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I don't agree that the free market ever produces a pareto-efficient solution. If all market participants act selfishly in an unconstrained market you get a nash

by Joeri 12y ago

I don't agree that the free market ever produces a pareto-efficient solution. If all market participants act selfishly in an unconstrained market you get a nash equilibrium because there are two avoidable downsides which the fully free market will naturally produce: the tragedy of the commons, and the concentration of resources. The tragedy of the commons can only be avoided by changing the rules of the market through an external force (lawmaking) so participants must act altruistically to act selfishly. The concentration of resources is typically avoided through wealth redistribution, another mechanism of mandatory altruism. So, the thing is, the fully free market is only pareto-optimal if you narrowly look at the market, but if you look at the world as a whole, it is a nash equilibrium, unless you force market entrants to act altruistically (through bribe or threat).

waps 12y ago
Note that "perfect" capitalism, for obvious reasons (amongst others the ones you mention) does not have a commons. And yes, there are "natural" commons, like the athmosphere, but those are unsolved problems. > The concentration of resources is typically avoided through wealth redistribution, another mechanism of mandatory altruism. Again if this works, it's not altruism for the same reason that Ford's actions weren't altruistic. They were a business investment that would force others to make the same investment, and he was gambling that people would invest it in buying his cars. He was right. This is the same thing, only at a country level. That's assuming it works. While the political advantages of directly promising large amounts of people money are undeniable when it comes right down to it, people work because they're forced to work to an extent. That, sadly, means you can't take that away. You can probably safely take it away for a while, even a generation I think. But ...
pdonis 12y ago
> The tragedy of the commons can only be avoided by changing the rules of the market through an external force (lawmaking) so participants must act altruistically to act selfishly. You're assuming that the external force will somehow make the "right" rules, the ones that actually fix the problems with the market and force participants to find Pareto optimal outcomes. Experience suggests that this is not the case; what actually happens is that the external force that makes the rules gets co-opted by some of the market participants, and you end up with worse outcomes (i.e., further from being Pareto optimal) because the concentration of power in the external force (the government) makes it easier to corrupt. Look up "regulatory capture". > The concentration of resources is typically avoided through wealth redistribution, another mechanism of mandatory altruism. Again, you're assuming that whoever redistributes the wealth will do so in a way that gets closer to a Pareto optimal outcome. Experience suggests that this is not the case; what actually happens is that the rules for redistribution get co-opted by some of the market participants, so you end up with a worse distribution of wealth. When the economy tanked in 2008, wealth got redistributed, by the government, to the banks that had caused the collapse, not to the people who lost their homes and their retirement savings.
- waps 12y ago
  Well add to that that you're assuming that "right" rules that are pareto efficient 1) exist 2) are significantly different from capitalism All non-trivial pareto efficient rulesets I've ever seen involve some form of revenue sharing between both parties. Given what pareto-efficiency is, I think this may be a general property. Obviously somehow both parties need to be bound together for pareto efficiency to happen. Money's one way to do it, and I don't know that many others.

by Joeri 12y ago

waps 12y ago

Note that "perfect" capitalism, for obvious reasons (amongst others the ones you mention) does not have a commons. And yes, there are "natural" commons, like the athmosphere, but those are unsolved problems. > The concentration of resources is typically avoided through wealth redistribution, another mechanism of mandatory altruism. Again if this works, it's not altruism for the same reason that Ford's actions weren't altruistic. They were a business investment that would force others to make the same investment, and he was gambling that people would invest it in buying his cars. He was right. This is the same thing, only at a country level. That's assuming it works. While the political advantages of directly promising large amounts of people money are undeniable when it comes right down to it, people work because they're forced to work to an extent. That, sadly, means you can't take that away. You can probably safely take it away for a while, even a generation I think. But ...

pdonis 12y ago

> The tragedy of the commons can only be avoided by changing the rules of the market through an external force (lawmaking) so participants must act altruistically to act selfishly. You're assuming that the external force will somehow make the "right" rules, the ones that actually fix the problems with the market and force participants to find Pareto optimal outcomes. Experience suggests that this is not the case; what actually happens is that the external force that makes the rules gets co-opted by some of the market participants, and you end up with worse outcomes (i.e., further from being Pareto optimal) because the concentration of power in the external force (the government) makes it easier to corrupt. Look up "regulatory capture". > The concentration of resources is typically avoided through wealth redistribution, another mechanism of mandatory altruism. Again, you're assuming that whoever redistributes the wealth will do so in a way that gets closer to a Pareto optimal outcome. Experience suggests that this is not the case; what actually happens is that the rules for redistribution get co-opted by some of the market participants, so you end up with a worse distribution of wealth. When the economy tanked in 2008, wealth got redistributed, by the government, to the banks that had caused the collapse, not to the people who lost their homes and their retirement savings.

waps 12y ago
Well add to that that you're assuming that "right" rules that are pareto efficient 1) exist 2) are significantly different from capitalism All non-trivial pareto efficient rulesets I've ever seen involve some form of revenue sharing between both parties. Given what pareto-efficiency is, I think this may be a general property. Obviously somehow both parties need to be bound together for pareto efficiency to happen. Money's one way to do it, and I don't know that many others.