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>We are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global deman

>We are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism. This isn't a criticism of capitalism. This is an acknowledgment our current "capitalist" financial system isn't able to produce "capitalism" itself.

Analemma_ 11y ago
> This isn't a criticism of capitalism. > This is an acknowledgment our current "capitalist" financial system isn't able to produce "capitalism" itself. That's a No True Scotsman argument intended to shield capitalism from any criticism. "The system isn't working? Then it must not be real capitalism."
- financedfuture 11y ago
  No. That's about recognizing there would be no mean reversion, a great indicative of the existence of crony monopolies and, therefore, lack of capitalism.
  - nitrogen 11y ago
    How can capitalism result in anything other than crony monopolies?
    - jazzyk 11y ago
      The government _not_ hand-picking winners and losers (bailouts, lobbyists, etc.) would be a good start.
      - Umn44 11y ago
        The problem is this is a fantasy historically ,the government works for the rich (capitalists) its a capitalist government. Copyright law is a case in point. https://en.wikipedia.org/wiki/Copyright_Term_Extension_Act#/media/File:Copyright_term.svg https://en.wikipedia.org/wiki/Copyright_Term_Extension_Act#/...
    - Hermel 11y ago
      In the end, it boils down to whether firms in a given industry have increasing or decreasing returns to scale. For example, there are no hairdresser empires as this tends to be a profession that can already be operated efficiently at a small scale. Other sectors, especially those with high fixed costs, tend to produce monopolies.
  - jbooth 11y ago
    Yes, but it's also a huge indictment of "free market proponents" who tend to oppose any regulation, as it implies the need for muscular regulation of the market. In American political terms, calling it an indictment of 'capitalism' is a little imprecise but not really wrong.
    - oldmanjay 11y ago
      It's a bit hyperbolic to call it a huge indictment. Or in fact, an indictment at all. It's more like a mildly divergent opinion.
      - jbooth 11y ago
        I'd agree and call it a mildly divergent opinion. The banks being regulated or the Republican primary candidates would call it outright communism. Depends on the yardstick, I guess.
        oldmanjay 11y ago
        The truth is always somewhere between the marketing and the haters
- AnimalMuppet 11y ago
  It could be viewed as No True Scotsman, but in this case I don't think it is. Goldman talks about "reversion to the mean", which is a generally-accepted thing in the financial world. If you've got above-average returns, people tend to take note, and try to get some of those returns, and so there's more competition for those returns, and that goes on until there aren't excessive returns any longer. This is a generally-accepted thing because it's been observed a bunch of times. It's the normal functioning of a market. So if Goldman is questioning whether this is going to happen this time, it's a recognition that the markets aren't functioning the way they normally do - which I think is financedfuture's point. (He/she is going a step further, and [EDIT]implying that either the financial firms or the government broke the system that had been working, which, if the system historically worked and now doesn't, seems like a reasonable guess.)
themagician 11y ago
A lot of Americans are obsessed with "capitalism" and "the free market", but don't even understand the basic assumptions that must be true for free markets to work like perfect information, interchangeable goods and services, and a lack of market power for any single entity. Like, the basic—the most basic—assumptions. Capitalism has become synonymous in the collective mind with "don't make laws, laws are government interference and socialism." Just look at the way people on the right talk about removing Obamacare and letting the "free market" do its thing. But the healthcare industry basically NEVER met the assumptions necessary for a free market to exist in the first place. The same is true in banking, albeit some might argue to a lesser extent. You've got oligopoly or monopoly firms in many industries that are "too big to fail", have near total market power, and make many decisions (some around pricing) behind closed doors or with little transparency (let alone anything close to complete information), and then expect markets to run efficiently? You can't bake the perfect cake if you don't have any of the ingredients in the first place.
- deleted 11y ago
  [deleted]
- ancap 11y ago
  >But the healthcare industry basically NEVER met the assumptions necessary for a free market to exist in the first place. Please expound on the history of this (the "NEVER" part)and also enumerate on what the "assumptions necessary" are. >Just look at the way people on the right talk about removing Obamacare and letting the "free market" do its thing. Obviously the removal of Obamacare would be insufficient to produce a free market in health care and it would take a lot more repealing of laws (many at the state level) before a free market could "do its thing". >Capitalism has become synonymous in the collective mind with "don't make laws, laws are government interference and socialism." I'm not so sure there is any majority which claims this. I find much more common the idea that most of society's problems are caused by capitalism, caused by a "market failure", or that free enterprise is insufficient to resolve said problem and the only solution is government action.
  - themagician 11y ago
mtgx 11y ago
Because the government keeps either bailing it out or protecting some actors when it should be punishing them to a much bigger degree. Some may say, wait a minute, but if the government does that, doesn't it mean it interferes with the "free market" and whatnot? I think to have a real free market, you need a fair market. If some companies violate the law to get ahead, they should be punished. Or at the very least be allowed to fail when they reach their own individual "bust" after some high growth from risking with people's deposits. The point is they can't have their cake and eat it, too.
- jazzyk 11y ago
  The government should not be intervening in the market (through bailouts or subsidies) on behalf of an anointed market player (or group of players). It should set the same rules for everybody and enforce them. If someone is not playing by the rules, they should be punished. While an ideal fair/"free" market can probably never be reached, the US has seen better than the abomination we have now.

