...mother would be so proud!
Nick Rowe took issue with the post of mine that Brad cites, but I'm not entirely to give ground on this - and I think I make my point more clearly here.
The point is this - if you want to answer the question "can the market fix itself or must we fix the market?" you have to answer one single question: "can the problem be arbitraged?"
The market at its most basic level is an institution that arbitrages allocation decisions. If the problem you are dealing with can be arbitraged there's a damn good chance the market can fix it.
If it can't be arbitraged, you might want to consider other liberal institutions - like perhaps liberal democracies with monetary and fiscal authorities. Keynesian economics demonstrates that underemployment equilibria can emerge that cannot be arbitraged.
Monday, May 2, 2011
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"If it can't be arbitraged, you might want to consider other liberal institutions - like perhaps liberal democracies with monetary and fiscal authorities. Keynesian economics demonstrates that underemployment equilibria can emerge that cannot be arbitraged."
ReplyDeleteBut then there are obvious questions, which have already been asked and opined upon by critics:
-Can those government based authorities actually deliver through the supposed solutions?
Then there's the question of consequences and public choice theory.
That's just the beginning...
Right - and we talk about those issues regularly on here.
ReplyDeleteYour first problem is treating the market like an institution. I have repeatedly made the point (and "Hayek" confirms it) that the market is not an "exogenous" "system" that plays by special rules. It's not a car. It's not a "process."
ReplyDeleteIt's a network of people. And as much as you say "Oh Mattheus - of course it's a network!" You really don't seem to comprehend the extent of the point you're giving up. There's no "economy" or "market" over and above individual choices people make.
So the question isn't "Can it be arbitraged?" but rather, "Can people voluntarily come to solutions on their own?"
When phrased that way, the answer is an obvious yes - and it becomes clear why extra-market institutions are inferior at making market decisions.
Well, it is an institution. It is a process. It is a system. It is a network of people.
ReplyDeleteYou are right its not a car. And I'd be the last person to say that it's exogenous - my whole point on property rights here is precisely that it's not exogenous.
Once again, Mattheus - you are confusing ontological significance with agency. I am not saying markets have agency - I never have said that. Ever. And you can stop worrying about making this point again until you find and instance where I have said that.
By taking the position that markets are non-reducible, you are essentially arguing they have agency.
ReplyDeleteIf the operations of a market are reducible to individuals, concepts like aggregate demand and volume of employment are next to worthless. You insist that the market is not reducible. That's your mistake.
When have I insisted the market is not reducible?
ReplyDeleteI think we can work with aggregates in addition to individuals for PRECISELY the same reason why you think we can work with individuals and don't always have to find motivations for human action in cellular biology.
ReplyDeleteThat is not an analogy - it is for identical reasons.
You argue for non-reducibility all the time. I argue that we can derive categories like profit and loss, means and ends, costs (and more complex categories of exchange like interest and money) from individual men. You have consistently fought me.
ReplyDeleteI think we can work with aggregates in addition to individuals for PRECISELY the same reason why you think we can work with individuals and don't always have to find motivations for human action in cellular biology.
Ah, but biology is non-reducible. The behavior of the cell is not directly reducibly to the behavior of mitochondria and ribosomes. There is a "cell" strictly OUTSIDE the functions of its constituent parts. In biology, there is a "car" because you can only learn about a cell when X, Y, and Z organelles are present and working.
Contrary to an economy, whose behavior you CAN deduce from individual people.
Being reducible doesn't mean "we can work with individuals" (I hope you can!). It means that ALL processes can be reduced, not some or a few.
Daniel Dennet is a reductionist materialist. If you asked him about mental states, he would say that mental states are perfectly reducible to brain states (One topic can be explained another way). Furthermore, he thinks that more knowledge is gained when you reduce it to brain states because we don't get confused about things like mind-body problem.
THAT is not an analogy - that is for identical reasons.
Can you give a basic example of when arbitrage is possible? Not possible? And why?
ReplyDeleteMattheus -
ReplyDeleteI have not said that you cannot deduce or that deduction is illegitimate. Really, you should know better than this. What I've said is that it is fraught with error and should not be relied on exclusively. I have also said that we should not abandon macro theorizing simply because it comes with no microfoundations attached. Microfoundations - deductions up from elements of the wider set - are fine. They're great. I've never fought you on that. But I have fought you on the question of whether they are necessary, whether the actual process of deductive science poses risks, and whether other analyses shoudl be held up by them.
A cell is not reducible?
EVERYTHING is reducible Mattheus. That's not the question. The question is "is reduction the best scientific approach to the problem at hand?".
re: "It means that ALL processes can be reduced, not some or a few"
Mattheus, listen to me: whether (1.) all processes can be reduced, (2.) it is most productive to reduce all processes, or (3.) it is necessary to reduce all processes are three entirely different questions. You and I agree on (1.). We disagree on (2.) and (3.).