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>Laissez-faire economic systems are in no way capable of keeping themselves stable. This is the point - Laissez-faire economic systems function well on their o

>Laissez-faire economic systems are in no way capable of keeping themselves stable. This is the point - Laissez-faire economic systems function well on their own, it just happens that humans prefer systems that are "stable". Hence, regulators try to limit the volatility of markets meet their stability preferences. Whether this is ultimately beneficial is an ongoing debate. I would point out that in many cases enforcing artificial stability on markets can have negative outcomes. Recently, the +/-10% limits on daily stock price movements in China created situations where many stocks increased by 10% every day for over 100 days [0]. Such illusions of stability likely played a role in the recent bubble/crash in China. It could be said that attempts to regulate 'stability' into markets merely leads to a masking of tail risk, which can be very dangerous. [0] https://news.ycombinator.com/item?id=9471858 https://news.ycombinator.com/item?id=9471858

ild 11y ago
Markets cease to exist in unstable environment; "artificial" or not, stability is a precondition for existence of any social institution;I mean, come on, who wants to participate in unstable market?
- fleitz 11y ago
  Anyone who knows how to do a butterfly spread. The market is not unstable it is volatile.
  - ild 11y ago
    Yeah, extreme volatility is the definition of instability.
  - pbhjpbhj 11y ago
    That sort of behaviour seems more correctly described as exploiting the market's instability rather than participating in the market. If you extract wealth without improving the market itself how are you a participant? This sort of financial behaviour seems more to me like watching a football match you've bet on and shooting any player that might influence the result away from your preference then claiming you were a player in the game. So, great if you want to extract money from others productivity but not so great for the market as an economic [in the base meaning of the word] structure.
    - miscellaneous 11y ago
      > great if you want to extract money other's productivity but not so great for the market as an economic structure No this is not correct. Options are derivatives that are traded on a secondary market. When you buy an option (or two options - call and put - in the case of a butterfly spread) you are buying from someone who is selling the option(s). Hence you are not "extracting" money from others, you are engaging in a voluntary bet with another person. Derivatives are very important tools in a modern economy. They are frequently used by businesses and individuals to hedge their exposure to volatility and uncertainty. For instance, if you are close to retirement and still own some stocks, you could hedge your downside risk by purchasing put options. This behaviour has no negative effect on the primary market. > If you extract wealth without improving the market itself how are you a participant? You are a participant in a secondary market, not the primary market. You only gain wealth if you bet correctly - you still have risk like any other traded asset.
- adventured 11y ago
  Markets continue to exist regardless of stability. Whether people prefer stable or unstable has nothing to do with whether or not said market exists. There is never a point in which there is perfect stability, or a total lack of instability, therefore there can never be a market - that's the logical conclusion of your premise. It disproves your claim. Who defines how much instability must exist, such that a market ceases to exist? The completely subjective nature of it also proves it's wrong.
- jerf 11y ago
  If the underlying thing is unstable, a market sitting on top of it will be unstable. If you try to force the market sitting on top to be stable by fancy jiggery-pokery, you've forcibly created a market that is no longer connected to what is below it, which now has all sorts of those arbitrage opportunities for the connected that people love to hate, and also dangerously hides further instability where you can't see it, because in a way it's conserved whether you like it or not. You may want stability. You may even need stability. But neither of those two things means you get to have it. The universe and the world is fundamentally unstable. You can look at what is happening in China right now in that way. They've forcibly created stability and reliability. Awesome, right? This worked great, until the absolutely and utterly inevitable black swan event occurred (to the point I have a hard time even calling it a black swan, since it was so predictable) because the conserved instability, instead of getting expressed in little ways on a day by day basis, is getting expressed as one big event. Just because you fully dammed the river doesn't mean you've stopped the river from flowing, and it's time to build a dance platform in the middle of the old river bed and invite everyone to party all night long. It means you better run away from the entire river bed and everything even remotely near it before the dam catastrophically bursts and destroys everything. You're