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> markets enforce efficiency, so it's not possible that a company can have some major inefficiency and survive This just seems totally false on its face. If yo

• sib 2y ago
  "It's so intuitively false that I'd have to wonder about someone who thinks it's true." This is a wonderful encapsulation. Thank you.
• intended 2y ago
  It’s the Platonic solid of Econ analysis. Sphereical cows.
• wpietri 2y ago
  It can be helpful to think of the Econ 101/homo economicus view of the world as something more akin to a secular religion. And I don't mean that in a particularly bad way; most religions package a bunch of useful concepts (e.g., the golden rule) with some stuff that isn't literally true but does serve social and emotional needs in ways that the useful stuff gets passed down through the generations. As scholar Huston Smith put it, religion gives spirituality historical traction. The notion that markets can drive efficiency is a valuable insight. But people for whom Econ 101 acts as a religion have a really hard time noticing when that effect gets swamped. This is pretty easy to spot these days because you'll find nominally pro-market people cheering oligopolies and monopolies, or getting upset at regulations that make markets more efficient. One easy test is how they feel about sustained high profits. To people who value markets for their ability to drive improvements through competition, that's a sign of something wrong, like insufficient price competition.
  • rsanek 2y ago
    hard to evaluate sustained high profits without context. is it due to continued innovation by the firm? or just rent seeking? both can be causes of profits but we should only be promoting one of those models
    • wpietri 2y ago
      Sure, although I think it gets easier as time goes on; there a are lot of innovative people out there. But my point here is more about the reaction to it. If people say, "Well they're making lots of money, so they must be great innovators, great managers, and generally virtuous", then that's basically a religious answer. People who see markets as tools for efficiency will say, "Look at those sustained high profits. Is it really that nobody has figured out how to compete with them yet? Or are they misusing their market power or wealth in ways that limit competition?"
  • cromka 2y ago
    That’s a brilliant take!
  • bunderbunder 2y ago
    Lately I've been wondering if the efficient market hypothesis was actually more true a century ago than it is now. Not because anything fundamental has changed about economics, but because baselines have shifted to the point that what we expect an efficient market to look like may be very different from what what people expected it to look like in the early 20th century. So, basically, people's definition of "efficient" has subtly changed. A century or so ago market economies hadn't caught on to the same extent. In the 1950s you had Khrushchev coming to visit Iowa to learn about US agricultural productivity. He visited family farms, talked to people about how they did things, and then went back home to tell the USSR's farmers that they needed to plant corn everywhere, including in places where the climate is not even remotely suitable for growing corn. All this time talking to family farmers about how they make their own decisions about the best use of their own land, and he somehow still failed to pick up on the idea that maybe the secret ingredient in the sauce was that the USA generally let farmers run their own farms. Sure, the USA's capitalist economy still had charlatans, including agricultural charlatans, and wasteful fads for bad ideas, rent-seeking behavior, pork barrel politics, etc. But maybe it was still easy to see that situation as efficient at the time, because one's reference for comparison included being able to see the greater amount of damage that a planned economy allowed a charlatan like Lysenko to do from his position of power within the Soviet Academy of Sciences.
    • bunderbunder 2y ago
      Realizing a day later that I misspoke in the first sentence. "Efficient market hypothesis" is something else; I should have said something like "idea that freer markets are more efficient".
    • blihp 2y ago
      I think it absolutely was. Even 50+ years ago there was far more competition in any number of industries and investors looking at a particular widget maker could compare numerous companies and analyze the operations and strategy of each before picking which one(s) to invest in. Today we assume EMH when competition has become increasingly rare... so everyone from consumers to investors have fewer options yet somehow efficiency is supposed to exist. Today most just pile into the megacaps and generally assume 'these guys are the biggest... they must be the best.' Sure, there's a small window of competition in the VC world where money piles into non-public companies for a few years before a winner is selected (often having nothing to do with having the best product/service or even being the most efficient or profitable... it's all about who scaled to the finish line the fastest) and either becomes the 800lb gorilla or gets gobbled up by one.
