The Wonders of the MarketFollow

Quite frankly, for all the talk of how terrible the USSR was during the Cold War, for how we feared the Communist threat and demonized the people of the USSR, it's ironic that our society has turned into a version of corrupt communism. We’ve got a small percentage of the population with a lot, an every shrinking population with a little, and a huge population with next to nothing.

The cause? It's called "The Market". It's the savior of the Republican Party, because, from what I've been able to determine, "The Market" will fix EVERYTHING.

However, "The Market" doesn't take into effect basic human nature, much like Communism didn't. Communism didn’t take into account that without incentives humans won’t work. “The Market” fails to take into account our greed and our propensity for selfishness, or more accurately, it encourages greed and fails to take into account the effects of greed and selfishness on a society.

We’ve become a “me” society. Listen to the radio, watch the TV, or read the newspaper. What’s the one thing that nearly everyone is obsessed with? Themselves. The Republicans in particular, but politicians in general, have used the concept of “it’s my money, ***** everyone else” (that old greed thing) to not only seize the bully pulpit at a Presidential level, but to fundamentally destroy any semblance of a workable society in the long term. Listen to Rush Limbaugh sometime. He’s always talking about how they’re taking your money to do this, or that, or the other thing. And it’s a good argument, because, it is your money. However, it fails when actually implemented, much like Communism. Sure, it’s your money and my money, but in the end, what are we getting back and what are we losing? That’s the question I think we should be asking. For $30 a year back in my pocket, what is the person that doesn’t have $30 to their name losing?

Michael Douglas’ character in “Wall Street” once said “Greed, for lack of a better word… is good”. And I’m sure there are several of you out there saying “Why should I care what happens to someone else? I’ll take care of me, they’ll take care of themselves.” Sounds a lot like the complete reverse of the Communistic principles, right? The truth is that if all you do is take care of yourself, and everyone else is similarly self-absorbed, you find yourself in a world that doesn’t give a **** about you. A world filled with kids that shoot guns at classmates in school because those classmates are too self-absorbed to see that their taunting and mocking have gone too far. A world filled with parents that are more interested in their own careers and materialistic needs than what their kid is watching, doing, or feeling (we’ve got drugs for that stuff, they don’t have to care… right?). A world where drug company CEO’s preside over companies that make 5 times what an average Fortune 500 company makes in profits from erection drugs, while paying workers next to nothing, and a pittance is spent on research of important drugs. But the CEO is doing great! He’s got a golden parachute and plenty of stock options. Not too mention a muli-million dollar salary.

No, no Government program is the be all, end all answer to our problems, but then again, neither is “The Market”. Self-interest only goes so far, but then again, so does complete dismissal of initiative. We need a mix of the two, but unfortunately, the people in power aren’t willing to swing the pendulum back towards the middle. We need to encourage innovation, but care about others. Seems like a simple concept... too bad we're too self-absorbed to "get it".

Grady

Funny how people always want to restrict my freedom. Whether it be the conservatives telling me how to live my life or the liberals telling me how to spend my money. Anyone with even a basic understanding of economics would know that our taxes are too high and our government spends too much. They would also know that any program that we ask our government to maintain is operated at about 50% of the efficiency as compared to the private sector performing the same function. It is really too bad that our forefathers gave their lives to be free of restrictive laws and taxes and then over the past 100 years we have put into place laws and taxes that are much more restrictive than they had it in colonial times.

So you are saying that the government would be better at running department stores than Wal-Mart?

And what measure is that? The voters? Yea right, I guess that's why we still have millions of dollars of pork in the budget every year.



And how exactly do they hurt society as a whole? I will argue that they help the lower class, probably the very class of people you seem to think the government should be helping. How do they do this you ask? By providing merchandise and services at a lower cost to the consumer.



I have to laugh at this one. If their prices are so high then Target or some other chain would come in to compete. If their prices are so high then people would drive 15 miles down the road to shop somewhere else or use the internet to obtain the merchandise. The low prices that they offer help the economies of small towns as well as providing jobs.

Where do you get such misinformation? I had a friend that used to work for Wal-Mart a few years ago. She made $8.50/hour, was a stockholder in the company through their stock purchasing plan, was in the 401K program and also had health and dental coverage. She was no manager, just a person who worked the lay-a-way desk as well as cashiered some.




