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11-26-2012, 10:48 AM   #1
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Why The Efficiency of The Free Market is a Myth

QuoteQuote:
In reality, the free market is not efficient. We know this to be true but often forget. We understand the market through a theoretical model; a model that is constructed based on a series of impossible assumptions about reality. Market efficiency is a self-fulfilling prophecy; it may not be ‘true’ if we can convince ourselves that it is we behave as if the market really were efficient and so the process of exchange that the model describes becomes true. The efficient market, like the existence of God, is not a falsifiable assumption. Belief in the free market is encouraged because its existence produces the necessary outcomes to support the capitalist model of production. If we wish to reshape our economy we must first see past the smokescreen of economic theory and understand the structure of ideology.
econ thought for the day..................

Why The Efficiency of The Free Market is a Myth

11-26-2012, 11:14 AM   #2
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The "recent graduate of Indiana University’s School of Public and Environmental Affairs" needs to go back to school and work on his theories a little bit. Perfect efficiency is not possible when dealing with humans. With every transaction people become more aware of the value of the goods and services that they exchange. The more time you spend developing this understanding of value the more efficient you will become, but you will never achieve perfect efficiency. This is why we have people who specialize in different markets.

I have under priced and over priced many projects in my life, but that is how I learned my market. People learn through mistakes and through trial and error. When you start fixing prices you take away a societies ability to learn and judge value.

The system that provides the most freedom to succeed will also provide the most opportunity to fail, but failure and success are not really results, they are part of the learning process of life. What you want is a system that provides you with the greatest opportunity to learn.
11-26-2012, 12:29 PM   #3
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fair enough.. something more to the point.............
–Why you don?t want Congress or your friends to fly your plane

QuoteQuote:
It widely is understood that increasing your taxes depresses the economy, by taking spending money out of your pocket. It also widely is understood that cuts in federal spending depress the economy, also by taking spending money out of your pocket.
So Congress, it its wisdom, is telling you that a some combination of tax increases and spending cuts magically will grow the economy. Huh?
Excuse me, Congress, but combining two wrongs does not make a right. It just makes a “worse.”
Consider FICA. The U. S. federal government, being Monetarily Sovereign, does not use FICA to pay for Social Security and Medicare. Even if FICA were $0, the government could fund Social Security and Medicare, forever. The U.S. simply never can run short of its own sovereign money.
All FICA does is take spending money from your pockets, thereby depressing the economy. FICA is the single, most economically harmful tax in American history, as it punishes the lower and middle classes. So predictably, Congress wishes to increase FICA and other tax collections as a “solution” to the recession.
And consider Social Security. It adds spending money to your pockets, thereby stimulating the economy. So predictably, Congress repeatedly cuts SS by increasing the qualifying age and by taxing benefits.
In short, to cure the recession, Congress wishes to implement a combination of the two acts that will worsen the recession – tax increases and spending cuts – and thereby send us into an economic death spiral.

Why?

Its what the super rich tell them to do. As Romney’s tax returns demonstrated, the super rich are hardly touched by tax increases. The man paid so little taxes, he had to phony up his returns to show increased tax payments. The life style of the super rich hardly is touched by recessions and depressions.
But the middle and lower classes suffer from tax increases and spending cuts and recessions. So tax increases and spending cuts help increase the gap between the super rich and the rest. And Congress, bought and paid for by the super rich, does exactly as asked: Increase that gap.
The super rich, using Congress as its stooges, has convinced the populace that the federal deficit is “unsustainable” and that the U.S. must “live within its means.” This is 100% nonsense — an absolute lie – for the U.S. can “sustain” any amount of deficit, and does not have a “means” to live within.
But ask your friends if the deficit should be reduced and they will say, “Yes,” because they have been brainwashed by the super rich into believing federal finances are like their own, kitchen table, personal finances.
11-26-2012, 04:52 PM   #4
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QuoteOriginally posted by jeffkrol Quote
The U. S. federal government, being Monetarily Sovereign, does not use FICA to pay for Social Security and Medicare. Even if FICA were $0, the government could fund Social Security and Medicare, forever.
This reminds me of the idea that housing prices only go up and we will sustain growth in housing "forever". Both are flawed and for the same reason.