  • ponow 2y ago
    > One easy test is how they feel about sustained high profits. To people who value markets for their ability to drive improvements through competition, that's a sign of something wrong, like insufficient price competition. We'd need more context. Those sustained profits are "money on the table". There may be real advantages to the company earning them, like sustained innovation or other quality, that others have trouble competing with. But if those profits are coincident with lots of lobbying and various shenanigans (controversially maybe including patents and copyright)... you'll get more sympathy.
    • wpietri 2y ago
      Agreed, but as I mention elsewhere, my point is more about people react to the sustained high profits before they have the context: https://news.ycombinator.com/item?id=42432352 https://news.ycombinator.com/item?id=42432352
  • mixmastamyk 2y ago
    Econ 101 is the first semester of a multi year degree. By necessity it focuses on idealistic concepts. Nothing wrong with that—of course N-order effects, psychology, and information disparity, etc need to be taken into account in the real world. Without this understanding one ends up in such a debate.
    • mrguyorama 2y ago
      The problem is that so many people who only take Econ 101 seem to believe their understanding is analogous to understanding the physics of reality by learning Newton's laws and equations of motion. But it isn't. Econ 101 is more analogous to Aristotelian physics, full of outright falsehoods, self-contradictions, things that sound right but have no basis in reality, and an abject failure and unwillingness to test anything and change your mind once you've seen contradictory results. So you have millions upon millions shouting "regulation bad" with nary a whiff of systemic understanding. Econ 101 is terrible.
      • wpietri 2y ago
        Spot on! Funnily, I think this is also true of most traditional religions. I have known a variety of thoughtful and sincere religious people over the years. They have studied extensively and deeply engaged with the human meaning of the words. But I've also met a lot of very shallowly religious people, either because they haven't bothered or because they work energetically to maintain a narrow take because it's socially or economically useful to them. And of course there's an intersection in what I've heard called the "Supply Side Jesus" view.
      • mixmastamyk 2y ago
        You haven't demonstrated anything here. One would think in four paragraphs you'd be motivated to give > 0 details or reasoning. And no, political propaganda doesn't count.
        • Dylan16807 2y ago
          There were some examples up above. Also those "four paragraphs" are only five sentences total. It could easily be a single paragraph. And there's nothing political in there that I can see.
  • Animats 2y ago
    > The notion that markets can drive efficiency is a valuable insight. But people for whom Econ 101 acts as a religion have a really hard time noticing when that effect gets swamped. US businesses, though, do not. The desired state is monopoly, or, failing that, oligopoly with three or less major players. The US is there in cellular communications, web search, banking, drugstores, social networks, movies... "Competition is for losers" - Thiel.
    • creer 2y ago
      > "Competition is for losers" - Thiel. This quote is great but is not a call for building inefficient businesses. An inefficient business invites competition (which is for losers). An equally nice saying is "your margin is my opportunity".
      • palata 2y ago
        > An inefficient business invites competition (which is for losers) Unless you reach the point where you have a monopoly and it's impossible to compete. At this point, you can become inefficient and still keep your monopoly. For a very long time, at least. And this is something we observe in software.
        • creer 2y ago
          Yeah and that's mostly nonsense (but expedient). It's hard to compete with any large industry and still their inefficiency is your opportunity. See also Uber and friends against taxis (both impossible and illegal), SpaceX against Team USA (preposterous), everyone else against AOL (okay, that one was easy), Oracle (who?)... For one example, it's hard to compete against Google's core businesses but it's not like most here wouldn't be glad to find alternatives, any alternatives... Wait, alternative to what? The browser has clear dominance but that's not even Google's core business. Youtube is pretty dominant - but even then Facebook and Tik-tok beg to differ. I'm not saying that "competition is for losers" is wrong. It's an excellent objective, to carve yourself a (large, comfortable) niche where you are the no-brainer solution. But it's no license to fall asleep.
  • mhh__ 2y ago
    There being a gravity towards efficiency does not mean that everything is equally spaced.
  • Aunche 2y ago
    > It can be helpful to think of the Econ 101/homo economicus view of the world as something more akin to a secular religion. I find it much more common for people to dismiss Econ 101 principles religiously (e.g. less strict zoning will just create more luxury apartments that will actually make housing more expensive; demand subsidies to college education, an inelastic good, will make it more affordable).
