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DonJoe

Where is more poverty: Russia or the United States

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I was reading more of this well written thread of exchange on the basic fabric of equality.

 

Renegade, you mentioned helping your daughter form a day care. I was touched by the planning. I've never started up my own business but I did work as a bookkeeper while working my way through college. I actually did run the entire business as the owner himself was always traveling. I did the profit and loss for a myriad of small businesses and I really enjoyed the whole experience. I would say that you are wrong about the statement, "you didn't build it on your own", only because too many people took what it meant entirely in the wrong way.

 

You are right when you contend that the owner is the person who does take all the risk. They know this, they suffer this, it's quite quite clear to them. Yet, we are in it together for sure. The pride a small business person has employing people is enriching. I know, I saw it. Those businesses that work out in the end find ways to keep people on longer. That's part and parcel to the whole experience really. That's even what makes it tragically hard to sell a good business. They worry about what'll happen to the employee's who helped them out.

 

The point I'm trying to make is we need an infrastructure that helps businesses and doesn't hurt them. The right has it awfully wrong about this. The corporations hurt small businesses just as much as they hurt the average worker. And that is a general statement, there surely are good corporations out there. What we need is good governance. What we need to do is get past all the bull shit.

 

Peace!

 

I agree with you. The rules will always need to evolve in order to maintain competition. Without constant vigilance, the large corporations will do whatever it takes to eliminate competition and distort the market. Every small business owes its existence to government protection. A more accurate statement would have been "You couldn't have built this without government rules and services."

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Nope, this is not obvious to me. Please explain.

 

Exchange value is an attribute of commodities, which are goods that are produced for sale in the market.
It thus makes no sense to apply the concept of exchange value to goods that aren't commodities, ie that aren't produced for sale in the market.

It may be hard to imagine for inhabitants of modern "market society" but as I discussed upthread markets aren't even close to being the only system used to exchange things in human history.

Your analogy is appropriate for average wages, but not for average hours worked. It's not possible for a few statistical outliers to skew the average hours worked downward. That would require a few people to work massive negative hours.

 

No, low non-negative numbers can certainly bring averages down.
It would depend on how they are coming up with the average annual hours worked figure (if you could find that information it would actually be quite helpful). Calculating the average hours worked for the entire population, for example, would of course exhibit a downward trend as all the advanced countries are aging societies where fewer people are working simply because more are retiring/retired. And obviously a long-term growth in unemployment and underemployment would also bring the average down.
At any rate, I think you've proved my point. Among full-time workers the average hours worked per week are 47! 47 is a huge amount of work per week even relative to other advanced countries. There is no reason for people to have to work that much to support themselves; undoubtedly some of this comes from people who are invested in their jobs for non-monetary reasons or who are just ambitious.
It's also unclear how that chart treats the phenomenon of working multiple part-time jobs. I know several people who work 3 jobs at around 20 hours a week, for a total of around 60 hours a week (and all indications are that this phenomenon is on the rise on the economy, so don't dismiss this as a personal anecdote).

How would such people be categorized by that chart?

In any case, I thought you understood from some of your comments upthread that unemployment and underemployment are structural problems that have nothing whatever to do with personal choice. Unemployment and underemployment result from an insufficiency of spending in the economy, period. This can be easily remedied by sufficiently large government deficits. It cannot be remedied by people simply "choosing" to get jobs.

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Your analogy is appropriate for average wages, but not for average hours worked. It's not possible for a few statistical outliers to skew the average hours worked downward. That would require a few people to work massive negative hours.

 

I agree, there is much more part time work these days, whether by choice or not. That does move the average hours worked downward. But, less work, is less work. You can't be part time employed and overworked at the same time. Among full-time workers, the average work week has been steady at around 47 (http://www.gallup.com/poll/175286/hour-workweek-actually-longer-seven-hours.aspx):

 

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It depends upon how the calculations are done. For example, if you include millions of people who are unemployed, who work 0 hours per week, then the average is dropped significantly downward. Of those who work, and are forced to part time jobs (numbers in the millions) simply because there is no work, the numbers drop significantly downward. Of those who work full time, it might be much higher than the hours. Also, I know many who work part time who can't claim all their hours. They are often told to work after they check out to clean or other purposes.

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Exchange value is an attribute of commodities, which are goods that are produced for sale in the market.
It thus makes no sense to apply the concept of exchange value to goods that aren't commodities, ie that aren't produced for sale in the market.

 

Exchange value is the value of something that can be exchanged. If something has no value, then it can't be exchanged. So, perhaps you could be right about things that are worthless. I don't believe that's what you meant. Even if it was, just about everything has at least some value, even if it's negative.

 

The other way to not have exchange value is for something to have infinite value. If the value is finite, then it can be compared to other goods/services/values and an exchange can be made. Anything with finite value that is exchanged for other goods with finite value obviously has exchange value.

 

So, are you arguing that some things have infinite value? Like what?

 

When a father chooses to attend a daughter's recital instead of working overtime, he has exchanged financial gain for family time.

When a free society pays soldiers to fight wars, they exchange lives for national interests.

When an environmentalist chooses to buy more expensive, carbon-neutral goods, he's exchanging money for a cleaner environment.

 

Everything has an exchange value. In every example I can think of, including the ones above, you can change the decision by changing the amount of whatever is being exchanged. In the first example, the father will make a different decision, depending on how much financial penalty he risks and how much time he gets to spend with the daughter. In example two, the free society must weigh the number of lives against the value of the interests. The soldiers must weigh the degree of risk to their own life against the pay being offered. The man in the last example will change his decision, depending on how expensive the carbon-neutral goods are and how much environmental impact can be avoided. In every case, the decision can be affected by money.

 

Perhaps you could give me examples of something that can't be exchanged?

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It depends upon how the calculations are done. For example, if you include millions of people who are unemployed, who work 0 hours per week, then the average is dropped significantly downward. Of those who work, and are forced to part time jobs (numbers in the millions) simply because there is no work, the numbers drop significantly downward. Of those who work full time, it might be much higher than the hours. Also, I know many who work part time who can't claim all their hours. They are often told to work after they check out to clean or other purposes.

 

The dark green line on the chart is for those who are "employed full time". That would eliminate the unemployed and those who only work part time, or 0 hours per week. The numbers are based on a poll where people self-report their own work hours; not on how many hours they can claim. The survey asked: "In a typical week, how many hours do you work?" Salaried workers, of course, report working longer than hourly workers. That 25% of salaried, full-time workers who put in 60+ hours a week can genuinely claim to be overworked.

 

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At any rate, I think you've proved my point. Among full-time workers the average hours worked per week are 47! 47 is a huge amount of work per week even relative to other advanced countries. There is no reason for people to have to work that much to support themselves; undoubtedly some of this comes from people who are invested in their jobs for non-monetary reasons or who are just ambitious.

 

Whether or not 47 hours is too much or too little is largely a personal judgement. My point with the chart was just to show that the trend is flat. People aren't working any harder now than they were at the turn of the century.

 

If you go back even further in time, you'll see that we're much better off. Around 1900, the average was 60.

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It is hard for me to believe Gallup polls. They have been proven misleading so many times they have lost their credibility.

 

Here is a link which indicates the work week is about 33.9 for Americans to indicate much variation in the reported number.

 

http://www.huffingtonpost.com/2012/05/24/11-countries-with-the-longest-working-hours_n_1543145.html

 

I don't believe either one, as average is not of much interest, and a poll depends too much on how the question is phrased, the memories of the people reporting, and their biases in how much they actually work. It would be difficult to get a non-misleading number for a variety of reasons so I am reduced to personal observation. Of course personal observation is not much better.

 

Comparing to other nations is also problematic. In many nations, it is bad form to leave your job before your boss leaves. Therefore, while you are at work for long periods of time, you may not be actually working. Productivity might be a better measure, however, that is dependent upon the capital expenditure and infrastructure to do your work. An all automated factory might need few workers but get a lot done.

 

A better way to look at this issue is to determine how many hours a person should have to work to obtain food, shelter, health care, education, vacation, family, paying taxes and others that we might agree upon. I might argue that as automation becomes more and more common and available, that those things should be provided for each and every person by virtue of people having great value, particularly when they are free to make their own decisions about how to improve society.

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Exchange value is the value of something that can be exchanged. If something has no value, then it can't be exchanged. So, perhaps you could be right about things that are worthless. I don't believe that's what you meant. Even if it was, just about everything has at least some value, even if it's negative.

 

The other way to not have exchange value is for something to have infinite value. If the value is finite, then it can be compared to other goods/services/values and an exchange can be made. Anything with finite value that is exchanged for other goods with finite value obviously has exchange value.

 

So, are you arguing that some things have infinite value? Like what?

