From: howard@hasse.hal.com (Howard Gayle)
Newsgroups: ca.politics,ba.politics
Subject: Re: Picking and Choosing our References
Date: 20 Aug 92 13:43:46 GMT
Reply-To: howard@hal.com (Howard Gayle)
Followup-To: ca.politics
Organization: HaL Computer Systems, Inc., Campbell, California
NNTP-Posting-Host: hasse.hal.com
In-reply-to: chased@rbbb.Eng.Sun.COM (David Chase)

In article <l90h36INN6cd@exodus.Eng.Sun.COM>, chased@rbbb (David Chase) writes:
> it appears
>to be a Libertarian article of faith that the Free Market will cure
>most (if not all) ills, or at least bring things into a tolerable
>approximation of fairness and equal opportunity.  Principles of
>economics, and supply-demand relationships are cited to justify this.

Many libertarians make a weaker claim, that government
interference in free markets makes almost everyone worse off
than they would be without interference.  Some libertarians may
take this on faith, but all those I've read present arguments
for the claim.  Some arguments are based on history, some on
economic theory, and some on controlled experiments.

Our universe appears to be fundamentally unfair; not even a free
market can change that.


>Yet, in my fairly distracted following of economics, there are many
>instances where these basic principles seem not to hold.  Sometimes it
>seems that our markets converge on a local optimum, rather than a
>global optimum (Ken Arrow's work, which I believe appeared in some
>form in Scientific American within the last 5 years).  Several of the
>theories assume perfect information about the market, which is
>certainly far from the truth.  Transaction costs seem to also cause
>deviations from theoretical perfection.

All current economic theory is only an approximation to
reality.  Many economists are trying to develop theories that
take into account information, transactions costs, politicians,
and other complications.  Abstracting away higher-order effects
is a legitimate way to gain understanding in economics as in
other sciences, e.g. point masses in mechanics.


> There's some recent talk that perhaps the
>people who manage publicly-held companies don't act in the best
>interests of the people who own the companies, and actually erect
>barriers to help maintain their control of the companies.

Adam Smith made the same observation about 200 years ago.
Fortunately there are corporate raiders to keep managers from
getting totally out of line.  Without government-legislated
limited liability corporations, I think this would be less of a
problem.


> All very
>interesting, and all somewhat contrary to the notion that the free
>market will find an "economic optimum" without outside interference.

There is a form of argument that is fairly common.  (I emphasize
that David Chase is not making it here!)  It goes as follows:

1) Define some ideal free market, with "pure" competition, no
   transactions costs, or whatever.
2) Show that reality differs from the ideal.  Call the
   difference "market failure."
3) Conclude the necessity for government interference.
--
Howard Gayle
HAL Computer Systems, Inc.
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