3 ms·

How to fix capitalism

17 points by smokinn 17y ago

ZachPruckowski 17y ago
Article in one sentence: You can fix capitalism by moving the real world closer to the theoretical capitalism of micro-econ textbooks. One of the frustrations I have with politics and economics is the absolute refusal of many people to actually look at how our economic system diverges from capitalism. We hear so often about how theoretical capitalism's mechanisms fix things, but no one ever takes into consideration how well theoretical capitalism is implemented in the real world.
- camccann 17y ago
  I suspect what you're thinking is a "perfect market", i.e., an optimally competitive market with several (implausible) characteristics, such as no barriers to entry, all participants being fully informed, A good rule of thumb to keep in mind is that, from a "competition is the ideal" perspective, profit margins represent market inefficiency. In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth their time, because otherwise someone else will come in and undercut them. A simple, relatively free market is sometimes a passable approximation of a perfect market, but not always.
  - randallsquared 17y ago
    In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth their time, because otherwise someone else will come in and undercut them. While that's true, it's also the case that the "absolute minimum" rises as people in a society get wealthier, and markets are the fastest method known for generating wealthy societies. The minimum amount for which most people are willing to work is absurdly high by the standards of all but our own very recent past.
  - cperciva 17y ago
    In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth their time No. In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth someone else's time. If I can make widgets twice as fast as everyone else, I can make lots of money.
    - inerte 17y ago
      If the widgets were the same.
  - deleted 17y ago
    [deleted]
  - smokinn 17y ago
    I don't believe that profit margins represent market efficiencies. In a perfect market, profit margins represent value perceived. If your product will save me 10$ but costs you 2$ to produce, charging 5$ is beneficial to both of us. The problem we have now is that the current large companies believe that they're entitled to receiving the same profits they've had in the past without innovating or even adapting to the future. If your value proposition is only worth 2$ to me in the future, why should the government come in and tax all companies in my industry because I don't think you're worth paying anymore? I suppose that's a simplistic view but then again I've always abhorred working at large companies because of the huge number of people I'd see around me contributing very little. I think small companies will very often beat big ones on both quality AND cost because of the lack of bureaucratic overhead. The overhead though is exactly how the incumbents protect themselves from the newer entrants, entrapping government to create barriers to protect themselves.
    - camccann 17y ago
      I don't believe that profit margins represent market efficiencies. In a perfect market, profit margins represent value perceived. If your product will save me 10$ but costs you 2$ to produce, charging 5$ is beneficial to both of us. Except that in a maximally competitive market, someone else would quickly come along and offer to sell you an equivalent product for $4, and then someone else comes along, etc. Competition always pushes prices towards the cost of production. Of course, cost of production varies as well. In an idealized sense, the cost to produce a product is proportional to the amount produced (due to scarcity), whereas everyone in the market has some price limit below which they would want to buy the product. At a given price point, if the cost of producing an additional unit is below the highest price limit among people who wouldn't buy the product otherwise, it's a net gain for me to make the product and sell it to the person with that limit. Of course, at any price point, there's some people who want the product but not enough to pay that price, and some people who would happily pay more; but that's just the system working as intended. The end result (in theory) is that every product eventually settles at a price point reflecting optimal resource allocation to production, plus some small profit margin to make the time spent on the transaction worthwhile. In practice, it's... a bit more complicated.
csuper 17y ago
Well I didn't really understand that article, but I know how to fix capitalism. Though you're going have to pay me to find out.
smokinn 17y ago
I submitted this article because there are lots of issues pointed out that I feel very strongly in favor of. (For example, the patent system being, sum total, a net harm). The only problem with it that I have is that it feels kind of half baked. There are so many ideas expressed that it almost seems like it should've been explained in an entire book rather than a blog post. The reason I submitted it is because I thought and hoped it would generate some very interesting discussion here.
- mattmaroon 17y ago
  It's very naive. There's no telling what breaking up any company that achieves 5% to 10% market share would do to capitalism, but it probably wouldn't be good. Would you bother trying to build the next Google if you knew it was just going to be split into 15 pieces if you succeeded? I would not. It also says nothing two of the biggest problems our brand of capitalism faces, which are perverse incentives and lack of transparency, both of which were leading causes of the recent meltdown and our current health care woes.
  - baguasquirrel 17y ago
    And good luck fighting network effects. How many Facebooks and LinkedIns do we need? While we could use different social tools, what value is there in more Facebook look-alikes resulting from a breakup? The value of these social tools derives from their network effects.
    - m_eiman 17y ago
      For the specific example of Facebook, it'd quite feasible to have a lot of different services that shared data as needed. It's not the name of the front end that people want, it's the social interaction.
      - baguasquirrel 17y ago
        That's like saying that we should all share capital. Data is the new capital, and businesses will live and die by how they manage their data and extract value from it.
tkahn6 17y ago
"An exception should be made for natural monopolies, but the price of that should be tight regulation, nationalisation, or (best of all) mutualisation." Tight regulation and nationalization are rewards for growing a "natural" monopoly? This doesn't make any sense. That's not capitalism, it's fascism. Capitalists would argue that complete lack of government regulation is how you "fix" capitalism. Almost every point made in this blog post is, at a fundamental level, diametrically opposed to what capitalism is as an economic theory and ideology. The author had drafted a manifesto for an aggressively mixed economy which is ideologically identical to what we have in America today.
- dtf 17y ago
  The author is British, and I think some of these points make sense in the context of the UK. You should see how screwed our privatized rail industry is - itself a kind of "natural monopoly". True capitalism would have the government stop subsidizing them; but then we wouldn't have any trains, and good people wouldn't be able to get to work. Too big to fail again, I'm afraid...
  - tkahn6 17y ago
    I interpreted the word "natural" to mean the monopoly was achieved and exists without government subsidy or special privileged. Capitalism says that the only time monopolies are ever "destructive" or have a "snowball" effect where they can't be stopped, is when the government gives them special privileges (i.e. no one else can build a railroad, no one else can set up a telecom company). If the government puts up road blocks for new companies to enter a line of business, the market isn't truly free and the mega corporations are free to charge whatever they want and do whatever they want. It would be impossible for there to be a "startup" telecom company or "startup" railroad company. Interestingly enough, the the railroad companies are the most often cited example what happens when the government messes with the free market. The idea is that because the government has already messed up the railroad market it has to continually subsidize the railroad companies or, you're right, "good people wouldn't be able to get to work". Regulation and subsidies beget more regulation and subsidies.