Well, for that $30 they are probably getting $15 dollars worth of food, if they are lucky. If I had the $30 myself I would be able to donate it to a local charity or church who could probably turn it into $25-$30 in food.



Because most of your argument is inane hyperbole with no facts or statistics to back it up.

If a charity were run like our government services, no one would contribute one thin dime to them. We expect our charities to be efficient and give well over 50% to the people/cause they serve.
Compare that to the feds, I think I read somewhere that less than 20% actually gets down to the people/cause.

Our "govenors" don't care because it is not their money, and are happy as long as they get their paycheck and super perks.

To answer your question, because people are dumb. And greedy. Stupidity and greed are the reasons capitalism is failing.

Communism failed for very similar reasons: Stupidity, greed, and laziness.

I agree with you completely, Grady. Although it's taken capitalism longer than communism to prove itself to be a failed economic model, it's becoming increasingly clear that both systems are fundamentally flawed. And as you said, we have only human nature to blame.

I think that a Socialist Capitalism is our best hope. But honestly, I'm not too enthusiastic about that one either.

The only economic model that has proven itself is the tribal economy; communism, but with death as the consequence for failure. Of course, the flaw with that system is that it ceases to be viable option after the population reaches a certain size.

That's why I say we should kill all the minorities, except Asians, cuz they're wicked hot.

Edited, Fri Feb 27 02:26:42 2004 by Thundra

Well... I already got a RACK, but I've just gotta add a bit more (yeah, I know...). :)




Um... That's the point. The "market" has no method for holding them responsible (so it "fails" to prevent polution). Only legal action by a government body does. Hence, it's a market failure so the government *should* step in and put anti-pollution laws in place.

You see what I'm saying here? If all you do is present two prices for tires, and one was produced cheaper due to a lack of polution controls and one was produced more expensively due to having polution controls, all the vast majority of tire buyers will care about is that one tire costs less then the other. Even people who would agree to laws to create polution controls would still buy the cheaper tires.

People tend to vote their conscience when passing laws, but vote their greed when spending their money.

You can quote me on that if you want. I think it's brilliant. :)




Same logic applies. Many people like the small local businesses. But market forces apply accross the whole spectrum. Most people will simply buy a product wherever it's cheapest. If Wal mart can sell that widget for a dollar less then the small local shop, some people may go to the local shop out of loyalty to the owner, but most will shop at Wal mart. Over time, the local shop will be put out of business no matter how much the locals may wish it not to happen.

This is not a good "classic" example of market failure, because it's harder to see at what point the value of the local shop culturally outweighs the value of cheaper goods for the public. I would generally tend to fall on the side of agreeing with you. If a business is not competitive, it should not stay in business. After all, businesses primarily serve the purpose of generating goods for the people. If we can do that more efficiently, then we are better off on the whole.


The problem with the Wal mart situation, is that they aren't necessarily providing that "cheaper" good for the long term. What we've seen, especially in smaller towns, is that Wal mart will deliberatly stock their local store with the same goods that the local shops sell, but use their nationwide profits to allow them to sell them at outlandishly low prices (they'll take a loss in the short run). Once they've run the small business into bankruptcy, they then remove and/or increase prices on those goods, often to the same or higher rates as those the small shops had before Wal mart showed up.

The overall effect on a small town is negative. They lose their small shops *and* they don't gain any lower prices in the long run (Wal marts got to make up for the loss they incurred early somehow, right?). Often, the goods themselves dry up. A friend told me recently about how the small town he lived in had several really nice bike shops (the area was very popular for riding). When Wal mart came in, they opened this absolutely huge bike section in their store and undercut all the local shops. Once they all went out of business, Wal mart closed their bike section. End result was a town in which you could no longer buy a bike (other then cheap kids bikes).

That's a market failure. There's no doubt about it. The only question is how you deal with it.

Edited, Sat Feb 28 17:55:06 2004 by gbaji

Dyzalot. Go to your local university. Sign up for an econ 101 class. Come back and read what I posted. What I'm talking about is standard and accepted. Nothing really for you to argue about.

There's no assumption of anarcy. The idea of "market failure" is to separate those things that will happen naturally in a free market (suppy and demand, first to market advantage, low price wins, stuff like that), from those that will not. There is no force in the "market" that will make people buy a more expensive product instead of a cheaper one (assuming the products are identical). None. The opposite is true in fact. People will always buy the cheaper product.

