Economic Debate

[TortoiseDream]

I'm debating someone about free markets, and I'm not economist. I'm wondering if someone can help me understand what this guy's argument is? He claims that free markets are unstable because the recessions, or corrections, over/under compensate and create economic instability.


That individual companies don't understand how the whole national economy is doing. For example:

A national economy is booming. Inflationary pressures force the nation into recession. With low consumer confidence and low margins of expected profitability, production falls. Now let's say that a company isn't making ends meet, it doesn't just fire one employee to balance the budget, it fires 10 to prepare for future decreases in consumption and thus production. Ideally, let's say, the company should only fire 4 people, since by the time they get to the point of firing a fifth, the economy has gotten to a point where profits return and capital expansion can take place.

Those 6 extra laid off workers would result in a higher unemployment that would continually decrease wages and hurt consumption leading to a worse economic situation caused more by consumers, not the suppliers

Maybe I'm just overwhelmed by terminology, but I don't really understand what he means.

[tremendoustie]

I'm debating someone about free markets, and I'm not economist. I'm wondering if someone can help me understand what this guy's argument is? He claims that free markets are unstable because the recessions, or corrections, over/under compensate and create economic instability.



Maybe I'm just overwhelmed by terminology, but I don't really understand what he means.

It makes no sense to me. Why would a company get rid of ten when eliminating four would balance the company's production and customer demand? It is my experience that the opposite occurs -- companies try to hang onto as many of their employees as they can, through bad times, so that that expertise will be available when the economy recovers.

What's more, economic recovery does not occur when companies "fire enough" people to reach some sort of balance. Economic recovery occurs when resources, including labor, which are being used unproductively move to more productive sectors. Recessions (in a free economy, not a Fed manipulated one) are the transition period while such shifts take place -- resources are reallocated. The buggy whip industry needs to lay people off, and Henry Ford needs to hire.

What alternative does he propose? No one knows the future. If the manager of his company cannot know the right number of employees six months from now, Barney Frank certainly will not. The owner of a company has the right to make decisions for that company -- it is immoral and arrogant of him to force others to use their property as he sees fit.

[Isaac Bickerstaff]

You're debating an idiot.

He does not understand what he means; ask him to explain the assumptions that led him to his conclusion.
At this point, any new information will just confuse him more. Forcing him to clarify his position may spark a flame war, but you will never win a debate if your opponent does not understand his own argument.

[TortoiseDream]

Here's what I said to him so far:


You should expect that I will say that it doesn't matter. In a society based on free choice, only self interest is required, not knowledge of the entire market. That is the key failure of central economic planning, in my opinion, the hubris to think one can know the entirety of an economy and unavoidably distort it, leading to malinvestment. Free, voluntary choices are rewarded or punished, and a certain kind of behavior is naturally advocated by the market for the good of the whole

I then simplified your statement trem, on economic recovery, and asked him to clarify his logic.

[berrybunches]

//

[axiomata]

If the free market it thought of as a U-shaped well, then he is right that a misallocation can run the ball up one side of the wall. Gravity then acts to bring it back towards it natural equilibrium, but it first overshoots the dead bottom of the well by a little bit then oscillates back and forth before settling. He would call this unstable. In my book this is a stable system.

The alternative is having the government try and hold the ball at the peak of a hill. He'd argue that if the government holding the ball there results in a stable system. In fact, history (and theory) has shown that the government cannot do this task successfully. In this system when a misallocation occurs the ball just rolls right off the hill. Now this setup is what I call unstable.

[rpfan2008]

Our 'economic theories' are crafted for us by our very enemies, sooner we realize that the better. imho

[newbitech]

I am no economist either but start here.

"Inflationary pressures force the nation into recession."

This is a terrible assumption to make. He assumes that a "booming economy" automatically translates to inflation. Why? If the economy is booming that means we have more businesses creating more jobs and more goods and services. This equals more competition and SHOULD equal lower prices. Except in our current paradigm, we get rising prices. Why? Is it because the economy is not really booming thru an organic process?

Inflation is not the rise in prices. Inflation is the expansion of the monetary base. Rising prices is only a symptom of inflation. In a free market, interest rates or the cost of money is set by market forces. This means that when there is an over supply of money, rates will go up. Remember that interest rates are inverse to price of money. This is classic supply and demand. Too much money in the system equals lower price for money equals higher rates which means more incentive to save money instead of spending it. This brings a balance to prices.

When we have artificially low interest rates set by the federal reserve, this discourages savings and forces that over abundance of money into the economy thru consumer purchase of overpriced trinkets and frivolous malinvestment via asset purchase backed by debt and fiat. This is inflation of the money supply that drives prices higher by flooding the market with "cheap" money. Recessions are caused when the critical mass of monetary over expansion begins to leave the lower wage earners behind. The longer the artificially cheap money is extended the larger the swath of people affected by rising prices becomes.

So in a free market, inflation is not caused by rising prices. Quite the opposite, rising prices are caused by artificially low interest rates (as well as other manipulations via FIAT). You don't really have a free market when the government decrees that paper is money. IN a free market, the market decides what is money.

[Isaac Bickerstaff]

Our 'economic theories' are crafted for us by our very enemies, sooner we realize that the better. imho



Inflation is not the rise in prices. Inflation is the expansion of the monetary base. Rising prices is only a symptom of inflation. In a free market, interest rates or the cost of money is set by market forces. This means that when there is an over supply of money, rates will go up. Remember that interest rates are inverse to price of money. This is classic supply and demand. Too much money in the system equals lower price for money equals higher rates which means more incentive to save money instead of spending it. This brings a balance to prices.


Hmmm. . .

[TonySutton]

He provides no facts to back up his assumption that a company will fire too many people. In reality some might but in a free market there will be many companies operating independently of each other. Some will make good decisions, some will make bad decisions. Those which make good decision will become stronger. Those which make bad decisions will suffer and hopefully learn from their mistakes or they will fade away.

Is his argument that government should make these decisions? How many people would suffer if government makes the wrong decision for every company?

There is a saying about having all your eggs in one basket ;)

[Working Poor]

I personally believe that people's value system is totally off. We value this paper stuff that only has value because of belief. We believe it is valuable so it is.

The true currency is love not this paper crap.

[Isaac Bickerstaff]

I personally believe that people's value system is totally off. We value this paper stuff that only has value because of belief. We believe it is valuable so it is.

The true currency is love not this paper crap.

We believe this paper crap has value because that is what the banks gave us when we went to them, hat-in-hand, asking, "Pleez Massuh, can I havvuh dollar?". That is what they gave us and that and someone else's dollar is what we must return.

[DamianTV]

I get the first statement of the thread. They are blaming unemployment on the unemployed. Pretty simple.

The more people that get laid off, the less they spend so the less the business makes and has to lay off even more people because of those damn pesky people with no money not spending money, which leads to even more lay offs.

I'll sum up this whole debate in two words. Fuck that. And you can quote me on it too. Yeah, you are arguing with a retard, dont even waste your time.