Magic Poriferan
^He pronks, too!
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This reflects back on a discussion that took place in another thread primarily with Zarathustra and Uumlau. I dropped off from the conversation and I don't feel like digging that thread up again, but it bugged me that I never responded to some points that I definitely did have a response to, so I'm dealing with that now, and in the process addressing some general ideological beliefs that I disagree with.
The question is a matter of market externalities and economic regulation. The impact of the former and the need of the latter. To start with, I'll be perfectly clear about what externalities are.
An externality is basically a side-effect of a transaction that is not itself accounted for by any payment or compensation for either party involved in a transaction. This is typically understood to effect a third party outside of the transaction, but due to economic interconnectivity it can eventually have an effect on the original two parties of the transaction as well.
For the full details, Wikipedia has a good enough article on the concept here. As one example of a negative externality, they use pollution, where as an example used for positive externalities is knowledge spillover from inventions.
One might say that an agent in a transaction can remove an externality by simply becoming aware of it and then factoring it into their cost/benefit analysis and changing prices accordingly (you might not pay so much for a good now that you know it's going to blight your soil)The issue is that in the short term, externalities do not impact those involved in the transaction, and thus self-interest will drive them to make the transaction anyhow. In the long term, the more degrees of separation between the original transaction and the effect reverberating back to them, the less likely they are to be aware of the externality's effect on them. Externalities are present as long as there is incomplete information or imperfect risk. What this means is, they are omnipresent.
From a macro-economic standpoint, this is very important. It means that at all times all markets are being riddled with effects of their own creation that are not being accounted for. What I think this means, and what the economist Joseph Stiglitz thinks this means, is that the so-called invisible hand of free market economics does not exist and markets cannot self-regulate. So-called market forces do not guide economic agents away from creating externalities that will undermine the economy right out from under them.
One should consider that the economy is vastly complex, it has innumerable variables which add up to what are effectively an infinite number of permutations. Of all those permutations of all those variables, and extremely narrow range of them fall within the field of what we'd call a healthy or prosperous economy. That means if we were to leave the economy to mutate as it may, the odds of it just happening to stumble into and then stay within that range of a so-called prosperous economy are extremely low. That is, unless, markets could be trusted to follow some form of self-regulation such that they don't just shift through the full gambit of permutations. But, thanks to externalities, I've just demonstrated they don't.
Now, there are those who say this is nothing new and that it makes no difference because there is no alternative to letting markets do just whatever. How could there be no alternative? Because some free marketers say this only validates their argument that markets are so complex that we cannot fully understand them and thus are better off not attempting to control them. This argument is plainly silly. That would describe everything we influence. It would describe medical practice, for example. We do not have perfect knowledge of or subsequently deterministic control of health. We have imperfect knowledge and we only have probabilistic influence over health within the constraints of our limited knowledge. The human body is not completely understood, nor are the chemicals we put into it, nor are the exact circumstance of any given patient and doctor complete known. A risk is present in that uncertainty and indeed sometimes people pay the price for that risk (turns out everyone in my family is allergic to sulfa drugs). Does that mean we should not attempt to maintain our health, or treat health issues? Of course nearly everyone would say no. Why would they say no? Because we do possess some probabilistic influence over public health, and any ability to influence it toward our needs is better, that is more beneficial and less costly, than hoping it randomly works out the way we want it to without our involvement. This is the very essence of rationality. Applying values and exercising the ability to make choices in order to maximize that value is rationality. To declare we should not attempt to exercise that influence in scenarios where doing so is possible is to be voluntarily irrational.
If we can influence markets, that is do more than hope that the costs and compensations of individual transactions will steer people into collectively forming a prosperous economy (again, they won't), then it is the only rational thing to do. Creating institutions that do not depend on profit and have the power to influence transactions in which they are not a part of with a wide range of tools, gives us the power to compensate for negative externalities and facilitate positive externalities in a way that unregulated markets will not.
The question is a matter of market externalities and economic regulation. The impact of the former and the need of the latter. To start with, I'll be perfectly clear about what externalities are.
An externality is basically a side-effect of a transaction that is not itself accounted for by any payment or compensation for either party involved in a transaction. This is typically understood to effect a third party outside of the transaction, but due to economic interconnectivity it can eventually have an effect on the original two parties of the transaction as well.
For the full details, Wikipedia has a good enough article on the concept here. As one example of a negative externality, they use pollution, where as an example used for positive externalities is knowledge spillover from inventions.
One might say that an agent in a transaction can remove an externality by simply becoming aware of it and then factoring it into their cost/benefit analysis and changing prices accordingly (you might not pay so much for a good now that you know it's going to blight your soil)The issue is that in the short term, externalities do not impact those involved in the transaction, and thus self-interest will drive them to make the transaction anyhow. In the long term, the more degrees of separation between the original transaction and the effect reverberating back to them, the less likely they are to be aware of the externality's effect on them. Externalities are present as long as there is incomplete information or imperfect risk. What this means is, they are omnipresent.
From a macro-economic standpoint, this is very important. It means that at all times all markets are being riddled with effects of their own creation that are not being accounted for. What I think this means, and what the economist Joseph Stiglitz thinks this means, is that the so-called invisible hand of free market economics does not exist and markets cannot self-regulate. So-called market forces do not guide economic agents away from creating externalities that will undermine the economy right out from under them.
One should consider that the economy is vastly complex, it has innumerable variables which add up to what are effectively an infinite number of permutations. Of all those permutations of all those variables, and extremely narrow range of them fall within the field of what we'd call a healthy or prosperous economy. That means if we were to leave the economy to mutate as it may, the odds of it just happening to stumble into and then stay within that range of a so-called prosperous economy are extremely low. That is, unless, markets could be trusted to follow some form of self-regulation such that they don't just shift through the full gambit of permutations. But, thanks to externalities, I've just demonstrated they don't.
Now, there are those who say this is nothing new and that it makes no difference because there is no alternative to letting markets do just whatever. How could there be no alternative? Because some free marketers say this only validates their argument that markets are so complex that we cannot fully understand them and thus are better off not attempting to control them. This argument is plainly silly. That would describe everything we influence. It would describe medical practice, for example. We do not have perfect knowledge of or subsequently deterministic control of health. We have imperfect knowledge and we only have probabilistic influence over health within the constraints of our limited knowledge. The human body is not completely understood, nor are the chemicals we put into it, nor are the exact circumstance of any given patient and doctor complete known. A risk is present in that uncertainty and indeed sometimes people pay the price for that risk (turns out everyone in my family is allergic to sulfa drugs). Does that mean we should not attempt to maintain our health, or treat health issues? Of course nearly everyone would say no. Why would they say no? Because we do possess some probabilistic influence over public health, and any ability to influence it toward our needs is better, that is more beneficial and less costly, than hoping it randomly works out the way we want it to without our involvement. This is the very essence of rationality. Applying values and exercising the ability to make choices in order to maximize that value is rationality. To declare we should not attempt to exercise that influence in scenarios where doing so is possible is to be voluntarily irrational.
If we can influence markets, that is do more than hope that the costs and compensations of individual transactions will steer people into collectively forming a prosperous economy (again, they won't), then it is the only rational thing to do. Creating institutions that do not depend on profit and have the power to influence transactions in which they are not a part of with a wide range of tools, gives us the power to compensate for negative externalities and facilitate positive externalities in a way that unregulated markets will not.
