5 ms·

Picking a nit, the article claims that a free market works only in equilibrium. This is a spherical cow in a vacuum view of economics. Markets, in general, can

Picking a nit, the article claims that a free market works only in equilibrium. This is a spherical cow in a vacuum view of economics. Markets, in general, can be seen as moving toward an incalculable equilibrium (at least not calculable in less time than it takes to reach). There is not a single equilibrium, though. As time goes on, people are born and die, trends and preferences change. If you could calculate some optimal state as of the end of 2019 and name it as "equilibrium", that would be different than the optimal state as of the end of 2020 (and different (and likely without some continuous transition function) in the full duration between these points).

Kinrany 6y ago
You could say that the market is itself the mechanism that calculates the equilibrium. (But it could be a pretty falsehood: not an economist.)
- greggyb 6y ago
  This is a good way to think about it. Certainly more helpful than many other short explanations I've seen attempted. Am not economist, but do have econ degree. Edit for slight clarification: The phrasing suffers from anthropomorphizing a thing. The market is a collection of human interactions. Humans are the agents. The market is an amalgamation of many individuals acting as they best see fit, utilizing their local knowledge. The sum of these actions and interactions performs the calculation. Same idea, just clarifying where agency exists.
TeMPOraL 6y ago
Agreed. Equilibrium is defined in terms of the market, not the other way around. The system does what it does. I think a better way of phrasing the article's point is that markets are metastable; pushed hard enough, they'll stop falling back to the current equilibrium and instead find a new one. That transition process often involves massive amounts of death and suffering, so that's why we care about not disturbing the market.
- greggyb 6y ago
  I'd push back on your use of "current equilibrium", based on how I interpret this phrase. If my interpretation is off, then I apologize. It reads to me as if you're presenting the world as having a single equilibrium toward which the market moves. There is no meaningful static idea of equilibrium. However you want to define and measure some optimal state that we can call equilibrium, this target moves discontinuously at least with each birth and death that occurs. Each of these events either introduces or removes a set of preferences (a terrible reduction of humanity). Accounting for these will shift our "equilibrium" in any meaningful calculation of the same. There are 1.8 deaths per second and 4.3 births per second.[0][1] Again, these birth and death rates represent the minimum rate of change of equilibrium. As a follow-on effect, a birth is very likely to alter the parents' preferences in a way that will shift the equilibrium. Deaths likely shift families' and friends' preferences in a way that will shift the equilibrium. Both these second-order effects are not instantaneous (information does not spread instantly). Invention and innovation represent changes. Discovery of new natural resources represent changes. And people are not static sets of preferences. People change. Perhaps we may be able to define some equilibrium for an instant. And we can expect with near-certain probability that one instant's equilibrium is very close to neighboring instants' equilibria. But the shifts are discontinuous, and likely impossible to model with a function. [0] https://www.medindia.net/patients/calculators/world-death-clock.asp https://www.medindia.net/patients/calculators/world-death-cl... [1] https://www.theworldcounts.com/stories/How-Many-Babies-Are-Born-Each-Day https://www.theworldcounts.com/stories/How-Many-Babies-Are-B...
  - TeMPOraL 6y ago
    I meant something else entirely: > It reads to me as if you're presenting the world as having a single equilibrium toward which the market moves. The opposite. I hinted at that by saying "the system does what it does", though I realize it may be an obscure reference[0]. The markets are. They are a dynamic system that naturally reaches some sort of (meta)stable behavior, and this is what we call equilibrium. It's not defined, it's observed. > this target moves discontinuously at least with each birth and death that occurs Disagree. To a good approximation, markets moves continuously, because it takes time for individual preferences to manifest, and preferences aren't binary switches - they're communicated through many individual decisions over time. WRT. the "death and suffering" part, I meant that large disruptions to markets usually involve events that kill and impoverish lots of people, and markets rebalancing themselves also cause that. I'm thinking of events like COVID-19, 2008, 1929, and quite often, discovery of new deposits of highly demanded resources. -- [0] - https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_what_it_does https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...

Kinrany 6y ago

You could say that the market is itself the mechanism that calculates the equilibrium. (But it could be a pretty falsehood: not an economist.)

greggyb 6y ago
This is a good way to think about it. Certainly more helpful than many other short explanations I've seen attempted. Am not economist, but do have econ degree. Edit for slight clarification: The phrasing suffers from anthropomorphizing a thing. The market is a collection of human interactions. Humans are the agents. The market is an amalgamation of many individuals acting as they best see fit, utilizing their local knowledge. The sum of these actions and interactions performs the calculation. Same idea, just clarifying where agency exists.

TeMPOraL 6y ago

Agreed. Equilibrium is defined in terms of the market, not the other way around. The system does what it does. I think a better way of phrasing the article's point is that markets are metastable; pushed hard enough, they'll stop falling back to the current equilibrium and instead find a new one. That transition process often involves massive amounts of death and suffering, so that's why we care about not disturbing the market.

greggyb 6y ago
I'd push back on your use of "current equilibrium", based on how I interpret this phrase. If my interpretation is off, then I apologize. It reads to me as if you're presenting the world as having a single equilibrium toward which the market moves. There is no meaningful static idea of equilibrium. However you want to define and measure some optimal state that we can call equilibrium, this target moves discontinuously at least with each birth and death that occurs. Each of these events either introduces or removes a set of preferences (a terrible reduction of humanity). Accounting for these will shift our "equilibrium" in any meaningful calculation of the same. There are 1.8 deaths per second and 4.3 births per second.[0][1] Again, these birth and death rates represent the minimum rate of change of equilibrium. As a follow-on effect, a birth is very likely to alter the parents' preferences in a way that will shift the equilibrium. Deaths likely shift families' and friends' preferences in a way that will shift the equilibrium. Both these second-order effects are not instantaneous (information does not spread instantly). Invention and innovation represent changes. Discovery of new natural resources represent changes. And people are not static sets of preferences. People change. Perhaps we may be able to define some equilibrium for an instant. And we can expect with near-certain probability that one instant's equilibrium is very close to neighboring instants' equilibria. But the shifts are discontinuous, and likely impossible to model with a function. [0] https://www.medindia.net/patients/calculators/world-death-clock.asp https://www.medindia.net/patients/calculators/world-death-cl... [1] https://www.theworldcounts.com/stories/How-Many-Babies-Are-Born-Each-Day https://www.theworldcounts.com/stories/How-Many-Babies-Are-B...
- TeMPOraL 6y ago
  I meant something else entirely: > It reads to me as if you're presenting the world as having a single equilibrium toward which the market moves. The opposite. I hinted at that by saying "the system does what it does", though I realize it may be an obscure reference[0]. The markets are. They are a dynamic system that naturally reaches some sort of (meta)stable behavior, and this is what we call equilibrium. It's not defined, it's observed. > this target moves discontinuously at least with each birth and death that occurs Disagree. To a good approximation, markets moves continuously, because it takes time for individual preferences to manifest, and preferences aren't binary switches - they're communicated through many individual decisions over time. WRT. the "death and suffering" part, I meant that large disruptions to markets usually involve events that kill and impoverish lots of people, and markets rebalancing themselves also cause that. I'm thinking of events like COVID-19, 2008, 1929, and quite often, discovery of new deposits of highly demanded resources. -- [0] - https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_what_it_does https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...