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Today there is NO intellectual presumption that markets are efficient.
May 15, 2012 9:20 AM   Subscribe

The Invisible Hand is Invisible Because It Isn't There. Nobel laureate Joseph Stiglitz gives the keynote address at the launch of The Roosevelt Institute's new initiative: Rediscovering Government. Via the Next New Deal.
posted by Trochanter (103 comments total) 33 users marked this as a favorite

 
Are you telling me that god's invisible hand doesn't work through the marketplace to propel the manifest destiny of the western world? Sounds kind of far fetched.
posted by Stagger Lee at 9:24 AM on May 15, 2012 [21 favorites]


It's odd how often people speak of the Invisible Hand as though it were some established, incontrovertible fact. Adam Smith himself just used the phrase three times in his writing, was referring to a feudalistic society, and had real reservations about unregulated markets in regards to poverty.

I mean, sure, maybe there is some invisible hand. But if we're going to have a fact-based conversation, please show me some facts that demonstrate its existence. Especially when using to to try to make the case that the market will handle things better than government, because competition will necessarily provide things more cheaply and effectively by a for-profit organization whose principal driving goal is to maximize profit, rather than a government organization that has no need to make any profit at all.

Is there evidence that the market does this, on the whole, better and cheaper than U.S. programs? Because I'm living in post-EnRon California, and if somebody is going to start talking Adam Smith talk, I'm going to ask for proof.
posted by Bunny Ultramod at 9:36 AM on May 15, 2012


Today there is NO intellectual presumption that markets are efficient.

Is there a presumption among intellectuals that government regulation is efficient?
posted by John Cohen at 9:37 AM on May 15, 2012 [5 favorites]


There are plenty of people out there who are willing to pay what it takes to make government services successful, even services that do not directly benefit everyone paying for them.

They're just not the people who drive the narrative for one, sometimes two of the two existing major political parties in the United States.
posted by delfin at 9:38 AM on May 15, 2012 [3 favorites]


People who decry that the "invisible hand" doesn't exist don't understand the meaning of the metaphor.

The people that ran Friendster and MySpace are looking longingly at this week's upcoming Facebook IPO. They wish the invisible hand -- the one that pushed them out of the market -- didn't exist.

Here, let me help:

"It is even more astounding that the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil. How did it happen? Adam Smith gave us the answer two hundred years ago."
posted by Cool Papa Bell at 9:40 AM on May 15, 2012


Is there a presumption among intellectuals that government regulation is efficient?

Could you define your terms here? Efficient in what way? I suppose my concern is that regulation be less efficient than effective. I don't care if my meat costs a little more if regulation has made sure it is not contaminated and poisonous.
posted by Bunny Ultramod at 9:40 AM on May 15, 2012 [21 favorites]


Why is efficiency always presumed to be a god? Why is it assumed to be the best way to run something? Efficiency is good. It's not the sole good thing, and it's not necessarily the best thing. It also comes at a cost, and we should always ask if it's worth it.
posted by rtha at 9:41 AM on May 15, 2012 [26 favorites]




People who decry that the "invisible hand" doesn't exist don't understand the meaning of the metaphor.


I think that it's religious origins alone leave open it up to serious skepticism.
posted by Stagger Lee at 9:42 AM on May 15, 2012 [3 favorites]


It is even more astounding that the pencil was ever produced.

I can't recall the last time I used a pencil. I do, however, use the Internet all the time. The Internet which was created, in large part, by the United States Department of Defense.
posted by Bunny Ultramod at 9:44 AM on May 15, 2012 [20 favorites]


If you think that the creation of the pencil is so amazing as to prove that Invisible Hands exist, let me tell you a little story about a banana...*


* I told you that story to tell you this one.
posted by delfin at 9:49 AM on May 15, 2012 [4 favorites]


Government regulators and budgets are part of the environment that shapes supply and demand (the invisible hand), just like the weather.

I don't care if my meat costs a little more if regulation has made sure it is not contaminated and poisonous.

What if it cost a lot more and regulation tricked you into thinking it was safe because of lobbyists?

I can't recall the last time I used a pencil. I do, however, use the Internet all the time. The Internet which was created, in large part, by the United States Department of Defense.


The price of getting DoD technology is something you can't be happy about!
posted by michaelh at 9:52 AM on May 15, 2012


People who decry that the "invisible hand" doesn't exist don't understand the meaning of the metaphor.

No. People need to stop throwing their arms in the air and shouting "invisible hand! invisible hand! invisible hand!" over and over again whenever anyone points out the obvious inadequacies and inequalities present in our current economic system.
posted by RonButNotStupid at 9:54 AM on May 15, 2012 [8 favorites]


What if it cost a lot more and regulation tricked you into thinking it was safe because of lobbyists?

Is this better than having it entirely unregulated? I mean, we've done that. It doesn't work out so well.
posted by rtha at 9:54 AM on May 15, 2012 [6 favorites]


What if it cost a lot more and regulation tricked you into thinking it was safe because of lobbyists?

Presenting "what ifs" is not the same things as presenting facts.
posted by Bunny Ultramod at 9:55 AM on May 15, 2012 [4 favorites]


No. People need to stop throwing their arms in the air and shouting "invisible hand! invisible hand! invisible hand!" over and over again whenever anyone points out the obvious inadequacies and inequalities present in our current economic system.

Then either you or them aren't getting it, either. Possibly both.

It's neither the source of, nor the solution to, the problem.

What's worse is that this misunderstanding casts doubt on one of the fundamental tenets of economics. It's like the global warning deniers AND the we're-all-gonna-drown-tomorrow crowd are standing around shouting at each other.
posted by Cool Papa Bell at 9:57 AM on May 15, 2012


Is there a presumption among intellectuals that government regulation is efficient?

