yeah, as soon as mcCain proposed his plan, and then hillary chimed in with her more of the same i was sitting there saying to myself
i've known that this wouldn't work since the first ten minutes of econ 101
i'm very tired of C students being in charge.
Just a few wee quibbles.
1) Markets will operate without good government or good governance. Or without any government at all. Witness Iraq, Vietnam, Russia, New York City. A functioning market is actually the prerequisite for thugs to become governments.
2) Notice the world around you, there are no stable currencies, there are no base values against which to measure fiat money, yet markets still operate, in places where conch shells, Yap Island Rock Wheels, poke silver dust, are used markets still operate. In places where a handshake has value, markets still operate.
Markets preceeded money.
3) Security is not a prerequisite for markets to operate, the markets in Iraq work just fine as senators McCain and Graham found when they went rug shopping there.
4) Confidence in what one has to sell or in one's skill in selling are necessary.
5) Now if you want to talk about contracts, things where price and quantity are set over time, then you really should not be using a static SD curve in a dynamic setting. GIGO and all that.
Of course eventually enforcement comes down to who has the bigger guns or the bigger gangs ... or who's word is good.
6) Economics is only dismal to folks who find reality is not unreal enough for their fantasy wish worlds. It is the mother science. Now there are some dismal mothers out there, but they mostly work in politics. Politics is always about who can we take the most from with the least resistance and spread it around for our specific benefit.
7) Supply of stuff reacts more slowly over time to price changes than does demand for stuff. If the demand is from a broad base of buyers ( gasoline buyers ) But demanders of stuff are hemmed in too, Again using gasoline as the example. If gas goes from 3.50 to 3.60 a gallon do you cut back your driving by an equivalent %?
In the short run you probably can't, if you are a saver you might save less; if you have no savings you might run up your debt on the plastic or you might substitute hamburger helper for ground chuck and use the difference to make up the gas price increase.. In the long run you might by a more miserly car, get a job with a shorter commute, join a carpool. Nothing dismal here, just the study of how folks set prices and how folks respond to prices.
It's a lovely study; the study of human action.
Now let us look at market failures:
Monopoly: the objective each of us strives for --- to be The One, The Indispensible, to have a lock on the job. To win the Series, each year, ( Damn those Stengel Yanks). Monopoly is the win.
Monopsony: Same thing on the other side of the coin, The US government is one of the monopsonies. Without its monopsony power do you think all the telecoms would have acquiesced to breaking the laws?
Externalities: Yup they exist and can be solved, negotiated, equilibrated.
Public goods: yet to see one.
Asymetrical information: Love it. It's your edge or it's the other parties edge. What you know. It is not a market failure that people know more about some shit than you do and that you know more about some shit than others do. Ebay has done more to remove asymetric pricing information than any other damn nuisance org in the world. If you have a 55 Fender Strat ... mint... what is it worth? Thanks to Ebay and its ilk the asymmetry is gone. Have a stash of rare books? AbeBooks.
In a successful market, the seller wins and the buyer wins and both have a bit of face left after the deal is done. There is wriggle room, haggle room.
As for your take on the McCain/Clinton gas tax holiday. If the govt takes in 10 bill less at the pumphandle, they will just print another 10bill in FRNs. As you point out supply responds slowly so that extra money in the system will just raise prices across the board. Inflation is printing money that has nothing behind it. Some folks might drive more if the tax is dropped, watch the wailing and moaning right before election day when the tax is re-instated. Ooops not gonna happen.
Mostly folks will drive the same as they always do, any extra savings at the pumphandle will go buying inflated food, inflated milk, inflated diapers, inflated credit card minimums.
Thank you for the lessons Evan, as a pathetic wonk who tries to educate my friends and wake them up from the sleep of reason induced by the media, I love having the simple version available to send off to them, and save myself the pain of fashioning an explanation.
And, although I might disagree somewhat on a few points that CK covers {I think we are well on the way to deflation despite the cost of food and gas} I like the thorough list provided by CK and I wish I read more replies by CK.
