Falling Out Of Love With Market Myths

[Guest BoomBoomCrash]

http://www.newscientist.com/article/mg2032...rket-myths.html

[Injin]

http://www.newscientist.com/article/mg2032...rket-myths.html

Turgid piffle.

Another load of crap blaming a deregulation that never actually happened.

[Guest BoomBoomCrash]

Turgid piffle.

Another load of crap blaming a deregulation that never actually happened.

How about you sit this one out Injin and let the grownups talk.

[Injin]

How about you sit this one out Injin and let the grownups talk.

This looks like free association style talk to me - what are you, a free marketeer?

Ugh.

I have a right to be on this thread, and you have a positive moral obligation to read all my posts, no matter how stupid or insane!!!

[Guest BoomBoomCrash]

This looks like free association style talk to me - what are you, a free marketeer?

Ugh.

I have a right to be on this thread, and you have a positive moral obligation to read all my posts, no matter how stupid or insane!!!

I'm glad you are admitting your posts are both stupid and insane. It's not something I expect you to admit so freely.

[Injin]

I'm glad you are admitting your posts are both stupid and insane. It's not something I expect you to admit so freely.

I love you.

[symo]

Good article, and it does explain how the econmic theorists driving financial products do assume infinite supply and demand.

[bogbrush]

I got as far as the 2nd paragraph;

even as their failing banks were being nationalised

and realised this was nothing to do with a free market. I also realised the author doesn't know the difference, which makes it highly unlikely his conclusions will be useful.

[Guest Steve Cook]

.....Consider profits. In a perfect market profits cannot exist because every producer is challenged by an infinity of competitors who drive everything down to cost price. Yet real markets are driven by profits. And consider research. That, too, cannot exist in a perfect market because a producer who develops an innovation will be undercut by his or her competitors who, magically, know everything about the innovation. Because these competitors don't have to bear the new product's R&D costs, they can charge less than the innovator and drive them out of business.....

The above, lifted from the article, demonstrates why the notion of a "free-market" is no more or less a myth than any other of the "big ideas" of the industrial age.

All of them are, at best, deluded ideologies that have caused untold suffering as they seek to shoe-horn human behaviour into a prescribed set of ideological expectations. At worst, they are little more than bullsh*t rhetoric used by ruling elites to justify the maintenance of their positions.

"It's not me who is screwing you....it's the free-market wot done it...honest"

Edited July 27, 2009 by Steve Cook

[bogbrush]

I read on though, and sensed a strawman argument being made that the perfect market - shock! - doesn't exist. Since he accurately described the perfect market as a theoretical construction requiring infinite supliers, perfect knowledge, etc, everyone knows it doesn't exist in practise. That said, this isn't actually the thrust of his argument.

He rightly observes that the reality of markets is that they make mistakes. That's because they are composed of people making decisions. However, when you intervene you increase the scale of those mistakes (by removing the risk of collapse, for instance).

He also gets it right that government intervention crowds out research, and goes on to make a partial contributory argument for the abolition of patents. Good man!

Edited July 27, 2009 by bogbrush

[bogbrush]

The above, lifted from the article, demonstrates why the notion of a "free-market" is no more or less a myth than any other of the "big ideas" of the industrial age.

All of them are, at best, deluded ideologies that have caused untold suffering as they seek to shoe-horn human behaviour into a prescribed set of ideological expectations. At worst, they are little more than bullsh*t rhetoric used by ruling elites to justify the maintenance of their positions.

"It's not me who is screwing you....it's the free-market wot done it...honest"

nothing of the sort Steve. He debunks the perfect market (a construct of economists), not the free market (a construct of people going around doing stuff). Not the same thing.

Just because he used the word "market" doesn't mean you should always switch your "angry man of the left" head on.

I hope you don't teach your kids to be so slack in their reading.

Edited July 27, 2009 by bogbrush

[Guest Steve Cook]

nothing of the sort Steve. He debunks the perfect market (a construct of economists), not the free market (a construct of people going around doing stuff). Not the same thing.