    • wpietri 2y ago
      That just sounds like "stubbornly" to me. People are often stubbornly wrong (or right), but in your examples I don't see anything that would make me call it religious in the sense of the comment you're replying to. Which, to be clear, is a set of given notions that they use to make sense of the world.
    • lmm 2y ago
      > I find it much more common for people to dismiss Econ 101 principles religiously (e.g. less strict zoning will just create more luxury apartments that will actually make housing more expensive; demand subsidies to college education, an inelastic good, will make it more affordable). I don't think any of that's religious. People believe subsidizing college education will make it cheaper because of common sense and lived experience of short-term effects (increasing subsidy to something generally does make it cheaper in the immediate), and people believe relaxing zoning will make housing more expensive because they see higher prices in places that have relaxed zoning than in neighbouring places that haven't.
• markus_zhang 2y ago
  Yeah, there are counter examples everywhere. Actually I think they are way more than the positive examples (like SpaceX), so the world is definitely very, very inefficient. This can be felt by software engineers more acutely because we move fast and hate bureaucracies but sadly humans have to install bureaucracy for itself.
  • actionfromafar 2y ago
    SpaceX is basically a monopoly at this point. They defined a new kind of market and is the only one serving it.
    • mrkstu 2y ago
      SpaceX is interesting in that the 'market' is 'Elon wants to go to Mars.' The side effect of that market is that in order to go to Mars and colonize it, you need transformatively massive, instant, and cheap access to space for near infinite tonnage. Which goes against the previous mantra of the industry- expensive, custom, and irregular. The new 'form' is impossible for the old 'form' to match, hence a monopoly. But since the new form is so cheap and capable, everybody wins, except the old vendors (and the politicians they fund.)
    • markus_zhang 2y ago
      Yeah, they were pretty efficient so they were rewarded with monopoly. Now maybe they will become slower and slower over time.
  • ponow 2y ago
    Let's not valorize zero profits. Be suspect of high rates of profit. Why invest if there's no profit?
    • pas 2y ago
      the Amazon and Tesla model. lots of investors approve of it.
• swayvil 2y ago
  Theories are marketed too.
• arcbyte 2y ago
  Think about what it means to be a major inefficiency. There's going to be some level of friction in the market that competitors must overcome to gain ground on you. If you're a factory, the friction is the cost of the factory plus the opportunity cost of the money used to build it. So any inefficiency less than that is effectively a safe level of inefficiency. Roughly. We might be developers onsode large corporations witnessing insane amounts of inefficiency, but what are the costs of that next to its actual effect on the business in terms of its ability to fight competitors? Usually relatively small.
  • nitwit005 2y ago
    You can look around and see vast gulfs in income or profit per employee in some industries. Sometimes it's hard to explain, except as them being inefficient.
• ks2048 2y ago
  Religious dogma says X and you observe not-X. It’s easier to build up elaborate theories to explain your observation than to question your dogma (see epicycles, politics, etc)
• ooterness 2y ago
  Relevant joke: Two economists are walking down the street. One of them sees a hundred dollar bill on the sidewalk. Just before he picks it up, his colleague says, "There's no money there. If there was, someone else would have picked it up already." Both agree this is the only rational conclusion and walk away.
  • lupire 2y ago
    This is usually the correct conclusion: https://m.youtube.com/watch?v=oqXe4WVnAz4 https://m.youtube.com/watch?v=oqXe4WVnAz4
    • creer 2y ago
      "Usually" is famous last words in investing - hopefully your rationale goes a little deeper. Doesn't need to be all that deep, just a little deeper than that crowd.
    • zanellato19 2y ago
      _Usually_ the correct conclusion? Is it more common for pranks to exist than for money to have dropped on the street? C'mon.
• danielmarkbruce 2y ago
  It's easy to see the bad stuff. The good stuff just disappears into the background. So, it's probably mostly true that major inefficiencies in products/services get arbed away. It's sort of like the efficient market hypothesis in the stock market - spend enough time in it and you'll see the vast majority of the time the vast majority of stocks are not mispriced to any meaningful level. But it stands out like crazy when you see one and you remember it.
