Does Capitalism Truly Reduce Poverty and Increase Wealth for All?

[polyb]

Cosma Shalizi has some stuff in his archives in that direction. Here is his site:

http://www.cscs.umich.edu/~crshalizi/weblog/

WOW! Thanks selfAdjoint, a blogger right up my own wacky alley! I would like to do my graduate studies in complexsystems and Cosma seems like the kind of people I would like to study/work with. It is going to take me a while to find his stuff on game/graph and economics though. Once again, thanks!

 

[selfAdjoint]

Hope you can study with him; he's looking for work, as you will find if you study his site. All my best wishes for you; I think complex systems are the secret of a lot of what we need.

 

[Aquamarine]

Those thinking that capitalism most lead to a harmful oligopoly should read this thread. Skip to my last posting if in hurry. Read for example the history of why the Sherman act was created:
https://www.physicsforums.com/showthread.php?t=47769&page=5&pp=15

That there is a oligopoly in many markets is not an argument in itself. That reflects that fact that in those market that is the best structure, for example markets requiring very large investments cannot have many small competitors. Those arguing otherwise must show that oligopoly is more harmful than some regulated alternative, not that it exists in some cases.

There are those who for various reasons have less ability and may not be able to compete. But they would have those difficulties in any system and they must be supported by the others. That is charity, no matter if it is done by the state or individuals. And as I have pointed out in this article before, why cannot charity have competition and efficiency like other sectors of society?

Regarding medicine, it is no different than any other market. The demand is endless, for example it would be good if all people could have an complete body MIR scan and interpretation by the very best radiologist every year. But since that is not possible, the free market is the best way to organize the limited resources available.

Regarding the tennis shoe example, firstly there should be the possibility to sue for things like false advertisement or malpractice, secondly competition is not done by one individual but by many. And people are learning from the mistakes and experiences of others. This can be a market in itself, like magazines doing reviews of computer games, cars or various household devices.

There are of course problems in capitalism that may require limitations. One very interesting theoretical one is "The tragedy of the anticommons". But I think it is actually an argument that there are some property rights laws that are better than others, not an argument against property rights in itself. That problem can be solved by competition between many small states that have somewhat different laws.
http://www.sciencemag.org/cgi/content/full/280/5364/698

Other proposed problems (often imaginary or having good if less than perfect solutions or with no proof that there exists better solutions):
http://en.wikipedia.org/wiki/Market_failure

 

[selfAdjoint]

That there is a oligopoly in many markets is not an argument in itself. That reflects that fact that in those market that is the best structure, for example markets requiring very large investments cannot have many small competitors. Those arguing otherwise must show that oligopoly is more harmful than some regulated alternative, not that it exists in some cases.

You can say that, but it destroys the thing that the market is valued for: its invisible hand in setting prices. Oligopolies work by administering profits, and contrary to economics 101, when they don't sell enough product, they may not lower the price but raise it, to make their profit constant with the lower sales. Ford and GM have actually done this in the past. This behavior is known as inelastic prices, and the prices of an awful lot of what we buy in the US are inelsatic. What then becomes of the free market? What becomes of equilibrium economics?

 

[Aquamarine]

You can say that, but it destroys the thing that the market is valued for: its invisible hand in setting prices. Oligopolies work by administering profits, and contrary to economics 101, when they don't sell enough product, they may not lower the price but raise it, to make their profit constant with the lower sales. Ford and GM have actually done this in the past. This behavior is known as inelastic prices, and the prices of an awful lot of what we buy in the US are inelsatic. What then becomes of the free market? What becomes of equilibrium economics?

No, oligopoly means few participants, not that they are not competing. Since they are competing, they cannot raise their prices above their competitors. They can of course try to form an agreement with each other limiting competition, but in practice they will usually try to cheat on each other, breaking the agreement. And outsider will see the large profit potential and will enter the market as new competitors. In the end those companies keeping the agreement will be the losers, with their market share taken by those cheating and new competitors.

 

[russ_watters]

AKA - price fixing, which is not a market force (its a way to circumvent market forces) and is also illegal. The airlines have done this as well.

 

[Aquamarine]

AKA - price fixing, which is not a market force (its a way to circumvent market forces) and is also illegal. The airlines have done this as well.

Yes, but some argue that it not necessary to regulate that. Cheating and new competition will in the end stop price fixing by itself. The regulations have a cost in oversight and in bringing cases into the justice system. And more importantly, that in many cases the regulations have been used by weaker competitors to restrict a stronger competitor that produced superior goods to lower prices.

 

[Burnsys]

here in argentina in 2001 we had a mayor economic crisis.. 20% of the people went below the poverty line, i guess that means less demand. but oil prices rised, telephone, electricity, food, everything rised when lees people have the money to buy them.

oil corporations (Repsol, shell, exoon) in argentina always rise the prices togheter,they never fight each other, and when a new small company emerge, they buy it... they leave us no choise but to buy OUR oil extracted from OUR soil to them.
Btw, they have polluted our rivers too...