 

When a father chooses to attend a daughter's recital instead of working overtime, he has exchanged financial gain for family time.

When a free society pays soldiers to fight wars, they exchange lives for national interests.

When an environmentalist chooses to buy more expensive, carbon-neutral goods, he's exchanging money for a cleaner environment.

 

Everything has an exchange value. In every example I can think of, including the ones above, you can change the decision by changing the amount of whatever is being exchanged. In the first example, the father will make a different decision, depending on how much financial penalty he risks and how much time he gets to spend with the daughter. In example two, the free society must weigh the number of lives against the value of the interests. The soldiers must weigh the degree of risk to their own life against the pay being offered. The man in the last example will change his decision, depending on how expensive the carbon-neutral goods are and how much environmental impact can be avoided. In every case, the decision can be affected by money.

 

Perhaps you could give me examples of something that can't be exchanged?

 

Exchange value is not the "value of things that can be exchanged." That is simply not accurate. Exchange value is rather the value of something at exchange.

 

Again, if we think about this for a few minutes, it becomes obvious that things can have value in contexts other than market exchange. For example, people generally value water because drinking it keeps them alive, not because they can exchange it for other things.

 

A few posts ago, you said the only way to determine the value of anything is to put it up for auction. At least that was falsifiable: the value of things is assessed by people all the time without buying or selling being involved at all.

 

This...I hardly even know how to respond to this. Your examples are not examples at all, they are just-so stories that only make sense as support for your point if we assume your premise to be true in the first place. If we don't assume your premise is true then the idea of a father valuing "family time" with his daughter only insofar as he can exchange it for financial wealth is immediately exposed as the absurdity it (obviously) is.

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Exchange value is not the "value of things that can be exchanged." That is simply not accurate. Exchange value is rather the value of something at exchange.

 

Again, if we think about this for a few minutes, it becomes obvious that things can have value in contexts other than market exchange. For example, people generally value water because drinking it keeps them alive, not because they can exchange it for other things.

 

A few posts ago, you said the only way to determine the value of anything is to put it up for auction. At least that was falsifiable: the value of things is assessed by people all the time without buying or selling being involved at all.

 

This...I hardly even know how to respond to this. Your examples are not examples at all, they are just-so stories that only make sense as support for your point if we assume your premise to be true in the first place. If we don't assume your premise is true then the idea of a father valuing "family time" with his daughter only insofar as he can exchange it for financial wealth is immediately exposed as the absurdity it (obviously) is.

 

Drinking water? That's your best example of something that doesn't have exchange value? It's only on sale in every convenience store in the nation, right next to the tea and milk (competing products that will also keep you alive). It's bought and sold like any other commodity. People don't bring you water just to keep you alive. They bring you water because you pay them to. Why didn't you give me something hard like 'love'?
The most basic unit of exchange is time. When you go to work, you sell your time for money. That's not because money is valuable in its own right. You want the money so you can exchange it for the time of other people. Just as we don't barter computer chips for bananas, we also don't barter engineer hours for doctor hours. Instead, we convert our time to currency, make the exchange, and then convert it back again. Although individual rates of exchange will vary, time is money and money is time. I buy vegetables so I don't have to spend the time to grow my own. It's a market decision that my time is more valuable as a manager than as a farmer.

 

But, this market for 'time' goes far beyond what you see in the conventional marketplace. Every decision you make is a market decision on how to spend your time. Every choice bears an opportunity cost since you can only be in one place doing one thing at any particular instant. You can't work overtime and spend quality time with your children at the same moment. You can't play softball and study for a master's degree. You have to choose.

 

Your choices are market decisions to spend your time. You are constantly auctioning your time to the highest bidder. The boss offers money (useful to exchange for the time of others). The family offers emotional well-being. The TV offers relaxation. Other activities might offer self-actualization or socialization. It's functionally no different than deciding to buy a car or a massage. Remember, time = money.

 

I like the song 'Dust in the Wind', but the line "All your money won't another minute buy" isn't quite right. Money will buy you many more minutes. However, infinite money won't buy you infinite minutes. At least not yet. Science is still working on that.

 

Markets are universal and unavoidable, regardless of the economic system you choose. It's a force of nature, like gravity. Even in North Korea, the most authoritarian regime I'm aware of, goods have market value. Their people risk execution to trade goods and services at their true market value instead of the government rate. In countries with fixed exchange rates for currency, a 'black market' always exists. Prohibition couldn't stop the market. The war on drugs can't stop the market. Whenever government policy distorts the market, it creates a potential profit opportunity. People will weigh the potential gain of violating the policy against the probability and severity of punishment. The more you distort the market, the more likely they are to ignore your law (or, the more costly it will be to enforce that distortion).

 

A few posts back, you said:

 

 

 

It's already happening. We can already "afford" an affluent society where all the people control investment for their own benefit. A democratic banking structure, democratic industry, and a state using functional finance can create the institutional basis for this quite easily.

 

Could you elaborate on what you mean by "democratic banking structure" and "functional finance"?

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Drinking water? That's your best example of something that doesn't have exchange value?

 

 

No, that's my example of something that most people value for reasons having nothing to do with exchange. My point is certainly not that water "doesn't have exchange value." You are missing the point that exchange value is only applicable in certain contexts...

 

People don't bring you water just to keep you alive.

 

 

In many places in the world water is a free public service. So yes, it is more or less brought to you to keep you alive...

 

Markets are universal and unavoidable, regardless of the economic system you choose. It's a force of nature, like gravity.

 

 

 

At last, a falsifiable statement, and one that is completely false.

 

Markets are certainly not universal, nor are they unavoidable. In fact, precisely the reverse: markets are contingent on very specific sets of social arrangements without which they cannot exist.

 

Through most of human history markets played only a peripheral role in disbursing goods. And of course markets have nothing at all to do with the genesis of money, which is one of the necessary preconditions to have a market in the first place.

 

Finally, to say that "markets are a law of nature" is a ridiculous oversimplification. Markets can take many different forms, and markets work differently based on different social arrangements that exist. For example the kind of market that includes slavery is very different from one in which slavery is abolished.

 

Your little spiel about how time is the "basic unit of exchange" is of course incorrect; the basic unit of exchange is not time but money as you seem to understand. The only way we get to the point where time can be readily exchanged for money is in our modern society characterized by near-total monetization of transactions and near-universal penetration of the wage-labor system. In premodern times, and even up into the 19th century, the exchange of time for money was much less readily possible in most places in the US (for example, the slave South).

 

The war on drugs can't stop the market. Whenever government policy distorts the market, it creates a potential profit opportunity. People will weigh the potential gain of violating the policy against the probability and severity of punishment. The more you distort the market, the more likely they are to ignore your law (or, the more costly it will be to enforce that distortion).

 

 

 

Yet earlier you admitted that the market is only possible in the first place if the government creates it.

 

So which is it? Governments create the market on their terms, or must governments tiptoe about making sure never to pass a policy that distorts "the market?"

 

 

Could you elaborate on what you mean by "democratic banking structure" and "functional finance"?

 

 

 

I'm not wholly sure what democratic banking would look like, but it would look more like local credit unions than Goldman Sachs, of that I'm sure. I believe that the internet and fiat currency combined can allow a more democratic banking structure than has existed at any time in human history before.

 

Functional Finance can be read about here, the wiki article will do a better job explaining than I can:

https://en.wikipedia.org/wiki/Functional_finance

 

 

 

Functional finance is an economic theory proposed by Abba P. Lerner, based on effective demand principles and chartalism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.[citation needed

(Having read a bit of Lerner myself I can say that this sentence is accurate, despite the "citation needed" here)

 

 

The principal ideas behind functional finance can be summarized as:[1]

  • Governments have to intervene in the national and global economy; they are not self-regulating.
  • The principal economic objective of the state should be to ensure a prosperous economy.
  • Money is a creature of the state; it has to be managed.
  • Fiscal policy should be directed in light of its impact on the economy, and the budget should be managed accordingly, that is, 'balancing revenue and spending' is not important; prosperity is important.
  • The amount and pace of government spending should be set in light of the desired level of activity, and taxes should be levied for their economic impact, rather than to raise revenue.
  • Principles of 'sound finance' apply to individuals. They make sense for individuals, households, businesses, and non-sovereign governments (such as cities and individual US states) but do not apply to the governments of sovereign states, capable of issuing money.

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No, that's my example of something that most people value for reasons having nothing to do with exchange. My point is certainly not that water "doesn't have exchange value." You are missing the point that exchange value is only applicable in certain contexts...

 

Please explain the context where exchange value isn't applicable. An example might help.

 

 

 

In many places in the world water is a free public service. So yes, it is more or less brought to you to keep you alive...

 

No, water is not a free public service. You pay for it with your taxes.