I think Evan was just trying to keep it simple. After all, he is trying to get a message across to a public {perhaps not the readers of this blog, but definitely persons within their circle}that still believes that one can obtain something for nothing.
I'm forwarding the Dummies version to my circle now.
CK:
Um where to start.
First off, Markets predating money, civilization, government etc. Not quite, except in the other libertarian fantasy land. If you define any mechanism of exchange as a market, this is true. But if you are going to impute the good qualities of markets, (efficient valuation of goods, rapid adaptation to changing conditions, non "zero-sum" outcomes in exchanges).
Anything approaching a market in an economic sense has to have a reasonably fungible currency, a commercial code, and a means of arbitration. While primitive markets can exist in failed states, they can't sustain large business concerns, and are generally dependent on external stable markets as a source of manufactured goods and fungible currency.
And monopolies not being market failures? Seriously! The merits associated with markets are that they are highly adaptive feedback mechanisms for allocating value. If the feedback mechanism is broken, a market is, at best, no better than a command economy to adapt (in many cases worse in that political or popular pressures can influence a command economy).
Markets are often the most effective heuristic for allocating resources, but they do break down when market failure occurs. They are not a religion, and not a form of government.
Also for CK:
An extended quotation I keep around for market trolls:
I think the best way to understand the source of these disagreements is to recognize that there are two genres of economists. I call them "first-best economists" and "second-best economists." Here is my guide to them.
You can tell what kind of an economist someone is by the nature of the response s/he offers when confronted with a policy issue. The gut instinct of the members of the first group is to apply a simple supply-demand framework to the question at hand. In this world, every tax has an economic deadweight loss, every restriction on individual behavior reduces the size of the economic pie, distribution and efficiency can be neatly separated, market failures are presumed non-existent unless proved otherwise (and to be addressed only by the appropriate Pigovian tax or subsidy), people are rational and forward-looking to the first order of approximation, demand curves always slope down (and supply curves up), and general-equilibrium interactions do not overturn partial-equilibrium logic. The First Fundamental Theorem of Welfare Economics is proof that unfettered markets work best. No matter how technical, complex, and full of surprises these economists' own research might be, their take on the issues of the day are driven by a straightforward, almost knee-jerk logic.
Those in the second group are inclined to see all kinds of complications, which make the textbook answers inappropriate. In their world, the economy is full of market imperfections (going well beyond environmental spillovers), distribution and efficiency cannot be neatly separated, people do not always behave rationally and they over-discount the future, some otherwise undesirable policy interventions can generate positive outcomes, and general-equilibrium complications render partial-equilibrium reasoning suspect. The First Fundamental Theorem of Welfare Economics is proof, in view of its long list of prerequisites, that market outcome can be improved by well-designed interventions. Since they have given up on the textbook model, members of this group have an almost-infinite variety of "models" to choose from as they think of public-policy issues.
Anyone who thinks the gas tax holiday is a good idea is intellectually unqualified to run a corner store, let alone any level of government.
What was the name for the system before "Capitalism"?
Before capitalism, the price of a loaf of bread stayed the same for three hundred years.
I'm not convinced that capitalism is good. the theoretical curves only work if no one in your system is dishonest, which in itself is a motivation to be dishonest, since the first one to game the system wins.
So, let's see here...
The majority of the money that's used to build and maintain our roads comes from the gas taxes levied.
Right now many states are having a hard time just maintaining our roads and bridges, much less build new roads or reconstruct the existing ones (which is why you see many states considering creating toll roads/HOT lanes or selling their existing toll roads to the highest bidder [see Chicago Skyway, Pennsylvania Turnpike/I-80 tolling, etc.]).
So, in order to save me a few bucks we're not only going to severely hamstring the maintenance of our existing network of roads and bridges, we're going to encourage the building of more toll facilities (with all the bureaucratic and corporate inefficiencies layered on top of the greed/profit factor) which will only take even MORE money out of my pocket in the long run.
