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> The point is the economy is currently based on something hits the news, hoard hoard hoard, price explodes, empty shelves and high profits. Given that that ex

> The point is the economy is currently based on something hits the news, hoard hoard hoard, price explodes, empty shelves and high profits. Given that that extends well beyond individual behaviour (Wheat futures[1] are currently bonkers), this raises the question if the claim that "capitalism is the optimal way to allocate resources" is really true at least for the current version of capitalism. This extends well beyond wheat. Market behavior is often completely irrational, for extended periods of time. The idea that "all information is priced in" extends to entirely made up information of any kind, which, given technology's ability to proliferate information, now means it often outnumbers actual information significantly. This means that the markets often don't reflect a fair price for the product any more. They instead show a price that is an excellent representation for human emotions around the product. That does not seem a sustainable principle, in the long run. I wish I could close with a lovely "and here's how we fix that" paragraph, but it's a problem that leaves me stumped. [1] https://www.cnbc.com/quotes/@W.1 https://www.cnbc.com/quotes/@W.1

s1artibartfast 5y ago
>this raises the question if the claim that "capitalism is the optimal way to allocate resources" is really true at least for the current version of capitalism. It is important to remember that economic supporters of markets don't claim that the markets are always rational in the short term. Corrections and irrational behavior expected.
- groby_b 5y ago
  Yes - but we're currently in a situation where irrationality absolutely dominates. (And it's not exactly short term)
  - s1artibartfast 5y ago
    Yeah, I agree that irrational behavior sucks. But this brings us full circle to your OP, and the lack of a better alternative.
  - brian_cloutier 5y ago
    You seem to be claiming that the prices of many different assets are largely divorced from fundamentals. I'm willing to believe you, what you're saying is plausible, but I apparently haven't been looking at the same data you've been looking at. Do you have examples of some prices you think are bonkers, and reasons why they're bonkers?
    - a1369209993 5y ago
      > that the prices of many different assets are []largely divorced from[] fundamentals. Actually, I think the claim is that prices are driving fundamentals rather than vice versa - ie rather than "$STUFF shortage causes rising price", you instead get "rising $STUFF price causes shortage".
kqr 5y ago
Note that derivatives like futures add additional layers of emotion over the cash market. In the cash market, prices are generally set to match supply and demand of the actual physical thing. Supply is what it is, and demand can go crazy in mysterious ways. In a derivatives market, prices reflect the supply and demand of promises and expectations of the physical thing. You're buying and selling a completely abstract entity only loosely coupled to the physical thing. Here both supply and demand are driven by all sorts of mysterious whims. Not to mention that derivatives markets tend to be designed for speculation.
tyrfing 5y ago
Why is the "fair price" not significantly higher than it was 2 months ago, for short-dated futures? Supply is temporarily disrupted, all input costs are significantly higher, and it's a very inelastic market because elasticity comes from mass starvation. You can say the move was an overreaction - but it's pricing in many unknowns, the probability of which are certainly not zero. What if Russia banned all grain exports, for example?
throwaway6532 5y ago
I guess markets are functional proportional to their level of certainty with respect to future events. Information is a reduction in uncertainty, so if you are missing information you need in order to make pricing decisions because it's at this stage unknown, then you have no rational basis of which to act, but since you still need to act the only way to do so is irrationally. Makes perfect sense to me. TL;DR sometimes markets fail. Also all complex systems are nearly always in a state of partial failure. Economy is no different.
imtringued 5y ago
>Given that that extends well beyond individual behaviour (Wheat futures[1] are currently bonkers), this raises the question if the claim that "capitalism is the optimal way to allocate resources" is really true at least for the current version of capitalism. It works, if the good in question is not needed to satisfy a basic human need. It also works, when the good in question can be produced so that everyone has enough. It doesn't work, if there is a sudden temporary loss of production capacity or if the production capacity can never catch up to demand (think how we can't make more land, it's already there).
- groby_b 5y ago
  Thank you - that's actually a really valuable distinction/framing. (I'm not sure I 100% agree, but it poses a whole nest of interesting question when applied to various economic situations.)

s1artibartfast 5y ago

>this raises the question if the claim that "capitalism is the optimal way to allocate resources" is really true at least for the current version of capitalism. It is important to remember that economic supporters of markets don't claim that the markets are always rational in the short term. Corrections and irrational behavior expected.

groby_b 5y ago
Yes - but we're currently in a situation where irrationality absolutely dominates. (And it's not exactly short term)
- s1artibartfast 5y ago
  Yeah, I agree that irrational behavior sucks. But this brings us full circle to your OP, and the lack of a better alternative.
- brian_cloutier 5y ago
  You seem to be claiming that the prices of many different assets are largely divorced from fundamentals. I'm willing to believe you, what you're saying is plausible, but I apparently haven't been looking at the same data you've been looking at. Do you have examples of some prices you think are bonkers, and reasons why they're bonkers?
  - a1369209993 5y ago
    > that the prices of many different assets are []largely divorced from[] fundamentals. Actually, I think the claim is that prices are driving fundamentals rather than vice versa - ie rather than "$STUFF shortage causes rising price", you instead get "rising $STUFF price causes shortage".

kqr 5y ago

Note that derivatives like futures add additional layers of emotion over the cash market. In the cash market, prices are generally set to match supply and demand of the actual physical thing. Supply is what it is, and demand can go crazy in mysterious ways. In a derivatives market, prices reflect the supply and demand of promises and expectations of the physical thing. You're buying and selling a completely abstract entity only loosely coupled to the physical thing. Here both supply and demand are driven by all sorts of mysterious whims. Not to mention that derivatives markets tend to be designed for speculation.

tyrfing 5y ago

Why is the "fair price" not significantly higher than it was 2 months ago, for short-dated futures? Supply is temporarily disrupted, all input costs are significantly higher, and it's a very inelastic market because elasticity comes from mass starvation. You can say the move was an overreaction - but it's pricing in many unknowns, the probability of which are certainly not zero. What if Russia banned all grain exports, for example?

throwaway6532 5y ago

I guess markets are functional proportional to their level of certainty with respect to future events. Information is a reduction in uncertainty, so if you are missing information you need in order to make pricing decisions because it's at this stage unknown, then you have no rational basis of which to act, but since you still need to act the only way to do so is irrationally. Makes perfect sense to me. TL;DR sometimes markets fail. Also all complex systems are nearly always in a state of partial failure. Economy is no different.

imtringued 5y ago

>Given that that extends well beyond individual behaviour (Wheat futures[1] are currently bonkers), this raises the question if the claim that "capitalism is the optimal way to allocate resources" is really true at least for the current version of capitalism. It works, if the good in question is not needed to satisfy a basic human need. It also works, when the good in question can be produced so that everyone has enough. It doesn't work, if there is a sudden temporary loss of production capacity or if the production capacity can never catch up to demand (think how we can't make more land, it's already there).

groby_b 5y ago
Thank you - that's actually a really valuable distinction/framing. (I'm not sure I 100% agree, but it poses a whole nest of interesting question when applied to various economic situations.)