 

Your little spiel about how time is the "basic unit of exchange" is of course incorrect; the basic unit of exchange is not time but money as you seem to understand. The only way we get to the point where time can be readily exchanged for money is in our modern society characterized by near-total monetization of transactions and near-universal penetration of the wage-labor system. In premodern times, and even up into the 19th century, the exchange of time for money was much less readily possible in most places in the US (for example, the slave South).

 

With or without money, in 1800 or 2000, the concept is exactly the same. We spend our whole lives trading our time for the other things we need and want. The people who can provide those other things bid for our time. The relative quantities to be exchanged are constantly being negotiated. It's a market. Money/currency is just an artifice to facilitate the transaction.

 

 

Yet earlier you admitted that the market is only possible in the first place if the government creates it.

So which is it? Governments create the market on their terms, or must governments tiptoe about making sure never to pass a policy that distorts "the market?"

 

Governments don't create markets. But, the market will be stunted and inefficient without government maintaining those social rules you mentioned earlier. In simple forms, a market can be established without, or even in spite of, government efforts (as in North Korea) but the risks and cost of doing business will be high. This is not an efficient arrangement. Everything works much better with government doing its best to maintain fairness, protect all parties, resolve disputes, and enhance competition.

 

That's not the same thing as usurping market decisions. You can obviously make policies that distort the markets without destroying the whole thing. We do it all the time. The key is to understand that each distortion brings a cost. So long as the cost as understood and accepted, no problem.

 

Suppose we American citizens decide that the market is paying doctors too much. We, acting through our elected government, enact policies that reduce doctors' pay. There will be a cost for this distortion in the market. We will be less able to attract foreign doctors to practice in the USA. In 2010, 27% of our physicians and surgeons were foreign born. Also, fewer and/or less-talented students will take up the medical profession. Over time, we will see a reduction in the quality/quantity of medical care available. So long as we acknowledge that up front and make an informed decision to accept the cost, then all is good.

 

 

 

I'm not wholly sure what democratic banking would look like, but it would look more like local credit unions than Goldman Sachs, of that I'm sure. I believe that the internet and fiat currency combined can allow a more democratic banking structure than has existed at any time in human history before.

 

Credit unions and Goldman Sachs perform very different functions. Your first sentence is sort of like saying I like Fiats better than bulldozers. Whatever the problems with big banks, I think new financial technology will indeed bring them down to size. 'Fintech', they call it.

 

 

Functional Finance can be read about here, the wiki article will do a better job explaining than I can:

https://en.wikipedia...ctional_finance

 

Looks good to me. This is pretty mainstream stuff, so far as I see. The Tea Party are the only ones I know who want to balance a budget in the middle of a recession. I appreciate their stances on individual freedom and some of the foreign policy, but economically, they don't have a clue.

 

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Asoka

 

Thank you for your many enlightening posts. I am learning from your posts and I appreciate the information. Can you elaborate on why you suggest tariffs are not useful now?

 

Thanks in advance.

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Please explain the context where exchange value isn't applicable. An example might help.

 

I just gave you an example: people value water because it might keep them alive. This has nothing whatever to do with exchange value.
Exchange value is only applicable inside a market context, everything that's outside the market has little if anything to do with exchange value.

 

With or without money, in 1800 or 2000, the concept is exactly the same. We spend our whole lives trading our time for the other things we need and want. The people who can provide those other things bid for our time. The relative quantities to be exchanged are constantly being negotiated. It's a market. Money/currency is just an artifice to facilitate the transaction.

 

You're ignoring the fact that in 1800 and even today there are many people around who do not spend their whole lives trading their time for the other things we need and want.
Of course, your rebuttal will be that all human activities, even family relationships and such, should be understood in this light.
My question would be, what observation of human activity could we make that would falsify this "theory" of humans?

Governments don't create markets.

 

 

You are simply wrong about this. Governments absolutely create markets. There has never been a market without a government. As an example, money as we know it today was created by governments for purposes having nothing to do with markets at all. Rather money appears to have arisen from bureaucratic distribution of foodstuffs in the temples and palaces of ancient civilizations on the one hand, and the need to create a precise reckoning system for social debt obligations on the other.
You look back in history and you find that markets are peripheral to much of human society. In a society where the main economic unit is the family, and production takes place in the household, that is likely to be true. The only people who would be much concerned with markets were merchants, princes, and soldiers--the participation of ordinary people (in most times and places in world history, ordinary people are farmers) in market behavior was likely to be in the form of a journey every few weeks, if that.
But, the market will be stunted and inefficient without government maintaining those social rules you mentioned earlier. In simple forms, a market can be established without, or even in spite of, government efforts (as in North Korea) but the risks and cost of doing business will be high.

 

 

You understand that black markets are not examples of markets that come into existence without states though, right? Black markets cannot exist without the state...black markets use units of accounting (money) which is maintained and created by the state. Also, more obviously, black markets are defined as markets existing outside the purview of the state...either they trade in things the state has forbidden or they're avoiding onerous state taxes.

 

Either way the state needs to be there before there can be a black market.

 

This is not an efficient arrangement. Everything works much better with government doing its best to maintain fairness, protect all parties, resolve disputes, and enhance competition.

 

 

Everything only "works" under these circumstances. Without strong forces in place to countervail elite power the market can simply become a device that drives conquest and the reduction of the greater part of the population to a condition of slavery.

Markets can work all kinds of ways, and it's inherently up to society, through the vehicle of the state, how the market will work. We in the US have chosen a market that diverts a massive portion of the GDP to the finance sector's largely useless activities, where power is increasingly concentrated in the hands of billionaire oligarchs, and where millions of people nearer the bottom of the economic ladder are struggling to get by with less. It's one where public services are looted and pillaged, where poor people cannot get adequate access to health insurance or education, where local governments fund themselves by running what's essentially a racket on poor black citizens. Where the Vice President who was the CEO of a huge corporation can lie the US into an expensive foreign war because he thought he could make some money.

 

There is no inherent need for any of this to happen. It's a choice that society has made, I would argue one that has been made largely unconsciously, but the people who should know better have been hoodwinked by this market fundamentalist ideology that gives a sense of inevitability to the above. We're told There Is No Alternative, but clearly There Are Good Alternatives.

 

That's not the same thing as usurping market decisions. You can obviously make policies that distort the markets without destroying the whole thing. We do it all the time. The key is to understand that each distortion brings a cost. So long as the cost as understood and accepted, no problem.

 

 

This is silly. Each distortion from what?

 

Suppose we American citizens decide that the market is paying doctors too much. We, acting through our elected government, enact policies that reduce doctors' pay. There will be a cost for this distortion in the market. We will be less able to attract foreign doctors to practice in the USA. In 2010, 27% of our physicians and surgeons were foreign born. Also, fewer and/or less-talented students will take up the medical profession. Over time, we will see a reduction in the quality/quantity of medical care available. So long as we acknowledge that up front and make an informed decision to accept the cost, then all is good.

 

Do you have any evidence that this is true?

 

Credit unions and Goldman Sachs perform very different functions. Your first sentence is sort of like saying I like Fiats better than bulldozers. Whatever the problems with big banks, I think new financial technology will indeed bring them down to size. 'Fintech', they call it.

 

Which is the sort of absurd belief that could be produced by the Religious Belief you have. The biggest banks are only getting bigger as a result of the application of computer science and higher-level mathematics to financial operations. And ironically, the finance sector is precisely the place where all the market dogma you believe in is most useful. It's no coincidence that like the old priestly caste the finance sector has become much too wealthy for the larger society.
And by the way, credit unions and Goldman Sachs do not perform very different functions--they perform many of the same functions, and Goldman Sachs performs many "functions" that credit unions do not.
The core problem is the creation of credit, which is largely under the control of the private banking sector, because the Federal Reserve is controlled by the private banking sector.

Looks good to me. This is pretty mainstream stuff, so far as I see. The Tea Party are the only ones I know who want to balance a budget in the middle of a recession. I appreciate their stances on individual freedom and some of the foreign policy, but economically, they don't have a clue.

 

Mainstream according to whom? The Tea Party austerian madness has been embraced by the mainstream in Europe, as you can see from the austerity.

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Asoka

 

Thank you for your many enlightening posts. I am learning from your posts and I appreciate the information. Can you elaborate on why you suggest tariffs are not useful now?

 

Thanks in advance.

 

Tariffs basically solve an economic problem that the US isn't facing. We aren't really facing a problem of insufficient domestic supply of anything. The problem we face is insufficient demand, and that problem can only really be solved by redistributing wealth domestically. Tariffs might function to redistribute wealth in the US but I doubt it would be favorable for ordinary people.

 

Tariffs benefited countries like Germany and the US because in the mid 19th century those countries were both behind Great Britain in terms of industrial development. Since World War I the US has taken the place of Great Britain as the most advanced industrial country.