I hope you don't teach your kids to be so slack in their reading.

The "perfect" market is one where all information is freely available to all market participants all of the time and where all of the participants are, at all times, free to act on that information.

Only in a market where all information is available to everyone can that market, and the actions of all of it's participants be said to be "free". In other words, a perfect market equates to a free-market. However, therein lies the paradox.

In a market where all information is not available to everyone, some decisions are replaced by guesses. Guesses that introduce inefficiencies into the market. Occasionally, systematic inefficiencies. It is the in the areas of these inefficiencies that profit occurs for some of the market participants.

Thus, the attainment of profit requires that a market is not free for everyone. If it were, then as the author rightly points out, profits would not be possible for anyone.

You are missing the central thrust of the argument contained in this article.

Edited July 27, 2009 by Steve Cook

[mdman]

In science, facts tend to be collected and a theory constructed to explain them. Of course, hunches can sometimes drive science, but the wildness of our hunches is as nothing compared to the wildness of the economists'.

Seriously, there is nothing in economics as wild as some of the crazy shit scientists dream up with parallel Universes, superstrings, black holes and quantum superpositions.

The 'wildness' of economists, with their over-reliance on equations, equilibria and perfect markets, seems positively mundane by comparison. Black-Scholes option pricing came about from a financial economist applying principles he observed in rocket science. But it was the boring sort of rocket science involving Newtonian motion and partial differential equations, not the crazy relativistic kind where the astronaut returns to Earth to shag his greatgreatgreatgranddaughter

[Guest Steve Cook]

Seriously, there is nothing in economics as wild as some of the crazy shit scientists dream up with parallel Universes, superstrings, black holes and quantum superpositions.

The 'wildness' of economists, with their over-reliance on equations, equilibria and perfect markets, seems positively mundane by comparison. Black-Scholes option pricing came about from a financial economist applying principles he observed in rocket science. But it was the boring sort of rocket science involving Newtonian motion and partial differential equations, not the crazy relativistic kind where the astronaut returns to Earth to shag his greatgreatgreatgranddaughter

The fundamental difference being that "crazy sh*t" scientific theories do not tend to have as direct an impact on people's lives as "crazy sh*t" economic theories.

Or, if such scientific theories do have an impact then, whilst we may or may not like their impacts, they are not "crazy sh*t" after all, are they?

Edited July 27, 2009 by Steve Cook

[bogbrush]

The "perfect" market is one where all information is available.

Only in a market where all information is available to everyone can a market, and the actions of all of it's participants be said to be "free". In other words, a perfect market equates to a free-market. However, therein lies the paradox.

In a market where all information is not available to everyone, some decisions are replaced by guesses. Guesses that introduce inefficiencies into the market. Occasionally, systematic inefficiencies. It is the in the areas of these inefficiencies that profit occurs for some of the market participants.

Thus, the attainment of profit requires that a market is not free for everyone. If it were, then as the author rightly points out, profits would not be possible for anyone.

You just made that up. You suggest that a "free market" has to be "perfect". That's actually stupid.

They are different, which is why they get different labels.

You are missing the central thrust of the argument contained in this article.

The central thrust of the argument, as you put it, is an attack on the stifling of science by a pretence that the market in scientific knowledge is perfect, and the consequent rush to the state to sponsor research, which is obviously disasterous

In 2003, the Organisation for Economic Co-operation and Development published The Sources of Economic Growth in OECD Countries, reporting on a comprehensive regression analysis of the factors that might explain the different growth rates of the world's 21 leading economies between 1971 and 1998. This indicated that only privately funded R&D led to economic growth, and that publicly funded R&D did not. Worse, the public funding of R&D crowded out private funding, and thus slowed economic growth.

He makes some good quotes that would have been useful on the "patents" thread.

[Guest Steve Cook]

The "perfect" market is one where all information is freely available to all market participants all of the time and where all of the participants are, at all times, free to act on that information.

