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The real reason that capitalism is so crash-prone.

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Re: The real reason that capitalism is so crash-prone.

#41

Post by pyre »

chimariko wrote: post #22
fnid wrote: post #15

Earlier quoted context omitted.

Capitalism is one of the few social constructs that encourages negative traits. Who is to say that selfishness is better than altruism? Altruism seems to be a human trait as well -- we do act altruistically on occassion. Is it impossible to build a financial system based on altruism? We tend to think quite highly of those who give of themselves more than take. Why don't we build a financial system that rewards those…

Capitalism creates an environment where both positive and negative traits can be materialized. Everyone agrees that altruism is better than selfishness in moral sense. However one must be quite civilized and have high quality of life and standard of living to exercise altruism. Those whose individual demands are not met simply cannot afford altruism. A financial system aimed at rewarding those who think of others ( s…

> However one must be quite civilized and have high quality of life and standard of living to exercise altruism.

Not necessarily. There are plenty of people that have nothing that still devote time/money into helping others before themselves.

I hate to reference the Bible, but there was a parable in there about a woman donating 2 cents to the poor verses wealthy men donating piles of money (I think this was 'bags of silver pieces or something like that). She gave more than they did if you consider the percentage of their total assets/worth that was donated.

Re: The real reason that capitalism is so crash-prone.

#42

Post by launic »

The title of the article is "Rational Irrationality" and not letting the system to crash now, seems to me (and to many others) very irrational.

"too big to fail" syntagm does not look good either to the author of the article, in the end he says:

"As memories of September, 2008, fade, many will say that the Great Crunch wasn’t so bad, after all, and skip over the vast government intervention that prevented a much, much worse outcome. Incentives for excessive risk-taking will revive, and so will the lobbying power of banks and other financial firms." ... "The next time the structure starts to lurch and sway, it could all fall down."

Bailing out big companies is not capitalism as we learned about it. And the bottom line is it hasn't crashed now, the governments did not let it crash. Whether this is good or bad, I guess we will see in the future.

Re: The real reason that capitalism is so crash-prone.

#43

Post by Perceval »

3pt14159 wrote: post #9

The real reason it is so crash-prone => fiat currency and a fractional reserve banking system.

The author of the article almost alludes to this when they write:

>Consider the freeze that started in August of 2007. Each bank was adopting a prudent course by turning away questionable borrowers and holding on to its capital. But the results were mutually ruinous: once credit stopped flowing, many financial firms—the banks included—were forced to sell off assets in order to raise cash. This round of selling caused stocks, bonds, and other assets to decline in value, which generated a new round of losses.

We might be less crash-prone if we had system that didn't crash when the growth of the money supply was interrupted. It seems like it's not just maintaining the current level of credit is necessary for stability, but the indefinite exponential expansion of credit is necessary to stave off problems.

Re: The real reason that capitalism is so crash-prone.

#44

Post by pyre »

fnid wrote: post #15
chimariko wrote: post #8

Earlier quoted context omitted.

Sure, what I mean is that the pursue for individual success is a key feature of Homo sapiens species. Traditional capitalism declares it as its main trait. The fact that participants of a capitalist system are encouraged to act according to their natural behavioral patterns makes capitalism the most stable system ever known.

Capitalism is one of the few social constructs that encourages negative traits. Who is to say that selfishness is better than altruism? Altruism seems to be a human trait as well -- we do act altruistically on occassion. Is it impossible to build a financial system based on altruism? We tend to think quite highly of those who give of themselves more than take. Why don't we build a financial system that rewards those…

> We have a desire to promote the success of those with our genes, but discrimination is forbidden.

How so? Am I not allowed to be a white male that exclusively dates white females? Is there affirmative action for dating/mating now?

Discrimination is forbidden in ways that have nothing to do with genes and evolution. Do you really think that the KKK was all about 'promoting better genes?' In modern times, they may have convinced themselves of this but it is bunk science. Neo-Nazies, skinheads, KKK members, all of them discriminate against others, not because they want to 'get rid of others to promote their genes.'