It reads like you intended that more as an "Oooh, BURN!" than a request for information, but in the event that you were seeking enlightenment:

No, there is not any presumption that government regulation is efficient, and there are numerous off-the-shelf models that try to examine how regulation can go astray and take theoretical account of the costs of going astray.
posted by ROU_Xenophobe at 9:57 AM on May 15, 2012 [8 favorites]


Why is efficiency always presumed to be a god? Why is it assumed to be the best way to run something? Efficiency is good. It's not the sole good thing, and it's not necessarily the best thing. It also comes at a cost, and we should always ask if it's worth it.

I think generally efficiency is a good, the problem is that maximising efficiency should take into account the full cost and benefit of a market disposition, ie including the costs and benefits of levels of regulation. To use the example of standards on meat mentioned earlier, the full costs of people of the absense of regulation need ot be taken into account, eg consumers becoming ill as a result of an unregulated market need to be accounted for, including absenteeism from work, possible death etc. It is a major problem that the argument has been accepted by large sections of the population that the minimum degree of regulation is the most cost effective and efficient way to run a market. This might be regarded as inevitable given the influence of corporate power and the ability of companies to both cut down regulation and to influence the extent to which litigation means they bear the costs of their unregulated market.
posted by biffa at 9:57 AM on May 15, 2012 [1 favorite]


What's worse is that this misunderstanding casts doubt on one of the fundamental tenets of economics.

What tenant is that? The invisible hand? That's not a tenets, it's a talking point.
posted by Bunny Ultramod at 9:58 AM on May 15, 2012


The Tenant is a very good psychological thrilled directed by and starring Roman Polanski, by the way.
posted by Bunny Ultramod at 10:00 AM on May 15, 2012 [2 favorites]


It is even more astounding that the pencil was ever produced

Pretty sure it's not astounding in any meaningful sense of that word. Also, this kind of writing:

Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mill's power!

Don't overlook the ancestors present and distant who have a hand in transporting sixty carloads of slats across the nation.

Once in the pencil factory—$4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine—each slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat, applies glue, and places another slat atop—a lead sandwich, so to speak. Seven brothers and I are mechanically carved from this "wood-clinched" sandwich.


reminds me of that Simpsons episode where they take a field trip to...the box factory! God, only an economist could write such dull, inappropriately anthropomorphised drivel with such tone-deaf verve and passion.
posted by clockzero at 10:00 AM on May 15, 2012 [5 favorites]


Presenting "what ifs" is not the same things as presenting facts.

You did. You said our meat is safe and inexpensive because of regulation. If you were talking about right now then it's not true, and if you were talking about future regulation then it's hypothetical.
posted by michaelh at 10:03 AM on May 15, 2012


If you were talking about right now then it's not true,

Well, it is true right now. Why on earth do you think our regulated food is unsafe right now as compared to when it was unregulated? Have you done any research at all as to what food production was like prior to The Pure Food and Drug Act of June 30, 1906?
posted by Bunny Ultramod at 10:08 AM on May 15, 2012 [5 favorites]


There were no multinational corporations when Adam Smith alluded to the invisible hand. Everything was local.

"Invisible hand" referred to this: Local business owner acts in self-benefitting way. Said self-benefitting way is constrained by his being a member of the community. Said community are his friends, compatriots and customers. Benefit your community, benefit yourself. And vice versa.

Multinational corporations recognize no community nor restraint. The invisible hand doesn't exist at their level.
posted by Benny Andajetz at 10:11 AM on May 15, 2012 [10 favorites]


Absent government intervention, there is no efficient market.

Markets require two things: property and contract. Absent government enforcement of property rights and contractual obligations, property becomes expensive to defend, and contracts expensive to enforce. Government intervention enables property to be held cheaply, by use of public bodyguards (police) to protect property, and public enforcement (courts and police) of contractual obligations. Absent these interventions, the risk of default would have to be priced into a contract. Transactions themselves become much more expensive. Surety and bonding become a requirement at a much lower transaction level than they tend to now, but are themselves expensive due to ongoing costs of holding concentrations of property. Markets become rife with fraud: the mere cost of entering into a transaction goes up. Individuals do not transact with people they do not trust. Individuals perform for themselves those services they cannot or will not purchase at market prices, and, because this includes a wide variety of human needs, do so less efficiently than an expert would. Overall productivity decreases, and with it, luxury, wealth, and life expectancy. The potential for demegoguery is increased due to widespread suffering.

There is, I suppose, an argument to be made that the regulatory state requires simplification: surely, not every intervention is economically optimal. I would love it if that were the argument conservatives and libertarians were making. Sadly, their argument is against government intervention as a categorical evil, from which I can only conclude that they do not understand economics, or that they wish to return to a Hobbesian state of affairs.
posted by gauche at 10:11 AM on May 15, 2012 [33 favorites]


No neo-liberal globalist agenda is going to stop what they are doing because of more /facts/ their assumptions are flawed at their core. Sheesh.

It would take a debacle like Enron to highlight how this agenda has ruined the global South before turning the same tools on ourselves.

Oh.

Carry on.
posted by clvrmnky at 10:15 AM on May 15, 2012 [5 favorites]


rtha: "Why is efficiency always presumed to be a god? Why is it assumed to be the best way to run something? Efficiency is good. It's not the sole good thing, and it's not necessarily the best thing. It also comes at a cost, and we should always ask if it's worth it."

Let me guess. You work at the DMV?
posted by schmod at 10:16 AM on May 15, 2012


Absent government intervention, there is no efficient market.

Absent government regulation, there is no market. Period. Big guy with big gun come and take your stuff. Period.
posted by Mental Wimp at 10:16 AM on May 15, 2012 [6 favorites]


What's worse is that this misunderstanding casts doubt on one of the fundamental tenets of economics.