Fuck that shit. I get enough of it every time I have to drive to Orlando (Beachline/Central Florida Greenway/Western Beltway/East-West/Florida's Turnpike/Osceola Parkway). It's an insult to my intelligence.
you dont' need the graphs to see this. we have areal world exampel of what happens when one suspends the gas tax...you wnat to knwo what happnes, i lived through that shit in 2k, you see savings for a day, then the gas comapny coems up with soem vodo mumbojumbo and raises the prices up to the old level, then the tax gets reinstated cause you are running out of funding for the roads..well the gas companies add the full tax onto the price with a little extra for themsleves again.
here si what the tax "holliday would look like"
assum 3.79 a gallon(my area right now)
day ONE 3.69 as the company graciously gives us soem of the tax mony back
day THREEISH(after weekyl price raise day) gas at 3.79 a gallon as teh company takes in new profits...they knwo we will apy 3.79 so why not.
END of the holliday 4.00 The gas companie adds teh tax back in to the new price with a little extra on top for thems selves, tries to blam the goverment for the price spike.
hillarys gas tax holliday is a gift to the oil companies much like her "health care" is a gift to the insurance companies.
Of course markets predate money, civilization and government.
Humans trade stuff for stuff, barter. Have since caveman days.
Oog traded meat for sex.
Oogla traded sex for meat.
Barter is efficient. Efficiency is when the makers of the market both leave satisfied.
If the market does not satisfy, the traders don't return; if RabidRon'sUsed Cars doesn't satisfy you, you don't return.
You create your own usedcar market or go to another existing one. Whether you trade sweat, wheat, sex or printed pieces of emphera for the car matters not a whit. As long as you and the seller are satisfied the market was efficient for each of you.
Maybe Leo would have paid more than you did for that used clunker, but Leo wasn't in the market that day. So what might have been had things not been the way they were is not relevant.
Rapid adaptation to changing conditions where? Burma had a typhoon, price of rice responded. Rapid adaptation depends on the speed of communication at the time. Today, markets can respond within minutes to anything anywhere in the world, one hundred years ago ( the basis for most of the economic legalisms is over 100 years old ) it took weeks for markets to respond to far away events and days to respond to calamity or wonderfulness happening in the next state or the next county.
Non-zero sum outcomes? Determined by whom? The only people that matter in the exchange are the people doing the exchanging, there is no omnipotent other standing aside tut-tutting about some ethereal other world. Every efficient exchange is a non-zero sum exchange to both members of the exchange based on each of their unique valuations. Now I am defining an efficient exchange as one that two parties enter willingly, and complete. If the exchange is predicated on me and MY GUN telling you how much you will pay for my item, it is not a willing exchange even if it is damn efficient for me. If the exchange is me and MY GUN telling you how much of what you have you must give to me so that I don't just kill you and take all of it, again the willingness is gone but from my pov the efficiency is there.
I really don't mind that you keep changing your ground rules here.
First it is about markets and supply and demand; suddenly it becomes about supporting large enterprises --- large non competitive enterprises --- sorta like supporting the winners in the monopoly contest.
I am using the economic sense btw, anything from my X on a scrap of paper as a promise to pay, to a few ounces of assayed metal, to a bunch of ephemera with purple 5s on it is a fungible currency. Hammarabi had the first commercial code written. A politician with an army determined what was appropriate for people to do. How did he, in the economic sense, determine what was efficient? He didn't he just applied force to those folks who ignored his stupid code. Enough force and the folks doing economic things route around you and find another venue.
Now arbitration is an interesting thing, there will always be ambiguities, mis-communications, mis-translations, errors in any functioning market. Arbitration is just another profitable trade that markets develop in lieu of going to the bigger gun. Force really disrupts the smooth flow of acquisition, distribution, production and consumption. Read the fine print on your credit cards, you no longer go to court, you get to go to an arbitrator firm that is a subsidiary of the credit card company. Lucky you, you have enforced arbitration.