 

[Aquamarine]

here in argentina in 2001 we had a mayor economic crisis.. 20% of the people went below the poverty line, i guess that means less demand. but oil prices rised, telephone, electricity, food, everything rised when lees people have the money to buy them.

oil corporations (Repsol, shell, exoon) in argentina always rise the prices togheter,they never fight each other, and when a new small company emerge, they buy it... they leave us no choise but to buy OUR oil extracted from OUR soil to them.
Btw, they have polluted our rivers too...

Regarding Argentina and energy:
http://www.mises.org/fullstory.aspx?Id=1518

And we have discussed Argentina before in this thread, including the rivers.

 

[selfAdjoint]

No, oligopoly means few participants, not that they are not competing. Since they are competing, they cannot raise their prices above their competitors. They can of course try to form an agreement with each other limiting competition, but in practice they will usually try to cheat on each other, breaking the agreement. And outsider will see the large profit potential and will enter the market as new competitors. In the end those companies keeping the agreement will be the losers, with their market share taken by those cheating and new competitors.

That's just idealistic dreaming. It is in the interest of the CEO of any of these oligarchs to achieve the maximum profit for a given cost. Competition militates agains that, by driving down prices. Cooperation is more cost effective in many instances, and cooperation under the table is how they do it. Even Adam Smith understood that; he specifically stated that his invisible hand only worked if there were so many producers that they couldn't effectively collude.

 

[Aquamarine]

That's just idealistic dreaming. It is in the interest of the CEO of any of these oligarchs to achieve the maximum profit for a given cost. Competition militates agains that, by driving down prices. Cooperation is more cost effective in many instances, and cooperation under the table is how they do it. Even Adam Smith understood that; he specifically stated that his invisible hand only worked if there were so many producers that they couldn't effectively collude.

Yes, if they all keep the agreement, everybody gain a little. But those who cheat gain much more by taking market share from the others. A classic prisoner's dilemma. And do not forget the possibility of new outside competitors who see the huge profit potential.

But that is just theory. Let us instead look at the real world.

Yet the actual history of antitrust enforcement has never warranted this widespread academic and political support. There is little in the classic antitrust cases to convince anyone -- much less an economist -- that monopoly power is a free-market problem, or that the firms indicted (and convicted) under the antitrust laws were damaging the public interest. Indeed, the cases often demonstrate that the firms involved were reducing costs and prices and engaging in an intensely competitive process, and that the antitrust laws -- whatever their alleged intent -- were employed to restrict and restrain the competition process.[4]

Do read on in the original article:
http://www.cato.org/pubs/pas/pa021.html
http://www.econlib.org/library/Enc/Monopoly.html

 

[FZ+]

I'm curious how you are going to solve the public good/externality problem with a pure capitalist society.

 

[Aquamarine]

I'm curious how you are going to solve the public good/externality problem with a pure capitalist society.

The classic example is a lighthouse that could be built if many merchants contributes resources. But may not be built since many wait for the others to build it without wanting to contribute themselves. The point being that everyone can use the lighthouse, even those not contributing. This would be an argument for central planning of society, forcing everyone to contribute.

There are arguments against this. One being that if one large merchant or a group of large merchant gain from building the the lighthouse, they will build it even if many of the small merchants do not contribute. That everybody that gain something must contribute if usually false, in the real world there are usually many who gain without contributing themselves. Another example, if there is a new corporation creating employment in a town, the town stores will gain by the increased wealth without contributing themselves to starting the new corporation.

Opponents would then assume a lighthouse not possible to build if not all or almost all contribute. But that means a lighthouse that takes all of the resources available in society to build. And it is usually very risky to invest everything available in a single project. It it usually not possible to predict exactly which project will succeed in the future, meaning that it usually better to have many project and let competition decide which one was the best in the real world. That is one of the fatal weaknesses of central planning, it requires perfect knowledge of the future. Regarding the lighthouse example, some of those not wanting to contribute may have a potentially better idea, like that of transporting the goods by a new land transportation system or have another system for navigating by night. But if he is forced to contribute everything he has to the lighthouse, he can never develop this potentially better idea. And even if he have some resources left, his potentially less expensive idea may not now be interesting to build since the more expensive lighthouse will be built anyhow by force.

 

[Aquamarine]

Regarding oligopolies, there is in fact at least one major problem. That is that they may be very effective in organizing lobby groups. They may have great difficulty in keeping an agreement about prize fixing due to the prisoner's dilemma. It often very hard for other to know when cheating occurs when large buyers ask for offers, when giving reduced prized on other goods in compensation for buying, when giving perks, when giving better support or when giving outright bribes to persons responsible for doing large wholesale purchases.

But regarding political lobbying, there is little conflict of interest and it is much easier for the others to know if someone is not contributing. So oligopolies may be very good for asking the government for regulations and subsidiaries for their industry. Those with opposing interests, like consumers and taxpayers, are so many that they have difficulty in organizing. And every special interest group cost them little, it is only when there are many that the taxpayers and consumers lose much.

This is probably one the main causes of the undermining of capitalism in the western world today.

