[Snowrunner]

The problem is that this isn't an "either / or" scenario.

A centrally controlled economy will fail, so will a free market one. The problem with the first is self evident, at one point or the other the market is too big and too complex to effectivly manage, the second one is counter intuitive for the Capitalist / Free Market crowd.

So let's talk about the second one for a bit. Free Markets (if we would reset the clock, tear down all borders, currency issues etc.) will in the end fail because the assumption that "Greed" will keep the system (somewhat) in balance simply is lacking the understanding that not everybody has the same level of Greed.

There is a reason why there are only a handful of multi nationals, simply they have reached "critical mass" at one point in time and are now a "run away" train. The logic that in an "open market" anybody could compete with these behemoths is wishful thinking. The amount of monetary outlay to compete with the likes of Kraft etc. just makes it prohibitive for any new player to enter the field. Case in point would have been the breakup of AT&T into the "baby bells" by the US Government in order to allow competition in the phone market.

I also think it is a myth that competition (between many players) is a gurantee for innovation. Just take a look at the IT field to see what I mean. A lot of potential was there, but then the PC was "good enough" and swept the market, not only has innovation slowed down to a crawl, but there has been no new entrance into the market, because Microsoft with Windows has such a large pie that what exists as competition (from a market percentage) is a joke (and yes, I am typing this on a Mac).

Finally, even though centralization is not the answer, there ARE certain areas where centralization IS essential. Case in point would be the public transit. Britain's deregulation has caused havoc in it. A public transit system needs to be "in sync" with each other to make it useful. To run four or five different buses next to each other trying to compete for customers is inefficent not to mention breaks the entire "integration".

So, should the Government be more involved? It depends. I think certain basic serivces, where competition makes little sense (e.g. power (owned by the cities), water (owned by the cities) public transit (owned by the cities) makes perfect sense. It also makes sense for the Government to impose rules and regualtions and then enforce them with fines and punishment that actually DO hurt (e.g. the way they handle drunk driving in sweden, instead of fixed sums they give you a ticked worth x% of your anual salary). The rule of the Government is and should be to provide the basics for people to do business and live in peace, outside of that there is no role.

As a note: Yes, this is very much simplified.... I shall try to clarify certian points should the need arise

[Tyler_JC]

Sorry, you're right, I was starting to sound preachy.

The escalating price of energy is our best ally in the fight against climate change. Carbon taxes might be implemented in the developed world but there's little chance China or India will cap their emissions. $120 a barrel oil changes the game.

[venky]

I am not convinced that the free market system is doomed to failure; though I believe that business as usual will result in a lot of hardship for a large segment of population as fossil fuels decline.

I think the key issue; there has to be an effective mechanism by which the "commons" are protected from over use by the market players, along with the environmental costs being properly accounted for in the making of any product or good.

[Snowrunner]

$this->bbcode_second_pass_quote('venky', 'I') am not convinced that the free market system is doomed to failure; though I believe that business as usual will result in a lot of hardship for a large segment of population as fossil fuels decline.

[venky]

I dont know if there is an answer and it definitely wont be easy to establish a regulatory mechanism that can factor in a price for the environmental cost of economic activity. Perhaps thats a reason for a relatively small number of replies to this thread, people dont have an answer though they instinctively realize that capitalism and a market economy are running up against the wall of resource depletion and climate change. I suspect most people fall into 3 groups

*Leftists- More socialism is the answer and capitalism is bad
*Free markets are supreme and will always provide and to discuss any alternative is an exercise in futility
*Doomers - We are doomed, doomed I tell ya!!!!!!!

I was reading a fascinating book called Capitalism 3.0 about which I plan to start a thread when I am done with it, which talks about how something like this can be achieved.

[eastbay]

It's generally agreed that capitalism requires an expanding economy. It's also generally agreed that socialism (or communism) thrive in a failing or failed economy.

Q: Hmmmm... I wonder which system will usher in the post collapse, oil depleted New Era?

A: Probably neither. Some form of either barter or feudalism will reign supreme. Discussions of capitalism or socialism will most likely be for academic entertainment only.

[Snowrunner]

$this->bbcode_second_pass_quote('eastbay', 'A'): Probably neither. Some form of either barter or feudalism will reign supreme. Discussions of capitalism or socialism will most likely be for academic entertainment only

[MrBill]

The problem with these discussions is that they are largely strawmen arguments. The definitions of what is a free market; or a market economy; or political interference in the market economy; or a centrally planned government with a market economy are not very well defined, so how can we say we any certainty that one or the other has or will fail? The market economy thrived under central planning that created scarcity, so demand was supplied by the gray or informal economy.