looking not at a demonstration of why it's important to artificially stabilize markets... you're looking right at the consequences of doing so. (In fact, the way that people then interpret the destruction of everything as a consequence of the dam just not being strong enough and we need to put politicians into power that will create an even BIGGER dam is an important element of understanding the ratchet of tyranny, and how what happened to the Soviet Union and Venezuela happened. It wasn't bad luck... it was misinterpreting overcontrol as too little control, and "correcting" in exactly the wrong direction. The failure of today becomes the excuse to grab yet more power, stomping on anyone in the way who objects, and grabbing centralized control even harder, which creates an even bigger disaster which requires even more centralized control... repeat until the society is too weak to even maintain a government anymore. And remember, if your comfortable Western-raised brain is objecting that this can't happen, it has happened, in this decade, to real countries that you can find on a globe. It is not a thing of myth and it is not even a thing of the past. It is a path we humans seem congenitally prone to.)
  - makomk 11y ago
- forgetsusername 11y ago
  >"Markets cease to exist in unstable environment" The "market" is just a place where two parties can meet to exchange something at an agreed upon price. Stability has nothing to do with it. If you get in a jam and essentially advertise to buyers, "I need to sell everything NOW, at any price!" you shouldn't be surprised if the buyer's offers are low. Why would I buy something now for $40, that I can get later for $20?
- angersock 11y ago
  stability is a precondition for existence of any social institution Luckily markets are an economic institution, and not a social one! I mean, come on, who wants to participate in unstable market? Anyone with a rudimentary grasp of trading or speculative investment?
phelm 11y ago
The CNN article* makes it clear that the circuit breakers 'saved the day' and 'prevented a full-on flash crash' yesterday. Surely there would not be much debate about whether or not that is beneficial? * http://money.cnn.com/2015/08/24/investing/stocks-markets-selloff-circuit-breakers-1200-times/index.html http://money.cnn.com/2015/08/24/investing/stocks-markets-sel...
- forgetsusername 11y ago
  >The CNN article makes it clear that the circuit breakers 'saved the day' and 'prevented a full-on flash crash' yesterday.* Suddenly we're taking CNN's advice on technically sophisticated subjects now?
VikingCoder 11y ago
I think what bothers me most about your post is that you're right on the verge of pretending that regulating markets causes all of the things we don't like about markets. No. Markets do plenty of things we don't like. And yes, the way we chose to regulate them causes markets to do some other things we don't like, too. That's not a case for not regulating them, though. -=-=-=- This is the point - smallpox functions well on its own, it just happens that humans prefer bodies that are "living." Hence, doctors try to limit the spread of the disease to meet their health preferences. Whether this is ultimately beneficial is an ongoing debate. I would point out that in many cases enforcing artificial health on people can have negative outcomes. Recently, the Ebola virus in Africa killed several thousands. If the sick had been allowed to immediately die without care, the disease would not have spread so far. It could be said that attempts to regulate "living" into people merely leads to a masking of human frailty, which can be very dangerous. -=-=-=- Maybe a slightly less offensive comparison on my part would have been wildfires. They do just fine without human intervention. And yes, maybe humans do intervene too much. But gee, we like our houses to not be on fire. That doesn't mean we let the fire just burn, though.
- miscellaneous 11y ago
  Reasoning by analogy is not a sound way to make an argument. In fact, reasoning by analogy is always wrong to some greater or lesser degree. It is much better to directly address an argument. Markets are created by humans when humans exchange things. The current market price express the current knowledge of all participants about the value of some traded thing. This is a decentralized process that often involves millions of different people with skin-in-the-game. The argument against government regulation follows from this: regulation distorts the market from an equilibrium price. If this is a temporary measure then regulation is only delaying the inevitable and you should let the market reach equilibrium sooner. If it is a permanent measure, then you have a situation where the market no longer reflects the current knowledge of all participants, and at this point you start to lose the core value of a market. By the way: markets aren't analogous to smallpox and wildfires, and regulation is not analogous to doctors and firefighters. Although this is an interesting insight into your world-view ;)

ild 11y ago

Markets cease to exist in unstable environment; "artificial" or not, stability is a precondition for existence of any social institution;I mean, come on, who wants to participate in unstable market?

