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There seems to be a disagreement on terminology here. Would you agree that a hypothetical extremely communist society is automatically allocating capital correc
by roenxi 2y ago
There seems to be a disagreement on terminology here. Would you agree that a hypothetical extremely communist society is automatically allocating capital correctly? Because under the definition you seem to be arguing for there is only one investor (the state), that investor has exactly one option under existing regulatory policy (the state's choice [0]) and therefore cannot misallocate capital.
That seems to be a weird understanding of capital allocation to me and my follow up if I'm reading you right is how would you describe a failure of central planning? They have capital, they misallocate it and get terrible results relative to the free market. Assuming that isn't capital misallocaiton to you, what is it?
It is hard for me to see how you'd even have a concept of capital misallocation that isn't implicitly "relative to a free market". Otherwise it'd be extremely challenging to even detect it even if capital was being deployed in a horribly stupid way.
[0] Noting that there are only administrative differences between the tax office taking $1 and spending it on something vs. the legislature telling someone that they have to spend $1 on the thing and that line of logic means that the state could implement its policies by directing investors.
- s1artibartfast 2y ago>Would you agree that a hypothetical extremely communist society is automatically allocating capital correctly? no, and I dont see how that follows at all. I think the opposite is more likely true due to the lack of markets. End stage communism is stateless (but that is a tangent). If you have a single investor/state and law says exactly where the money goes, I would say that low capital efficiency is a policy failure, not a failure of the market to allocate. I think this comes down to confusion of what a market is. A market has private buyers and sellers making exchange. I grant that you could have a poor capital allocation by a government. I think the part that I vehemently disagree with is calling that a "market misallocation".
- roenxi 2y agoI suppose we're done here then, we don't agree on the terminology and there isn't much to be done. It isn't important but if you can point at large community who uses capital allocation in that sense I'd be interested to know it. It seems like a weird usage to me because it would seem to imply that a fully (or even heavily) planned economy either doesn't have capital or don't allocate it; both flawed implications. > I think the part that I vehemently disagree with is calling that a "market misallocation". I didn't. I've been quite specifically talking about US government policy causing capital misallocations. The US bankers are generally very keen on the idea of getting richer and the US wouldn't have the sort of real metric stagnation it has if the policy settings weren't visibly stupid. Indeed, even then the market has attempted to reset the situation multiple times (politically interesting examples are '07, introducing Bitcoin and SVB's failure) and generally been stymied by active interventions to keep incompetent investors wealthy.
- s1artibartfast 2y agoOK, I have been operating under the assumption that the capital allocation under debate was with respect to private markets because we started with the pricing of publicly traded stock pricing. Looking through the sequencing, I do note that you didn't specifically call out markets in your comments, and it was others invoking the idea of market failure of some sort. It seems like I do agree with your assessment of government policy, but I still dont get where you were going with the communist thing.