To that end high prices are not a sign of failure. Economic pain in a market economy is also not a sign of failure. Resource depletion comes from consumption, not from who benefits or who is hurt by that consumption. Yes, it sucks to be poor, but most poor countries are poor because of bureaucracy, incompetence and corruption - or BIC Syndrome - by their governments and not because they lack natural resources.

Governments in resource rich countries can afford to be even more corrupt than those in resource poor countries. And likely if they have what the world wants (or needs) they can get away with more fundamental abuses of human rights within their own borders (and sometimes beyond).

The examples are too numerous to mention here. But one recent example is foreign investors buying up prime farmland in Russia, Ukraine and Kazakhstan that has been lying idle for over a decade. There was nothing stopping the locals from farming that land except lack of property laws, lack of capital for investment, lack of organization, lack of will, etc., and now that foreigners come in and tap that under-utilized land to make it productive once again it is decried as neo-colonialism. And as sure as I am typing this that will lead to some form of government take-over and/or land redistribution.

So in other words the market economy and private enterprise is tolerated when it is creating wealth, but as soon as they show the way, so to speak, then everyone wants a piece of the economic pie that they, by the way, did not help to create. So private companies take the risks (of failure as well), but as soon as they are successful they are viewed as having gotten something that belongs to everyone for nothing when in fact the exact opposite is true.

Centrally planned economies are great at wealth re-distribution. They suck at creating new wealth or innovation. Although they sometimes bankroll innovation inadvertently by throwing money at research and development. The shotgun approach to innovation. Or buying (or stealing) off the shelf technology abroad. Sometimes they get lucky. But on the other hand centrally planned economies waste resources because they believe that economics do not matter and therefore open markets and market price signals are there to be ignored for the greater good. That greater good usually enriches the central planners and their cronies first.

Spare a moment to think about all those young Chinese athletes in their dedicated training camps that have been forced to take growth hormones and steroids and do sport 8-hours a day instead of going to school. What happens when they are not good enough for the Olympics much less to win those coveted gold medals? Badly educated, perhaps from poor families, maybe suffering the side-effects of prolonged sport at an early age and the long-term side effects of steroid use that will be more than likely thrown on the scrap heap, while China basks in the glory of those precious gold medals as proof that its centrally planned economic model is obviously superior.

Meanwhile Canadians suck at the summer Olympics, but we send our children to school to learn to read, write and hopefully function as adults in society later in life. So obviously we are a bunch of losers, and our economic system with a socio-democratic government, a market economy and a generous social safety net must be an absolute failure?

In a democratic country with a market economy ultimately it is the government on behalf of the people that decide how companies can behave. There is nothing stopping governments from collecting royalties on natural resource extraction. They do. There is nothing stopping government from fining polluters. They do. There is nothing stopping government from taxing consumption. They do. There is nothing stopping government from requiring recycling. They do. These are not market failures. These are examples of how the government regulates the market economy.

Resource depletion is caused by over-consumption. Consumers and governments play an equally important role in how resources get mined (or produced) and how they get consumed as well as recycled. Do not blame your over-consumption on the free market. That you are free to make poor choices with negative long-term consequences. That poor decisions will result in winners and losers. Or that as voters that your taxes go to the wrong priorities as opposed to funding public transport and alternative energy.

Is it the market’s fault that the government runs budget deficits? That the government collects taxes (channeling money away from the free market), and then spends it on social programs and projects of dubious value instead of investing that money in the infrastructure that the economy needs to be competitive and/or consume less energy? Is it the market’s fault that voters punish democratically elected governments for making tough political and economic choices, so best avoid them? Given how badly government is run and how much they interfere in the market economy creating all sorts of distortions I find it amusing that some posters out of ideological reasons would entrust it even more power over resource allocation decisions. Thanks, but no thanks!

[wisconsin_cur]

$this->bbcode_second_pass_quote('eastbay', 'D')iscussions of capitalism or socialism will most likely be for academic entertainment only.

[MrBill]

$this->bbcode_second_pass_quote('wisconsin_cur', '')$this->bbcode_second_pass_quote('eastbay', 'D')iscussions of capitalism or socialism will most likely be for academic entertainment only.

