons they always challenge us both in trade and little military shows of power like stealing our military equipment from maritime waters. They are keenly aware of our burden and the benefits it comes with and they would like to take the mantle. In closing, restricting free trade = bad. However, getting rid of regulation also = bad. But at the same time the ideal of taxing to pay for government programs also makes no sense when the allocation of capital is much more efficient in the hands of the free market as long as there is a watchful eye. Therefore regulation can be both good and bad in the way it is applied, taxation is necessary but not to the extent or the reason to which most believe, and finally the truth is both democrats and republicans are wrong but libertarians are just indecisive republicans and self-loathing democrats. Trump's policies will be great until they collapse the global economy in the name of American prosperity. On a localized front though He seems to understand government spending can be good and doesn't need to coincide with a balanced budget in the near term while also being aware that lower taxes compounded with increased GDP due to a COMBINATION debt. So....there is that.

Posted by spshapiro on March 18, 2017 (05:52AM)


Stream of Consciousness is a difficult style to pull off as a novelist. It makes a poor form when laying out an idea. So let me be clear:-  It is a basic tenet of (pure) capitalism that commerce should be unfettered, or in other words, that a “deal” should take place between a willing buyer and seller, where they both see it in their own best interest, and WITHOUT the inference of others. “BUY AMERICAN, HIRER AMERICAN” is jingoist nonsense, where considerations are made on the basis of other than the buyer and seller’s best interest.

Posted by SuccessfulGuess on March 21, 2017 (08:46PM)

I'm sorry, I have a hard time laying concepts down on paper. Here is what I'm saying, I agree that import and export taxation should not be used as a force to manipulate the jobs market. The US has the trade deficit because our currency is worth so much more than others, this allows us to consume while they produce. If we impose strict regulations on trade we will gain temporarily, but without us buying as many imports other already less economically sound countries will lose mass influxes of money. These countries are also the consumers of our goods, but with less money our exports will drop. The cycle would lead us around to below square one. However, that is not to say that regulations in themselves are bad in circumstances where the regulation is verifying and not interfering. (Pure) Capitalism, as you put it, is based on perfect information for both the seller and the buyer, unfortunately human beings are imperfect. If you pay extra for a AAA rated bond that goes belly up was that truly what you were paying for? I am a conservative however I am not for the complete and total deregulation of industry and finance, the regulations just need to be much less invasive.

Posted by spshapiro on March 22, 2017 (08:12AM)

That’s far clearer for an old man to understand. I don’t think that there is much disagreement between us, but I wish that the present administration had some sense of history, as well as a more consistent philosophy. What they clearly overlook is that the Marshall Plan wasn’t something that we did just out of the goodness of our hearts. It was in our interest to help rebuild the non communist world after WWII. Not rebuilding Germany after WWI was probably the most important condition leading to the second war.  This analysis is neither Republican nor Democrat; it is an undeniable historical fact. We presently live in a global world; there is hardly anywhere left that doesn’t engage in some foreign trade, and by that fact, lives a better life.

None of the above is a denial of the fact that trade agreements can sometimes favor one side, but most often each side sees some benefit from it. The point is not to act like the peevish child and take the ball and go home. Far from creating the context for striking better agreements, in less than two months, our bargaining position has been lessened. Yes, other countries will still leave a place open to us at the bargaining table, because you don’t willy-nilly cut off the biggest economy, but they are now clearly aware that they are dealing with a wounded lion. Maybe, somewhat dangerous because it’s wounded, but clearly impaired.

Posted by SuccessfulGuess on March 22, 2017 (11:29PM)

I somewhat disagree with the U.S. losing it's bargaining position, I think it's quite the opposite. The U.S. consumes a remarkably high amount of global goods and the truth is we don't have a position at the bargaining table, we own the table. China is possibly the only country seeking to take our position on a world scale which is why Trump so ardently opposes their actions. Russia on the other hand wants to dismantle the table, Putin wants countries to deal with each other individually as opposed to in groups which is why Trump has been on record saying he wants to open up relations with Russia again. Then Europe is doing what Europe does, scrambling around making a mess of things. In truth, I find it hard to believe there won't eventually be a global currency eventually. Internet and Technology have made it so that countries interact with each other so regularly it seems as though it is only a matter of time, and with it international laws of trade. What the Euro catastrophe has taught us is that not having central legislative monetary policy is suicide. I'm not necessarily saying a one world government, however the quicker technology advances and the more connected people and the economies that connect them become, the harder it is going to be to juggle all the moving parts without a total meltdown. We really are at a turning point in history and I think the next 50 or so years will really define which way human civilization takes at the fork in the road. America is the country that will most likely be the deciding factor in which way that is.

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