Yep, Cool Papa Bell. I totally believe you're a more credible authority on economics and Smith's Invisible Hand than Joseph Stiglitz. You'd better sit down with the man and set him straight before he embarrasses himself publicly again.
posted by saulgoodman at 10:19 AM on May 15, 2012 [5 favorites]


Well, it is true right now. Why on earth do you think our regulated food is unsafe right now as compared to when it was unregulated? Have you done any research at all as to what food production was like prior to The Pure Food and Drug Act of June 30, 1906?

1. Buyers understood the risks. Now, average people don't see the need (or even know how anymore) to be prudent buyers even though risks are present. See also securities regulation, before which stock market wipeouts were mostly for rich people.
2. Health threats innovate faster than the FDA can understand and study them. It's not competent.
3. The FDA is controlled by food lobbyists which routinely get it to allow dishonest labels and silently sell genetically modified food.
4. The FDA makes it difficult/illegal to buy local, high-quality food, especially milk and meat.
5. We pay a lot of money for all this.
posted by michaelh at 10:21 AM on May 15, 2012


Why is efficiency always presumed to be a god?

When economists talk about efficiency, they almost always mean Pareto-efficiency. A state of affairs is Pareto-efficient if you cannot make one person better off without making someone else worse off.

It's not so much that efficiency is good -- many Pareto-efficient states of affairs could be completely reprehensible -- as that inefficiency is bad. If a state of affairs is Pareto-inferior, then you can make someone better off at no cost to anyone else. SO YOU SHOULD DO THAT.
posted by ROU_Xenophobe at 10:24 AM on May 15, 2012 [7 favorites]


Absent government intervention, there is no efficient market.


Is anyone arguing in favor of absolutely no government?
posted by 2N2222 at 10:26 AM on May 15, 2012


There were no multinational corporations when Adam Smith alluded to the invisible hand. Everything was local.


Not really.

Not that it really applies to this topic.
posted by 2N2222 at 10:27 AM on May 15, 2012


Let me guess. You work at the DMV?

I know the DMV is the go-to dead horse, but the last time I was there there were at least 300 people there with me, and they kept those lines moving quickly enough to get me out of there in 20 minutes. The line system they used seemed incredibly efficient to me, and the people were fairly polite.

The free-market option is AAA, which can take care of lots of DMV services, and it's a very low-stress and pleasant experience, but I wonder what would happen if 300 people all came in at once.
posted by Huck500 at 10:28 AM on May 15, 2012 [7 favorites]


> Is anyone arguing in favor of absolutely no government?

You aren't really making it clear what you are arguing in favor of. What the rest of us are arguing is that economic forces (the "invisible hand") and regulation go hand-in-hand in the modern state, they're yin and yang, and you can't simply say, "Free market good, government bad."
posted by lupus_yonderboy at 10:30 AM on May 15, 2012 [4 favorites]


You said our meat is safe and inexpensive because of regulation. If you were talking about right now then it's not true, and if you were talking about future regulation then it's hypothetical.

You presume that if the corruption-seeped US government can't do it, no-one is?
Actually, I've been to countries where the food standards leave the US for dead (sometimes literally).

All you need is need corruption. Ie better government.
posted by -harlequin- at 10:34 AM on May 15, 2012 [1 favorite]


all you need is less corruption.
posted by -harlequin- at 10:34 AM on May 15, 2012


The Internet which was created, in large part, by the United States Department of Defense.

Badly in need of a better example!
posted by 2N2222 at 10:34 AM on May 15, 2012


Why is efficiency always presumed to be a god?

"Efficiency" is code for "profitable," and the underlying assumption of this culture is that humans are here to service the economy and not the reverse.
posted by MillMan at 10:34 AM on May 15, 2012 [8 favorites]


Is anyone arguing in favor of absolutely no government?

I don't know. I mean, I bet I could find someone who is, but I don't think that's what you're asking.

The point I was trying to make, though, is that it is deeply problematic to imagine a functioning market in which there is no government intervention, which is something that a lot of people who are bullish on free-market capitalism seem to want. There are legitimate disagreements to be had as to the extent of government intervention, but those do not easily fit onto a bumper sticker, and my right-wing friends seem disinterested in having those discussions -- which are nuanced and based on empirical experimintation -- in favor of restating their assumption that the government ought to leave the markets alone, a position which I find, for the reasons I've tried to outline above, to be self-referentially incoherent.
posted by gauche at 10:34 AM on May 15, 2012 [3 favorites]


The free-market option is AAA, which can take care of lots of DMV services, and it's a very low-stress and pleasant experience, but I wonder what would happen if 300 people all came in at once.

That is the same way private mail & ship shops work. You would expect to see the small & comfortable model in any industry that exists as a pleasant alternative to the public option.
posted by michaelh at 10:35 AM on May 15, 2012 [1 favorite]


Invisible hand, meet socialist fist.
posted by No Robots at 10:35 AM on May 15, 2012 [4 favorites]


Say what you will about the tenets of unfettered capitalism, at least it's an ethos.

1. Buyers understood the risks. Now, average people don't see the need (or even know how anymore) to be prudent buyers even though risks are present. See also securities regulation, before which stock market wipeouts were mostly for rich people.

I'm not going to address all of your points, but there's no actual information to back up any of them. I'd just like you to back up one of them -- this first one, where you claim that we are somehow less safe now than prior to laws against adulterating food. What risks did they know about? Did they know rendering plants were using tubercular beef before Upton Sinclair told them? And how did this knowledge help them? How could they, going to the market, determine what meat was safe and what wasn't?

