Capitalism/economics as topic for new Podcast Episode?
Posted: 25 February 2008 03:08 PM   [ Ignore ]
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I have been chatting with atheists at the Dawkins web site and am surprised to hear them talk about capitalism as if it’s a theory they can choose to believe in or not the same way a fundamentalist chooses not to believe in evolution.  Economics is a science the same way Biology is a science.  Biology has the theory of evolution and natural selection.  Economics has the “theory” (I’m not sure if that’s the right word) of capitalism and the law of supply and demand.  With the fall of the Soviet Union, I am surprised to hear intelligent people still arguing against capitalism as if the cold war is still going on.  Even if my understanding of economics is wrong, I would like a podcast to clear up the myths and update people’s understanding of economics.

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Posted: 25 February 2008 04:21 PM   [ Ignore ]   [ # 1 ]
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Welcome to the forum, brightfut. The problem with economics is that it often gets thrown together with politics. Particularly on the evening news and on chat-TV people with little or no economic background are called “economists”; it would appear this is so because these people have economic opinions. However, people with opinions on math are not usually called “mathematicians” on the news.

There is the further problem (touched on in THIS thread) that economics, as a social science, makes weaker predictive claims than other “harder” sciences like chemistry and physics. So it leaves itself open to being attacked as a pseudo-, or at least proto-, science. FWIW I think economics has every bit as much reason to be considered scientific as psychology or meteorology. But that is both a weakness and a strength.

With capitalism you’re also opening up a large can of worms. The question, I think, is not whether capitalism is good or bad, right or wrong, per se. It’s rather which limits have to be placed on laissez-faire capitalistic practices so as to make them just and fair to the largest number of people, and so as to regulate the markets efficiently. The old picture of the rational economic agent went out the window long ago, replaced by much more nuanced models of imperfect information flow and irrational agents who can be manipulated to act against their own better interest. So although the blind hand of the market clearly has a crucial role to play, it must be tempered by regulations that protect weak against strong and disseminate information to the widest possible audience, just to take two important examples.

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Posted: 25 February 2008 06:46 PM   [ Ignore ]   [ # 2 ]
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brightfut - 25 February 2008 03:08 PM

I have been chatting with atheists at the Dawkins web site and am surprised to hear them talk about capitalism as if it’s a theory they can choose to believe in or not the same way a fundamentalist chooses not to believe in evolution.  Economics is a science the same way Biology is a science.  Biology has the theory of evolution and natural selection.  Economics has the “theory” (I’m not sure if that’s the right word) of capitalism and the law of supply and demand.  With the fall of the Soviet Union, I am surprised to hear intelligent people still arguing against capitalism as if the cold war is still going on.  Even if my understanding of economics is wrong, I would like a podcast to clear up the myths and update people’s understanding of economics.

There is a fundamental difference between economics and, say, the Theory of Evolution.  Evolution or gravity or any number of other physical phenomenon exist independently of humanity.  The Sun would still burn hydrogen as fuel and species continue to evolve whether or not we were around to witness it. 

By comparison, economic structures are man-made creations that only exist because we do.  As a result one cannot treat them as one would treat natural law.  Any economic structure is a human construction meant to satisfy human needs.  As such there is always going to be an arbitrary quality to economics that arises strictly from cultural/social preference—that is, we will tend to prefer any given structure at any given time because we happen to consider it best.  While doubtlessly some systems are superior to others at any given time and place this consideration cannot in any way be considered absolute. 

Ultimately, human economic constructions serve human means, not the other way around.  With natural law we are stuck with the way things are no matter what our personal preferences might be.  By comparison, we can (at least theoretically) alter our economic reality to whatever we find more effective.  It is lazy thinking in my opinion—maybe even dangerous—to treat economics in the same way as physics.  Otherwise, we might think ourselves “trapped” (for good or ill) in a particular system when in fact we can continue to adjust it to better serve human needs.