17 points by smokinn 17y ago

Article in one sentence: You can fix capitalism by moving the real world closer to the theoretical capitalism of micro-econ textbooks. One of the frustrations I have with politics and economics is the absolute refusal of many people to actually look at how our economic system diverges from capitalism. We hear so often about how theoretical capitalism's mechanisms fix things, but no one ever takes into consideration how well theoretical capitalism is implemented in the real world.

camccann 17y ago
I suspect what you're thinking is a "perfect market", i.e., an optimally competitive market with several (implausible) characteristics, such as no barriers to entry, all participants being fully informed, A good rule of thumb to keep in mind is that, from a "competition is the ideal" perspective, profit margins represent market inefficiency. In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth their time, because otherwise someone else will come in and undercut them. A simple, relatively free market is sometimes a passable approximation of a perfect market, but not always.
- randallsquared 17y ago
  In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth their time, because otherwise someone else will come in and undercut them. While that's true, it's also the case that the "absolute minimum" rises as people in a society get wealthier, and markets are the fastest method known for generating wealthy societies. The minimum amount for which most people are willing to work is absurdly high by the standards of all but our own very recent past.
- cperciva 17y ago
  In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth their time No. In a maximally efficient market, no one can make more money than the absolute minimum required to make participating worth someone else's time. If I can make widgets twice as fast as everyone else, I can make lots of money.
  - inerte 17y ago
    If the widgets were the same.
- deleted 17y ago
  [deleted]
- smokinn 17y ago
  I don't believe that profit margins represent market efficiencies. In a perfect market, profit margins represent value perceived. If your product will save me 10$ but costs you 2$ to produce, charging 5$ is beneficial to both of us. The problem we have now is that the current large companies believe that they're entitled to receiving the same profits they've had in the past without innovating or even adapting to the future. If your value proposition is only worth 2$ to me in the future, why should the government come in and tax all companies in my industry because I don't think you're worth paying anymore? I suppose that's a simplistic view but then again I've always abhorred working at large companies because of the huge number of people I'd see around me contributing very little. I think small companies will very often beat big ones on both quality AND cost because of the lack of bureaucratic overhead. The overhead though is exactly how the incumbents protect themselves from the newer entrants, entrapping government to create barriers to protect themselves.
  - camccann 17y ago
    I don't believe that profit margins represent market efficiencies. In a perfect market, profit margins represent value perceived. If your product will save me 10$ but costs you 2$ to produce, charging 5$ is beneficial to both of us. Except that in a maximally competitive market, someone else would quickly come along and offer to sell you an equivalent product for $4, and then someone else comes along, etc. Competition always pushes prices towards the cost of production. Of course, cost of production varies as well. In an idealized sense, the cost to produce a product is proportional to the amount produced (due to scarcity), whereas everyone in the market has some price limit below which they would want to buy the product. At a given price point, if the cost of producing an additional unit is below the highest price limit among people who wouldn't buy the product otherwise, it's a net gain for me to make the product and sell it to the person with that limit. Of course, at any price point, there's some people who want the product but not enough to pay that price, and some people who would happily pay more; but that's just the system working as intended. The end result (in theory) is that every product eventually settles at a price point reflecting optimal resource allocation to production, plus some small profit margin to make the time spent on the transaction worthwhile. In practice, it's... a bit more complicated.

