People: Market liberalism's achilles heel?
       |           

Welcome, Guest. Please login or register.
Did you miss your activation email?
March 29, 2024, 10:30:54 AM
News: Election Simulator 2.0 Released. Senate/Gubernatorial maps, proportional electoral votes, and more - Read more

  Talk Elections
  General Politics
  Economics (Moderator: Torie)
  People: Market liberalism's achilles heel?
« previous next »
Pages: [1]
Author Topic: People: Market liberalism's achilles heel?  (Read 1006 times)
Simfan34
Atlas Icon
*****
Posts: 15,744
United States


Political Matrix
E: 0.90, S: 4.17

Show only this user's posts in this thread
« on: April 22, 2015, 04:29:10 PM »

As some of you may have noticed, I've long joked that "heterodoxy is heresy" and that the validity of neoclassical economics is essentially beyond dispute. I must however admit that I'm increasingly wondering if this really the case- perhaps not so much the classical liberal foundations, but the inerrancy of markets and the wisdom of assuming that a "market solution" is invariably going to be better than an intervention.

Part of this is from having recently reading more of the historical and theoretical literature on development, and not just contemporary or more quantitative work- books, not just papers, to put it otherwise. Now, let's be clear, there's an immense amount of nonsense out there. For one thing, I read Chang's Kicking Away the Ladder, and it did nothing to change my opinion that he's absolutely daft. But I'll discuss my thoughts on that in another thread since it's not particularly relevant.

But the other part comes from perhaps what is an even more firmly held belief- that, to put it mildly, most people are not well-informed, nor are they particularly rational, which underlies essentially all of my political beliefs (which you probably all know) Now, obviously we have seen that markets, even with that handicap, have invariably outperformed planned economies run by experts. But it seems to me that many times- and perhaps increasingly so in this country- the (financial) markets incentivise behavior that is not always in the best interests of firms, and beyond that people behave in a way that encourages firms to make decisions that are neither in their interest nor in the consumer's interest.

Let's take the airline industry. A panoply of surveys and other such rankings have, for the past several years, deemed Virgin America to be the most-liked airline in the United States, while at the same time it operated for a loss at several years and is now only barely making a profit. Conversely, these surveys- and complaints to the FAA- have just as regularly shown Spirit Airlines to be the the least liked airline in the country... while being its most profitable. Now, this seems bizarre, yet comprehensible.

The problem is, that's not the end of the story. The reason people hate Spirit and other carriers is because of all the fees they tack on. However, they fly it all the same because it is cheap- except that's not actually true. When people crunch the numbers, accounting for the extra fees, Spirit ends up more expensive than other airlines! One analysis showed that when adding on all the required fees and the lowest carry-on fee (paying at booking) available to a regular passenger, it was the cheapest airline a mere 31% of the time. This went down to 17% if you- say, a person who had never heard of such ridiculous thing like a "carry on fee"- were to pay at the airport. So, in short, it is more often than not more expensive.

So why do people not act accordingly, even if they are regularly exposed to media reports about how we all hate Spirit's fees? Because they haven't bothered to do the research, even if it's easy for anyone to do. Their ignorance, in effect, is rewarding the terrible quality they claim to despise- and forcing a race to the bottom as investors demand airlines produce similarly inflated profit margins by cutting service and adding fees. The CEO of JetBlue once rather astutely said that he wasn't going to listen to people who said that they needed to follow the lead of the legacy carriers by adding fees, since, after all, they had gone bankrupt a few years ago. Yet even they caved in and will start charging for checked luggage. The market is being distorted by the inability of consumers to account for fees- and thanks to them (and the unions as well, of course), our airlines are now so terrible and uncompetitive that they have to beg the government to keep the Gulf carriers out.

Another example: saving for retirement. Just the other day I was talking with DC al Fine about Social Security, and proposed a mandatory savings scheme like they do in Singapore. He said the proposed contribution levels were too high, and if one were to save such an amount for their working life, they'd wind up with an annual pension higher than their working income (and tax free)- hence no need for such a scheme. The problem is, of course, most people are terrible at saving, and most people's retirement savings are grossly underfunded. If people were able to save then, yes, sure, there'd be no need, but in general they've demonstrated a complete inability to do so.

Hence the confusion and need for a kind of paternalistic approach to things- people don't know what they're doing.
Logged
DC Al Fine
Atlas Icon
*****
Posts: 14,085
Canada


Show only this user's posts in this thread
« Reply #1 on: April 22, 2015, 04:40:29 PM »

Another example: saving for retirement. Just the other day I was talking with DC al Fine about Social Security, and proposed a mandatory savings scheme like they do in Singapore. He said the proposed contribution levels were too high, and if one were to save such an amount for their working life, they'd wind up with an annual pension higher than their working income (and tax free)- hence no need for such a scheme. The problem is, of course, most people are terrible at saving, and most people's retirement savings are grossly underfunded. If people were able to save then, yes, sure, there'd be no need, but in general they've demonstrated a complete inability to do so.