[MrBill]

[align=center]Political Interferece in the Market Economy[/align]
FHA loans carry the explicit backing of the U.S. government, not just an implied backing like its two better-known cousins. That means American voters get cheaper interest rates, but if they default, taxpayers are on the hook.
$this->bbcode_second_pass_quote('', 'I')f you like what's happened to Fannie Mae and Freddie Mac, you'll love what could come next. With estimates putting the cost of a potential bailout to these government-sponsored mortgage giants at more than $25 billion, Washington is boosting its commitment to one of the riskiest segments of the mortgage business, rather than paring it back.

While Fannie and Freddie mainly serve middle-class borrowers who've been relatively slow to default on their loans, another entity, the Federal Housing Administration, caters to first-time buyers and those with poor credit, the same people that private lenders shepherded into the now notorious "subprime" market.

Now that subprime lending has all but ground to halt, the FHA is riding to the rescue, helping thousands of aspiring, but risky homebuyers secure financing they wouldn't otherwise be able to get. As a result the FHA's share has swelled to 10 percent of all new loans, up from just 4 percent at the height of the housing boom. Moreover, the recent Housing Bill will expand the FHA's mandate significantly, permanently increasing the size of loans it is allowed to guarantee and creating a new program designed to help troubled subprime borrowers refinance into more affordable loans.

While FHA's policy goal -- providing low-income borrowers with affordable mortgages - is laudable, these developments should give taxpayers pause. The mortgage market, we now know, is risky business. And that goes equally for giants like Fannie and Freddie and with large, experienced staffs and Wall Street investment banks with complex computer models. With billions of taxpayer money at stake, is it really wise to ask the FHA -- chronically under-funded, buffeted by the whims of politicians, delegated too little authority -- to succeed where they have failed? While the general consensus appears to be yes, as there are few, if any viable alternatives, efforts to expand the role of FHA need to be accompanied with appropriate and meaningful reform, including greater autonomy and greater access to private sector tools and expertise.

[venky]

MrBill I appreciate your posting on your thread. Your response was however on a similar refrain to the sentiment you have expressed on numerous occasions; that its not the fault of the market, but rather of individual decisions and the government. And the numerous deficiencies that occur in a centrally coordinated economy are only too clear to us. I am aware of the the terrible damage that a centrally coordinated economy along with the BIC syndrome wrecked on my own country India for more than 40 years and I certainly do not favor or look on a government lead approach over any free market approach.

But if one can see clearly the flaws in a centrally planned economy, that does not mean that one should be blind to any problems that might occur in a market economy. Human beings by nature have a lot of flaws and these will show whether they act in a closed economy or a free one.


You say its not the fault of the market, that is true; we cannot point to the market as an entity as we can in the case of the government. I look on the market as the sum of all decisions of the hundreds of millions of players that are active in the economy. But in a free, market oriented economy, where human beings are free to work towards there betterment, there will always be an upward pressure towards economic growth. While ofcourse this is by itself a good thing that people are economically free; and have improved their standard of living in so many countries.

However, when we are looking at the issue from the perpective of resource depletion and climate change we see that it is this very success that is the main cause of the tremendous challenges that we will face as our natural resource base declines and the climate of this planet becomes steadily worse. While a market economy does work extremely well in the case of relatively short term gains to society or longer term goals of individuals and organizations; it does seem it fail when we consider the long term interests of society and the planet.

Some people believe that a regulatory feedback mechanism that keeps our consumption is check and our understanding of our damaging effects on the environment can only come from a central authority. but I dont think that is necessarily true.

Infact given the poor record of government lead institutions in most cases, I would prefer if this 'regulatory mechanism' would be established within the free market. How ......is what I want to explore.

[MrBill]

Who are our stakeholders in society?

Individuals - voters & consumers
Business - employers & producers
Government - rules & regulates business on behalf of individuals

Let us not pretend for a minute that individuals or businesses are free to pursue their own goals independently or outside the rules that society imposes on them via the government. The government collects taxes and redistributes wealth as well as sets the regulatory framework within which business can legally operate.

So the only question remains what kind of government? A cradle to grave social welfare state that proactively intefers in the market economy for the (supposed) greater good? A more laissez faire approach? Or a command and control approach?

As I have argued governments seem to be very good at redistributing the existing economic pie. Once the market shows them what to do they are good at interfering in the market. Whether or not you think that is a good thing depends on your ideology? As you come from India I would argue that the gains made in the past decade have come from a shift towards the market economy, and away from the largely discredited policies of that particular brand of socialism that has been widely experimented with and found wanting in the previous decades. But you tell me?