csuper 17y ago

Well I didn't really understand that article, but I know how to fix capitalism. Though you're going have to pay me to find out.

smokinn 17y ago

I submitted this article because there are lots of issues pointed out that I feel very strongly in favor of. (For example, the patent system being, sum total, a net harm). The only problem with it that I have is that it feels kind of half baked. There are so many ideas expressed that it almost seems like it should've been explained in an entire book rather than a blog post. The reason I submitted it is because I thought and hoped it would generate some very interesting discussion here.

mattmaroon 17y ago
It's very naive. There's no telling what breaking up any company that achieves 5% to 10% market share would do to capitalism, but it probably wouldn't be good. Would you bother trying to build the next Google if you knew it was just going to be split into 15 pieces if you succeeded? I would not. It also says nothing two of the biggest problems our brand of capitalism faces, which are perverse incentives and lack of transparency, both of which were leading causes of the recent meltdown and our current health care woes.
- baguasquirrel 17y ago
  And good luck fighting network effects. How many Facebooks and LinkedIns do we need? While we could use different social tools, what value is there in more Facebook look-alikes resulting from a breakup? The value of these social tools derives from their network effects.
  - m_eiman 17y ago
    For the specific example of Facebook, it'd quite feasible to have a lot of different services that shared data as needed. It's not the name of the front end that people want, it's the social interaction.
    - baguasquirrel 17y ago
      That's like saying that we should all share capital. Data is the new capital, and businesses will live and die by how they manage their data and extract value from it.

tkahn6 17y ago

"An exception should be made for natural monopolies, but the price of that should be tight regulation, nationalisation, or (best of all) mutualisation." Tight regulation and nationalization are rewards for growing a "natural" monopoly? This doesn't make any sense. That's not capitalism, it's fascism. Capitalists would argue that complete lack of government regulation is how you "fix" capitalism. Almost every point made in this blog post is, at a fundamental level, diametrically opposed to what capitalism is as an economic theory and ideology. The author had drafted a manifesto for an aggressively mixed economy which is ideologically identical to what we have in America today.

dtf 17y ago
The author is British, and I think some of these points make sense in the context of the UK. You should see how screwed our privatized rail industry is - itself a kind of "natural monopoly". True capitalism would have the government stop subsidizing them; but then we wouldn't have any trains, and good people wouldn't be able to get to work. Too big to fail again, I'm afraid...
- tkahn6 17y ago
  I interpreted the word "natural" to mean the monopoly was achieved and exists without government subsidy or special privileged. Capitalism says that the only time monopolies are ever "destructive" or have a "snowball" effect where they can't be stopped, is when the government gives them special privileges (i.e. no one else can build a railroad, no one else can set up a telecom company). If the government puts up road blocks for new companies to enter a line of business, the market isn't truly free and the mega corporations are free to charge whatever they want and do whatever they want. It would be impossible for there to be a "startup" telecom company or "startup" railroad company. Interestingly enough, the the railroad companies are the most often cited example what happens when the government messes with the free market. The idea is that because the government has already messed up the railroad market it has to continually subsidize the railroad companies or, you're right, "good people wouldn't be able to get to work". Regulation and subsidies beget more regulation and subsidies.