QuoteOriginally posted by jeffkrol Quote
So Congress, it its wisdom, is telling you that a some combination of tax increases and spending cuts magically will grow the economy. Huh?
Excuse me, Congress, but combining two wrongs does not make a right. It just makes a “worse.”
This is true, and the biggest flaw in the austerity plans that we have seen in Europe is that they employ both tax increases and spending cuts.

QuoteOriginally posted by jeffkrol Quote
It widely is understood that increasing your taxes depresses the economy, by taking spending money out of your pocket. It also widely is understood that cuts in federal spending depress the economy, also by taking spending money out of your pocket
We would have to establish a time frame for the conversation. Over the short run, spending cuts pull money out of the economy, but that has never been shown to be true over the long-term. More government spending has never resulted in any long-term economic growth. We have been keeping accurate records since the 50's and there is no correlation between more government spending and a growing or shrinking economy over the long-term.

11-26-2012, 05:40 PM   #5
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QuoteOriginally posted by jeffkrol Quote
econ thought for the day..................

Why The Efficiency of The Free Market is a Myth
I take issue with the linked article.

It assumes that market efficiency is a belief which can't be proven or falsified, like the concept of God. It is such statements which make physicists go: You ONLY speak like this if you are too lazy for some seriously deep thinking. Lazy but influential people are a bad thing.
11-26-2012, 08:30 PM   #6
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Think two words. Equity Spending.
11-27-2012, 07:39 AM   #7
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QuoteOriginally posted by falconeye Quote
I take issue with the linked article.

It assumes that market efficiency is a belief which can't be proven or falsified, like the concept of God. It is such statements which make physicists go: You ONLY speak like this if you are too lazy for some seriously deep thinking. Lazy but influential people are a bad thing.
I was not planning on defending the article.. it was merely food for thought.. but as to efficiency.. my way of looking at it......

first you push (or start ) till the high point.. then if that isn't working or volume isn't enough you search for the low spot (or once all expenses are paid, whether they were "legitimate" or not.. i.e bad research, inefficient salaries, poor advertising).. By the time you reach "efficiency" something new comes out and starts it all over..

Certainly not very efficient...
11-27-2012, 07:46 AM   #8
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QuoteOriginally posted by Winder Quote
This reminds me of the idea that housing prices only go up and we will sustain growth in housing "forever". Both are flawed and for the same reason.
up until this era .. it was quite true though........My parents bought their house for $18K and after they passed was sold for 100k.. 60 years of appreciation BEFORE th bubble btw
It may remind you but is in no way related......
QuoteOriginally posted by Winder Quote
This is true, and the biggest flaw in the austerity plans that we have seen in Europe is that they employ both tax increases and spending cuts.
Funny how that is just like the "grand bargain".. And there is no sign that using one is any better.......whichever one..
And none of this changes the fact the "euro" is tied to a really, really flawed banking system UNLIKE anything in the US..

QuoteOriginally posted by Winder Quote
We would have to establish a time frame for the conversation. Over the short run, spending cuts pull money out of the economy, but that has never been shown to be true over the long-term. More government spending has never resulted in any long-term economic growth. We have been keeping accurate records since the 50's and there is no correlation between more government spending and a growing or shrinking economy over the long-term.
When you add taxes and the other factors i.e balance of trade.. you start confusing cause and effect... I'm going to assume you are using spending in a vacuum.. as usual without considering the pulls out of the economy as well... you are looking at it too simplistic (or myopic

As a corollary there is no proof the lack of gov. spending increases growth either........and most sane economists would argue that is never the case......and can't be.

ANY money spent in the economy increases the economy...


I'd be curious as to how you would argue that Naval spending hurts the shipbuilding industry..........

and if you don't "tax to spend" it HOW can you possibly say that is a negative in the economy....??????? How?


