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This is admittedly extremely naive, but won't liquidity simply become a service that commands a premium? In finance, you see the entry of market makers who prov

by p4wnc6 11y ago

This is admittedly extremely naive, but won't liquidity simply become a service that commands a premium? In finance, you see the entry of market makers who provide liquidity when you need it, in exchange for collecting a premium (the bid-ask spread). As more market makers enter this situation, one of the main ways they compete is by lowering prices, which is good for consumers who rely on them for liquidity on demand. The market makers are essentially willing to put their money at risk by scrambling it around all day in the form of ownership of different assets, and then squaring up by the end of the day so that they hopefully don't hold any exposure to any asset over some significant time period. This isn't about financial market making per se, but just the basic idea. There could be similar market makers in other fields, perhaps buying and selling physical goods, but never storing them for sale over time. Fields where the handling and registration of goods transfers can't be as highly digitized as finance or energy would be much more expensive to provide liquidity, and the "bid-ask spread" would have to be higher to compensate. In a sense, it would reflect the kinds of liquidity people care about buying, and if other kinds of liquidity dried up, it would be because people mostly didn't want to buy that liquidity. I'm not saying that there wouldn't be unhealthy effects from inequality, but I think to the extent that inequality inherently limits liquidity, then market makers enter to provide that liquidity as a service.

danharaj 11y ago
You can't market make between people who have too little money and people who have too much money. Lending money to consumers won't work because while their increased consumption would produce economic activity and profit for someone, it wouldn't return to them and so such lending is inherently risky, so the interest rates would have to be high, which just further exacerbates the problem that they have too little money. This paper is basically a stone's throw away from the Marxian analysis of crises of capital. It's nice that it's quantitative; a nice complement to all the qualitative criticisms of capitalism's fundamental structure. It's not the market that is the issue, but the tendency of capital to concentrate in the hands of the propertied class. There are two kinds of capitalist societies actually seen in the real world, the unstable kinds, and the kinds that have significant wealth redistribution mechanisms. Real economies oscillate between the two or collapse.
- p4wnc6 11y ago
  At least in financial markets, it seems that over time, it has only become easier and cheaper for people with less money to purchase liquidity and participate on demand in some of the same markets as wealthy people. While there still are people who are too stricken by poverty to participate, the threshold of participation is getting lower -- which seems to stand in contrast to your claims. On the other hand, there definitely are other forms of exchange, say like dark pools, where wealth and status are required to gain access. I think I would hold out for a model that was able to work with actual transaction data like this, rather than needing the mathematical conveniences of the paper (that only budgets are limiting, that transaction network is the fully connected graph of all participants, etc). It's good work, I hope to see it keep going and go in a more data-driven way.
  - danharaj 11y ago
    I don't think we should rely on financial markets for an idea of how markets can correct for structural issues. It hasn't been that long since they collapsed and dragged down the rest of the world economy with them, only being resuscitated by blunt and pervasive intervention at the level of states and multinational institutions.

by p4wnc6 11y ago

danharaj 11y ago

You can't market make between people who have too little money and people who have too much money. Lending money to consumers won't work because while their increased consumption would produce economic activity and profit for someone, it wouldn't return to them and so such lending is inherently risky, so the interest rates would have to be high, which just further exacerbates the problem that they have too little money. This paper is basically a stone's throw away from the Marxian analysis of crises of capital. It's nice that it's quantitative; a nice complement to all the qualitative criticisms of capitalism's fundamental structure. It's not the market that is the issue, but the tendency of capital to concentrate in the hands of the propertied class. There are two kinds of capitalist societies actually seen in the real world, the unstable kinds, and the kinds that have significant wealth redistribution mechanisms. Real economies oscillate between the two or collapse.

p4wnc6 11y ago
At least in financial markets, it seems that over time, it has only become easier and cheaper for people with less money to purchase liquidity and participate on demand in some of the same markets as wealthy people. While there still are people who are too stricken by poverty to participate, the threshold of participation is getting lower -- which seems to stand in contrast to your claims. On the other hand, there definitely are other forms of exchange, say like dark pools, where wealth and status are required to gain access. I think I would hold out for a model that was able to work with actual transaction data like this, rather than needing the mathematical conveniences of the paper (that only budgets are limiting, that transaction network is the fully connected graph of all participants, etc). It's good work, I hope to see it keep going and go in a more data-driven way.
- danharaj 11y ago
  I don't think we should rely on financial markets for an idea of how markets can correct for structural issues. It hasn't been that long since they collapsed and dragged down the rest of the world economy with them, only being resuscitated by blunt and pervasive intervention at the level of states and multinational institutions.