In fact, since we're on the topic of Stiglitz, he's one of the originators of the idea of Information asymmetry -- that when the producers of a product have more information than the purchasers, the market will often become flooded with inferior goods. So how does the ordinary citizen address information asymmetry in regards to food? How do they know which rendering plant is safe and which isn't? Once it's in the market, how do they know which plant it came from? And how do they find better food?
posted by Bunny Ultramod at 10:35 AM on May 15, 2012 [4 favorites]


People who decry that the "invisible hand" doesn't exist don't understand the meaning of the metaphor.

I kind of think this is one of the examples where a metaphor is too popular for its own good.
posted by 2N2222 at 10:36 AM on May 15, 2012 [1 favorite]


You presume that if the corruption-seeped US government can't do it, no-one is?
Actually, I've been to countries where the food standards leave the US for dead (sometimes literally).

All you need is need corruption. Ie better government.


Me too. Let's not cargo-cult, though.
posted by michaelh at 10:37 AM on May 15, 2012


Not really.

Not that it really applies to this topic.


Not really, like the East India Tea Company, and such? I'd argue that there are significant differences.

Anyway, it applies because Adam Smith was discussing the efficiency of markets, not the answering of societal questions. Government and business overlap, of course. But they are totally different endeavors at the core.
posted by Benny Andajetz at 10:37 AM on May 15, 2012


People who decry that the "invisible hand" doesn't exist don't understand the meaning of the metaphor.

What an arrogant thing to say.

Stiglitz:

Whenever there are "externalities"—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well. But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.

The point is that, at its very heart, THE principal of neo-classical economics is wrong. Markets are not by their nature efficient, because the so called externalities are, in fact, intrinsic.
posted by Trochanter at 10:40 AM on May 15, 2012 [11 favorites]


If anyone wants to get a look-see at what food was like before government regulations you should go visit India or some other developing country. I'm from there and I might make snide remarks about US over-regulation of some food items (raw milk cheese anyone) but I can't deny that I get stomach problems about 1/10th as often here as I do in India. And the major reason for that is regulations, regulations, regulations. Be glad you have somebody out there making sure your local restaurant is following hygienic practices in the kitchen. That way, you can trust that you'll have a meal that won't make your stomach hurt, and you're more inclined to go out to eat. Everyone wins, even if they don't realize it.
posted by peacheater at 10:41 AM on May 15, 2012 [7 favorites]


> Buyers understood the risks.

You simply don't have time in your life to research the risks of everything you do - not even 1% of the things you do.

I don't have the time or the ability to test my water for poisons, to look into the kitchens at the restaurants I frequent for safety violations, to test my car to see if it's safe or not.

And before government regulation, indeed, there were poisons in the water, people died in droves from bad food in restaurants and bad packaged food, and died in droves in flimsy cars without safety gear.

The fact that after the global financial crisis, people can still argue with a straight face that markets promote some sort of efficiency, well, it just blows my mind. Even before the GFC, the markets went through periodical bubbles and panics where prices changed dramatically "overnight" with little or no new information appearing. In the GFC, it was clear that the market makers had been in a state of delusion for years, that obvious signs were repeatedly ignored until firms literally ran out of cash.

These weren't just "buyers", these were incredibly highly-paid financial professionals. If they didn't understand the risks of what they were buying, who could?
posted by lupus_yonderboy at 10:45 AM on May 15, 2012 [9 favorites]


Bunny, people stay safe and fight information assymetry (old concept) by buying hat they know. A huge twin propaganda campaign, advertising and FDA approval, convinced people they knew mass-produced meat when they didn't. Dangers which effects are not immediate exist now as they did then.

Upton Sinclair has helped make Americans fatter and sicker.
posted by michaelh at 10:46 AM on May 15, 2012


I do, however, use the Internet all the time. The Internet which was created, in large part, by the United States Department of Defense.

Well, yeah. But it wouldn't be useful for ordinary people without the subsequent invention of the web. The web, as we all know, was developed by Tim Berners-Lee, founder of the multinational CERN Corporation. After $798 billion in earnings from the fees that all websites pay, he is by far the richest man alive.
posted by miyabo at 10:50 AM on May 15, 2012 [5 favorites]


Be glad you have somebody out there making sure your local restaurant is following hygienic practices in the kitchen. That way, you can trust that you'll have a meal that won't make your stomach hurt, and you're more inclined to go out to eat.

Yes. This. I'm both a raw-milk drinker and a former restaurant worker, and I know how bad the health inspector can be, but ultimately without this kind of regulation and assurance, people stop transacting. They start doing more for themselves. With food, I'm of a mind that it would be good for more people to cook for themselves, but it's not just food.

Bunny, people stay safe and fight information assymetry (old concept) by buying hat they know.

Yes. This is my point. People buy less -- they transact less often, and less efficiently -- when they have to do the work of making sure they know first. And maybe that's okay with you. It might even be okay with me. But it's not what we're talking about here, which is whether regulations are efficient.
posted by gauche at 10:50 AM on May 15, 2012 [1 favorite]


In a particular sense, profit is a measure of inefficiency.
posted by Freen at 10:50 AM on May 15, 2012 [1 favorite]


> Upton Sinclair has helped make Americans fatter and sicker.

Oh, dearie me!

Are you really saying that the US food supply was safe BEFORE regulation, and became less safe afterward? You really need to provide some proof of this claim, which seems to me to be obviously false...

Have you even read The Jungle or any of Upton Sinclair? Perhaps you're not aware that these books are primarily about workers' rights, and only peripherally about health standards for food?

Or, are you simply joking around? Please don't, if you are. But I suspect you aren't.
posted by lupus_yonderboy at 10:51 AM on May 15, 2012 [3 favorites]


Me too. Let's not cargo-cult, though.