Last edited by jeffkrol; 11-27-2012 at 08:03 AM.
11-27-2012, 08:12 AM   #9
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QuoteOriginally posted by graphicgr8s Quote
Think two words. Equity Spending.
Actually we already do that.. Notice all the talk about debt/GDP.....

QuoteQuote:
Currently in the United States, the author believes there is no need for any type of federal taxation. He also thinks that our nation is facing a pseudo financial crisis, and that things are not as bad as we are told. His premise about “equity spending,” involves paying for our government expenditures by “electronically generating the money,” based upon the equity that we have in the United States. You have to read All About Equity Spending to get the full gist of what he is proposing, because he can explain it a lot better than I can.
Book Review: All About Equity Spending... With a Love Story by Oscar ?Dean? Windham - Blogcritics Books

When logic and facts faill resort to storytelling.. or when a political/religious/economic point is "heresy" resort to story telling..

QuoteQuote:
All About Equity Spending… With a Love Story” is satirical and fictional while also turning to biting factual discourse to deliver Windham’s points. He recognizes that his book is controversial in its discussion of money, religion and politics, but he makes it a point to back up his claims with quotes from many important political figures and prominent leaders.

“This book will appeal to readers because it says out loud what a lot of people have been thinking secretly but have kept it to themselves thinking that the neighbor probably wouldn’t get it and sometimes that’s correct,” says Windham. “In short this book will appeal to everyone in one way or another.”

funny and thanks............

Last edited by jeffkrol; 11-27-2012 at 08:18 AM.
11-27-2012, 08:21 AM   #10
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QuoteOriginally posted by jeffkrol Quote
up until this era .. it was quite true though........My parents bought their house for $18K and after they passed was sold for 100k.. 60 years of appreciation BEFORE th bubble btw
It may remind you but is in no way related......
How much did they spend over that 60 years on maintenance, taxes, & improvements? How much of that $82K difference is accounted for by inflation? Houses are very expensive long-term assets.

A house purchased in 1951 for $18,000 today would have to be worth $153,741.65 just to break even on inflation over a 60 year period.. This does not take into account the cost of maintenance, taxes, or improvements.

We wont even go into interest paid on a mortgage over 30 years which will almost double the cost of a home over that time.

QuoteOriginally posted by jeffkrol Quote
As a corollary there is no proof the lack of gov. spending increases growth either........and most sane economists would argue that is never the case......and can't be.
Re-read my statement that you quoted. "no correlation between more government spending and a growing or shrinking economy over the long-term."

QuoteOriginally posted by jeffkrol Quote
ANY money spent in the economy increases the economy...
False. What you spend money on and where it comes from are very important. If I pay you $100 to cut my yard and you pay me $100 to cut your yard, then money has been spent, but the economy has not been increased.

QuoteOriginally posted by jeffkrol Quote
I'd be curious as to how you would argue that Naval spending hurts the shipbuilding industry..........
Possibly, over the long run. Just as excessive spending in the housing industry has hurt that industry. Architects have an unemployment rate of 14.8% which is twice average. Bubbles cause people to malinvest their resources and alter long-term choices like education.

There is no doubt that Naval spending is good over the short term for the shipbuilding industry, but the economy is not one industry. The question becomes is Naval spending good for the entire economy over the long-term. If you give me $100,000 I am better off, but are you better off? There are two people in the equation and we can not base the success or failure on the benefit of 1/2 of the population involved.

Last edited by Winder; 11-27-2012 at 08:55 AM.
11-27-2012, 09:53 AM   #11
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QuoteOriginally posted by Winder Quote
How much did they spend over that 60 years on maintenance, taxes, & improvements? How much of that $82K difference is accounted for by inflation? Houses are very expensive long-term assets.

A house purchased in 1951 for $18,000 today would have to be worth $153,741.65 just to break even on inflation over a 60 year period.. This does not take into account the cost of maintenance, taxes, or improvements.

We wont even go into interest paid on a mortgage over 30 years which will almost double the cost of a home over that time..