Only in a market where all information is available to everyone can that market, and the actions of all of it's participants be said to be "free". In other words, a perfect market equates to a free-market. However, therein lies the paradox.

In a market where all information is not available to everyone, some decisions are replaced by guesses. Guesses that introduce inefficiencies into the market. Occasionally, systematic inefficiencies. It is the in the areas of these inefficiencies that profit occurs for some of the market participants.

Thus, the attainment of profit requires that a market is not free for everyone. If it were, then as the author rightly points out, profits would not be possible for anyone.

You are missing the central thrust of the argument contained in this article.

I should add that the a lack of freedom to act in a market is no more or less the case if that lack of freedom is foundationed on a lack of information or a lack of capacity to act on such information. In both cases, freedom is curtailed.

It is upon the curtailment of the above freedoms of some of the market participants that profit, for others, rests.

Profit requires that some must not be free

Edited July 27, 2009 by Steve Cook

[bogbrush]

I should add that the a lack of freedom to act in a market is no more or less the case if that lack of freedom is foundationed on a lack of information or a lack of capacity to act on such information. In both cases, freedom is curtailed.

It is upon the curtailment of the above freedoms of some of the market participants that profit, for others, rests.

Profit requires that some must not be free

You are now moving into the surreal.

Let's get this straight; your definition of a free market requires that "perfect market" conditions be met? So a guy trading his stuff down the road for something he wants isn't engaged in free market activity because he hasn't got a gazillion competitors with perfect knowledge of his home grown potatoes?

[Guest Steve Cook]

You are now moving into the surreal.

Let's get this straight; your definition of a free market requires that "perfect market" conditions be met? So a guy trading his stuff down the road for something he wants isn't engaged in free market activity because he hasn't got a gazillion competitors with perfect knowledge of his home grown potatoes?

I am saying that his profit relies on the fact of a lack of freedom in his competitors to act on perfect information. Please note I am quite deliberately avoiding a moral judgement on this. I am simply pointing out its straightforward and inescapable logic.

I can understand why you should take such exception to the above using the "free-market" myth, as you do, to provide a moral justification for your taking of profits.

The best thing for you to to do, though, is to stay clear of such messy ethical issues and simply get on with what you apparently do best. Making money bogbrush......

Edited July 27, 2009 by Steve Cook

[bogbrush]

I am saying that his profit relies on the fact of a lack of freedom in his competitors to act on perfect information. Please note I am quite deliberately avoiding a moral judgement on this. I am simply pointing out its straightforward and inescapable logic.

I can understand why you should take such exception to the above, using the "free-market" myth, as you do, to provide a moral justification for your taking of profits.

The best thing for you to to do, though, is to stay clear of such messy ethical issues and simply get on with what you apparently do best. Making money bogbrush......

None of the discussion would be needed if you weren't going around redefining the free market to cover your blunder.

Like I say, read the question carefully before answering should be advice you are familiar with.

[Guest Steve Cook]

None of the discussion would be needed if you weren't going around redefining the free market to cover your blunder.

Like I say, read the question carefully before answering should be advice you are familiar with.

I note you have resorted to to a familiar debating tactic of obfuscation and misdirection to avoid addressing a fundamental point put to you.

How disappointing and predictable

Tell you what...I'll give it one more try...

I am saying that his profit relies on the fact of a lack of freedom in his competitors to act on perfect information. Please note I am quite deliberately avoiding a moral judgement on this. I am simply pointing out its straightforward and inescapable logic.

Do you accept that the profit taken by a given market participant relies on a lack of freedom in his competitors to act on perfect information?

Yes or no.

With an underlying explanation of your answer would be nice

Edited July 27, 2009 by Steve Cook

[mdman]

Do you accept that the profit taken by a given market participant relies on a lack of freedom in his competitors to act on perfect information?

Yes or no.