So. When we find a situation where the cheapest product is not always what's best for society as a whole (like those cheap tires produced by dumping pollutants into a nearby river), then we call that a "market failure". Government must step in and pass laws to regulate the production of tires in order to prevent pollution. Of course, that assumes we also value a clean environment.

The point of the whole excersize is to get a feel over what things that government *should* deal with and which things it maybe shouldn't. Identifying which things would not work in a totally free market with no government regulation allows us to see which things we should be looking at legistlatively. It also allows us to see which things we shouldn't. We could legistlatively demand that the price for a television never exceed $200. But most people would think that was a ludicrous law. The "market" already manages prices pretty well. We don't have to have a governmet agency come in with a price list and tell shop owners how much they should sell their goods for. That's because prices are already regulated by supply and demand forces, and for most goods, that process does not generate a market failure. Quite the opposite, that's the strength of the market and is a "success". The "market" does a far better job of determining the relative value of things to consumers then any government agency. Thus, we should not legistlate prices.


Without that concept of what constitutes a market failure, we wouldn't have any idea when to pass laws governing trade, and when not to.


As to Walmart. Hmmm... I'm sorry you don't believe that bit about the bicycles. Unfortuantely, I started responding to this post about a minute after getting off the phone with the friend that had this happen to him. I'll be seeing him tonight at my weekly game, so I'll get more details (town, state, date it happened, etc).


Walmart has a very cookie cutter approach to their stores. Heck. They are a "department store" really, and they follow the same rules large department stores do. They all carry the exact same goods at the exact same times. It costs money to have variation between stores (if you've ever worked a franchise business market, the corporations are positively **** about all stores being "identical". It's scary really). It makes a lot more sense for a large business like Walmart to have one stock list for all stores and require all stores to carry that stock. They make exceptions from region to region, but that's about it (you would want to stock snow shovels in Minnisota, but not in California for example).

It costs a lot of money to open a business. It does't cost as much to simply lower prices only when a competing business is nearby. Why keep those lower prices all the time? That's bad business. Wait until some idiot spends his life savings opening a store, and *then* lower your prices on competing goods and put him out of business. After all, that teaches the next guy not to even try far more effectively, and allows you to make a greater profit nationwide then you would if you actually kept your prices super low everywhere.


Um... These are not new tactics from Walmart though. All businesses use them to some degree or another. One of the complaints about Walmart though is that they apparently *will* drive businesses out of town for no apparent reason. They seem to have a real fear of even the potential for competition. I can only tell you what I've heard, but I've heard enought stories about Walmart killing off businesses that they didn't even really intend to compete with that I kinda have to accept that some of them are probably true.


And I have no doubt that Walmart really thought it was competing for the bike sales in the area. But "bikes" to a large chain like Walmart is going to be the kind of bike stuff that you see in other large department stores. Basically, Kids bike stuff. I'm sure the local manager was given a virtually blank check to obtain the same goods that the local bike shops were selling, but once they were out of business, he was required to go back to the profit generating cookie cutter system that all Walmarts have (ie: No specialty bike stuff, just a bunch of Schwinns with bannana seats). After all, it's more profitable to sell only the goods that 90% of the people want to buy, then carry specialty items that only a small number want.


If that situation is true, then it is a market failure. The competition by Walmart is not generating a better variety of goods at a better price. In the case of the bike shops, it in fact, reduced the variety of goods in an area. Price at that point becomes irrelevant if you simply cant get the goods.

Well. You almost do. Where do you think the laws we "already have in place" came from? Specifically, those that regulate trade and businesses? If it was profitable to ensure worker saftey on the job, companies would do it without a law having to be passed. If it was more profitable to use non-polluting factories then companies would use them without being forced to by law.

Do you see where I'm going with this? All the laws we have that regulate business and trade exist because if we didn't have them, something we don't like would happen. Not only that, but we call it a "market failure" if the market forces at work actually encourage that "bad thing" to happen.

It costs more money to operate a work site with a ton of saftey equipment. It costs more money to run a plant with pollution controls installed. The market says that the guy who can produce the product the cheapest wins. Thus, the market will ensure that workers are not safe and factories will pollute.

