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In a free market, things can only be "over valued" if the buyer is misinformed. If a home buyer believes that housing prices will go up 10% next year, but in re

In a free market, things can only be "over valued" if the buyer is misinformed. If a home buyer believes that housing prices will go up 10% next year, but in reality they stay flat, they are apt to over value houses. However, if they believe prices will rise 10%, but they end up rising 20%, then they under valued houses. You can only know in retrospect if something over valued because the term implies a future outcome. The other problem is that free markets are self correcting. Home buyers can bring down prices if the majority simply believe they will drop and refuse to offer asking price. So, anything believed by the majority of purchasing power becomes self-fulfilling in dragging prices in that direction. With the current housing prices, the majority of purchasing power believe that houses are under valued, which is why prices continue to rise. Prices will continue to rise until the majority of purchasing power believes that houses are over valued. Only history and an arbitrary future reference point will tell us if they were right or not.

velcrovan 8y ago
> The other problem is that free markets are self correcting. The use of the term "correcting" gives the free market way too much credit. Especially given that, as you note, there is no objective mechanical principle at work besides mass hysteria. It would be better simply to say that _free markets fluctuate a lot_.
- pbhjpbhj 8y ago
  I think they do self-correct, the cost being devastation of people and resources. Over price housing and you get more homeless. A self-correction in a free market would be violent possession by the homeless; or the wages of murder squads increasing; or increase in thefts/frauds in order to afford rent. Release harmful effluent from your factory and you might kill your customers. So, eventually you'll have noone to sell to. Paying low wages, eventually all the people will either rebel or die and you'll have to increase wages or find a different way to steal value from others. See, self-correcting.
  - everdev 8y ago
    Yep. Free markets aren't perfect, just self-correcting. Everyone would need perfect information for them to be perfect and I'm not sure that's a realistic goal.
pbhjpbhj 8y ago
It's the "maximum price the market will accept" pricing you describe the only possible pricing method in a free market in your opinion? Over-valued could be that players in the market are able to raise the price through, for example, manipulation of scarcity (actual various types of scarcity may be the only way?). Or it could be that the seller seeks a certain profit that is [viewed as] excessive compared to the labour and material costs. The product is desirable, but the capital holders control the price ensuring large profit whilst keeping low wages for those who are actual creating the value. House prices in the UK were hugely inflated by the buy-to-let market which increased scarcity of buying options whilst simultaneously increasing rental costs in order to cream off more wealth from the poor tenants and pass it to the middle classes. Rentals became overvalued because now the cost includes not only the cost of provision of a home but the unnecessary cost of paying your absentee landlord an investment premium. The middle class cornered the market, by generating an artificial scarcity of affordable housing. The more wealthy can buy high street property -- keep rents high, occupancy doesn't matter because they get a reasonable return in asset value just by sitting on the property. High Street rentals are over valued.
- lotsofpulp 8y ago
  Capital holders can only ensure a large profit because those who are creating the value aren't themselves valuable. The value (price) of something is how much a buyer is willing to pay, not the value it provides to the buyer. Therefore the low wages are due to a surplus of labor. Not that this is a good thing, but I think it's important to point out because if we want to fix low wages, then we have to target the supply of labor. Give people mandatory six weeks of paid leave, 1 year of maternity/paternity paid leave, and watch wages go up automatically as capital owners have to adjust to less supply of labor.

velcrovan 8y ago

> The other problem is that free markets are self correcting. The use of the term "correcting" gives the free market way too much credit. Especially given that, as you note, there is no objective mechanical principle at work besides mass hysteria. It would be better simply to say that _free markets fluctuate a lot_.

pbhjpbhj 8y ago
I think they do self-correct, the cost being devastation of people and resources. Over price housing and you get more homeless. A self-correction in a free market would be violent possession by the homeless; or the wages of murder squads increasing; or increase in thefts/frauds in order to afford rent. Release harmful effluent from your factory and you might kill your customers. So, eventually you'll have noone to sell to. Paying low wages, eventually all the people will either rebel or die and you'll have to increase wages or find a different way to steal value from others. See, self-correcting.
- everdev 8y ago
  Yep. Free markets aren't perfect, just self-correcting. Everyone would need perfect information for them to be perfect and I'm not sure that's a realistic goal.

pbhjpbhj 8y ago

It's the "maximum price the market will accept" pricing you describe the only possible pricing method in a free market in your opinion? Over-valued could be that players in the market are able to raise the price through, for example, manipulation of scarcity (actual various types of scarcity may be the only way?). Or it could be that the seller seeks a certain profit that is [viewed as] excessive compared to the labour and material costs. The product is desirable, but the capital holders control the price ensuring large profit whilst keeping low wages for those who are actual creating the value. House prices in the UK were hugely inflated by the buy-to-let market which increased scarcity of buying options whilst simultaneously increasing rental costs in order to cream off more wealth from the poor tenants and pass it to the middle classes. Rentals became overvalued because now the cost includes not only the cost of provision of a home but the unnecessary cost of paying your absentee landlord an investment premium. The middle class cornered the market, by generating an artificial scarcity of affordable housing. The more wealthy can buy high street property -- keep rents high, occupancy doesn't matter because they get a reasonable return in asset value just by sitting on the property. High Street rentals are over valued.

lotsofpulp 8y ago
Capital holders can only ensure a large profit because those who are creating the value aren't themselves valuable. The value (price) of something is how much a buyer is willing to pay, not the value it provides to the buyer. Therefore the low wages are due to a surplus of labor. Not that this is a good thing, but I think it's important to point out because if we want to fix low wages, then we have to target the supply of labor. Give people mandatory six weeks of paid leave, 1 year of maternity/paternity paid leave, and watch wages go up automatically as capital owners have to adjust to less supply of labor.