That's ridiculous. There are clear, known, proven procedures that work in the real world with real governments. Either follow them or don't, but pointing to highly corrupt countries as a counterpoint just underscores that regulation works better than unfettered markets.
posted by -harlequin- at 10:53 AM on May 15, 2012


To put it maybe a little more gently, michaelh, what you seem to be arguing for might indeed be a better market under some metrics, but it would not be a more efficient market.
posted by gauche at 10:54 AM on May 15, 2012


At about the 34 minute point:
High taxes, well designed, with money used well, do lead to economic performance.

I won't argue too much about this. I will argue that this was never a very good description of the US. American prosperity post WWII owes a lot to its biggest competitors being devastated, and deficit spending in preparation for the next big war that never really materialized.
posted by 2N2222 at 10:55 AM on May 15, 2012 [1 favorite]


But it wouldn't be useful for ordinary people without the subsequent invention of the web.

A private enterprise making use of a technological infrastructure developed by the US government is not an example of a free market untouched by government. But it is a nice example of how government research, payed for with taxpayer money, can create the opportunity for explosive new business.
posted by Bunny Ultramod at 10:58 AM on May 15, 2012 [2 favorites]


The pile-on is starting and I only have a phone so I'll just have to be quick. Bunny was talking about health, not efficiency, but mass-production is actually not an efficient way for people to have happy lives. Upton Sinclair did talk about workers rights but we aren't because Bunny mentioned it in the context of food quality. Harlequin, we are talking about the United States and how best to run things here. Its corruption is a real, material situation that can't easily be fixed.
posted by michaelh at 10:59 AM on May 15, 2012


mass-production is actually not an efficient way for people to have happy lives.

I totally agree with this, fwiw.
posted by gauche at 11:03 AM on May 15, 2012


The Internet was prevented from developing by government regulations keeping the phone network firmly in Ma Bell's hands as a monopoly, and similarly in all Western countries. It took years of court cases by MCI to get around and break that government-enforced monopoly, and then BOOM! we had cheap phones, cheap long distance, answering machines, fax machines, Compuserve and The Source, AOL, and the web.

We could have got started on all of it 50 years earlier.
posted by caclwmr4 at 11:11 AM on May 15, 2012


The Internet was prevented from developing by government regulations keeping the phone network firmly in Ma Bell's hands as a monopoly, and similarly in all Western countries.

It pains me to think we could have had a world with more than one Bell Labs.
posted by michaelh at 11:15 AM on May 15, 2012


caclwmr4

That's complete and utter make-believe that completely ignores the public funds that went into the basic technology research that made web servers possible; but my hunch is you probably don't care as long as it supports your position.

And you keep citing examples of regulatory capture--cases where private sector interests actually got what they wanted from government regulation--as examples of how inefficient regulations are. That seems like a pretty fundamental mistake to make. (Here's a hint: in the absence of government regulation, there would only be private regulation to decide. What are the odds of the private sector capturing that too?)
posted by saulgoodman at 11:17 AM on May 15, 2012 [1 favorite]


It may surprise you to learn that an economy dominated by government-supported monopolies is not, broadly speaking, where regulation-friendly progressives are trying to get to.
posted by gauche at 11:18 AM on May 15, 2012 [5 favorites]


> The pile-on is starting

Well, the point is that you say things that don't appear to be grounded in fact, things that seem logically ridiculous to boot, and don't provide any actual factual references or reasoning.

You might see this is a "pile-on" but I'm sure the rest of us see it as "Correcting obvious errors."

> Upton Sinclair did talk about workers rights but we aren't because Bunny mentioned it in the context of food quality.

You're avoiding the main difficulty: "Upton Sinclair has helped make Americans fatter and sicker."

Do you have any proof for this claim?

> Harlequin, we are talking about the United States and how best to run things here. Its corruption is a real, material situation that can't easily be fixed.

Destroying the government because a part of it is corrupt is liking blowing your head off because you have a toothache.

> We could have got started on all of it [the internet] 50 years earlier.

That would be around 1920...

Look, can we have a moratorium on people who have no knowledge about technology commenting on technology?

I'm sorry to be harsh, but you clearly have no knowledge whatsoever about the history of technology, to the point where I'm not willing to take the time to search "history of technology", "history of semiconductors", "history of telecommunications", "Bell Labs", "technology of world war two", "technology of the space program", and arrange these results for you.

If you're going make startlingly unbelievable claims like this, at least have the gumption to present us with some sort of logical argument, even a few references - because otherwise I will write it off as some sort of religious jargon.
posted by lupus_yonderboy at 11:18 AM on May 15, 2012 [12 favorites]


The telephone monopoly was implemented as government policy to meet public goals, ie. the extension of phone service to all citizens. Once that goal was achieved, government policy changed.
posted by No Robots at 11:19 AM on May 15, 2012 [2 favorites]


> It pains me to think we could have had a world with more than one Bell Labs.

It pains me to think that we could have had a world with less than one Bell Labs.

What use is this comment? It provides neither facts nor reasoning backing up your claims. Can you not address what appear to be the factual howlers in your claims?
posted by lupus_yonderboy at 11:21 AM on May 15, 2012


mass-production is actually not an efficient way for people to have happy lives

Mass-production is an efficient way for people to have more leisure time. It's certainly true that leisure time and happiness are not the same thing, but I don't see a lot of evidence that people in pre-industrialized times were necessarily happier. Today, people can still grow their own food and make tools by hand and stuff - but the overwhelming majority of people choose to enjoy the benefits of more efficient techniques. And they have, consistently, for many generations.

So maybe the real problem is people don't know what they need to be happy.
posted by aubilenon at 11:28 AM on May 15, 2012


A huge twin propaganda campaign, advertising and FDA approval, convinced people they knew mass-produced meat when they didn't. Dangers which effects are not immediate exist now as they did then.

Upton Sinclair has helped make Americans fatter and sicker.