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I just gave you an example: people value water because it might keep them alive. This has nothing whatever to do with exchange value.

Exchange value is only applicable inside a market context, everything that's outside the market has little if anything to do with exchange value.

 

As any good becomes more scarce, its value increases. Normally, water isn't treated any differently from shampoo. However, as it becomes locally more scarce, the exchange value increases. People may choose to forego showers. If it becomes even more scarce, the value becomes astronomical. People will sacrifice pets and livestock so they can survive. I suppose it's this level of scarcity that you refer to? Your argument is that, when water has become so scarce that people's lives are in danger, exchange value becomes irrelevant? I can accept that. This goes back to my previous statement that there are only two cases when exchange value doesn't matter: when the exchange value is zero, or when it's infinite. When you're about to die, the value is infinite. It's extremely rare, but it does happen.

 

You're ignoring the fact that in 1800 and even today there are many people around who do not spend their whole lives trading their time for the other things we need and want.

Of course, your rebuttal will be that all human activities, even family relationships and such, should be understood in this light.
My question would be, what observation of human activity could we make that would falsify this "theory" of humans?

 

OK. Good question. I'll take your side. What we need is a true example of altruism.

 

One example might be the proverbial soldier who sacrifices his life for his comrades. Obviously, he can never receive anything in exchange for his payment. Back on my side again... I would ask if, perhaps he received payment in advance? Maybe those comrades had earned this payment through their previous actions? Perhaps they saved his life before and he felt he owed them. Perhaps he weighed the cost (guilt) associated with not making the sacrifice and decided it was too high.

 

We can't use people like Bill Gates as our example because he receives much in exchange for his donations (accolades, reverence, publicity, etc.). We can't use the typical churchgoer because they believe they're buying eternal life. Or, perhaps they just have a guilty conscience that will feel better after the donation.

 

Without really seeing into someone's heart and knowing their deepest motivations, I don't suppose there's any way to prove this one way or the other. I apologize for the personal examples I'm about to use, but my own heart is the only one for which I have any hope of understanding the true motivations. I love my wife. I make sacrifices for her. But, that's not pure altruism as she does the same for me. If she didn't hold up her end of the transaction, would I still love her? If the love wasn't reciprocal, would my love survive on its own? Probably not. With my children, things are different. The transaction is much more one-sided. But, isn't that just evidence of a different exchange rate?

 

I try not to be such a cynical person, and I won't be sad at all if you can shoot this theory down.

 

You are simply wrong about this. Governments absolutely create markets. There has never been a market without a government. As an example, money as we know it today was created by governments for purposes having nothing to do with markets at all. Rather money appears to have arisen from bureaucratic distribution of foodstuffs in the temples and palaces of ancient civilizations on the one hand, and the need to create a precise reckoning system for social debt obligations on the other.

 

A government can create a market, but is not required to create a market. I already gave you the example of North Korea. Not only did they not create the black market, they expend considerable effort in an effort to destroy it. Neither is money required for a market (barter is perfectly acceptable and commonly practiced). Even when money is used, it doesn't need to be the money created by the local jurisdiction (dollars are good worldwide).

 

You understand that black markets are not examples of markets that come into existence without states though, right? Black markets cannot exist without the state...black markets use units of accounting (money) which is maintained and created by the state. Also, more obviously, black markets are defined as markets existing outside the purview of the state...either they trade in things the state has forbidden or they're avoiding onerous state taxes.

Either way the state needs to be there before there can be a black market.

 

I disagree. See above.

 

Also, without the state, the 'black market' simply becomes a 'market'. Again consider the North Korean farmer trading chickens for milk or dollars or won or clothes on the black market. If the government should end its prohibition on this activity, the exchange rates would change, but that's about all. The farmer wouldn't stop selling his chickens and his customers wouldn't stop buying them.

 

You look back in history and you find that markets are peripheral to much of human society. In a society where the main economic unit is the family, and production takes place in the household, that is likely to be true. The only people who would be much concerned with markets were merchants, princes, and soldiers--the participation of ordinary people (in most times and places in world history, ordinary people are farmers) in market behavior was likely to be in the form of a journey every few weeks, if that.

 

We are so much better off now that markets have expanded from the simple trade-offs of family chores to the vast international networks we have today.

 

Everything only "works" under these circumstances. Without strong forces in place to countervail elite power the market can simply become a device that drives conquest and the reduction of the greater part of the population to a condition of slavery.

Markets can work all kinds of ways, and it's inherently up to society, through the vehicle of the state, how the market will work. We in the US have chosen a market that diverts a massive portion of the GDP to the finance sector's largely useless activities, where power is increasingly concentrated in the hands of billionaire oligarchs, and where millions of people nearer the bottom of the economic ladder are struggling to get by with less. It's one where public services are looted and pillaged, where poor people cannot get adequate access to health insurance or education, where local governments fund themselves by running what's essentially a racket on poor black citizens. Where the Vice President who was the CEO of a huge corporation can lie the US into an expensive foreign war because he thought he could make some money.

There is no inherent need for any of this to happen. It's a choice that society has made, I would argue one that has been made largely unconsciously, but the people who should know better have been hoodwinked by this market fundamentalist ideology that gives a sense of inevitability to the above. We're told There Is No Alternative, but clearly There Are Good Alternatives.

 

Indeed, we always need to be open to better alternatives. But, different isn't always the same as better. You can point out flaws and failures for as long as you like, but until we have the opportunity to subject the alternative to similar analysis, I'm not on board. It would be more beneficial to my understanding if we spent more time discussing the details of what to change (things I don't know) instead of the flaws in the current system (with which we are all familiar).

 

This is silly. Each distortion from what? Do you have any evidence that this is true?

What is the alternative explanation? That we could reduce doctors' pay and yet, nothing else would change? No current doctors would decide to practice elsewhere? No potential doctors would decide to pursue other careers? In other posts you seemed to understand that demand drives production. By artificially depressing the pay of doctors (a distortion of the market rate), you would be interfering with the demand signal that drives production. Therefore you would receive less production of the good in question, healthcare. If you need me to dig up a research paper, I suppose I could do that.

 

The core problem is the creation of credit, which is largely under the control of the private banking sector, because the Federal Reserve is controlled by the private banking sector.

 

What's the problem with credit creation? The Fed operates under government oversight with a twin mandate to control inflation and unemployment. What would you change?

 

Mainstream according to whom? The Tea Party austerian madness has been embraced by the mainstream in Europe, as you can see from the austerity.

 

The Euro zone is a unique and complicated situation in that the individual nations aren't monetarily sovereign. Normally, a country like Greece could print lots of money and inflate their way out of a debt crisis. In the process, wages and living standards would be adjusted down (in real terms) by inflation. Since they don't control their currency, this adjustment to wages and living standards must be forced through 'austerity', and it's painful. There is light at the end of the tunnel as other nations have emerged from austerity programs and returned to prosperity.

 

Any change to monetary policy will affect all the Euro zone and not just Greece. Should the EU should print lots of money for Greece/Italy/Spain and resolve the problem that way? Maybe. But, Inflation is hard on creditors, and many of Greece/Italy/Spain's creditors are located in countries that get a vote on whether or not to print money. Default is also hard on creditors, so we have a negotiation.

 

Even though we don't need constant austerity for monetarily sovereign nations, it's always a real concern for those that are not sovereign. Within the United States, we have issues with cities (Detroit) and even states (Illinois) that should have had a little more austerity in their policies.

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As any good becomes more scarce, its value increases. Normally, water isn't treated any differently from shampoo. However, as it becomes locally more scarce, the exchange value increases. People may choose to forego showers. If it becomes even more scarce, the value becomes astronomical. People will sacrifice pets and livestock so they can survive. I suppose it's this level of scarcity that you refer to? Your argument is that, when water has become so scarce that people's lives are in danger, exchange value becomes irrelevant? I can accept that. This goes back to my previous statement that there are only two cases when exchange value doesn't matter: when the exchange value is zero, or when it's infinite. When you're about to die, the value is infinite. It's extremely rare, but it does happen.

 

Extremely rare? Millions throughout the world today lack access to clean water (largely because corporations appropriate water rights and then charge people for what should be theirs by right).
In any case, though, you've gotten my argument wrong. It's really not that difficult to understand that exchange value has nothing to do with why people value water, food, or indeed most things that ordinary people own and use. People generally don't value cars, televisions, houses, foodstuffs, computers, and so forth for their exchange value but rather for other reasons (this is where "use value" comes in).
Exchange value is relevant when a person buys a house with the intention of reselling it later. It is much less relevant when I buy a house to live in.
And, by the way, is there any evidence that when a thing becomes more scarce, its value increases? I can think of one thing that doesn't follow that rule--labor! As Keynes showed back in the 1930s when labor becomes "more scarce," that is, when fewer people are employed, the effect is actually to drive wages down rather than up. This is why wage cuts can't get us out of a recession and restore employment.