That's what a market failure is. Don't worry about all the laws that a government could pass. The topic here is the market and whether it's a good thing or not. The concept of market failure is key IMO, because it's a good way to determine if a law regulating the market is needed or not.

I'll give another example (I did this already I think). In a command economy (like the USSR), they effectively legistlated both the supply and demand sides of the market. The government decided that they would produce X number of shoes, and Y number of toasters, and Z number of loaves of bread.

If you don't understand the concept of the market failure, then you wont see why this is a bad idea, but regulating pollution in factories is. In this case, we're attempting to set the supply of goods. This artificially creates a "value" for goods that isn't necessarily what its real value is (what if they make too many shoes? Or not enough?).

This kind of regulation is not needed. The market automatically adjusts supply to meet demand, and prices adjust as a result. There is no system that could regulate this that would do a better job of it then the market does all by itself. Thus, it should not be regulated.

It is not a market failure because both the consumer attempting to find the best price for a good, and the producer attempting to make the most profit for a good will combine to ensure that the correct number of shoes and toasters and loaves of bread are produced to provide for the needs of a society. There is no negative side effect.

Pollution is a negative side effect. The goal of the consumer to buy the cheapest good and the producer to make the most profit will ultimately combine to produce unwanted pollution. Thus, it's a market failure. That's all market failure means. It's all that stuff we do legistlate on because if we didn't the market would ensure a bad result in the long run.

It's also why there is a legitimate need for market regulation. However, it's critical that we identify that something is a market failure before we legistlate. On the one extreme, if you are too hands off, you end up with bad results (like pollution, monopolies, and poor worker saftey). On the other, if you over regulate, you actually decrease the efficiency of the market with no gain at all (like what the USSR did). Ultimately, that's going to cause economic slowdown at the best, and ruin at worst.




Sure. But just as pollution is something that people don't want (it's smelly, ugly, and makes people sick), mail ordering goods aint that great either. While the degrees of "damage" are different, the key point is that the people want certain things (a clean environment). If people wanted to mail order stuff, there wouldn't be any local shops anywhere. Heck. There'd be no need for Walmart in the first place, right?

You're really sidestepping the issue here. The point is that prior to Walmart coming along, there were a number of local shops that people liked to shop at. After they arrived, those shops dissappeared. Once they dissappeared, the goods that they used to sell dissappeard off the shelves at Walmart, leaving the locals with nowhere to buy those goods except mail order (or traveling a hundred miles away to the next city with a bike shop.


Don't get me wrong. I actually usually argue on the side of Walmart when the topic comes up. I think that those small towns on the whole gain more from the presence of a large chain store that can bring them probably more variation in goods and cheaper prices then they recieved before. However, it's important to recognize that there is a cost for those goods.

And that's where I again point to market failure. The market will ensure that the big chain will provide a specific large set of goods to a wide number of areas for a low price. That's a good thing. However, it will not ensure that the big chain will provide specific specialty items that may have been present before it arrived. Also, it reprsents a change of culture in those small towns. Those small shops didn't just sell bikes, or hardware. They often were also social spots. They probably where also where people bought their paper, and maybe stopped for their coffee and chatted with other people on their way to work. There's a value to that social interation that is hard to place a dollar sign on. The social interaction in the local Walmart is probably not quite the same.

Again. How much value do you place on that sort of stuff? I'm mostly from a big city, so to me, that's maybe not that big of a deal. But I've talked to enough people from small towns to know that for the residents of such towns, it is a big deal. They often live in those small towns specifically to get away from the Walmart style society. Most of them would hardly consider it progress for Walmart to come to them...

Edited, Mon Mar 1 06:24:22 2004 by gbaji

Still not getting it. People as individuals want very different things then people as a whole will do when spending money.

It only takes a small number. Most businesses run a very narrow profit margin. If 80% of the people like the local shops (enough to stick with them in spite of lower prices at Walmart), the other 20% will still cause enough of a reduction in business to put those local shops out of business, giving that 80% no choice but to shop at Walmart in the long run. Walmart, meanwhile, Is willing to take that loss (only getting 20% of the population's money) because they know that they can afford that loss for the 6 months or so it'll take to kill the other businesses. Once that happens, they know they're now getting 100% of the business (or close to it), and can raise prices back up, and use the profits to move to the next town and do the same thing.