Humans live on average 75 years, can you name me any monopoly, other than the government and its sole monopoly on the use of force and slavery in every aspect of your life, that has lasted that long? AT&T came close and only because it was government supported and protected from competition. Monopoly is a transitory state. Just as Stengel's Yankees were a transitory state, just as Bellicheck's patriots are a transitory situation. Monopoly is the result of successful competition. As soon as you are the top dog, everybody want's your ass. Human behaviour...we love to win, we hate a long running winner.
Trying to imagine how one breaks a adaptive feedback mechanism. By not buying the goods? By developing a competitive good? by selling a substitute good. Monopolies are market failures in the Samuelson sense because in his models, once a monopoly existed there was no mechanism in his models for dethroning that monopoly. Monopolies are not Ol Man River, they don't just keep on rolling along unless they continue to give competitive prices and innovative goods. Monopolies are transitory states, unstable, like a marble sitting at the apex of a hill, absent external forced intervention, a wee push and the monopoly starts to fail. Always has been that way always will be.
Steve thank you ever so much for you economic troll analysis. I take it that you are a welfare economist and that everyone not a welfart economist is a troll. That works for me. There is also a first fundamental theorem for astrology, and one for phrenology, one for religion too.
All superstitions have first fundamental unprovable theorems. It is interesting that this thread began with a "simple static supply demand model" applied to a complicated question at hand. The problem with simple static models is that at any point in time the PIE HAS A SET SIZE. Now we dynamic economists of the third order know that the size of the pie changes minute by minute; so does its shape and so does its composition. We even know that on any given day different people get different sized slices of differently shaped and reciped pies. Samuelson and Keynes two men soooooo wrong about sooooo much. We know that people are mostly almost rational almost most of the time except when they have aces back to back and think God loves them. We don't much believe in static supply curves, at any point in time there is only so much of anything on hand to distribute; maybe tomorrow there will be a JIT shipment but today there is only so much and it will be sold or not sold to whoever shows up today wanting it at some price. We don't much believe in static demand curves either, at any given instant somefolks will want what you have, most folks won't want it. The price only matters to those who want it now.
CK you are too damm idalistic.
thjere will eb no savings at the pump handle.
peopel are stupid, greedy, and shortsighted. any tax holliday will eb seen be the oil corps as a revenu windfall, they may let you keep the differnece for a week or so (perhapse even longe nough for the price of every thign else to start to inflate) but then they willl gobble it back up again....
this has nothing to do with some vodo supply adn demand chart, the oil companies will find the point that we are willing to pay and charge that much (3.79 in my area). if we cut the tax we will still get charged 3.79 because that is what we are willign to pay.
Supply is irrelivant, hell demand isn't all that relivant (although demand dose indirectly affect the only relivant bit of info). the only thing that is relivant is what is consumer willign to pay. the price will rise untill that point s found, it will never fall signifigantly below that point.
This is true of all goods, its only worht as much or as little as the other guy is willing to give you.
Moon:
I resemble that remark.
I am minded of the situation in 2004, how gas prices mysteriously kept declining all summer and all fall, right up to the day after the election. Ah good times. We knew we were being manipulated but just like Elliot Schweitzer we let the manipulation keep on keeping on because it felt so good.
I really honestly have to disagree with part of your description of people. Most of them are not stupid continuously. All of us are indeed intermittently ignorant but ignorance can be remediated. Greedy yes I should hope so. Without greed you would have no religions, no fine art, no low art, no internet, not much of anything. Certainly no colleges or Knight Schools to remediate intermittent ignorance.
By short-sighted I think you mean that most people have a short time horizon. Two weeks, paycheck to paycheck, that sort of thing. And indeed if we go by the savings rate versus the credit card usage in the country over the last 16 years I would have to agree that the overall time horizon ... the planning horizon for the whole of the population has shrunk. Economists talk about low and high time preference individuals.
Planners and schemers versus spenders and bloviators.
So two for three: I don't think most folks are stupid.
I sure hope most are greedy
I suspect that the nation is much more shortsighted than it had been in the past.
And I agree that there will be no benefit to the gasoline consumer from a gas tax holiday.
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