I try not to be such a cynical person, and I won't be sad at all if you can shoot this theory down.

 

The point is, that I cannot, and no one can. The view that all human activity is actually market exchange is unfalsifiable, and thus useless whether true or not. When we move on to those of your claims that can actually be falsified (see below) we will see that, to the extent that any hypothesis in the social sciences can be falsified, they have been.
A government can create a market, but is not required to create a market. I already gave you the example of North Korea. Not only did they not create the black market, they expend considerable effort in an effort to destroy it. Neither is money required for a market (barter is perfectly acceptable and commonly practiced). Even when money is used, it doesn't need to be the money created by the local jurisdiction (dollars are good worldwide).

 

 

And I explained why the black market in North Korea is simply not an example of a market coming into being without a state.

 

Now, money is of course required for markets to exist. There has never been a "market" that is carried on entirely with barter. You will not find a single example of such in all of human history.

 

This is the just-so story that is told by mainstream economics to explain the genesis of money, and thus of markets. Barter is simply not a common occurrence in human history. The anthropological literature is quite adamant on this subject:

 

http://www.jstor.org/stable/2802221?seq=1#page_scan_tab_contents

 

"The mainstream economists' view that barter should be seen as a 'natural' phenomenon of human nature and as the origin of money is rejected."

 

"No example of a barter economy, pure and simple, has ever been described, much less the emergence from it of money."

 

Now, as to your last point about money being used: the reason dollars are good worldwide is because the US government is the world hegemon. The prevalence of dollars worldwide if a point in favor of my view of money and markets, not yours.

 

Also, without the state, the 'black market' simply becomes a 'market'. Again consider the North Korean farmer trading chickens for milk or dollars or won or clothes on the black market. If the government should end its prohibition on this activity, the exchange rates would change, but that's about all. The farmer wouldn't stop selling his chickens and his customers wouldn't stop buying them.

 

Again, there cannot be a black market in the first place without a state.
Your thinking on this issue is exactly the same as that of mainstream economists who came up with the barter story to explain how money originated, and why markets are the only "real" way to organize societies. You look at the existing society, which could not have developed without a state, and ask how it would function without a state.
This is not the right way to go about answering these questions.

We are so much better off now that markets have expanded from the simple trade-offs of family chores to the vast international networks we have today.

 

In some ways, we are. In others, I would argue we are not.
But, "trade-offs of family chores" are not where markets were located. In 'domestic' economies where the family is the main economic unit, production takes place largely for immediate or near-term consumption within the household. There is no market exchange whatsoever involved in this process. Where the market comes in is when families wish to sell off some of their surplus products. Participation in markets was not essential for people to obtain their basic needs.
Indeed, we always need to be open to better alternatives. But, different isn't always the same as better. You can point out flaws and failures for as long as you like, but until we have the opportunity to subject the alternative to similar analysis, I'm not on board. It would be more beneficial to my understanding if we spent more time discussing the details of what to change (things I don't know) instead of the flaws in the current system (with which we are all familiar).

 

 

This isn't a rebuttal to anything I argued. It is certainly possible to have better; many places in the world do better than we do now and we did better in the past (at some things, anyway) than we do now.
The main point here, is that your points about "market distortions" imply that there is one way "the market" would work in the absence of government. That is obviously not true, as markets require government to exist in the first place, and it's government policy that sets the rules of the market and determines how the market "works."
So, for example, under the gold standard societies decided via their governments that the supply of credit would be notionally tied to the amount of gold available to the government. This had all sorts of economic consequences, but the most important was that creditors (mostly the rich) benefited immensely from the high interest rates they could charge as a result of the money-scarcity that resulted from tying the supply of credit to the amount of gold, rather than, say, the population levels or something similar.
Throughout history one recurring theme is that tight money and deflation benefit creditors/the rich, while inflation and loose money benefits debtors/the poor.
This goes back to what I said earlier in the thread, that the distribution of wealth (and therefore power) in society needs to be based on principles I think we can both agree with. I think both of us are agreed that limiting human suffering is a good thing, that it isn't healthy to have billionaires living in palaces while some people live in shacks and can't get health insurance.
This is, to my mind, the essence of socialism. It's the understanding, essentially, that there is no "market magic" to depend on, that the choice of how society and the market work is up to us, not up to "nature", and, IMO, the principles we choose should be ones consistent with the Enlightenment. Life, liberty, and the pursuit of happiness, equality before the law, and all the rest.
I think both of us understand that it's wrong when a homeless man is given a jail sentence for stealing $100, but a CEO gets a fine for stealing $100 million. We understand that it's wrong for the super-rich to control the political process through lobbying and campaign contributions. That it's wrong for corporations to write bills to be submitted to the legislature. That it's wrong for the private banking system to control the entity that's supposed to regulate the banking system in the public interest. That it's wrong that the Treasury and Fed are staffed by people who were employees of the largest banks, and will go back to being employees of the largest banks when their tenures as public servants end.
So what principles should we organize our society based on? I've already said I believe in egalitarianism, that inequality should be ethically justified, and that we need to maintain a level of effective demand sufficient to keep the economy able to meet everyone's wants and needs to the greatest extent possible.
What is the alternative explanation? That we could reduce doctors' pay and yet, nothing else would change? No current doctors would decide to practice elsewhere? No potential doctors would decide to pursue other careers? In other posts you seemed to understand that demand drives production. By artificially depressing the pay of doctors (a distortion of the market rate), you would be interfering with the demand signal that drives production. Therefore you would receive less production of the good in question, healthcare. If you need me to dig up a research paper, I suppose I could do that.

 

 

*sigh* see, you haven't yet graduated from telling me what theory demands to actually look for evidence that theory's demands are met.
This is kind of the problem with mainstream economics. The theories are more important than the evidence.
The question you always need to be asking yourself is, how is this falsified. If the answer is that it cannot be falsified, then it isn't a theory, it's a religious belief and you should drop it like a hot potato (at least in my opinion--I don't have a problem with religion in general but I do have a problem when religion leads people to reject science and reality). If it can be falsified, then you need to make a good-faith effort to falsify it.
That is the standard of rigor required to produce a scientific, skeptical worldview.
Is there any evidence that something like this happened with results similar to what your theory predicts? A "research" paper that outlines the theory and what the theory demands isn't going to cut it here.

 

What's the problem with credit creation? The Fed operates under government oversight with a twin mandate to control inflation and unemployment. What would you change?

 

I'm not wholly sure what I would change. At any rate, something is rotten at the Fed. I would say Bernie is largely correct that the banking system regulates the Fed, and not the other way around. I would say that making the central bank less independent was a good idea, but I certainly don't like the idea of giving the extremists, dingbats, and know-nothings in Congress more direct control.
I should have phrased this better, though. I meant that the problem in absence of a private banking system would be credit creation.
Now, I'm not actually in favor of abolishing private banking. I believe that there should be a "public" (in the sense of accountability--doesn't have to actually be publicly-owned) system of credit creation that is able to satisfy the needs of ordinary people. Private banking should be a peripheral phenomenon where very wealthy people can play with their money, but should be segregated from the rest of the economy to the greatest extent possible.
The Euro zone is a unique and complicated situation in that the individual nations aren't monetarily sovereign.

 

 

Exactly, which is the whole problem.

 

Normally, a country like Greece could print lots of money and inflate their way out of a debt crisis.

 

 

Well, not necessarily. I think Greece attempting to print its way out of a debt crisis would be foolish given the Greek dependence on imports from the rest of Europe.

 

A more reasonable scenario would be a debt write-off (which ironically has happened a number of times in Germany's history--Germany is *the* country that never pays its debts).

 

Since they don't control their currency, this adjustment to wages and living standards must be forced through 'austerity', and it's painful. There is light at the end of the tunnel as other nations have emerged from austerity programs and returned to prosperity.

 

 

This is a completely incorrect understanding of austerity, and there is no evidence at all that any nation has ever "emerged" from austerity programs and returned to prosperity. The "return to prosperity" happens when austerity is rejected and public spending/debt write-offs accepted.

 

No nation has ever returned to prosperity by cutting national spending. Never has been done, never will be done. Simply impossible.

 

Any change to monetary policy will affect all the Euro zone and not just Greece. Should the EU should print lots of money for Greece/Italy/Spain and resolve the problem that way? Maybe. But, Inflation is hard on creditors, and many of Greece/Italy/Spain's creditors are located in countries that get a vote on whether or not to print money. Default is also hard on creditors, so we have a negotiation.