However, I have, yet, to find any evidence that a centrally planned economy is better at conserving scarce resources or is a better steward of the environment? Actually the evidence is quite the opposite.

So if the choice is between less economic efficiency and poorer rules and regulations surrounding resource extraction and protection of the environment, and a market economy with a responsible, elected government that takes environmental protection seriously then I suppose I know which one I would support.

In this respect Skandinavian countries, and others that score very highly on the UN human development index, probably offer a more attractive trade-off between economic growth and stewardship of the environment than say either the USA or China. This is a not a black or white, either or, issue, but a constant trade-off between economic growth and protection for the environment. Neither a centrally planned economy nor a market economy can magically make finite resources last forever. So which one is best at looking for alternatives?

[ReverseEngineer]

Does nobody think outside the box here? It has to be all Market Based or Central Planning? Communism, Socialism and Capitalism are the end all and be all of innovation in economic systems?

"Yea, Capitalism makes some mistakes, but I sure don't see that the Communists did a whole lot better". "How does a Cradle to Grave Socialist State reward productivity and innovation?" Crap, I have been hearing these same arguments since I was in college, and thats 30 years of bullshit. If you can't grasp that all these concepts are WRONG WRONG WRONG by now as we watch the Polar Ice Cap melt off into oblivion, HTF can I possibly address this? I am NOT going to make the same arguments with Capitalists who promote a "Free Market" or Communists who promote a "Planned Economy" I have made for 30+ years now, its OBVIOUSLY a waste of time.

Economy is central to society, but it has limitations in its scope. Any economy which grows too large does not take into account the damage it does external to the economy. Simple example, the Chinese economy is (was) growing at a fantastic rate, but at the expense of turning the environment there into a sewer. Same thing was happening here for years of course, but we offloaded the environmental problems of manufacturing to other countries and shifted to financial services, which we mucked up pretty well in the end as well.

Small societies which are confined in their resources tend to have respect for those resources. if you remember the scene at the beginning of "Last of the Mohicans", after killing the Deer, Chingachicook Humbles himself to the Deer, thankful that the Deer gave its life so that he could live. We all live at the expense of something else or someone else in the environment, but Economics in the classical sense does not take that into account. Either planned or market based, it presupposes a Cornucopia, that with good planning or a Free Market, all will be provided for. In neither case is this true, and so both economies fail in the end, as we witness.

The only economy which is sustainable is one wherein you acknowledge that for the entire system, everything gained comes at a loss for something else. Either you make other people poorer to become rich yourself, or you rape the environment to become rich. You CANNOT get rich, keep the environment whole and make everyone else rich at the same time, that Dog just won't Hunt.

The Environment is about Plumbed Out in terms of riches, actually now we are in the position of having to pay BACK for the degradation. There are a few rich and many poor people, but you cannot bleed money from a stone, and the rich cannot get richer by impoverishing more people anymore. Those annoying poor folks are just going to die on them instead, and they will have to absorb the loss of income as a result. Run a big farm based on slave labor, all the slaves die you still have your farm but you are not producing much anymore. That is the result here. In this case, not only did you lose all the labor, you ALSO lost the multiplier of the labor, Big Oil. You cannot generate the wealth in the absence of this, not to the level it was and not at the rate it was produced for the last 100 years. It does not MATTER which system of economics you use here, they ALL fail.

In the absence of Thermonuclear destruction and the absence of total Environemntal Collapse which might be possible already, hopefully the survivors of this cataclysm will understand that you cannot live sustainably without understanding that everything you do takes away from something else, at least until we have Chlorophyll in our skin. Economies need to be kept small and within the sphere of control of the people who actually live in the environment. Big government is not sustainable because it does not react to individual environments well, it follows the market in a market based economy, it follows the dictates of the planners in a central economy. Both are more often wrong than they are right once the resources grow thin. Its only when resources are plentiful either can work, and make the rich richer.

I hold out the HOPE that in the aftermath of this period of "civilization" the survivors will come to understand the limitations we have, and give up on moronic schemes like Capitalism and Communism as means to power and wealth in the world. To this point, both systems thoroughly have destroyed our planet, and made life not worth living for many people. Its a social sickness of having become too big for our britches, and it must be STOPPED. And trust me, Mother Nature WILL STOP it if we do not find a way to do it ourselves. If we leave it up to Mother Nature, she will take NO PRISONERS. Its up to us to learn how to live by the RULES of the Earth, not to try to make the Earth live by our economic rules, Communism, Capitalism or Socialism as you care to define any of them. If we cannot do that, we will DIE as a species, and deservedly so.