• wat10000 2y ago
  It’s true to an extent, you just need a high threshold for “major.” First, you have to remember to adjust for company size. You might see some obvious inefficiency that costs millions of dollars, but when the company has twelve figures in annual revenue, that’s insignificant. We all know (probably work at) some company that tries to save money by skimping on hardware for their developers. Some simple upgrades would probably pay for themselves in a few weeks in increased productivity. But what’s the cost, maybe 10% in developer productivity? That’s a lot, but it’s probably not close to make-or-break. It’s definitely true at the extreme, and it’s a major difference between government programs and private enterprise: a business can’t go on losing money forever. In less extreme situations, it’ll be true when the cost of the inefficiency exceeds the company’s moat. Oracle can afford to be tremendously inefficient since they have a certain segment of the enterprise database market so locked up. But if they push it too far, they’ll get eaten alive by some upstart.
• demosthanos 2y ago
  Efficient markets enforce efficiency. The trouble is that purely efficient markets are very much a spherical cow—they're useful for modeling reality in some simple simulations, but they miss an awful lot of detail and that can lead to very bad conclusions if you take them too seriously.
  • ericjmorey 2y ago
    This goes along with the common advice that all models are wrong, but some are useful.
• Karellen 2y ago
  I think that most of the people arguing the position do so in bad faith. They know it's an oversimplification to the point of absurdity, but they want to bog their opponents down in explaining why it's an absurdity, and/or catch them in a minor lack of rigor which can be used to refute every other point they've made, and/or be able to retort with red-baiting along the lines of "why don't you believe markets work? Are you a commie?" It's about controlling the topic of conversation, rather than coming to a mutual understanding about the way the world works.
• thayne 2y ago
  It comes from an economic theory. The problem is that people who say that kind of thing ignore one of the basic assumptions of that theory: that all actors have all the necessary information to make the best choice (and also that they act "rationally"). The problem is that it is very rarely possible to obtain that information, and even if it is possible it might take a lot of time and effort.
• fny 2y ago
  I feel the same about the clowns who point to the stock market as some well-oiled capital allocation machine.
• mhh__ 2y ago
  It's not a bad assumption. If you buy a bond, it's probably pretty close to it's fair value in large part because my colleagues and I, and our competitors make sure it stays that way.
• creer 2y ago
  Markets drive efficiency but there is no major force that makes the process fast. All the way to the process taking several lifetimes and so it's one dimension of human-scale investing or competition but just as iffy as the rest. So you see plenty of people trying to nudge the process, which is not a bad idea. For example build a file, short, publish and advertise the file.
• llm_trw 2y ago
  To quote a made up quote about a famous made up general: The 95% inefficient army crushes the 97% inefficient army. The market isn't about being efficient, it's about being an epsilon more efficient than your competitors. Or to quote a friend who works at big tech: If only I could get my team of three hundred to be as productive as my first team of three.
• sota_pop 2y ago
  While I haven’t worked at “the big guys”, I don’t find the statement false at face value. Rather (as you point out) perhaps a bit over simplified. Furthermore, it might be better to say “fair markets demonstrating healthy competition encourage efficiency.” But even in skewed markets, i.e. those with monopolies or heavily entrenched participants, the big guys may have inefficient operations scattered throughout, but can utilize their size to distribute those inefficiencies across other areas where they have above average efficiency. (Orgs like Amazon have perfected this practice). However, I’d argue the original quote is still true at face value, if the net sum of all your practices is in the red (financially) then the company can’t survive forever (although the company decay time-scale may seem long WRT one’s perspective).
• jayd16 2y ago
  "*Major" inefficiency is doing a lot of work there. If something that can clearly be improved upon, the market should be able to fill the hole. If its just the usual inefficiencies of day to day humanity, that exists in some form or another at every company and most likely won't be solved without a paradigm shift (like automation or a major process change). There's also things like barrier to entry and sticky economic forces that means small inefficiencies are not enough to force change.