Even though we don't need constant austerity for monetarily sovereign nations, it's always a real concern for those that are not sovereign. Within the United States, we have issues with cities (Detroit) and even states (Illinois) that should have had a little more austerity in their policies.

 

 

I disagree entirely. Austerity is simply fiscal terrorism inflicted on the Euro periphery by the vengeful bankers of the core. It has no economic utility whatsoever, and in fact has only reduced the capacity of Greece and other countries to pay back their debts.

 

I also disagree that cities and states should have had a little more austerity in their policies. It is simply foolish, you're talking about accounting information. Far more important than any money deficit is the real deficits that exist. I will gladly trade massive public debt in return for people having access to clean water, health care, jobs, and quality education.

 

It is the responsibility of the sovereign (US federal government) to meet these needs using its monetary powers.

 

You're right that Euroland is a strange case, but I would argue that its "problems" are by design and its design is simple: allow creditors to enrich themselves and ultimately control policy, which is increasingly what's happening. You manufacture these debt crises so that creditors get to control the government. It's happened many times in history.

 

Actually, one incident of enormous historical significance in US history is the "credit strike," during the Civil War, when the northern bankers refused to finance Lincoln's war against their own profit-source (slavery). Lincoln said "fuck you" and started issuing greenbacks, which was declared constitutional by the Supreme Court.

 

And this gets back to the basic choice we have. We can allow private creditors to control the supply of credit, which leads to things like slavery, or we can allow the public's agents (government) to control the supply of credit in the public's interest.

 

Neither of these paths inherently "works" any better than the other; the question of which is preferable ought to be based on principles rather than conformity to imagined "laws of nature."

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Tariffs basically solve an economic problem that the US isn't facing. We aren't really facing a problem of insufficient domestic supply of anything. The problem we face is insufficient demand, and that problem can only really be solved by redistributing wealth domestically. Tariffs might function to redistribute wealth in the US but I doubt it would be favorable for ordinary people.

 

Tariffs benefited countries like Germany and the US because in the mid 19th century those countries were both behind Great Britain in terms of industrial development. Since World War I the US has taken the place of Great Britain as the most advanced industrial country.

What mechanisms do you suggest for wealth redistribution, or in my opinion, the proper distribution of wealth in the first place. How to keep the wealth distributed fairly?

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What mechanisms do you suggest for wealth redistribution, or in my opinion, the proper distribution of wealth in the first place. How to keep the wealth distributed fairly?

 

Democratic firms is one way. Broad-based profit-sharing, which could be promoted through tax incentives, would be another.
Then, of course, you want the government to invest broadly in public goods like parks, schools, and so forth that benefit everyone whether rich or poor. Changing the funding structure of public education would be essential.
A basic income guarantee, along with a job guarantee where the government offers a job to anyone willing to work would also be in order.

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Democratic firms is one way. Broad-based profit-sharing, which could be promoted through tax incentives, would be another.
Then, of course, you want the government to invest broadly in public goods like parks, schools, and so forth that benefit everyone whether rich or poor. Changing the funding structure of public education would be essential.
A basic income guarantee, along with a job guarantee where the government offers a job to anyone willing to work would also be in order.

 

I knew a guy who owned a metal fabrication shop. He had a couple of employees, a building with all the necessary equipment. He made prototypes for large companies in the area. One day he was at the local grocery store and saw some cooking pots for sale. Since this was his business, he examined the pots. The material was good. The workmanship was good. It had a "Made in China" sticker on the bottom, and the price was less than he had to pay for the raw materials. So they can make those pots in China, with all the associated overhead, and ship them to the USA, sell them for a price at which still makes a profit in a grocery store and still make a profit. The local guy couldn't compete even if his workers worked for free, he paid nothing for the building and equipment, no benefits for anyone, no taxes, no electricity, no water bills. Just buying the raw materials puts him out of the competition. I have seen this situation in many industries.

 

I suggest currency manipulation is the reason China can produce so cheaply. This removes our jobs, and destroys our economy. So the suggestion of democratic firms won't keep jobs because they can't compete under these conditions.There would be no profit to share. I can't make stuff and sell it because the raw materials are more expensive then the finished products from China. The people who work in China, still get enough to eat, they get shelter, health care and more holidays than a great many people in the world.

 

I was expecting tariffs would be of benefit in cases where other nations engage in currency manipulation. China is not the only country engaging thus.

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I suggest currency manipulation is the reason China can produce so cheaply. This removes our jobs, and destroys our economy. So the suggestion of democratic firms won't keep jobs because they can't compete under these conditions.There would be no profit to share. I can't make stuff and sell it because the raw materials are more expensive then the finished products from China. The people who work in China, still get enough to eat, they get shelter, health care and more holidays than a great many people in the world.

 

 

Please go into some more detail about the alleged "currency manipulation." Make some falsifiable claims.

 

Exchange rates, what causes them to move, and the effect this has on the economy tend to be poorly understood by the American public...

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Please go into some more detail about the alleged "currency manipulation." Make some falsifiable claims.

 

Exchange rates, what causes them to move, and the effect this has on the economy tend to be poorly understood by the American public...

 

I agree the effect of currency manipulation on the American economy is poorly understood. I do not have the understanding I would like to have.

 

Here are a couple of links discussing the topic:

 

http://law.emory.edu/eilr/content/volume-27/issue-2/comments/chinese-currency-manipulation.html

 

http://www.slate.com/articles/news_and_politics/explainer/2012/10/china_currency_manipulation_how_does_it_harm_the_u_s_and_what_can_we_do.html

 

 

Here is a quote from the first link:

 

"Currency manipulation has serious effects on the global market. Around the globe, currency manipulation is possibly responsible for millions of jobs lost in the United States and a smaller, but still significant, number of jobs lost in Europe. 58 A large volume of literature illustrates the issue, particularly with respect to China manipulating its currency in the past, as well as in the frame of the current international economic environment. 59 Scholars have proposed several solutions. Some have argued that new international institutions are necessary to solve the problems associated with currency manipulation. 60 Others have argued that China has consciously and flamboyantly disregarded the WTO, rendering any relief through that body unlikely and possibly threatening the overall legitimacy of the WTO. 61 Some have argued that the United States must act unilaterally to put pressure on China due to the lack of effective multilateral resolutions. 62 With such a wide array of views on the issue, the only common theme is that China manipulating its currency is a problem that demands a remedy."

 

If China were not manipulating its currency, it would not be able to produce goods at the prices they can in US dollars. That is my attempt at a falsifiable claim. When they can build large manufacturing facilities, hire many workers, pay wages, provide holidays, and the workers can buy food, shelter, cars, have nice vacations, and sell the products for less than it costs in the US to even buy the raw materials, it indicates a currency manipulation. The value of the Yuan is set to be low to help exports across the board, to move manufacturing to China.

 

There are many ways to falsify the statements. Technology advances, robotics, Capital investment, are just a few methods that could be considered for the reduction in cost of manufacturing, however, I don't believe any of those items is sufficient. Another way is to demonstrate the cost of manufacture for Chinese goods is not all that low, and that some other mechanism is lowering the price in the US.

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Well, the main reason that the cost of Chinese goods is low is that the Chinese have an economic model based on exporting, with the population able to consume only a small fraction of what it produces.

 

Should the Chinese develop an economy where the population can consume most of what they produce we would pay much higher prices for Chinese goods.

 

As your first article notes whether China is actually "manipulating" its currency is not really known; I would say that all sovereigns manipulate their currencies (certainly including the United States).

 

That article from the Explainer is largely nonsense for a variety of reasons.

 

http://www.project-syndicate.org/commentary/chinese-currency-manipulation-by-jeffrey-frankel-2015-02

https://www.creditwritedowns.com/2010/10/mmt-a-few-thoughts-on-austerity-currency-wars-and-exchange-rates.html

 

These are what I consider well-informed perspectives on the supposed "manipulation."

 

Your first article actually argues thus:

First, whether or not China is manipulating its currency is debatable; additionally, many other countries are acting similarly, and this seems to be the norm rather than the exception. Second, the “problem” has less to do with China and the United States and more to do with general inefficiency in global trade. Third, even if Chinese currency manipulation is a problem, the current international framework is inadequate to handle it. Fourth, any bilateral or unilateral actions taken by the United States would either: 1) be ineffective or 2) cause more harm than good.

 

I pretty much agree with all of this.

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In any case, though, you've gotten my argument wrong. It's really not that difficult to understand that exchange value has nothing to do with why people value water, food, or indeed most things that ordinary people own and use. People generally don't value cars, televisions, houses, foodstuffs, computers, and so forth for their exchange value but rather for other reasons (this is where "use value" comes in).

Exchange value is relevant when a person buys a house with the intention of reselling it later. It is much less relevant when I buy a house to live in.

