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Thread: System of economics that works

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    Cynical Facetious Heckler mancroft's Avatar
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    System of economics that works

    Perhaps someone who knows about economics would be so good as to name an economics' system that works.

    The current Keynesian cargo cult that we have had inflicted on us for the last several decades is totally screwed.
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    Mens bona regnum possidet ferrus's Avatar
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    Die Logik ist keine Lehre, sondern ein Spiegelbild der Welt. Die Logik ist transcendental. - Wittgenstein

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    Scala Mountains Resonance's Avatar
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    What do you mean, 'works'?
    Empty your mind. Be formless. Shapeless. Like water. Water can flow, or it can crash. Be water, my friend.

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    Cynical Facetious Heckler mancroft's Avatar
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    Quote Originally Posted by Resonance View Post
    What do you mean, 'works'?
    Something that isn't designed to be a total fraud and destined to collapse in a heap.
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    Scala Mountains Resonance's Avatar
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    Quote Originally Posted by mancroft View Post
    Something that isn't designed to be a total fraud and destined to collapse in a heap.
    No system of economics is designed to be a total fraud. All of them are destined to collapse in a heap. Hope this helps.
    Empty your mind. Be formless. Shapeless. Like water. Water can flow, or it can crash. Be water, my friend.

  7. #7
    Cynical Facetious Heckler mancroft's Avatar
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    Quote Originally Posted by Resonance View Post
    No system of economics is designed to be a total fraud.
    Then why were the Federal Reserve 'Bank' and fractional-reserve banking invented?

    Quote Originally Posted by Resonance View Post
    Hope this helps.
    It doesn't.
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  8. #8
    Scala Mountains Resonance's Avatar
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    Quote Originally Posted by mancroft View Post
    It doesn't.
    It's not the answer you deserve, but it's the answer you need right now.
    Empty your mind. Be formless. Shapeless. Like water. Water can flow, or it can crash. Be water, my friend.

  9. #9
    Global Moderator Polemarch's Avatar
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    Economic systems are models, and models don't fully account for all aspects of reality.

    The trouble with the question the OP posed (i.e. "works") is that it depends on the objective you're trying to satisfy. Some economists might define the key economic question as:

    How to distribute resources efficiently, to maximize utility
    So what does efficiently mean? And what is utility, how is it measured, and does it matter who measures it?

    Proponents of market economics can point to the massive leaps in utility produced through a competitive, decentralized economic system. They would measure that utility in terms of gross product (GDP/GNP), or in other words, as the sum total value (in currency) of the goods and services produced over a period of time. The idea being - whatever people are willing to pay money for, making or providing as much of that as possible.

    The theory behind why market economics "works" was discussed famously by Adam Smith, in terms of the "invisible hand". The idea is that everything has a price, but instead of having that price imposed by law, it can change depending on what people are willing to pay. As a result, things that people really want (i.e. high demand) become more expensive. As a result, more of that thing gets produced, to take advantage of the high prices, until eventually there's a lot of it on the market (i.e. high supply), and sellers lower prices to compete. It works the other way around as well - things that people don't really want (i.e. low demand) don't sell, and as a result sellers have to lower prices to a point where people are willing to buy them. If no one is willing to pay what the seller asks (or if it costs more to produce than anyone's willing to pay for it), then that thing stops being made/provided, and those resources aren't wasted on that product/service anymore. Instead people make/provide different things, until they find something people actually want, and so forth. Prices on everything naturally adjust to whatever they need to be in order for markets to clear.

    So "efficiency" is characterized by resources being used in whatever way produces the highest economic value.

    Market economics aren't perfect, and there are two big reasons why:

    1. Externalities are situations where third parties are negatively impacted by transactions that don't involve them. For example, if I own a tire company, and I make and sell tires, but I pollute the air while doing it, and you live near my factory and develop lung cancer as a result, that's an externality. Market economics is full of situations like that, and there aren't always easy ways of solving them. With regards to pollution, the government can require the tire company to do something about their pollution, but that also has a cost that has to be borne by someone (prices on tires go up?, or taxes go up?). When looked at on a macro level, externalities result in collective action problems - situations where individuals have incentives to take unilateral actions which negatively impact everyone.

    2. Positive v normative: A "positive" perspective on economic production looks at the bottom line - total GDP for example. A "normative" perspective on economic production looks at how that value is distributed. In other words, size of the pie v. distribution of the pie. Some believe that an approach that only considers maximizing the size of the pie still produces unacceptable outcomes if the pie is distributed in a significantly unequal way (i.e. massive wealth disparities). Some of that objection is purely normative, but it can also be argued that significant disparities in wealth threaten the stability of the model to such an extent that it impacts the size of the pie as well.

    Pretty much all wealthy countries employ some form of market economy, with varying levels of government intervention, which can be compared/contrasted. There are a few exceptions (i.e. countries with enormous natural resources that they can just sell, and run their country however), but generally speaking, no other economic model has produced long term economic viability. The question is more a matter of how market economics can be fine-tuned, depending on what one wishes to achieve, then how it can/should be replaced with something completely different.
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  10. #10
    Cynical Facetious Heckler mancroft's Avatar
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    Many thanks to Polemarch for taking the trouble to produce an intelligent and useful answer.
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