A discussion on America and Iran and the economics of the society you'd like inhabit

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Akrasia wrote:

So how come income inequality has been increasing faster over than the last 20 years than before and fastest in the countries with the lowest regulations?

Well you said it yourself. Africa has stagnated. The OECD countries have grown. There're no foul forces here. To give you but one reason, the West has adopted and implemented the use of the internet and mobile phone technology to great success. This lowers communications barriers and generally makes everything more efficient. More efficient means less time doing stupid things like waiting around and actually doing something productive. Thus we grow. Africa is still doing the stupid things like waiting.

And are you seriously saying that Africans and south Americans are poor because they do not work as hard as Europeans?

Is it the reason? No. Is it a factor? Certainly.

The teenage girls who make Nike Shoes probably work more hours in one week than many rich executives works in a month

There're academic papers and empirical data showing that the actual labour hours (not just your emotional anecdote) Americans work damn long hours.

Since NAFTA, inequality in Mexico and the United states has increased massively. Free trade agreements facilitate the race to the bottom as capital always flows to the cheapest least regulated places to do business. (until these economies collapse because of the inherent unsustainability of laissez faire capitalism.

You see the problem with that is America is NOT a free-trading country. Quite the opposite. It probably has more barriers to trade than any other OECD country.

nesf

Ibid wrote:

Observe the trend in government expenditure, not only in real terms, but as a fraction of GDP.Keynes changed everything.

Keynes changed everything? It was a tad more complicated than that, the two world wars in that period, and the subsequent rebuilding and social change might also have something to do with it tbh.

Ibid wrote:

The free market is an illusion.

The market is an illusion, a crutch for poor macro-economists.

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nesf wrote:

Keynes changed everything? It was a tad more complicated than that, the two world wars in that period, and the subsequent rebuilding and social change might also have something to do with it tbh.

Of course it did. My point was that Keynes changed everything in economics with particular reference to the role of the State. Laissez-faire was the style of the time before Keynes came a knocking. Laissez-faire is not practiced or preached anywhere since Keynes. I was using the quoted graph to emphasize this point. The fact that I chose America, the constantly-quoted source of all evil, is no coincidence.

The market is an illusion, a crutch for poor macro-economists.

The market is not an illusion. Have a look at adverts.ie or the price of land in Second Life; they follow basic market principles. The free market, this theoretical concept that economists [primarily micro-economists btw ] use as a launching-pad for extrapolation, doesn't exist within any political framework. To claim that there really exists such a thing as a "free-market economist" is not true. Even California has tax rates of 9.1%.

nesf

Ibid wrote:

Of course it did. My point was that Keynes changed everything in economics with particular reference to the role of the State. Laissez-faire was the style of the time before Keynes came a knocking. Laissez-faire is not practiced or preached anywhere since Keynes. I was using the quoted graph to emphasize this point. The fact that I chose America, the constantly-quoted source of all evil, is no coincidence.

I would agree that his theories, and more importantly their uptake by Governments, did have a huge effect on the world economy, but I'm not totally convinced whether it was the man made his environment or the environment made the man, if you know what I mean.

Ibid wrote:

The market is not an illusion. Have a look at adverts.ie or the price of land in Second Life; they follow basic market principles. The free market, this theoretical concept that economists [primarily micro-economists btw ] use as a launching-pad for extrapolation, doesn't exist within any political framework. To claim that there really exists such a thing as a "free-market economist" is not true. Even California has tax rates of 9.1%.

I was just having a bit of fun with you. Though whether the market (in general)is a physical thing or not is not exactly a black and white issue. I'd personally lean towards it's an aggregation of individual transaction but not a thing in and of itself.

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The market is not a physical thing but it acts in a very, very organised way. And it almost always does. Of course it fails and fails terribly and people need to be looked after, but in markets where people enter of their own free will and thus don't need "minding" (say for stocks and shares) it can work incredibly well.

To illustrate this, let me show you how the currency markets are currently running.



This is a square matrix of (11x11) dimension which in human terms is pretty much too big to deal with. To those who haven't studied maths post-Leaving Cert, it would probably take you a whole day and about a hundred pages to do the necessary calculations on that before you could start dividing it, etc.

But it's coherence when done by the market (the millions of people who are trading in different currencies every day) is unreal. When we go to the bank to change currency, we have to pay them a little fee for their trouble. But when the market is trading there is no such fee. So when you trade €1 into a £s you just use the actual exchange rate.

Let me take an example of when you have €100. Turn that into GBPs, you get (€100 x 0.6802) = £68.02. Then you turn this into Canadian dollars, you get (£68.02 x 2.2624 ) = CN$153.89. Turning this into US$ you get (CN$153.89 x 0.8688) = US$133.70. Turning this back into Euro gets you (US$133.70 x 0.7479) = €99.99. So you end up with what you started with (the 1c difference comes about from us only using 4 decimal places).

That level of coherence is amazing. I chose the currencies randomly, you can try this experiment with as many currencies as you want and you'll get the same result. Millions of people trading billions of euro in exchanges the rates they reach are exactly as they should be.

But then it's not so amazing. If it wasn't such coherence, people could lose money. People's self-interest guides the market to stability like that. So yes, the market is just an aggregated result. Quite democratic really, isn't it?

nesf

Ibid wrote:

Let me take an example of when you have €100. Turn that into GBPs, you get (€100 x 0.6802) = £68.02. Then you turn this into Canadian dollars, you get (£68.02 x 2.2624 ) = CN$153.89. Turning this into US$ you get (CN$153.89 x 0.8688) = US$133.70. Turning this back into Euro gets you (US$133.70 x 0.7479) = €99.99. So you end up with what you started with (the 1c difference comes about from us only using 4 decimal places).

Eh, the lack of arbitrage isn't a "natural" aspect of the market, but an indication of how heavily traded the currency markets are.

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I'd disagree with you that there's a difference.

It's a result of Perfect Competition.

Ibid,

I'm not quite sure what point you're trying to make but I think you are bit wrong as you seem to be overestimating market stability.
The prices all equal out because otherwise arbitrage would exist, if this was the case people would 'flock' to the price and the subsequent trading would cause the prices to adjust and the arbitrage gap would be squeezed and eventually elminated (NB this takes place in a matter of seconds / minutes)
And these opportunites occur quite often, but are quickly traded out.

However the markets are not 'stable', and a quick look at financial economic history will show that time and time again the same errors are repeated which lead to crashes; again and again and again.

In regards to the currecncy 'democracy': George Soros

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original_psycho wrote:

The prices all equal out because otherwise arbitrage would exist

Correction: the prices are all equal because people adapt them to suit. Although of course there are crashes and tumbles - I never suggested otherwise - the fine-tuning is best achieved through a market mechanism.

The free market, where the government doesn't come in and distort things. The free market, the source of all evil.*

*According to Akrasia, who seems to have disappeared.

Take LTCM; without Gov intervention - global trading would have collapsed
The IMF bails out markets all the time*

Markets sometimes need a visible body to guide the invisible hand

*and by this I mean a few times every few years, but the precedent is there which effects investors action

nesf

Ibid wrote:

Correction: the prices are all equal because people adapt them to suit.

I'm not sure what your point is here. Arbitrage does happen in the financial markets, it just doesn't exist for very long (people jump on it and the demand increases etc etc). But people don't "adapt the prices to suit", that implies some form of central or communal concious control of market prices which isn't the case.

Also, perfect competition? Eh? It's a nice concept but are you actually saying it exists in the financial markets?

nesf is correct - arbitrage is traded out, and this is because people profit from it, not because it doesn't suit people.

Though I think we are all arguing the same point here...