And you say 'those with our genes,' but that normally means one's offspring. Even within the same 'tribes,' preference is given to one's offspring above all else.

This has more to do with human nature to want to join a community and exclude others, which is closer to our warring nature than anything to do with procreation.

Re: The real reason that capitalism is so crash-prone.

#45

Post by Perceval »

Confusion wrote: post #39
kiba wrote: post #16

Failure is a feature of capitalism. It is to be expected. However, what shouldn't really happen is a cluster of failures. That's caused by misinformation in the pricing system. Real saving rate doesn't matched up with interest rate, so people are being fooled by non-existent capitals. At least that's how I understand it.

As Marx correctly understood, capitalism is best likened to a force of nature: it doesn't have any moral basis and can have both morally positive and negative consequences. This is why we need governments to keep capitalism in check: unchecked capitalism also leads to activities we find morally unacceptable. Like evolution favors only those traits that add reproductive value, capitalism favors only those activities t…

Wow, it's hard to know where to begin with this post. It seems strange to me that you're trying to use Marx to justify a liberal position. After all, Marx would be the first to disagree with you about the feasibility of using the state to check the market. Marx saw the state as little more than the 'executive committee' of the bourgeoisie, so using the state to check the market is just not going to happen until revolution leads us out of the capitalist stage of history.

Your equation of evolution and capitalism has a nasty heritage of Social Darwinist thinking. I think it's a misunderstanding of both evolution and of capitalism. Better not to make such an analogy.

Monopolies, deception, fraud, slaves, and so on are not at all unique to capitalism and have been with humanity throughout history. There's no compelling reason to believe that capitalism favors these practices for rational or irrational reasons.

It's not clear why the government is the only institution in society that can avoid failure. It's moreover not clear that the government doesn't play a role in setting up failures as a consequence of its intervention. Marx (or Lenin at the least) would certainly hold that it's the state that creates the very phenomena like monopolies that you decry as "irrational."

Re: The real reason that capitalism is so crash-prone.

#46

Post by GavinB »

DanielBMarkham wrote: post #33
Perceval wrote: post #29

Earlier quoted context omitted.

It's unfortunate that the article uses the Prisoner's Dilemma as its example, because the Prisoner's Dilemma is actually not the best game model to set up as the opposite of the Invisible Hand. A more appropriate model would be the Tragedy of the Commons, which was proposed by a fellow named Garrett Hardin in an article in a 1968 edition of Science magazine. If you are interested in formal modeling of coordination pr…

Any quick one-liners or easy-to-understand wisdom that you've gained from the material? The entire subject area looks immensely fascinating, yet very dense at times.

The tragedy of the commons works like this: If everyone follows their self interest and goes fishing in the lake, pretty soon all of the fish will be gone and it will take decades for them to repopulate. If you somehow (how to do it is a coordination problem) arrange for only a small number of people to fish, they can bring in reasonable number of fish every day for many years.

The upshot: In some markets, like consumer electronics, supply and demand regulates things very efficiently. In others, unconstrained individual interest can ruin everything.

In the financial markets, individuals acting rationally for themselves can cause damage to the overall economy: crashes, bubbles, bank runs, etc.

Re: The real reason that capitalism is so crash-prone.

#47

Post by jamesbritt »

Perceval wrote: post #29
hy3lxs wrote: post #4

Great read. My two favorite quotes: The Prisoner’s Dilemma is the obverse of Adam Smith’s theory of the invisible hand, in which the free market coördinates the behavior of self-seeking individuals to the benefit of all. Each businessman “intends only his own gain,” Smith wrote in “The Wealth of Nations,” “and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his i…

It's unfortunate that the article uses the Prisoner's Dilemma as its example, because the Prisoner's Dilemma is actually not the best game model to set up as the opposite of the Invisible Hand. A more appropriate model would be the Tragedy of the Commons, which was proposed by a fellow named Garrett Hardin in an article in a 1968 edition of Science magazine. If you are interested in formal modeling of coordination pr…

Interesting view on the Tragedy of the Commons and whether it is an accurate assumption:

http://www.britac.ac.uk/pubs/src/keynes95/06sec5.cfm

Re: The real reason that capitalism is so crash-prone.

