Keynes vs Hayek

[onejayhawk]

Wow. Blast from the past.

J

 

[Berzerker]

To choose an easy example about markets needing intervention to reach an ideal equilibrium, lets look at pollution.
Suppose a factory creates pollution to make a product. They have to dispose of this pollution somehow, and suppose in this example it gets pumped into the air. Now, the factory is not paying to dispose its pollutants in the air so there is no cost. However, in an ideal state the factory would only dispose of the pollutants in the air as long as their marginal benefit of doing is cheaper than the cost of doing so.
That said, without intervention there is no mechanism by which the factory can 'pay' the air for the right to dispose pollutants in it. Intervention is needed to 'create' a marginal cost curve for the company and approach the ideal equilibrium which in the real world was nowhere to be seen.

Without intervention imposing a marginal cost, the company has no incentive to be anywhere near the ideal equilibrium and all the incentives to keep pumping pollution into the air without paying the disposal costs one would expect in a functioning market.

Neither Hayek or the market says a business has the right to pollute other people's land/air. And if businesses weren't protected by intervening politicians with limited liability the market would be more costly for polluters. Not that I'm an expert on this stuff but I see the tiny fines occasionally handed out to polluters by the politicians they've paid to intervene.

With billions of people out there, what you individually buy in the store is absolutely irrelevant.

Economics are dictated by the actions of large masses of people (or people with very large masses of money), not single individual acting alone with non-spectacular amounts of money. Your actions, unless they're part of the actions of a larger group (in which case, some amount of mob mentality via advertising, scare campaigns, etc has certainly come into play) or influence others to buy the same thigns you do (in which case you're starting the mob mentality) are irrelevant.

A politician may not know better than e what I need in my individual life (or they may). But just about any individual, politician included (unless he's kow-towing to the whims of the majority), will have a better informed, more thought-out opinion than public opinion as a whole. And it's public opinion as a whole that affect the economy.

What you call the mob are individuals looking for the best quality they can afford, that isn't stupid.

How is this Keynes vs. Hayek?

I was responding to Oda comparing consumers to a stupid mob in need of guidance.

 

[El_Machinae]

Ah. Naw, I only think that's true when there are known market failures looming.

 

[Ajidica]

Neither Hayek or the market says a business has the right to pollute other people's land/air.

Doesn't matter if they have a right to do something or not, the environment is a resource that can be used and without intervention we would see inefficient use of it. The intervention simply exists to bring the market closer to an ideal equilibrium that is needed for the 'market to work best' as you said.

 

[Evie]

What you call the mob are individuals looking for the best quality they can afford, that isn't stupid.

And yet what they end up with is more whatever has the flashiest, most effective publicity campaign than the actual best quality/cost ratio they can afford. Consumerism is a thing, purchase of items just to have a status symbol is a thing. There is nothing intelligent about it, and certainly nothing about it relating to seeking the best they can have for their money.

Not to mention the markets in a more stock exchange sense, where what people end up with is panic movements where everyone starts selling at once like an out-of-control stampede.

Herd following leaders without stopping to think about what they're doing. People doing things because it's "the thing" people are doing in their group. No, that's not individuals looking for the best quality they can afford. That's mob mentality.

 

[Traitorfish]

Considering that "everyone combined" is basically mob mentality, and that mob mentality tend toward the lowest common denominator, the vast majority of human beings are smarter than everyone combined.

The more people you get together, the dumber they get. Not the other way around.

That seems as over-simplistic as Berzerker's position. Are "more people" and "less people" even useful categories, absent an analysis of how these people relate to each other, the institutions they share, etc.?

 

[Quackers]

To choose an easy example about markets needing intervention to reach an ideal equilibrium, lets look at pollution.
Suppose a factory creates pollution to make a product. They have to dispose of this pollution somehow, and suppose in this example it gets pumped into the air. Now, the factory is not paying to dispose its pollutants in the air so there is no cost. However, in an ideal state the factory would only dispose of the pollutants in the air as long as their marginal benefit of doing is cheaper than the cost of doing so.
That said, without intervention there is no mechanism by which the factory can 'pay' the air for the right to dispose pollutants in it. Intervention is needed to 'create' a marginal cost curve for the company and approach the ideal equilibrium which in the real world was nowhere to be seen.

Without intervention imposing a marginal cost, the company has no incentive to be anywhere near the ideal equilibrium and all the incentives to keep pumping pollution into the air without paying the disposal costs one would expect in a functioning market.

I would be surprised if anybody in mainstream politics in the USA or the UK would disagree with this. Maybe Ron Paul might whip up an argument that petition through the courts by private citizens might be a better solution? IDK. Your story is accepted by everybody who matters.

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Who is the Keynes, Hayek or Friedman of our time?

 

[Cutlass]

Who is the Keynes, Hayek or Friedman of our time?

Keynes is game changing in economics. There's no one of a similar stature anywhere. As to Friedman and Hayek, they were not game changing. But they were extremely good spokespeople for their points of view, and so very influential.

 

[Evie]

That seems as over-simplistic as Berzerker's position. Are "more people" and "less people" even useful categories, absent an analysis of how these people relate to each other, the institutions they share, etc.?

Since the whole point of the free market is that of independent agents ( = no relations) interacting without government or other similar groups intervening ( = no institutions), you're nitpicking for nitpicking's sake.

I'll add to that that of course the statement is meant as an "all other things being equal" kind of statement. Yes, a larger group with the proper institutions may in fact be better off than a smaller one without. But even with those institutions in place, you merely delay the impact of mob mentality (it takes more people than it otherwise would have), you don't prevent it altogether.

Fundamentally, yes, if you change variables other than the size of the group then you're likely to get to different results. Amazing, isn't it?