 

[Aquamarine]

Beguiling curves of the Swedish model
http://www.washingtontimes.com/commentary/20040425-102740-9436r.htm

The Mystery of Capital
https://www.physicsforums.com/showthread.php?t=58265

Capitalism and Corruption:
http://alpha.montclair.edu/~lebelp/EconFreedomandCorruption.html

 

[CharlesP]

Do read on in the original article:
http://www.cato.org/pubs/pas/pa021.html
http://www.econlib.org/library/Enc/Monopoly.html

If you folks don't know about the Cato Institute, Heritage foundation and Discovery Institute, well it is an education. These outfits and many more are funded by industry to the tune of a hundred million a year each roughly. They have the staff and expertise to wage an effective public relations war against science and get the legislation that makes the most profit. They have even corrupted the study of economics itself with the "Trickle Down Theory" (invented by public relations operatives).

 

[Aquamarine]

The Discovery institute advocates conservative Christian views. Not libertarian economics.

Regarding the Heritage foundation and Cato institute, I would suggest attacking their arguments instead of their character. Their budgets are 30 and 15 million dollars.

 

[CharlesP]

Ward Churchill has recently made news. His writing is on this list which can introduce readers to a point of view not well understood in the USA. It is worth reading:
http://www.kersplebedeb.com/mystuff/s11.html

 

[X-43D]

The ideal social system is when there is no money or property at all. When populations were a few, humans traded goods and services but not for money profit.

 

[Smurf]

The point of wether capitalism increases prosperity or not is completely irrelevant because capitalism is inherently unethical because it imposes on the individual's freedom. Prosperity should be secondary to liberty.

 

[X-43D]

Freedom from economic authorities is also ideal for survival in nature.

 

[russ_watters]

The ideal social system is when there is no money or property at all. When populations were a few, humans traded goods and services but not for money profit.

Why is that ideal?

 

[russ_watters]

The point of wether capitalism increases prosperity or not is completely irrelevant because capitalism is inherently unethical because it imposes on the individual's freedom. Prosperity should be secondary to liberty.

How does capitalism impose on freedom and what is a better alternative?

 

[selfAdjoint]

How does capitalism impose on freedom and what is a better alternative?

The classic marxist answer is that the putative free choice between an employer and a prospective hiree is not a free one because it is not symmetric. Few employers who control all the jobs, and many people who, from no fault of their own but just from the capitalist organization of society, have to sell their labor power.

Fantasies about what all those poor people COULD do, if only they weren't themselves but the fantasiast, are not proper responses to this.

Smurf may have a different answer from an anarchist perspective.

 

[russ_watters]

Fantasies about what all those poor people COULD do, if only they weren't themselves but the fantasiast, are not proper responses to this.

You mean like labor unions...?

Smurf may have a different answer from an anarchist perspective.

Yes, I'd really like to hear Smurf's explanation.

And in any case, though you mentioned Marxism, you didn't explain why it would be better.

 

[nanorobot]

Communism is still better than capitalism. If resources were to be shared equally around the world, perhaps we all would have been relativily poor but thus equal.

Sharing is the only way to stop poverty. There is enough food to feed everyone. The problem is that western nations have made money profit their god.

 

[Automagman]

Communism is still better than capitalism. If resources were to be shared equally around the world, perhaps we all would have been relativily poor but thus equal.
Sharing is the only way to stop poverty. There is enough food to feed everyone. The problem is that western nations have made money profit their god.

Oh my god. Before i get started on this one i have to ask. Are you serious or is this just a joke?

 

[Wishbone]

Communism is still better than capitalism. If resources were to be shared equally around the world, perhaps we all would have been relativily poor but thus equal.
Sharing is the only way to stop poverty. There is enough food to feed everyone. The problem is that western nations have made money profit their god.

absoultley rediculous. Communism is not better than capitalism, as can be seen by any communist system. We all know communism doesn't work for many reasons. Competition, the root of capitalism is the true root of human advancement.That is not the problem, take for example what went on in mogadishu, you will see that although the help was coming from the UN, which right now is the lousiest organization on Earth, it was these african day-to-day dictatorships and the root of problem in africa...

 

[Wishbone]

The point of wether capitalism increases prosperity or not is completely irrelevant because capitalism is inherently unethical because it imposes on the individual's freedom. Prosperity should be secondary to liberty.

Wrong, learn the definition to capitalism. it infringes on no rights whatsoever... Yay pretend economist trolls FTW! Stop posting. Prosperity and liberty go hand in hand with capitalism.

 

[selfAdjoint]

Wrong, learn the definition to capitalism. it infringes on no rights whatsoever... Yay pretend economist trolls FTW! Stop posting. Prosperity and liberty go hand in hand with capitalism.

The practical situation that the majority have to sell their labor power at a disadvantage because of the asymmetrical transaction between many would-be laborers and few rich employers is in fact an unjust restriction of the laborer's right to a fair deal.

This is not economics it's social justice. Economics, as you have apparently studied it, just assumes the capitalist system and then describes (rather poorly) how it works.