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Posted: 26 February 2008 01:25 PM   [ Ignore ]   [ # 3 ]
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First of all I appreciated Dougsmith’s and Ranillon’s reponses.  Both of them believe that economics is still too subjective to be treated as hard fact.  The reason I compare economics with physics is because of what I learned from a Macroeconomics course I took in college.  I was surprised at how rigid some of the laws are.  (laws are pretty rigid or they wouldn’t be called laws) For example when dealing with scarcity, somehow decisions have to be made as to who gets the resources and the wealth.  A society can let the market make those decisions according to the law of supply and demand or the decision can be made some other way.  When a minimum wage law is passed, instead of the law of supply and demand deciding what the price is going to be and who will get those jobs, the government decides the price of labor and someone in human resources decides who gets hired.  An increase in the price of the wage will mean a smaller supply of jobs while at the same time increasing the demand for those jobs.  Too many people will be applying for too few jobs.  Instead of the market making the decision, some other method such as first come first served, or a human resource person will make the decision looking through applications and decides who gets the limited job openings.  Not everyone is going to get hired and they will be forced to look for another job or be unemployed.  All the minimum wage has done is given better paying jobs to fewer people.  This is an argument I had a hard time dismissing as some economist’s personal, subjective opinion of economics.  How is this any different than when Ranillon said, “With natural law we are stuck with the way things are no matter what our personal preferences might be?”  Anyway, some parts of economics seem to me to be pretty hard to argue with.

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Posted: 26 February 2008 07:36 PM   [ Ignore ]   [ # 4 ]
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brightfut - 26 February 2008 01:25 PM

First of all I appreciated Dougsmith’s and Ranillon’s reponses.  Both of them believe that economics is still too subjective to be treated as hard fact.  The reason I compare economics with physics is because of what I learned from a Macroeconomics course I took in college.  I was surprised at how rigid some of the laws are.  (laws are pretty rigid or they wouldn’t be called laws) For example when dealing with scarcity, somehow decisions have to be made as to who gets the resources and the wealth.  A society can let the market make those decisions according to the law of supply and demand or the decision can be made some other way.  When a minimum wage law is passed, instead of the law of supply and demand deciding what the price is going to be and who will get those jobs, the government decides the price of labor and someone in human resources decides who gets hired.  An increase in the price of the wage will mean a smaller supply of jobs while at the same time increasing the demand for those jobs.  Too many people will be applying for too few jobs.  Instead of the market making the decision, some other method such as first come first served, or a human resource person will make the decision looking through applications and decides who gets the limited job openings.  Not everyone is going to get hired and they will be forced to look for another job or be unemployed.  All the minimum wage has done is given better paying jobs to fewer people.  This is an argument I had a hard time dismissing as some economist’s personal, subjective opinion of economics.  How is this any different than when Ranillon said, “With natural law we are stuck with the way things are no matter what our personal preferences might be?”  Anyway, some parts of economics seem to me to be pretty hard to argue with.

The example you list is that it is far more arbitrary and situational than it first appears.  When stated in such abstract terms—that is, as theory, not real life—a concept like a Minimum Wage does sound a bit screwy.  After all, shouldn’t the “Law” of Supply and Demand make sure everyone is paid what they are worth?  Won’t prices naturally line up properly?  When you assume they will then a Minimum Wage sounds little more than an attempt of labor to hold its thumb on the scales of fair economics.

Only one basic problem—the idea of supply and demand operating in a pristine way is a complete illusion.  There are ALWAYS other factors involved when you are talking about real life, factors that are oh-so-easy to ignore when speaking in purified abstract terms.  Many different factors go into setting a wage (or any price) that arise from the real-world reality of interpersonal relationships.  Someone will always try to tip the balances in its scale and, since business tends to hold the advantage over labor, it is management that typically has more its way than not.

Think about it—if the law of supply and demand really did work in a pristine fashion then we would have never had slavery or serfdom.  Both institutions were primarily economic in origin—it was a way to get artificially cheap labor.  How much easier is it then to tip the balance in favor of (usually) management in more subtle ways?  For example, in the US we have fairly restrictive rules for strikes (compared to, say, Europe) that interfere with labor organizing.  What rules there are get enforced in at best a shoddy fashion (estimates I’ve seen say that at least 1 in 10 individuals trying to organize unions and so forth get unfairly fired in the US).  Likewise, business can collude to artificially limit employment opportunities or even just limit information.  The “law” of supply and demand can only theoretically work in an environment where everyone has perfect knowledge, but obviously that is not going to exist in real life.  It is simply too open to manipulation to be considered a “law” in the same way we might consider Newton’s Laws of Motion.

