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Why do you expect efficient capital allocation? Market economic theory predicts efficient capital allocation but only under the assumption of relatively even di

Why do you expect efficient capital allocation? Market economic theory predicts efficient capital allocation but only under the assumption of relatively even distributed buying power. On a national level that assumption might or might not hold, but globally it just doesn't.

s1artibartfast 2y ago
I don't think either of the things you said are true. Economists have understood that markets are not perfectly efficient for more than 100 years, even Friedman. Similarly, buying power is not a prerequisite for the efficiency they do have. I have no idea where you got those ideas.
- geysersam 2y ago
  > Economists have understood that markets are not perfectly efficient for more than 100 years Of course. Never said they don't? What I'm saying is not new it's perfectly ordinary. Widely distributed buying power/equality is a prerequisite for market efficiency. Proof: If all buying power is concentrated in a fraction of the population, the market will not consider the needs of the rest, regardless of how cheap their needs would be to satisfy and how grave their needs are. That's not efficient. In practice there's an empirical question how much equality you need to have a market that's efficient enough.
  - s1artibartfast 2y ago
    What does the needs of the rest have to do with market efficiency? They could all be die and it might not impact market efficiency. Market efficiency is a technical term, and I think you are using it for something completely different. It has nothing to do with equality, or satisfying the masses.
    - geysersam 2y ago
      In my book market efficiency is utility produced / utility that could have been produced. What is your definition?
      - s1artibartfast 2y ago
        I agree with that definition, but I think a big part of it comes down to two factors. 1) What you can change in the "could have" hypothetical alternative. Are the laws different in the hypothetical? Is human nature different? The way I see it, criticism of market efficiency is measured using the existing rules. If you must change the laws and policy, in your hypothetical, that means your Policy is what is driving the inefficiency. 2) How you measure utility. Are you measuring dollars changing hands? are you measuring national GDP? Are you measuring some sort of national happiness index? It sounds like Im speaking in financial terms, and you are measuring utility using more on the happiness scale
        geysersam 2y ago
        What is changed in the "could have" scenario is how capital is allocated. For example, the public sector could allocate a larger fraction of the capital than they do currently, maybe by spending more to prevent homelessness and build infrastructure. This would require changing policy, and you are right that I think the policy of letting the market determine such a large fraction of our capital allocations is driving the inefficiency. It's a "know it when I see it" kind of utility measurement. Probably closer to a "happiness index" than GDP. It's fuzzy but I don't think that makes it meaningless. I think most people have a similar idea of "better utility" (not exactly the same, similar). For example, what's most utility: New boat for Bezos or dental care for 1000 kids? In any case, some kind of utility measure is necessary to determine when markets are efficient or not. If the measure excludes people just because they have limited means then few would call that a good utility measure. If the utility measure doesn't exclude people with limited means then markets can only be efficient when means are relatively well distributed.

s1artibartfast 2y ago

I don't think either of the things you said are true. Economists have understood that markets are not perfectly efficient for more than 100 years, even Friedman. Similarly, buying power is not a prerequisite for the efficiency they do have. I have no idea where you got those ideas.

geysersam 2y ago
> Economists have understood that markets are not perfectly efficient for more than 100 years Of course. Never said they don't? What I'm saying is not new it's perfectly ordinary. Widely distributed buying power/equality is a prerequisite for market efficiency. Proof: If all buying power is concentrated in a fraction of the population, the market will not consider the needs of the rest, regardless of how cheap their needs would be to satisfy and how grave their needs are. That's not efficient. In practice there's an empirical question how much equality you need to have a market that's efficient enough.
- s1artibartfast 2y ago
  What does the needs of the rest have to do with market efficiency? They could all be die and it might not impact market efficiency. Market efficiency is a technical term, and I think you are using it for something completely different. It has nothing to do with equality, or satisfying the masses.
  - geysersam 2y ago
    In my book market efficiency is utility produced / utility that could have been produced. What is your definition?
    - s1artibartfast 2y ago
      I agree with that definition, but I think a big part of it comes down to two factors. 1) What you can change in the "could have" hypothetical alternative. Are the laws different in the hypothetical? Is human nature different? The way I see it, criticism of market efficiency is measured using the existing rules. If you must change the laws and policy, in your hypothetical, that means your Policy is what is driving the inefficiency. 2) How you measure utility. Are you measuring dollars changing hands? are you measuring national GDP? Are you measuring some sort of national happiness index? It sounds like Im speaking in financial terms, and you are measuring utility using more on the happiness scale
      - geysersam 2y ago
        What is changed in the "could have" scenario is how capital is allocated. For example, the public sector could allocate a larger fraction of the capital than they do currently, maybe by spending more to prevent homelessness and build infrastructure. This would require changing policy, and you are right that I think the policy of letting the market determine such a large fraction of our capital allocations is driving the inefficiency. It's a "know it when I see it" kind of utility measurement. Probably closer to a "happiness index" than GDP. It's fuzzy but I don't think that makes it meaningless. I think most people have a similar idea of "better utility" (not exactly the same, similar). For example, what's most utility: New boat for Bezos or dental care for 1000 kids? In any case, some kind of utility measure is necessary to determine when markets are efficient or not. If the measure excludes people just because they have limited means then few would call that a good utility measure. If the utility measure doesn't exclude people with limited means then markets can only be efficient when means are relatively well distributed.