Not that I think the meat industry is necessarily the best model to use, but I've been in small towns in foreign countries, and walked past the courtyards of houses during the sheep slaughter. The knives they used were not safety-guarded; the blood runs out and into the gutter and down the unpaved street, often into the stream in which children bathe; flies and other insects are able to congregate and breed more easily in cobblestones and ruts than on power-washed surfaces. There is sporadic electricity, so the meat isn't frozen and the heads land in wooden carts.

I actually don't think anyone was necessarily getting sick from it or disillusioned, at least there, about the conditions in which the meat was produced, but I also don't think it was the safest environment for either workers or food production. Some of this is a technology access problem, of course, but the sausages could just be sold, perhaps far from their original place of origin. Upton Sinclair's work in 1906 doesn't really have that much to do with the corresponding rise in technological advances or subsidies for cheaply-produced processed food, aside from the baseline (and it is just that, a baseline) of safety and worker protection.
posted by jetlagaddict at 11:28 AM on May 15, 2012


Lupus, don't lose your head. Nobody is turning this into a research project and no nobody said anything about "destroying government" except you.

It pains me to think that we could have had a world with less than one Bell Labs.

That shouldn't pain you unless you want less research. You should be happy we had Bell Labs.
posted by michaelh at 11:29 AM on May 15, 2012



Mass-production is an efficient way for people to have more leisure time. It's certainly true that leisure time and happiness are not the same thing, but I don't see a lot of evidence that people in pre-industrialized times were necessarily happier. Today, people can still grow their own food and make tools by hand and stuff - but the overwhelming majority of people choose to enjoy the benefits of more efficient techniques. And they have, consistently, for many generations.


I think that at this point it wouldn't hurt to recognize that mass production and capitalism are not one and the same. Mass production is efficient, but in the current environment it's not providing workers much in the way of surplus capital or leisure time. It certainly could though, and I think a lot of revolutionary types are throwing out the baby with the bathwater when they conflate mass production and capitalism, at this stage I'm not sure we could sustain current populations without some level of industrialization, at leas tin areas like sanitation and food production.
posted by Stagger Lee at 11:32 AM on May 15, 2012 [2 favorites]




Just as a matter of interest, in case it helps the discussion (however obliquely), I believe that there is only one reference to the "invisible hand" by that name in THE WEALTH OF NATIONS. It comes in Book IV, Chapter 2:

"But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same things with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labour to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need to be employed in dissuading them from it.

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be the greatest value, every individual, t is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals [sic], would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would no-where be so dangerous as in the hands of a man who had folly and presumption enough to imagine himself fit to exercise it."

I think it is a part of an extended argument against imposing tariffs on foreign goods and an explanation of how he believes that there are certain "natural" ways for people to invest. But I am sure that an Adam Smith scholar could explain in more detail what precisely the function of the term was.
posted by lucien_reeve at 11:34 AM on May 15, 2012


To put it maybe a little more gently, michaelh, what you seem to be arguing for might indeed be a better market under some metrics, but it would not be a more efficient market.

That is fair to say. Roosevelt is asking how we make a mass-produced economy as standard as possible and I question the whole premise.
posted by michaelh at 11:34 AM on May 15, 2012


> > It pains me to think that we could have had a world with less than one Bell Labs.

> That shouldn't pain you unless you want less research. You should be happy we had Bell Labs.

I'm very happy we had Bell Labs. I've worked with a lot of people from Bell Labs who were top-notch.

However, in another world we would not have had Bell Labs, just a bunch of small companies doing research that was immediately practical, and that idea pains me a lot.

You do understand, do you not, that the idea of doing "not immediately practical" research work by industry more or less started with Bell Labs?

Look at Edison. As far as I know, he never worked on anything that didn't have immediate, practical applications. His great inventions were in fields that were known to be hot - everyone knew that the first practical light-bulb or movie projector would make millions of dollars, which is why so many people were looking for one. No one would have said, "Tom, why are you working on creating a light bulb? No one will ever use that!"

As far as I know, before Bell Labs and the space program, private industry never once did research into anything that wouldn't obviously be making money five years hence. Feel free to present some factual counterexamples...
posted by lupus_yonderboy at 11:38 AM on May 15, 2012 [1 favorite]


Industrialization is efficient, capitalism really, really, really is not.
The level of waste built into the system is really what's spurring our environmental collapse. The entire system as we know it relies on constant growth coupled with advertising and media to fuel and drive often unnecessary mass consumption.
posted by Stagger Lee at 11:40 AM on May 15, 2012 [3 favorites]


1. Buyers understood the risks. Now, average people don't see the need (or even know how anymore) to be prudent buyers even though risks are present. See also securities regulation, before which stock market wipeouts were mostly for rich people.

Well, that meat killed me. Better not buy it again.
posted by Mental Wimp at 11:43 AM on May 15, 2012 [13 favorites]


> The level of waste built into the system is really what's spurring our environmental collapse. The entire system as we know it relies on constant growth coupled with advertising and media to fuel and drive often unnecessary mass consumption.

And this is unfortunately intrinsic to capitalism - which discounts negative outcomes entirely if they are far off enough in the future.
posted by lupus_yonderboy at 11:47 AM on May 15, 2012 [1 favorite]




1. Buyers understood the risks. Now, average people don't see the need (or even know how anymore) to be prudent buyers even though risks are present. See also securities regulation, before which stock market wipeouts were mostly for rich people.


So what'd they learn in Bhopal? Don't work for Union Carbide? They seem to be doing just fine under Dow's umbrella.
posted by Stagger Lee at 11:47 AM on May 15, 2012


It also comes at a cost, and we should always ask if it's worth it.