 

I agree that exchange value says nothing about why any particular person values goods. There are as many different motivations as there are people. However, the exchange value represents the aggregate of all the different motivations people might have, to buy or to sell.

 

The market doesn't care why you want something, it only cares what you're prepared to give in exchange (which is a measure of how badly you want it). If many people want the house as a place to live, then the exchange value will be higher. If no one wants to live there, it will have less value.

 

So, how can you say exchange value is "less relevant when I buy a house to live in"? I suppose you're saying that, in this circumstance, you don't care about resale value. That's not the same thing. You will pay exchange value, regardless of whether you plan to sell the house or live in it. You may be the high bidder because your needs are different from those of the other potential buyers, but that's always the case. It's what makes market allocation (potentially) so efficient. The goods always go to the people who want them most.

 

Yes, I realize it doesn't always work that way. When one person has vastly more money, they may win the auction even though someone else, with less money, wanted the goods more. It's a another good reason to care about the wealth gap. The wealth gap distorts the market and makes it less efficient.

 

The point is, that I cannot, and no one can. The view that all human activity is actually market exchange is unfalsifiable, and thus useless whether true or not.

 

Unfalsifiable? Yes. Useless? No. I think it's important in understanding the nature of human beings. When building an economic system, you have to take into account the basic nature of human beings, or your system will fail. People have certain expectations for how life should work. Whether this is as a result of brainwashing or genetics or social Darwinism or whatever, doesn't really matter. If it exists, you can't just wish it away. People will behave as they want, not as you would like them to.

 

Perhaps this 'basic nature' is what you want to falsify. I believe most of us have some internalized market 'rules' that don't vary that much whether you're a liberal or a conservative. Maybe I'm wrong. Let's see what I can think of off the top of my head.

 

- If you want me to do something for you, I expect you to do something for me in return

- I am the only person who knows what I want and how badly I want it

- A free transaction leaves both parties richer than they were before

- If I make something, it's wrong for you to take it away from me

- After a free transaction, that which you gave me is now mine just as if I made it myself

 

Cool. Renegade's five laws. I should write a book. I need to add to the list first.

 

And I explained why the black market in North Korea is simply not an example of a market coming into being without a state.

Now, money is of course required for markets to exist. There has never been a "market" that is carried on entirely with barter. You will not find a single example of such in all of human history.

This is the just-so story that is told by mainstream economics to explain the genesis of money, and thus of markets. Barter is simply not a common occurrence in human history. The anthropological literature is quite adamant on this subject:

I'm really not sure why you're holding on to this. Why is the distinction between trade involving money and trade without money (barter) important to you? I see money as just another good being bartered. There's nothing magical about money. It's only a convenience. I won't argue about who invented money. It's irrelevant.

 

Did government invent bitcoin too? Do you consider trade in bitcoin to be barter?

 

Every market in the world today can be accurately described as a pure barter market once you understand that money is a good like any other. I could just as easily tell you the price of any stock on the NYSE in oil or copper instead of dollars or yen. The only unique characteristic of money is the government demand that you use it to pay taxes.

 

Even by your unnecessarily narrow definition, barter markets exist today.

http://www.irta.com/

https://www.floridabarter.com/

http://americanbarter.com/whats.php

 

The main point here, is that your points about "market distortions" imply that there is one way "the market" would work in the absence of government. That is obviously not true, as markets require government to exist in the first place, and it's government policy that sets the rules of the market and determines how the market "works."

 

When I talk about distortion, I'm usually talking about prices. To the degree that prices are determined by unconstrained supply and demand from private parties, I consider that to be a natural (not distorted) condition. In this situation, goods priced according to society's aggregate evaluation of their worth and cost of production. This is the ideal, not the messy reality.

 

When government creates policy that unbalances the supply/demand equilibrium, goods are priced (and hence produced) in different ratios. In this situation, government has put a finger on the scales to say "solar good, coal bad" or "sugar good, peas bad". From the two examples, you can see that sometimes this intervention (distortion) can be beneficial and sometimes not.

 

The point is that a distortion always results in people getting goods in a ratio other than what they would have chosen if government didn't intervene. As an individualist, my natural preference is to let people choose for themselves. But, that's not an absolute preference. There are times (coal, for example) when the market needs to be distorted. Yes, energy will be more expensive. It's worth it.

 

Throughout history one recurring theme is that tight money and deflation benefit creditors/the rich, while inflation and loose money benefits debtors/the poor.

 

Absolutely true. The poor need to understand that, within reason, inflation is their friend.

 

*sigh* see, you haven't yet graduated from telling me what theory demands to actually look for evidence that theory's demands are met.

This is kind of the problem with mainstream economics. The theories are more important than the evidence.
The question you always need to be asking yourself is, how is this falsified. If the answer is that it cannot be falsified, then it isn't a theory, it's a religious belief and you should drop it like a hot potato (at least in my opinion--I don't have a problem with religion in general but I do have a problem when religion leads people to reject science and reality). If it can be falsified, then you need to make a good-faith effort to falsify it.
That is the standard of rigor required to produce a scientific, skeptical worldview.
Is there any evidence that something like this happened with results similar to what your theory predicts? A "research" paper that outlines the theory and what the theory demands isn't going to cut it here.

How odd. I was thinking the same thing about you. So, I'll reflect all this right back at you. Is your theory falsifiable? Where is the evidence? It's pretty much what I've been asking for from the beginning. Other than the Mondragon example, I haven't seen much more than a statement of principles. You aren't even offering concrete recommendations, let alone evidence that these recommendations will work.

 

Anyway... My 'theory' that brought on your comment above was that reducing doctors' pay would result in fewer and/or less talented doctors and therefore a reduction in the quantity/quality of our healthcare. Since you're unwilling to accept this statement on face value, I will do the research and show you data to support it. Before I begin, please tell me what you will accept as evidence. What if I show correlation between doctor's pay and medical outcomes across states or nations? Should I correlate life expectancy and doctor pay (in constant dollars) over time?

 

I also disagree that cities and states should have had a little more austerity in their policies. It is simply foolish, you're talking about accounting information. Far more important than any money deficit is the real deficits that exist. I will gladly trade massive public debt in return for people having access to clean water, health care, jobs, and quality education.

 

Is that what Detroit bought with its debt?

 

So, you don't see any need to keep public spending within limits? Each city should spend as much as it wants?

 

 

 

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I agree that exchange value says nothing about why any particular person values goods. There are as many different motivations as there are people. However, the exchange value represents the aggregate of all the different motivations people might have, to buy or to sell.
The market doesn't care why you want something, it only cares what you're prepared to give in exchange (which is a measure of how badly you want it). If many people want the house as a place to live, then the exchange value will be higher. If no one wants to live there, it will have less value.

 

 

As I said, outside the market exchange value has no relevance. Inside the market it is a useful concept.

 

So, how can you say exchange value is "less relevant when I buy a house to live in"? I suppose you're saying that, in this circumstance, you don't care about resale value. That's not the same thing. You will pay exchange value, regardless of whether you plan to sell the house or live in it. You may be the high bidder because your needs are different from those of the other potential buyers, but that's always the case. It's what makes market allocation (potentially) so efficient. The goods always go to the people who want them most.

Yes, I realize it doesn't always work that way. When one person has vastly more money, they may win the auction even though someone else, with less money, wanted the goods more. It's a another good reason to care about the wealth gap. The wealth gap distorts the market and makes it less efficient.

 

 

Because when I want a house to live in, the value I place on it is not exchange value. Exchange value enters in at the transaction, but doesn't have much to do with my relationship with the house thereafter.

Unfalsifiable? Yes. Useless? No. I think it's important in understanding the nature of human beings. When building an economic system, you have to take into account the basic nature of human beings, or your system will fail. People have certain expectations for how life should work. Whether this is as a result of brainwashing or genetics or social Darwinism or whatever, doesn't really matter. If it exists, you can't just wish it away. People will behave as they want, not as you would like them to.

Perhaps this 'basic nature' is what you want to falsify. I believe most of us have some internalized market 'rules' that don't vary that much whether you're a liberal or a conservative. Maybe I'm wrong. Let's see what I can think of off the top of my head.

 

 

If it is unfalsifiable, it is assuredly useless.

 

Your assumptions about "human nature," in turn, can quite easily be falsified. There are many of examples from history and anthropology in which people do not behave according to your five "laws."

 

 

- If you want me to do something for you, I expect you to do something for me in return

 

Obviously, this idea is frequently not present even in our own society. There are many people who give to others without thought of repayment. It depends on context. I donate money to charities, for example, and I certainly don't expect the people who benefit to "do something for me in return".

That being said, the basic concept of reciprocity you describe here is extremely widespread throughout history. Webs of mutual obligations are constitutive of a society.