 

[Hygro]

I would be surprised if anybody in mainstream politics in the USA or the UK would disagree with this. Maybe Ron Paul might whip up an argument that petition through the courts by private citizens might be a better solution? IDK. Your story is accepted by everybody who matters.

You would think, right? We're so full of Randroids and industry plants

----

Who is the Keynes, Hayek or Friedman of our time?

That's a great question. What Cutlass said, in that Keynes is on another league there, but.... Probably some unknown in her or his early 20s absolutely killing it, who might do some MMT work before doing their own thing. Jamie Galbraith never got popular enough. Keynes didn't just do economics but among his other works he also published a treatise advancing the field of statistics.

 

[Whomp]

Deidre McCloskey's Twitter bio says she is postmodern, quantitative, literary, ex Marxist, economist, historian, progressive Episcopalian, coastie-bred Chicagoan woman who was once not. That might cover it. Lol

 

[ArneHD]

I like Keynes economics for the simplicity factor of it: when you have a surplus, build granaries; when you have a famine, empty the granaries.

 

[Traitorfish]

Since the whole point of the free market is that of independent agents ( = no relations) interacting without government or other similar groups intervening ( = no institutions), you're nitpicking for nitpicking's sake.

That isn't actually how the market operates, though. Maybe supply-siders like to think he can abstract it to that point, but we know that isn't actually true. Nor is the state comprised of individuals, of absurdly powerful ministers declaring sweeping policies. Both are comprised of institutions of various sizes, many nested within others, which interact in complex ways and at many different levels. If we're interested in saying anything actually substantial about the relationship between state and market, rather than just in scoring points off right-wing ideologues (and, really, is that even worth the time any more?), that has to be taken into account. Surely?

I don't feel that's nitpicking. I would call it "discussion", which is at least ideally what we're supposed to do in these threads.

 

[Evie]

Ah. Now how it came off to me; I apologize for misunderstanding then.

In which case I'll say that my point doesn't have much direct practical application to the market/state relation itself (beyond pointing out to the necessity of safeguards in BOTH the State and the Market against mob mentality run amok...the State tending toward having more of those than the Market, but even then in some countries - the good ole' USA with their "all positions must be elected" mentality for one - the safeguards are thin), but was rather brought up in response to the accusation that if you think you know better than the market, you're asserting that you're more intelligent than the sum of people.

Which I see as a given. Most individuals, taken alone, are smarter than a large uncoordinated group. (ie, little to no institutions, and little control from one member over others).

The fundamental dilemma is finding a way to allow people to express themselves and be themselves, and participate meanginfully in the economy and the direction of the country while controlling for the tendency of larger group to trend toward the least common denominator.

 

[Cutlass]

The problem with that point if view is that the economy tends to do worse the fewer people who are part of the decision making process rather than the more the mob calls the shots. The more inclusive the mob, the better the decisions that are made.

 

[Terxpahseyton]

I find it odd to assume that the market was the expression of some kind of "mob mentality". When I think of mobs or their mentality, I think of something very concrete. I think of a group of people who actually do coordinate their actions. In contrast to that, in a market, people do in principle not coordinate their actions at all, the notion of any unified action is just wrong. And I really do not see what purpose it serves to call the aggregation of all those individual actions something related to mobs. Mob mentality means a poor coordination of action. Not no coordination of action. That is not a mob. That is individualism. So speak of "individualistic mentalities" plz, not "mob mentalities".

edit: Though when I say coordination I mean that members of a group decide their group to cause x. In stead of members of a group influencing each other in a way that the group happens to cause x while no member actually tried to create x.

Like people eating a lot of fish and suddenly - no fish left vs people saying "Let's kill all fish! They have poisoned our wells!".
The former is our economies, the latter is a mob.

 

[El_Machinae]

The problem with that point if view is that the economy tends to do worse the fewer people who are part of the decision making process rather than the more the mob calls the shots. The more inclusive the mob, the better the decisions that are made.

Not always, but often. Sometimes a fish school isn't wiser than an individual fish, because most of the school is just watching the other fish for input. The other analogy is flocks of birds. Duck flocks maximize airflow efficiencies in ways no engineer ever could, all by making individualized choices.

The idea behind "lots of people" is regarding setting prices. That's what a large pool of people is really good at doing, setting a 'game-winning' price level, which then goes on to maximize (Pareto-wise) the economic surplus.

 

[Cutlass]

Not always, but often. Sometimes a fish school isn't wiser than an individual fish, because most of the school is just watching the other fish for input. The other analogy is flocks of birds. Duck flocks maximize airflow efficiencies in ways no engineer ever could, all by making individualized choices.

The idea behind "lots of people" is regarding setting prices. That's what a large pool of people is really good at doing, setting a 'game-winning' price level, which then goes on to maximize (Pareto-wise) the economic surplus.

The things about the school of fish is that the wisdom of the mob might get some of them eaten, but it preserves the majority of them.

In human governance and economics, whenever a narrow interest dominates the decision process over the mob interest, then you see the narrow interest preying on the mob, rather than creating wealth for themselves.

 

[Evie]

Well, that would be the part where I noted that you still had to give everyone the ability to " participate meanginfully in the economy and the direction of the country"

It's true that the group is far better at reflecting multiple interests. But that doesn't make it more intelligent than individuals.

The individual is smarter than the group, but far more vulnerable to selfish motivation. The mob is not so vulnerable to special interest, but mobs really have no ability to think their actions through - you react and follow, much more than you think and act in a mob.

Ultimately, that's why you always need safeguards in the form of institutions and other groups that exist to curb the selfishness of individuals and the idiotic overreaction of mobs.