I'm not so sure this is right. Efficiency is defined as the most worth it thing, but only if you take all costs into account. Some people have a cartoon version of efficiency in their heads, like a guy with a stopwatch, clipboard, and white coat standing over them while they work, but if you think of efficiency as making the best use of your time and money to get the outcomes you want, there is no way you need to ask if it's worth it. You just need to ask what are the outcomes I want and what are the costs in time and money if I do it in such and such a way.
posted by Mental Wimp at 11:54 AM on May 15, 2012


Wasn't it the Tubes who said, "An invisible hand holding a banana"?
posted by mmrtnt at 12:08 PM on May 15, 2012


I'm not so sure this is right. Efficiency is defined as the most worth it thing, but only if you take all costs into account.

I think the problem is that most of the time most people live in a cartoon world where they don't take all costs into account. Sometimes there's good reason for this (the unknown is unknowable, e.g.), but more often it's because people stop thinking about costs when they get to the part where they see what they want to see, and because we're inconsistent and quite flexible at defining "cost" and "benefit" in ways that let us see what we want to see most easily.
posted by rtha at 12:43 PM on May 15, 2012 [3 favorites]


In 2012, with widespread internet access, we don't need to be debating hypotheticals for a lot of cases. You want to make the case that food is safer without (or with fewer) regulations? There are scores of countries that can serve as examples. Same for health. Same for fire safety. Same for transport. Same, even, for stock markets. Whatever you want, its out there. Someone mentioned India upthread, which is an excellent example for most of these - you can get plenty of information in English, ready to assist you with your case. Also, a lot of regulations that India does have, are not enforced because of corruption. So, practically, those aren't regulations that count.

Also, Australia, which I think is like the US in many ways, with a different regulatory regime.
posted by vidur at 1:45 PM on May 15, 2012 [1 favorite]


> That shouldn't pain you unless you want less research. You should be happy we had Bell Labs.

My understanding is that the government granted AT&T a monopoly and regulated how it spent its money; according to one econ teacher, this resulted in things like gold plated water fountains in the executive suite ... and Bell Labs.

So Bell Labs may not be the best example of private industry research in action.
posted by Comrade_robot at 1:56 PM on May 15, 2012


Yep, Cool Papa Bell. I totally believe you're a more credible authority on economics and Smith's Invisible Hand than Joseph Stiglitz.

I think it's best to not argue from authority, though both of you chose to (i.e., Smith and Stiglitz, respectively). They are, of course, both excellent provokers of thought.

I think what people miss about the "invisible hand" idea is that the only thing it does is push efficient markets toward efficiency. It's almost tautological.

Stiglitz is not arguing that the "invisible hand" doesn't exist, just that in some cases it doesn't operate. Many of our most valuable commodities cannot be traded in efficient markets and that's why government must be an integral part of any functioning economy. I very much agree with this. Private enterprise has never given us education, basic research, or a cultural heritage. In the bad old days, some people with adequate wealth would decide to fund some of these things, if they took a fancy, but we've moved beyond oligarchy. We need to band together as a society and with taxation build optimal versions of these things that will support a productive society, not only for commerce, but for all the aspects of the good life, and not just for the wealthy, but for all legitimate members of society who seek these things.
posted by Mental Wimp at 2:07 PM on May 15, 2012 [1 favorite]


Look at Edison. As far as I know, he never worked on anything that didn't have immediate, practical applications. His great inventions were in fields that were known to be hot - everyone knew that the first practical light-bulb or movie projector would make millions of dollars, which is why so many people were looking for one. No one would have said, "Tom, why are you working on creating a light bulb? No one will ever use that!"

Let me tell you a little something about your buddy Edison... [warning: Oatmeal comic]
posted by His thoughts were red thoughts at 4:57 PM on May 15, 2012 [1 favorite]


The problem with the 99 percent waking up to the importance of economics is that you get earnest debates about whether or not markets are efficient, where half the people involved don't know what the efficient market hypothesis says, why it was so important, or what people have come to believe now that most(?) economists have come the their senses and realised that it's not very realistic.
posted by sfenders at 9:29 AM on May 16, 2012


> Let me tell you a little something about your buddy Edison...

Nothing I didn't know (note that I did say first practical light bulb), and it completely backs up my point. Edison wasn't doing research into fundamentals - he was trying to complete a commercial product.

A lot of that Oatmeal comic is btw wrong or at the very least deceptive: "One of Tesla's final gifts to the world was a tower near New York that would have provided free wireless energy to the entire planet."

I think we can say for sure that this is simply not true...
posted by lupus_yonderboy at 9:31 AM on May 16, 2012


Let me tell you a little something about your buddy Edison

You leave Jed Clampett alone!
posted by Trochanter at 10:32 AM on May 16, 2012 [2 favorites]


> where half the people involved don't know what the efficient market hypothesis says

That isn't really the case.

Yes, I think the majority of Americans couldn't really define it, and they certainly have no idea what term like "Pareto optimal" mean - but if you asked them, they'd give you a rough story about "supply and demand making money flow to the right places" which isn't completely far off the mark and probably a lot better description they could give than of, say, gravity.

(And that isn't meaning to be condescending. Your average person has a very good intuitive understanding of gravity - that they generally can't explain it in words doesn't mean they aren't good at it.)
posted by lupus_yonderboy at 10:44 AM on May 16, 2012


There are too many people still stuck on the extremes, saying essentially that government intervention is never necessary because markets are perfectly optimal, or else that the whole idea of a free market economy is broken and useless and governments can always do things better. That even someone as smart as Stiglitz is reduced to spending most all of a forty minute speech simply opposing one of those two crazy ideas makes me sad.
posted by sfenders at 11:56 AM on May 16, 2012 [1 favorite]


...saying essentially that government intervention is never necessary because markets are perfectly optimal, or else that the whole idea of a free market economy is broken and useless and governments can always do things better.