Simfan, I didn't say your scheme was unnecessary, just that the contributions were set too high and produced more income than was necessary. I'd be perfectly happy with a version of your scheme that required 10-15% contributions instead of 20%.
Logged
Foucaulf
Jr. Member
***
Posts: 1,050
Show only this user's posts in this thread
« Reply #2 on: April 22, 2015, 05:50:14 PM »

I prefer the term cognitive bias here, not stupidity.

If you only had two options, I would rather you follow Sunstein and Thaler than the Lee cabal. Don't think Spirit or their competitors aren't borrowing from that book either.
Logged
Simfan34
Atlas Icon
*****
Posts: 15,744
United States


Political Matrix
E: 0.90, S: 4.17

Show only this user's posts in this thread
« Reply #3 on: April 22, 2015, 05:51:32 PM »

Another example: saving for retirement. Just the other day I was talking with DC al Fine about Social Security, and proposed a mandatory savings scheme like they do in Singapore. He said the proposed contribution levels were too high, and if one were to save such an amount for their working life, they'd wind up with an annual pension higher than their working income (and tax free)- hence no need for such a scheme. The problem is, of course, most people are terrible at saving, and most people's retirement savings are grossly underfunded. If people were able to save then, yes, sure, there'd be no need, but in general they've demonstrated a complete inability to do so.

Simfan, I didn't say your scheme was unnecessary, just that the contributions were set too high and produced more income than was necessary. I'd be perfectly happy with a version of your scheme that required 10-15% contributions instead of 20%.

Oh no, I was saying that if people saved and invest their retirement savings the way you suggested, there'd be no need for any kind of program like that (except help for low income earners, I suppose).
Logged
ag
Atlas Icon
*****
Posts: 12,828


Show only this user's posts in this thread
« Reply #4 on: April 22, 2015, 06:40:23 PM »

As some of you may have noticed, I've long joked that "heterodoxy is heresy" and that the validity of neoclassical economics is essentially beyond dispute. I must however admit that I'm increasingly wondering if this really the case- perhaps not so much the classical liberal foundations, but the inerrancy of markets and the wisdom of assuming that a "market solution" is invariably going to be better than an intervention.


As every neoclassical liberal economist knows, and statement of the form "x is invariably the better solution" has nothing to do with neoclassical liberal - or any other - economics. That is, in fact, the difference between science and religious cult.

Take it from this neoclassical liberal economist Smiley
Logged
TheDeadFlagBlues
Junior Chimp
*****
Posts: 5,990
Canada
Show only this user's posts in this thread
« Reply #5 on: April 22, 2015, 07:10:56 PM »

I feel quite similarly about neoclassical economics, Simfan. I, too, used to be quite enamored with neoclassical economics. My perspective changed quite drastically when I began reading more development literature, which was largely empirical. Because I'm a mere undergraduate, I can't say much more than this. I don't understand the mathematics of economic theory, which makes it difficult to decipher the details of models, economic arguments and the like. However, my understanding is that even within the limited framework of neoclassical economics, there's no particular reason why economics "should" come to liberal conclusions regarding trade restrictions or rent control or state-directed investment in non-public goods.
Logged
🐒Gods of Prosperity🔱🐲💸
shua
Atlas Star
*****
Posts: 25,665
Nepal


Political Matrix
E: 1.29, S: -0.70

WWW Show only this user's posts in this thread
« Reply #6 on: April 22, 2015, 07:18:17 PM »

It doesn't make sense to claim that markets are inerrant. I'm not really sure what that would mean.  What markets do is they provide options to people.  Sometimes the options available are not satisfactory.  But in a free market there is at least the opportunity for a satisfactory option to be developed, though the actions of other firms in the industry can make this more or less likely. 

The fallibility of people does play a major role in the market.  It plays a major role also in any sort of economic planning - and in that case, the knowledge required for any decision would need be explicit and concentrated in a single governmental body that is supposed to know what the entire population needs and wants at any given time, and would have a much lower likelihood of being subject to corrective pressures. 
Logged
compson III
sutpen
Rookie
**
Posts: 63
Show only this user's posts in this thread
« Reply #7 on: April 27, 2015, 04:06:20 PM »

The reason this works with planes is lack of feedback; many other decisions that people make they get feedback.  This allows them to make mistakes and learn from them.  Plane trips (especially with any given airline) are too rare to afford that with most people.
Logged
Pages: [1]  
« previous next »
Jump to:  


Login with username, password and session length

Terms of Service - DMCA Agent and Policy - Privacy Policy and Cookies

Powered by SMF 1.1.21 | SMF © 2015, Simple Machines

Page created in 0.043 seconds with 12 queries.