[ExI] Greed + Incompetence + A Belief in Market Efficiency = Disaster

[painlord2k at libero.it]

Il 31/01/2009 14.40, Stefano Vaj ha scritto:
> On Sat, Jan 31, 2009 at 3:17 AM, Stathis Papaioannou<stathisp at gmail.com>  wrote:
>> 2009/1/30 BillK<pharos at gmail.com>:
>> Please note that there are two possible meanings for "efficient market
>> theory". The more common one in economics is the idea that the market
>> prices a security to reflect all the information available, so that it
>> is in general not possible for a speculator to beat the market unless
>> he has special information:

> Yes. In this sense, markets remain "efficient", in market terms, even
> in the worst possible economic downturn. The fact is that efficiency
> in this sense has nothing to do with wealth in any practical sense.
> Markets are perfectly compatible, e.g., with free trade generating
> poverty or famine, rather than wealth, in a given country. In fact,
> "marketwide", this may be an efficient development.

Free market are efficient because they give the goods or the services at 
the highest bidder first and to the lower bidder after and the reverse 
is true as the bidder buy from the lower seller first and from the 
highest after. But, also, let people don't sell or don't buy when the 
prices are too low or too high.

This maximize the gain for the seller and for the buyer. The buyer 
paying more is, by default, the most in need where the seller selling 
low is the most in need. In a free market, where there are multiple 
actors, the prices of the goods and services of all vendors and buyers 
converge rapidly inside a small range.

"Man, Economy and State, with Power and Market" by Rothbard explain this 
very well.



>> The article cited is talking about something quite different: the idea
>> that if markets are left free from government interference that will
>> always be for the better. This has come to be accepted as indisputable
>> fact by neocons since the early 1980's, with Reagan and Thatcher its
>> most influential proponents. The result has been a 25 year debt
>> bubble, so that the US economy came to consist largely of retail and
>> financial services. The bubble has now well and truly burst and it
>> looks like there is no escaping years of relative poverty for both
>> debtor and creditor nations ahead.

This would be true if the government would refrain from:
1) interfering with the money (no Fed, no Central banks)
2) interfering on how people do business (no quotas, no restriction to 
open or close branch of a bank, and so on- and it is long)

> One wonders however *why* this should be the case, when this is a
> purely financial outcome having nothing to do with available labour,
> natural resources and industrial capacity. Here, a modicum of bold,
> lateral re-thinking might be in order.

But it is not true that it have "nothing to do with available labour".
The prices in a free market, as I wrote before, coordinate the 
production. When you interfere with the prices (lowering the rate of 
interest of the Central bank, for examples - or in many other ways it is 
too long to write them all) you change the share of resources invested 
in any and all fields.
So you are bound to produce more that is not really needed and less that 
is really needed.
As lowering the Central Bank rate is done with a stroke of a pen, 
without someone shelling real resources to do it, this is a way to alter 
the market and the investment of real resources in the long run.
And when you have used the resources, the real resource (labour, 
concrete, energy, etc.) you have them no more. But you have homes, 
unneeded, empty homes that will not be paid back.


> As Ezra Pound used to say, "the idea that a government cannot build
> highways because there is not enough money is akin to the idea that it
> cannot build them because there are not enough kilometers".

Ezra Pound the famous economist?
People that think that "money" is a piece of paper that governments can 
print on demand and without limits could write good poems but will not 
teach good economics.
Governments can, for sure, print paper money as much as they like; they 
have the power to do so. But they have not the power to force people to 
believe the money have any worth or represent any wealth.
As Rothbard (and many others) teach, money is a commodity that is useful 
mainly for use in exchange for good and services, not for consumption 
(try to eat paper money or coins, if you don't believe me).
And more the quantity of this commodity is available, less it is valued.

At the end, its real value is the value of use of the paper itself or 
the value of the metal of coin.

For examples, I suggest "Republic of Weimar" and "Zimbabwe".
Or, if you remember your childhood in Italy, when the coins disappeared 
from the market (value of the metal was more of the value of the coins) 
and the banks introduced the "miniassegni".

> Even
> though I am far from persuades by their messianic trust in impersonal
> mechanisms, at least radical libertarians try to think
> "out-of-the-box" - something which cannot really be said, also thank
> to their being conditioned by conservative vested interests, of most
> governments.

It is not that the market work miracles, but the other way simply don't 
work. Ask Mr. Putin; these days he gave a speech in Davos warning that 
government interferences in the economy is damaging for all and good for 
no one. And we know that the Soviets tried it in any and all ways and 
were full of smart, tenacious and learned people; but they failed.

Mirco