While I think both of these extremes are vanishingly rare among those who actually engage in discourse, there are far more near the former extreme than near to this one. The reason is that there is no such thing as a free market. All markets are regulated, by definition. For example, there must be enforcement of contracts for there to be a market, which is a form of regulation. Without regulation, you end up with monopolies on limited commodities, and that leads to something other than a "market," so you need some anti-trust for a non-degenerate market. Nonetheless, there are plenty of people who will declare that in the abstract regulations are bad in and of themselves and that we need "less regulation," without specifying exactly which regulations are unnecessary or harmful other than the one under discussion. There are very few arguing here or elsewhere that governments can always do things better than markets (other than in Russia and China fifty years or more ago), only that certain things are badly done by markets and better left to collective effort. I am surprised that there is really any controversy about this statement among intelligent, informed people. All historical data seem to support it and there is an utter lack of evidence to the contrary.
posted by Mental Wimp at 2:59 PM on May 16, 2012 [1 favorite]


Nonetheless, there are plenty of people who will declare that in the abstract regulations are bad in and of themselves and that we need "less regulation," without specifying exactly which regulations are unnecessary or harmful other than the one under discussion.

Right, and there are plenty that say we need "more regulation" in an equally absurd way. Too often, the laws we end up with not only fail to prevent oligopolies, they encourage them. The FDA and food safety generally being a pretty good example I think. The politicians think in their usual way that "Something must be done. This is something. Therefore we must do this." The lobbyists have their say. The laws are written with the entrenched powers in mind, everyone else loses. So it ends up plain to see that we do need less regulation in a lot of places. But the US hasn't even gotten it together enough to ban rBGH yet, so there's also a great argument to be made that more regulation is required. You end up with a system where they'll take legal action against a small bakery because the font on the label listing the ingredients in their bread isn't quite the right one, despite the fact you can easily ask the person who did the baking if you have any questions about it, but if a cattle farm wants to feed their stock a diet of antibiotics, hormones, and distiller's grains, well that's fine. You get a system where the rules for calculating what you owe in personal income tax are of such byzantine complexity that even ordinary people with nothing all that financially unusual would have trouble working it out with pencil and paper, but at the same time big corporations can get away with all kinds of dubious financial chicanery while remaining within the letter of the law. You've got the DMCA making it illegal to write and distribute software that can play DVDs, while Apple and Microsoft are given the power to patent ideas that are perfectly obvious to the average software engineer. The problem with the regulations isn't that there's too much or too little of them, usually.
posted by sfenders at 4:50 PM on May 16, 2012 [1 favorite]


Right, and there are plenty that say we need "more regulation" in an equally absurd way.

Are you sure about that? Are you sure you aren't buying a smear put about by the right? Who on the left ever says that? Better regulation, effective regulation that serves the public good, sure. Stupid regulation should go.
posted by Trochanter at 5:18 PM on May 16, 2012 [1 favorite]


You leave Jed Clampett alone!

I...I don't understand. You mean that guy from the Beverly Hillbillies? What does he have to do with anything?
posted by His thoughts were red thoughts at 5:40 PM on May 16, 2012


A lot of that Oatmeal comic is btw wrong or at the very least deceptive

Sure, it's an Oatmeal comic. most of the Oatmeal relies on some exaggeration for comic effect. Edison was still a douchebag though.

"One of Tesla's final gifts to the world was a tower near New York that would have provided free wireless energy to the entire planet."

Wardenclyffe Tower actually existed. The proposal was in fact to provide free wireless power, but there would have needed to be a network of towers. I don't have enough electrical engineering to assess the validity of the claims, or the time to do the research right now.

Anyway, my link to the comic was just because it's a throwaway bit of comedy. It's fine if you don't like it.
posted by His thoughts were red thoughts at 5:53 PM on May 16, 2012


Are you sure about that?

There are plenty of people in this very thread who found it necessary to write comments saying little more than "government regulation is GOOD for you". I can think of plenty of things where people are out there advocating for "more" regulation, often without being too specific, when it probably isn't the right answer to solve various problems. For example back when everyone was alarmed at how high gasoline prices were getting a few years ago, I recall some people blaming it all on lack of sufficient regulation of commodities markets. Despite what's happened since there are probably still some people out there thinking that if only they'd crack down on oil company collusion and/or financial speculation in commodities, the price of oil would go back to $20/barrel. The recent financial crisis also comes to mind of course. The Volcker rule would be a good idea I think. Basel III on the other hand does not look so appealing. No amount of legislating will stop the same kind of thing happening again some day. It's not not as if you can simply pass a law against manias, panics, and crashes. In the US, more than any fancy new set of rules what would've helped was the Fed having a clue about how and when to use the tools they already had, before things blew up.
posted by sfenders at 6:02 PM on May 16, 2012


Almost that whole comment is slapdash mischaracterizations.
posted by Trochanter at 6:56 PM on May 16, 2012 [1 favorite]


BTW redthoughts, Buddy Ebsen played Jed Clampett on the old TV series. It was just a joke.
posted by Trochanter at 7:12 PM on May 16, 2012 [1 favorite]


Right, and there are plenty that say we need "more regulation" in an equally absurd way.

The difference is that if asked they could say what additional regulations they want or at least what harmful effects they want to address. On the other side, they say they want to eliminate the EPA, i.e., all regulations 'r' bad, nkay?
posted by Mental Wimp at 4:58 PM on May 17, 2012 [1 favorite]


having a clue about how and when to use the tools they already had, before things blew up

And having the funding for adequate staffing to implement them. Some would like to pretend that for 30 years there hasn't been a war on regulation of business and finance,
posted by Mental Wimp at 5:20 PM on May 19, 2012








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