Point was it didn't lose half it's value in 2 years.....or there wasn't an ARM

QuoteOriginally posted by Winder Quote
Re-read my statement that you quoted. "no correlation between more government spending and a growing or shrinking economy over the long-term."

False. What you spend money on and where it comes from are very important. If I pay you $100 to cut my yard and you pay me $100 to cut your yard, then money has been spent, but the economy has not been increased.

.
your ASSUMING collecting taxes to pay for spending.. A basic falsehood.............. Fed prints enough money to hire people to cut the federal parks grass..there is no tit for tat


QuoteOriginally posted by Winder Quote
Possibly, over the long run. Just as excessive spending in the housing industry has hurt that industry. Architects have an unemployment rate of 14.8% which is twice average. Bubbles cause people to malinvest their resources and alter long-term choices like education.
There is no doubt that Naval spending is good over the short term for the shipbuilding industry, but the economy is not one industry. The question becomes is Naval spending good for the entire economy over the long-term. If you give me $100,000 I am better off, but are you better off? There are two people in the equation and we can not base the success or failure on the benefit of 1/2 of the population involved.
It wasn't "excessive spending" in the housing market .. it was the bundling and selling worthless products, fraud and the grotesque manipulation of "capitalism" that killed the housing market..

QuoteQuote:
Alex Blumberg

Glen had five cars, a $1.5 million vacation house in Connecticut, and a penthouse that he rented in Manhattan. And he made all this money making very large loans to very poor people with bad credit.
Glen Pizzolorusso

We looked at loans, these people didn't have a pot to piss in. I mean, they could barely make the car payment, and now we're giving them a $300,000 to $400,000 house.
Alex Blumberg

But Glen didn't worry about whether these loans were good either. That was someone else's problem. And this way of thinking thrived at every step of this mortgage security chain. A guy like Mike Francis from Morgan Stanley, he told me he bought loans, lots of loans, from Glen's company. And he knew in his gut that they were bad loans, like these NINA loans.
Mike Francis

No income no asset loans, that's a liar's loan. We are telling you to lie to us, effectively. I mean, we're hoping you don't lie, but-- tell us what you make. Tell us what you have in the bank. But we're not going to actually verify it? We're setting you up to lie. Something about that transaction feels very wrong. It felt very wrong way back when. And I wish we had never done it. Unfortunately what happened, we did it because everybody else was doing it.
Alex Blumberg

It's easy to ignore your gut fear when you're making a fortune in commissions. But Mike had other help in rationalizing what he was doing, technological help. Mike sat at a desk with six computer screens connected to millions of dollars worth of fancy analytic software designed by brilliant Ivy League graduates hired by his firm. And this software analyzed all the loans in all the pools that Mike bought and then sold. And the software, the data, didn't seem worried at all.
Mike Francis

All the data that we had to review, to look at, on loans that were in production, that were years old, was positive. They performed very well. All those factors, when you look at all the pieces and parts, and you say, well, a 90% no income loan three years ago is performing amazingly well. It has a little bit of risk. Instead of defaulting 1 and 1/2% of the time, it defaults 3 and 1/2% of the time. Well, that's not so bad. If I'm an investor buying that, if I get a little bit of additional return, I'm fine.
http://www.thisamericanlife.org/radio-archives/episode/355/transcript

QuoteQuote:
effectively. I mean, we're hoping you don't lie, but-- tell us what you make. Tell us what you have in the bank. But we're not going to actually verify it? We're setting you up to lie. Something about that transaction feels very wrong. It felt very wrong way back when. And I wish we had never done it. Unfortunately what happened, we did it because everybody else was doing it.
tell that to the architects.........

a dose of reality.................