No matter how much I might try to fudge things I can’t change f=ma into, say, f=ma+3.  Sure, I can do it on paper, but when I try to actually put my calculations into practice I’m in for a rude suprise.  The natural world cannot be fooled.  However, I can use my influence, cleverness, or maybe just sheer power to artificially alter how much I pay an employee or, as an employee, how much I get paid.  Economics is ultimately a human construct open to manipulation just as all human social constructs are.  Just like the rules of a game like baseball economics therefore only work at their best (e.g. provide the greatest benefit for the greatest amount of people) when proper rules and oversight are applied.  Just as we don’t trust that the rules of Baseball will magically work without umpires there to enforce them we shouldn’t be fooled into thinking the rules of economics will work without similar guidance.

[ Edited: 26 February 2008 07:46 PM by Ranillon ]
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Posted: 27 February 2008 01:27 AM   [ Ignore ]   [ # 5 ]
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brightfut - 25 February 2008 03:08 PM

I have been chatting with atheists at the Dawkins web site and am surprised to hear them talk about capitalism as if it’s a theory they can choose to believe in or not the same way a fundamentalist chooses not to believe in evolution.

Hi Brightfut,

In my opinion, capitalism is not even a theory, it is an ideology. For the sake of the argument, I take economics as a science. Then economics, as a science, tells you, that when you organise your country/world with a free market, things will happen in such and such a way, which then would be capitalism. But if there are reasons for you not to accept these outcomes, then, economics should be able to tell you how you must make your market rules, that you get your preferred outcome.

So if somebody says, he wants a rigid socialistic organisation, the economics should be able to draw you the consequences, and that possibly that what you want (happy consumers with no scarcity of needed and wanted goods) cannot be reached.

If I may make a comparision with physics: it can tell you that something like a nuclear plant can be built, but the choice if you want to do that is dependent on the expected outcomes, which is not exclusively physics anymore (e.g. nuclear terrorism). So the scientific part is: “yes, it can be done, you need this and this to do it, and it will have that and those consequences”, the ideologic part is “do we wish that?”.

So definitely, capitalism is not science. It might be the best ideology in the sense that it fits closest to human values compared to other ways of organising your economic system, but that is not a scientific statement.

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Posted: 15 March 2008 05:33 PM   [ Ignore ]   [ # 6 ]
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Hi Brightfut,

I must disagree with you.  I respect your interest in economics, but I think you may have missed a part of your Intro economics course.  There is something economist call ‘Positive Economics’ and another thing economist call ‘Normative Economics.’  In most basic terms the difference is that positive economics concerns, how things are, the descriptions of data, and the reading of charts.  The other term, normative economics, is far more subjective, it describes how things SHOULD be.

There is quite a bit of argument over if capitalism is completely effecient, especially because most basic economics assumes a truly free market, which clearly doesn’t exist.  In the current ‘world’ of capitalist economics in the present day, we’re presented with varying degrees of capitalism from the ‘free market’ of the united states, to the ‘socialism’ of countries like Sweden.  The basic question comes in how accountable should the government be in protecting its own citizens from the market, which has an effect on ‘efficiency.’

The most basic assumption of economics is then, not supply and demand, but rather ‘opportunity cost’ that is, what one must give up to obtain something else.  This can’t be made into a purely objective science, and although their may be decisions which benefit more people, there is never a hard and fast ‘this is the way to go’ answer in economics.  Furthermore, the economics taught in most universities the world over is naturally biased towards saying the capitalist market economy is the best.  That doesn’t prevent other alternatives from existing though.

So in closing, I think PoI should stay away from economics.

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Posted: 15 March 2008 06:32 PM   [ Ignore ]   [ # 7 ]
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brightfut - 26 February 2008 01:25 PM

  The reason I compare economics with physics is because of what I learned from a Macroeconomics course I took in college. 

I am not ready to swear that economics has no relation to physics (our economies dependes strongly on the energy supply and our economics system behave, under certain circunstances, as physics systems), but the diference is that we create economics system while the physical systems exists in nature with or without us. After all, our capitalist economics system as we know exists because we have decided that we will organize our societies over the concept of private property (which is not a natural thing at all).  I can agree with the claim that given the concept of private property, somethings are going to behave in a very predictable way.