 

- I am the only person who knows what I want and how badly I want it

 

 

 

Not necessarily true at all. There are people around me who sometimes know me better than I know myself; being aware of our motivations is the exception for humans, not the rule.

 

- A free transaction leaves both parties richer than they were before

 

Another unfalsifiable bit of circular reasoning. All free transactions leave both parties richer than they were before, because of the way we define "free transaction" and "richer than before"

- If I make something, it's wrong for you to take it away from me

 

Aha! Obviously, this is an anti-capitalist sentiment (and one that has been historically mostly mobilized against capitalism) since capitalism is a system basically characterized by the appropriation from workers of the products of their labor.

 

I'm really not sure why you're holding on to this. Why is the distinction between trade involving money and trade without money (barter) important to you? I see money as just another good being bartered. There's nothing magical about money. It's only a convenience. I won't argue about who invented money. It's irrelevant.

Did government invent bitcoin too? Do you consider trade in bitcoin to be barter?

Every market in the world today can be accurately described as a pure barter market once you understand that money is a good like any other. I could just as easily tell you the price of any stock on the NYSE in oil or copper instead of dollars or yen. The only unique characteristic of money is the government demand that you use it to pay taxes.

Even by your unnecessarily narrow definition, barter markets exist today.

http://www.irta.com/

https://www.floridabarter.com/

http://americanbarter.com/whats.php

 

 

You have perfectly illustrated "why I'm holding on to this."

This theory that the economy can be understood as a big barter network is simply wrong. It is demonstrably wrong, and has already been falsified too many times to list in one post.

 

Ironically, your "examples" of "barter markets" are in fact examples of markets that use money...

 

 

Members list their products or services in the Florida Barter network, earn trade dollars when they sell, and use trade dollars to buy products and services they need in their businesses. It's that easy.

 

 

With AMERICAN BARTER EXCHANGE there are no one on one limitations! As a member you earn trade credits when other members purchase your goods and services from you ... which is always additional business you would never receive! Then you spend your credits, just like cash, with other members for what you need or want. These reciprocal trades increase each members business, each gets what they need, and there is never a need for cash.

 

 

 

 

 

Both of these "how this works" blurbs describe the use of money as a unit of account and as a medium of exchange.

 

Bitcoin of course is a product of state societies with money as are the "barter" systems you're listing out. My point is not that barter doesn't exist, but simply that it has never been something that most people engaged in for basic needs, and there is no evidence that money ever emerged from it (and all the evidence indicates money emerged from elsewhere).

 

When I talk about distortion, I'm usually talking about prices. To the degree that prices are determined by unconstrained supply and demand from private parties, I consider that to be a natural (not distorted) condition. In this situation, goods priced according to society's aggregate evaluation of their worth and cost of production. This is the ideal, not the messy reality.

 

 

 

There is nothing "natural" about this state of affairs, of course.

 

And since government cannot help but influence supply and demand through its taxing and spending policies, we inherently have no choice but to decide how the market will actually function.

 

When government creates policy that unbalances the supply/demand equilibrium, goods are priced (and hence produced) in different ratios. In this situation, government has put a finger on the scales to say "solar good, coal bad" or "sugar good, peas bad". From the two examples, you can see that sometimes this intervention (distortion) can be beneficial and sometimes not.

 

 

 

I know nothing about "sugar good, peas bad" but the idea that the government intervenes in the market in a way that says "solar good, coal bad" is pure fantasy. Look up the US government's subsidies of the fossil fuel industry, please.

 

The point is that a distortion always results in people getting goods in a ratio other than what they would have chosen if government didn't intervene. As an individualist, my natural preference is to let people choose for themselves. But, that's not an absolute preference. There are times (coal, for example) when the market needs to be distorted. Yes, energy will be more expensive. It's worth it.

 

And this is, again, simply untrue.
What you call "distortions" can also emanate from the private sector itself. There is no fundamental difference between your "distortion" and any other change in the demand or supply structure of the economy.
It appears to be the case that under certain circumstances prices will approximate what is predicted by the classical supply and demand model, but in the modern world many prices for things that ordinary people are concerned with are set bureaucratically by corporations, which are institutions designed specifically to "distort" the effects of the market (to use your paradigm).

Obviously, monopoly power makes the idea that only government can "distort" the market rather laughable, and in industries where there are economies of scale monopoly or oligopoly is what you typically end up with. Many sectors in the US are characterized as "managed oligopoly" rather than anything resembling a competitive market.
How odd. I was thinking the same thing about you. So, I'll reflect all this right back at you. Is your theory falsifiable? Where is the evidence? It's pretty much what I've been asking for from the beginning. Other than the Mondragon example, I haven't seen much more than a statement of principles. You aren't even offering concrete recommendations, let alone evidence that these recommendations will work.

 

 

I don't have "one theory." My ideas and arguments in this thread are based on many different theories from a variety of different sources.

 

My point has been all along that the market stuff is applicable only within very limited contexts, whereas you have stated you believe it to be universal law of nature like gravity applicable to all human behavior everywhere.

 

We need to get that bold assertion out of the way. And, I think I have made some recommendations in the thread.

 

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Anyway... My 'theory' that brought on your comment above was that reducing doctors' pay would result in fewer and/or less talented doctors and therefore a reduction in the quantity/quality of our healthcare. Since you're unwilling to accept this statement on face value, I will do the research and show you data to support it. Before I begin, please tell me what you will accept as evidence. What if I show correlation between doctor's pay and medical outcomes across states or nations? Should I correlate life expectancy and doctor pay (in constant dollars) over time?

 

I would accept that reducing doctor's pay would have the consequence of worse medical outcomes, but I don't agree that it would be because there were fewer or "less talented" doctors.
I guess one thing that might do it would be to show a correlation in the real value of doctor salaries and the number of doctors employed, over time, in any country.

Is that what Detroit bought with its debt?

So, you don't see any need to keep public spending within limits? Each city should spend as much as it wants?

 

 

No, on the contrary I do see a need to keep public spending within limits, but I also see that deficits are sometimes necessary to keep things moving.
I say that the debt crisis is manufactured because the usual result of, say, a rich person taking on more debt than he can pay back is bankruptcy proceedings where the debt is written off to a manageable level that doesn't excessively penalize the debtor.
The residents of Detroit, mostly poor people of color, are now being made to pay for the city's poor management of its finances. Of course, a lot of the budget issues are also due to the city's economic problems which have already had a terrible effect on the population.

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Well, the main reason that the cost of Chinese goods is low is that the Chinese have an economic model based on exporting, with the population able to consume only a small fraction of what it produces.

 

Should the Chinese develop an economy where the population can consume most of what they produce we would pay much higher prices for Chinese goods.

 

As your first article notes whether China is actually "manipulating" its currency is not really known; I would say that all sovereigns manipulate their currencies (certainly including the United States).

 

That article from the Explainer is largely nonsense for a variety of reasons.

 

http://www.project-syndicate.org/commentary/chinese-currency-manipulation-by-jeffrey-frankel-2015-02

https://www.creditwritedowns.com/2010/10/mmt-a-few-thoughts-on-austerity-currency-wars-and-exchange-rates.html

 

These are what I consider well-informed perspectives on the supposed "manipulation."

 

Your first article actually argues thus:

 

I pretty much agree with all of this.

Good articles do present various points of view.

 

In your second link for example it says:

 

"It is far harder to make the case that it is an import that is a "good" and an export is a "bad", in an economy that is far below its production possibility curve (i.e., far below full employment). Higher exports could generate sufficient domestic growth of consumption so that, as much as you might be exporting an increasing amount of your domestic output to increase the per capita consumption of foreigners, there is also an accompanying increase in domestic consumption because of the multiplier effects domestically. Please remember that our per capita output and our per capita consumption does not only rise because of imports but also because we have more people employed!"

 

In my opinion the Chinese model means they have to manipulate their currency so that it is lower than most other nations so they get the advantages of having the manufacturing in China. They design to manufacture for the whole world, so of course they couldn't purchase all of what they are making. The Chinese people are buying more and more as their economy improves, while American people are buying less and less as the economy deteriorates. As long as China manipulates its currency prices will be cheaper. Once China has extracted the money, and the middle class is in poverty and unable to even purchase the low cost products, there will be no need to keep the Yuan low, and it can rise, and with it, the fortunes of many Chinese.

 

I do like your statement of the concept of having full employment and if we were anywhere near that, I might agree. However, we are far from full employment and it doesn't look like we have any method of getting there. Having the government be the employer of last resort is fine, but there needs to be some efficient work the people can do. It is my opinion that the US has enough reserve people willing and anxious to work to add 40% more to the labor pool.

 

Perhaps you have a suggestion as to what projects can be funded efficiently to employ something like 90 million Americans? There are lots of opportunities in this request.

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