QuoteQuote:
"no correlation between more government spending and a growing or shrinking economy over the long-term."
Tell me ONE factor that can.......... (only one since you insist on isolation)

Last edited by jeffkrol; 11-27-2012 at 10:00 AM.
11-27-2012, 10:11 AM   #12
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QuoteOriginally posted by jeffkrol Quote
your ASSUMING collecting taxes to pay for spending.. A basic falsehood.............. Fed prints enough money to hire people to cut the federal parks grass..there is no tit for tat
Until the system officially changes to one that does not collect taxes then.... YES. That is what I am saying. There are aspects of MMT at play in the current economy, but you can't keep pretending that MMT is how the system actually works.

QuoteOriginally posted by jeffkrol Quote
It wasn't "excessive spending" in the housing market .. it was the bundling and selling worthless products, fraud and the grotesque manipulation of "capitalism" that killed the housing market..
Then you need to redefine what a bubble is to fit what your reality.

QuoteOriginally posted by jeffkrol Quote
Tell me ONE factor that can.......... (only one since you insist on isolation)
When did I insist on isolation?
11-27-2012, 12:30 PM   #13
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QuoteOriginally posted by Winder Quote
Until the system officially changes to one that does not collect taxes then.... YES. That is what I am saying. There are aspects of MMT at play in the current economy, but you can't keep pretending that MMT is how the system actually works.


Then you need to redefine what a bubble is to fit what your reality.



When did I insist on isolation?
QuoteQuote:
there is no correlation between more government spending and a growing or shrinking economy over the long-term.
Isolating gov. spending in this manner.. The whole statement is pointless...

you can always have incorrect gov. spending and a shrinking economy..

Fantasy case in point. Gov. is "spending" excess on "welfare" while there is an Arab oil embargo driving up oil prices.. Short of the gov. buying oil and giving it away.. gov spending will not increase a stricken economy..BTW their buying oil and giving it away would definitely stimulate the economy..it becomes a moral attitude.. not financial..

like I've tried to say over and over .. it's not how much they spend but what they spend it on..

AND the corollary.. gov decrease in spending decreases the economy is almost a given.. don't you think???
11-27-2012, 12:44 PM   #14
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QuoteOriginally posted by jeffkrol Quote
Isolating gov. spending in this manner.. The whole statement is pointless...
Just a few posts ago you stated "ANY money spent in the economy increases the economy..." If this is true, then ANY money includes government money.



QuoteOriginally posted by jeffkrol Quote
AND the corollary.. gov decrease in spending decreases the economy is almost a given.. don't you think???
No. There is no historical evidence to support this. Clinton reduced government spending and the economy grew at a healthy pace.

If you graph government spending by quarter on the horizontal axis from 1950 through today and +/- economic growth rates on the vertical axis you will see that there is not correlation. There is not upward sloping line showing a positive correlation and there is no downward sloping trend showing a negative correlation. The graph will look like a bunch of random dots.
11-27-2012, 12:50 PM   #15
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Lets make this easy........

An article on "your side"..

Debunking the Myth that Government Spending Stimulates the Economy | NewsBusters.org

First off in my view:

■Additional taxation.
■ Government spending financed by borrowing from the public

BOTH completely irrelevant in a modern fiat currency... TOTALLY irrelevant..

Leaving only the 3rd one;

QuoteQuote:
Government spending financed by creating new money. In this case, there is no first-round private offset to the government spending. It looks as if it is clearly stimulative, and it is.
followed by an awful weak case...........or contra indicated...

QuoteQuote:
On the other hand, if the initial position were one of deep recession with unemployed resources, a much larger fraction of the increase in spending would be absorbed by an increase in employment and output, and a much smaller fraction by a rise in prices. Similarly, if the initial situation were one of incipient inflation, even the initial effect might be to produce inflation.
QuoteQuote:
Over the course of years, I have studied a number of similar episodes both in the United States and around the world. In every case, fiscal policy intended to be expansionary was expansionary if and only if monetary policy was accommodating. This empirical evidence is consistent with the theoretical analysis of the preceding sections.
Read more: http://newsbusters.org/blogs/rich-noyes/2009/02/01/debunking-myth-government...#ixzz2DSI7HF4t

Last edited by jeffkrol; 11-27-2012 at 01:05 PM.
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