Analemma_ 11y ago

> This isn't a criticism of capitalism. > This is an acknowledgment our current "capitalist" financial system isn't able to produce "capitalism" itself. That's a No True Scotsman argument intended to shield capitalism from any criticism. "The system isn't working? Then it must not be real capitalism."

financedfuture 11y ago
No. That's about recognizing there would be no mean reversion, a great indicative of the existence of crony monopolies and, therefore, lack of capitalism.
- nitrogen 11y ago
  How can capitalism result in anything other than crony monopolies?
  - jazzyk 11y ago
    The government _not_ hand-picking winners and losers (bailouts, lobbyists, etc.) would be a good start.
    - Umn44 11y ago
      The problem is this is a fantasy historically ,the government works for the rich (capitalists) its a capitalist government. Copyright law is a case in point. https://en.wikipedia.org/wiki/Copyright_Term_Extension_Act#/media/File:Copyright_term.svg https://en.wikipedia.org/wiki/Copyright_Term_Extension_Act#/...
  - Hermel 11y ago
    In the end, it boils down to whether firms in a given industry have increasing or decreasing returns to scale. For example, there are no hairdresser empires as this tends to be a profession that can already be operated efficiently at a small scale. Other sectors, especially those with high fixed costs, tend to produce monopolies.
- jbooth 11y ago
  Yes, but it's also a huge indictment of "free market proponents" who tend to oppose any regulation, as it implies the need for muscular regulation of the market. In American political terms, calling it an indictment of 'capitalism' is a little imprecise but not really wrong.
  - oldmanjay 11y ago
    It's a bit hyperbolic to call it a huge indictment. Or in fact, an indictment at all. It's more like a mildly divergent opinion.
    - jbooth 11y ago
      I'd agree and call it a mildly divergent opinion. The banks being regulated or the Republican primary candidates would call it outright communism. Depends on the yardstick, I guess.
      - oldmanjay 11y ago
        The truth is always somewhere between the marketing and the haters
AnimalMuppet 11y ago
It could be viewed as No True Scotsman, but in this case I don't think it is. Goldman talks about "reversion to the mean", which is a generally-accepted thing in the financial world. If you've got above-average returns, people tend to take note, and try to get some of those returns, and so there's more competition for those returns, and that goes on until there aren't excessive returns any longer. This is a generally-accepted thing because it's been observed a bunch of times. It's the normal functioning of a market. So if Goldman is questioning whether this is going to happen this time, it's a recognition that the markets aren't functioning the way they normally do - which I think is financedfuture's point. (He/she is going a step further, and [EDIT]implying that either the financial firms or the government broke the system that had been working, which, if the system historically worked and now doesn't, seems like a reasonable guess.)

themagician 11y ago

A lot of Americans are obsessed with "capitalism" and "the free market", but don't even understand the basic assumptions that must be true for free markets to work like perfect information, interchangeable goods and services, and a lack of market power for any single entity. Like, the basic—the most basic—assumptions. Capitalism has become synonymous in the collective mind with "don't make laws, laws are government interference and socialism." Just look at the way people on the right talk about removing Obamacare and letting the "free market" do its thing. But the healthcare industry basically NEVER met the assumptions necessary for a free market to exist in the first place. The same is true in banking, albeit some might argue to a lesser extent. You've got oligopoly or monopoly firms in many industries that are "too big to fail", have near total market power, and make many decisions (some around pricing) behind closed doors or with little transparency (let alone anything close to complete information), and then expect markets to run efficiently? You can't bake the perfect cake if you don't have any of the ingredients in the first place.

deleted 11y ago
[deleted]
ancap 11y ago
>But the healthcare industry basically NEVER met the assumptions necessary for a free market to exist in the first place. Please expound on the history of this (the "NEVER" part)and also enumerate on what the "assumptions necessary" are. >Just look at the way people on the right talk about removing Obamacare and letting the "free market" do its thing. Obviously the removal of Obamacare would be insufficient to produce a free market in health care and it would take a lot more repealing of laws (many at the state level) before a free market could "do its thing". >Capitalism has become synonymous in the collective mind with "don't make laws, laws are government interference and socialism." I'm not so sure there is any majority which claims this. I find much more common the idea that most of society's problems are caused by capitalism, caused by a "market failure", or that free enterprise is insufficient to resolve said problem and the only solution is government action.
- themagician 11y ago

mtgx 11y ago

Because the government keeps either bailing it out or protecting some actors when it should be punishing them to a much bigger degree. Some may say, wait a minute, but if the government does that, doesn't it mean it interferes with the "free market" and whatnot? I think to have a real free market, you need a fair market. If some companies violate the law to get ahead, they should be punished. Or at the very least be allowed to fail when they reach their own individual "bust" after some high growth from risking with people's deposits. The point is they can't have their cake and eat it, too.

jazzyk 11y ago
The government should not be intervening in the market (through bailouts or subsidies) on behalf of an anointed market player (or group of players). It should set the same rules for everybody and enforce them. If someone is not playing by the rules, they should be punished. While an ideal fair/"free" market can probably never be reached, the US has seen better than the abomination we have now.