Your concern about minimun wage was very well addressed by Umoja. I’d add that there a lot of evidence to think that the laws of economics are not so rigid after all: sometimes, the market cannot recover its equilibrium by itself after all (the big depression for instance), this clasical laws of economics cannot explain stanflation, and there is evidence that the market tend to adjust by quantities instead of price (the price are highly resilence to go down). Of course, clasical economists will say that it is because the state intrusion in the otherwise perfect market (yes, they are talking about true scotman), but, the true is that there are scale economics issues and human psichological characteristics that explains this behaviour.

On the other hand, I disagree with Umoja: economics is a very good topic to POI, because economics is one of the most poorly understood topics with a high degree of incidence in people lives. What, IMHO, POI should do is to avoid having a stand on this as they have on church state separation.

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Posted: 16 March 2008 12:22 PM   [ Ignore ]   [ # 8 ]
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Economics is a science the same way Biology is a science. 

  LOL    LOL 

Oh yeah?  Do cars purchased by consumers wear out?

If they wear out doesn’t that mean they must DEPRECIATE?

When was the last time you heard an American economist talk about how much American consumers lose on depreciation of automobiles each year?  Do you think competent biologists are allowed to ignore something that big?

There is really no such thing as a Nobel Prize in Economics.  It is the Swedish Bank Prize in memory of Alfred Nobel.  Just another one of those little marketing scams run on us.

http://en.wikipedia.org/wiki/Nobel_Prize_in_Economics

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Posted: 19 March 2008 04:08 PM   [ Ignore ]   [ # 9 ]
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Umoja - 15 March 2008 05:33 PM

There is quite a bit of argument over if capitalism is completely effecient, especially because most basic economics assumes a truly free market, which clearly doesn’t exist.


    Thanks for the response, Umoja.  If the economy is inefficient because truly free markets don’t exist, then that is not a criticism of capitalism.  That would be a criticism and inefficiency of a lack of capitalism.  One of the components of capitalism is free markets.  Private property, business contract enforcement, and the ability to retain profit are also components of capitalism.  My belief, and I didn’t realize how controversial it still is, is that failing to protect these components will produce an economy that is inefficient and less productive overall.  I in am in no way saying that capitalism is the fairest or most egalitarian way to distribute wealth.  What I am saying is that without the components of capitalism, the economy won’t be as productive.

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Posted: 22 March 2008 08:46 PM   [ Ignore ]   [ # 10 ]
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Brightfut,

The reason truly efficient capital markets don’t exist, is because (for example) for governments to be able to enforce contracts they often need to have an operating budget.  They usually obtain this by taxation.  Another example would be, the government doesn’t allow a free market in protecting the populace, afterall the police aren’t privatized.  The thing is, pure production has never actually been a goal of most rational economist, in that efficiency tends to be damaging to the human quality of life, and what often appears on the surface to be efficient might not be (like privatized law enforcement).  The main belief of most economist is to minimize the tradeoffs between decisions, but terms like ‘productivity’ and ‘efficiency’ are so inherently vague that one could even argue that most economist are also struggling to define and redefine these terms.

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Posted: 25 March 2008 05:05 PM   [ Ignore ]   [ # 11 ]
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Umoja - 22 March 2008 08:46 PM

Brightfut,

terms like ‘productivity’ and ‘efficiency’ are so inherently vague that one could even argue that most economist are also struggling to define and redefine these terms.


Umoja,
    Thanks for the response, Umoja.  The reason I believe capitalism is efficient, and I agree no absolute standard exists as to what is efficient, is that compared to every other system in the world it is more efficient.  Compare West and East Germany before the merger, North and South Korea, China and Taiwan (or Hong Kong).  The people and the cultures were the same, but the economic systems were different.  Admittedly, the governments were different, also.  But in each of these cases, the capitalist systems were far more productive and efficient than the centrally controlled systems.  Capitalism doesn’t benefit all people equally.  Sometimes people lose their jobs to the ruthless efficiency of it.  But, if you compare the overall standard of living in the capitalist countries to the overall standard of living in the centrally controlled countries I think the evidence shows which system is more productive.

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Posted: 25 March 2008 08:43 PM   [ Ignore ]   [ # 12 ]
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I think at this stage of human history all people have the right to enjoy certain basics including, decent food, water, shelter, education and healthcare. That is the only kind of world worth living in IMHO. If this type of social order prevents a small minority from enjoying privileged access to these things, I have no problem with that.

The above arguments comparing the economic performance of advanced imperialist powers to that of the former workers states are ahistorical and uninformed. As the Maoists used to say: No serious investigation of facts, no right to speak!

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