Reverse Engineer

[venky]

$this->bbcode_second_pass_quote('', 'A')s you come from India I would argue that the gains made in the past decade have come from a shift towards the market economy, and away from the largely discredited policies of that particular brand of socialism that has been widely experimented with and found wanting in the previous decades. But you tell me?

[venky]

Great Post Reverse Engineer! Expressed a lot my sentiments with the emotion I find myself reluctant to usually express:-)

[venky]

Some observations regarding this discussion.

I realized that is impossible for a purely Steady State economy to be a free one. One simply cannot control all aspects of production and have any freedom left for an individual.

Nevertheless as the world plunges ahead into an energy and resource crunch in the near decades ahead, there will be calls to protect and conserve some essential inputs and parameters like energy , raw materials, water and population itself. The end result would be an economy that is no longer growing or even shrinking. This might even come about by means of a very gradual change; with a large percentage of the resource allocation and energy and carbon reduction being achieved by market forces and the government intervening only to maintain order and stability and protect the weakest sections of the populace.

Or if the changes occur more chaotically and the descent is steeper, our freedoms could end and authoritarian regimes could emerge from both the left and the right. But I generally doubt that totalitarian regimes would perform any better than free ones at conservation and development of alternatives. Infact these regimes are far more likely to be riddled with corruption, violence, bureaucratism and incompetance.

I believe that in the general scheme of things ideology matters less than respect for the rule of law, a readiness to help others, foresight in preparation, competant and courageous leadership and a willingness to sacrifice would characterize a society that would emerge successful from all of this.

[phaster]

The other day while the rest of the world (traders and bankers) at least were basically soiling themselves wondering what would happen to AIG, after watching that the fed didn't bail out lehman brothers, blab, blab, blab... I walked down at the local cafe to get getting my caffeine fix, and read my paper.

Anyway while reading my paper found this little tid in the FT that caught my eye and thought I'd share this bit of info....



As I was saying about the global crisis 22 years ago
Published: September 18 2008 03:00 | Last updated: September 18 2008 03:00 From Dr Jan Toporowski.

Sir, Twenty-two years ago, the Financial Times published an article by me, entitled “Why the world economy needs a financial crash” (February 19 1986), in which I argued that inflation offers a “natural”, crisis-free way of eliminating excessive debt from the financial system of a market economy. Your publication of that article devastated my City of London career. But subsequent events have amply vindicated my argument.

Having spent the past 10 years congratulating themselves on defeating inflation, and periodically throwing liquidity into the markets to alleviate the consequences of their victory (“Central banks offer breathing space to work out exposures”, September 16), isn’t it time that governments and central bankers considered the implications of allowing excessive credit to build up while repressing the mechanism for getting rid of it?

Jan Toporowski, Economics Department, The School of Oriental and African Studies, University of London, London WC1, UK



I thought it was a nice remineder that not matter how much man tries to control the economy, if something is unsustainable its going to bitchslap those who didn't recognize the signs that people should respect and be good custodians of the economic system.

The same respect and care IMHO should be accorded to the global environment and natural resources such as oil and crude...

I never did think subprime loans were a good idea, didn't own any financial stocks none less I had significant declines in value in
my various stock accounts because the imprudent actions of others. BUT just also thought I'd mention that even though it sucks to loose money by no fault of your own, I just thought that I'd mention its only money.

We in the industrial world are the lucky one's, who have the luxury of playing the markets. In the third world the stress some might have experenced this past week because of decling values of our portfolios, is a normal way of life for billions of people who struggle to find their next meal.

If ya think a stock market decline is bad and the end of the world...




Then next time ya think ya have problems consider that 5/6 of humanity lives day to day with an unimaginable amount of stress because they have to worry about where they are going to get their next meal...

[Quinny]

A lot of people on this forum seem to think that the free market will solve the worlds problems. I think this is total bollocks and that unbridled capitalism has put us into the shit situation we are now in.

I personally believe the market is a good servant but a bad master.

Is there anyone out there who is still willing to defend the 'free market'?

[Twilight]

Do you call what we see today "free" or "capitalism"? It is a perversion. There have been failures of regulation, but enough have been rewarded for failure to cheapen success. Increasingly it is all about whether the government has your back covered. I don't see how anointing more champions is going to change the direction of things. More like floor the accelerator.