Again. Not necessarily true. It only takes a relatively small number of people to ***** things for everyone.

A good example is IGE and plat selling in EQ. Most EQ players despise the practice. However, it only takes that small percentage to keep IGE in business, and ultimately cause noticable negative effects on the EQ economy as a result. Let's face it, from an ecomic standpoint, getting lat from IGE is "cheaper" then getting it in game. Thus, the consumer will chose to buy plat from IGE rather then getting it "honestly" in game. The only reason everyone doesn't buy plat is because most players really do think of it as cheating. They chose a social ideal over an economic gain. Same with Walmart. Most folks in small towns will chose the social ideal of the local shop over Walmart, but it only takes a small number to chose via their pocketbooks, and the whole thing falls apart.




Certainly. But why did the government pass the law making it illegal to pullute? If the "market" ensured that businesses wouldn't pollute, then the government would have no need to pass anti-pollution laws. You're starting with the idea that we already made polluting illegal, but aren't thinking about how we got there. At somem point, a decision had to be made that it was more valuable to society to have a clean enviroment, then to save some costs on goods. It's a market failure because the market will never make that decision. Only the government will.




Yes! That is absolutely right. The inheret assumption being that a law must regulate the market. If it didn't, then we'd have pollution.

You've just proved my point for me. We can't just have a "free market". Not if we care about things like pollution. You even used the phrase "guarantee the market operating correctly". You are aware that implies that the market would not operate correctly if the government didn't step in. Thus the market "fails". Get it? "Failure", "Not operating correctly". Synonymous terms in this context.




Ok. I agree with you. However, we humans aren't nearly as forward looking as we might want to be. We generally only realize that something is a problem after it's become a problem. Thus, we don't pass anti-pollution laws until it becomes apparent that businesses are dumping pollution in rivers because it's the cheapest way to do business. I've never heard yet of a law being passed to prevent an activity that isn't already a problem. It always seems to happen the other way around. Human nature I guess. It would be nice to be otherwise, but it just does't happen.




I think you're getting hung up on terms here. "Regulation", and "laws to prevent actions by businesses" are the same thing. If we've already passed laws saying it's illegal to pollute, then we're already regulating pollution. You're just arguing a minor semantical difference. The end result is that those laws regulate how businesses can produce materials and how they have to handle pollutants they generate.





Ok. First off, it's questionable whether it would actually be more profitable to steal goods and then sell them in a market setting. Most people steal stuff for themselves, not just to sell. However, I suppose technically, theft laws do regulate the market in an indirect way. We could also make a pretty good philosophical argument that all laws have something to do with the market. After all, everything has a "value", and laws are about protecting the value of things people have (you value your life, your property, freedoms, etc). You'd be hard pressed to historically find true governments with laws where there wasn't first the concept of trade and the need to protect the profits from said trade.


However, the point of the concept of market failure is that there are things that are "bad", but that we'd not likely have happen if the market didn't cause them, and which the market in fact encourages. This is a much narrower range of activities then just theft and such.

Pollution is yet again a good example. While individuals might toss trash on the ground, or otherwise "pollute", we don't really see large scale pollution until we get a market system involved. An individual doesn't incur any significant increase in "cost" whether he places his latrine upstream or not. Thus, there is no market force that makes it beneficial to dump his "waste" in the towns water supply. On the other hand, industrial waste certainly does cost a lot of money to deal with. It's also much more of a problem the someone's personal waste. It doesn't just fade into the eco-system if you find an out of the way spot to dump it. There are very real market reasons to want to build that fatory close to a town (labor has to get there from where they live, right? You need roads in and out, right? All of which are right there in town). Thus, the cost to reduce pollutants and their effect on the local eco-system is high. No one will pay that if they don't have to. Competition ensures that factories will pollute.

That's the real difference here. It's not a matter of passing laws because some people might chose to do something others don't like. It's a matter of passing laws because if you don't, then the "best" way to produce something results in something that people don't like. We want factories to produce tires. There's a benefit to it. But we don't want them to pollute. Thus, we must regulate the production of tires to prevent pollution. In contrast, we don't want people to steal from us. Ever. There is no market gain from theft. As a society, there is no value gained by theft. Thus, it has nothing to do with the market. Theft doesn't produce a good. It just moves it from one hand to another. That's not part of the market really.