#48

Post by jamesbritt »

GavinB wrote: post #46
DanielBMarkham wrote: post #33

Earlier quoted context omitted.

Any quick one-liners or easy-to-understand wisdom that you've gained from the material? The entire subject area looks immensely fascinating, yet very dense at times.

The tragedy of the commons works like this: If everyone follows their self interest and goes fishing in the lake, pretty soon all of the fish will be gone and it will take decades for them to repopulate. If you somehow (how to do it is a coordination problem) arrange for only a small number of people to fish, they can bring in reasonable number of fish every day for many years. The upshot: In some markets, like consu…

" If everyone follows their self interest and goes fishing in the lake, pretty soon all of the fish will be gone and it will take decades for them to repopulate. "

Or, everyone follows their self interest and realizes that they will need to work out some agreements to moderate fishing or there will be no fish.

Re: The real reason that capitalism is so crash-prone.

#49

Post by Confusion »

Perceval wrote: post #45
Confusion wrote: post #39

Earlier quoted context omitted.

As Marx correctly understood, capitalism is best likened to a force of nature: it doesn't have any moral basis and can have both morally positive and negative consequences. This is why we need governments to keep capitalism in check: unchecked capitalism also leads to activities we find morally unacceptable. Like evolution favors only those traits that add reproductive value, capitalism favors only those activities t…

Wow, it's hard to know where to begin with this post. It seems strange to me that you're trying to use Marx to justify a liberal position. After all, Marx would be the first to disagree with you about the feasibility of using the state to check the market. Marx saw the state as little more than the 'executive committee' of the bourgeoisie, so using the state to check the market is just not going to happen until revol…

My intention is not to use Marx to justify anything; I just want to lay focus on something he and Engels got exactly right and which is being forgotten: capitalism is amoral (a term that is not be confused with immoral). As a result of this, parts of their analysis are extremely valuable and it's a damn shame the anti-communist tendencies have swept that under the rug.

By stating that evolution is an amoral process, I completely condemn any form of Social Darwinism: you cannot derive moral values from amoral principles. Evolution is completely amoral: that which reproduces itself, will continue to exist in some form, independent of our moral judgment about it. Social Darwinists are therefore guilty of the naturalistic fallacy

However, the same goes for capitalism: that which increases capital the most stays in the best position to keep increasing capital. Because of irrationality and a lack of market transparency, the best moral intentions on the part of individual humans cannot prevent immoral consequences from arising. I'm not saying any of those immoral consequences are unique to capitalism. I am saying they are unavoidable when you let capitalism go unchecked.

It's not clear why the government is the only institution in society that can avoid failure

And I cannot prove it is. However, as far as I can see, no other institution has the power nor the mandate to guide capitalist forces. This is the exact reason you have things like the Federal Trade Commission and an Antitrust Division in the DoJ, both on a government level. Who else could do that job?

Re: The real reason that capitalism is so crash-prone.

#50

Post by alecco »

Perceval wrote: post #36
DanielBMarkham wrote: post #33

Earlier quoted context omitted.

Any quick one-liners or easy-to-understand wisdom that you've gained from the material? The entire subject area looks immensely fascinating, yet very dense at times.

Yes, game theory can get inscrutably complex, even through the initial models are pretty simply to set up and understand. The basic components of any coordination/cooperation problem are the same: you have actors with preferences, you have a situation with rules that they can't change, and you have outcomes with payoffs/penalties depending on whether the actors choose to cooperate or not. Most of the problems revolve…

Beware of simplistic conclusions of very basic game theory, especially if it's coming from RAND.

http://en.wikipedia.org/wiki/Tragedy_of_the_anticommons

This documentary enlightens a bit on the subject and is quite accessible. http://en.wikipedia.org/wiki/The_Trap_%28television_document...

http://video.google.com/videoplay?docid=404227395387111085#

(AFAIK not released outside of Britain due to footage rights issues, a real shame.)

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