With an underlying explanation of your answer would be nice

No

That road trader may be the only trader selling that good or service. He is free to sell whatever he wants at whatever price he wants, with buyers free to accept or reject the terms of trade. That is a free market. Even if there are competitors, his profit depends on the sale value exceeding his costs. That is all

Your hypothetical scenario, competitors' lack of freedom to act on perfect information, is a feature of an imperfect market. Imperfect markets can be free. Or not free. Free markets are imperfect. Because perfect markets are hypothetical idealised constructs whereas free markets are real.

[thod]

The market price of something is the point where the number of bulls equals the number of bears (buyers and sellers). The genius, who is able to instantly evaluate all information and decide a new price makes a poor trader. Should he decide that the price will rise, but lesser men, with their incomplete understanding, decide that it will fall, the genius will be stopped out. Thus the optimal trader is the average trader. The average trader will turn bearish at the same point the other traders do and sell at the top, and vice versa. You do not want to hire a genius since he will always be out of sync.

Thus the idea of prices being determined by information in the manner of a physics experiment is flawed. Prices are determined by psychology and the only role of information is how it affects that psychology (turning a bull into a bear). Ti hire a trader I would profile a large sample of other traders and then hire someone that matches them most closely.

[Guest Steve Cook]

No

That road trader may be the only trader selling that good or service. He is free to sell whatever he wants at whatever price he wants, with buyers free to accept or reject the terms of trade. That is a free market. Even if there are competitors, his profit depends on the sale value exceeding his costs. That is all

Your hypothetical scenario, competitors' lack of freedom to act on perfect information, is a feature of an imperfect market. Imperfect markets can be free. Or not free. Free markets are imperfect. Because perfect markets are hypothetical idealised constructs whereas free markets are real.

This is the only scenario where I, myself can envisage something approaching a truly free market.

In other words, a market where everyone want/needs everyone else's products to an equal degree, but where each market participant does not have any competitor suppliers of his product. In the real world, of course, this is impossibly unlikely.

In the real world, every market participant has a number of competitors who have varying access to market information and market participation for a whole variety of reasons. Meaning they have varying capacity to freely act in that market.

I would suggest that your explanation of why you think markets are free is, itself, based on an idealised construct that does not exist in the real world.

Edited July 27, 2009 by Steve Cook

[Guest Steve Cook]

The market price of something is the point where the number of bulls equals the number of bears (buyers and sellers). The genius, who is able to instantly evaluate all information and decide a new price makes a poor trader. Should he decide that the price will rise, but lesser men, with their incomplete understanding, decide that it will fall, the genius will be stopped out. Thus the optimal trader is the average trader. The average trader will turn bearish at the same point the other traders do and sell at the top, and vice versa. You do not want to hire a genius since he will always be out of sync.

Thus the idea of prices being determined by information in the manner of a physics experiment is flawed. Prices are determined by psychology and the only role of information is how it affects that psychology (turning a bull into a bear). Ti hire a trader I would profile a large sample of other traders and then hire someone that matches them most closely.

The "psychology" of traders, as you put it, is based on imperfect market knowledge. Thus, you are quite correct in your assertion that perfect pricing is impossible since this would require perfect information which, by definition is not available to all participants all of the time.

In other words, the imperfect decisions of market participants that is based on their psychology rather than perfect market information is de-facto proof that markets are not free.

I suppose one could construct an argument that states that if all market participants ere equally handicapped by an equal lack of access to market information and participation they could, in a sense, be said to be free in that they all endured an identical lack of information and capacity to act. In addition, they would all need to have an equal level of cognitive capacity to take advantage of the above information and participation opportunities.

Again, getting back to the real world, the above is impossibly unlikely.

Edited July 27, 2009 by Steve Cook

[Guest Steve Cook]

I note you have resorted to to a familiar debating tactic of obfuscation and misdirection to avoid addressing a fundamental point put to you.

How disappointing and predictable

Tell you what...I'll give it one more try...

Do you accept that the profit taken by a given market participant relies on a lack of freedom in his competitors to act on perfect information?

Yes or no.

With an underlying explanation of your answer would be nice

Still waiting bogbrush.....