fleitz 11y ago
Anyone who knows how to do a butterfly spread. The market is not unstable it is volatile.
- ild 11y ago
  Yeah, extreme volatility is the definition of instability.
- pbhjpbhj 11y ago
  That sort of behaviour seems more correctly described as exploiting the market's instability rather than participating in the market. If you extract wealth without improving the market itself how are you a participant? This sort of financial behaviour seems more to me like watching a football match you've bet on and shooting any player that might influence the result away from your preference then claiming you were a player in the game. So, great if you want to extract money from others productivity but not so great for the market as an economic [in the base meaning of the word] structure.
  - miscellaneous 11y ago
    > great if you want to extract money other's productivity but not so great for the market as an economic structure No this is not correct. Options are derivatives that are traded on a secondary market. When you buy an option (or two options - call and put - in the case of a butterfly spread) you are buying from someone who is selling the option(s). Hence you are not "extracting" money from others, you are engaging in a voluntary bet with another person. Derivatives are very important tools in a modern economy. They are frequently used by businesses and individuals to hedge their exposure to volatility and uncertainty. For instance, if you are close to retirement and still own some stocks, you could hedge your downside risk by purchasing put options. This behaviour has no negative effect on the primary market. > If you extract wealth without improving the market itself how are you a participant? You are a participant in a secondary market, not the primary market. You only gain wealth if you bet correctly - you still have risk like any other traded asset.
adventured 11y ago
Markets continue to exist regardless of stability. Whether people prefer stable or unstable has nothing to do with whether or not said market exists. There is never a point in which there is perfect stability, or a total lack of instability, therefore there can never be a market - that's the logical conclusion of your premise. It disproves your claim. Who defines how much instability must exist, such that a market ceases to exist? The completely subjective nature of it also proves it's wrong.
jerf 11y ago
If the underlying thing is unstable, a market sitting on top of it will be unstable. If you try to force the market sitting on top to be stable by fancy jiggery-pokery, you've forcibly created a market that is no longer connected to what is below it, which now has all sorts of those arbitrage opportunities for the connected that people love to hate, and also dangerously hides further instability where you can't see it, because in a way it's conserved whether you like it or not. You may want stability. You may even need stability. But neither of those two things means you get to have it. The universe and the world is fundamentally unstable. You can look at what is happening in China right now in that way. They've forcibly created stability and reliability. Awesome, right? This worked great, until the absolutely and utterly inevitable black swan event occurred (to the point I have a hard time even calling it a black swan, since it was so predictable) because the conserved instability, instead of getting expressed in little ways on a day by day basis, is getting expressed as one big event. Just because you fully dammed the river doesn't mean you've stopped the river from flowing, and it's time to build a dance platform in the middle of the old river bed and invite everyone to party all night long. It means you better run away from the entire river bed and everything even remotely near it before the dam catastrophically bursts and destroys everything. You're looking not at a demonstration of why it's important to artificially stabilize markets... you're looking right at the consequences of doing so. (In fact, the way that people then interpret the destruction of everything as a consequence of the dam just not being strong enough and we need to put politicians into power that will create an even BIGGER dam is an important element of understanding the ratchet of tyranny, and how what happened to the Soviet Union and Venezuela happened. It wasn't bad luck... it was misinterpreting overcontrol as too little control, and "correcting" in exactly the wrong direction. The failure of today becomes the excuse to grab yet more power, stomping on anyone in the way who objects, and grabbing centralized control even harder, which creates an even bigger disaster which requires even more centralized control... repeat until the society is too weak to even maintain a government anymore. And remember, if your comfortable Western-raised brain is objecting that this can't happen, it has happened, in this decade, to real countries that you can find on a globe. It is not a thing of myth and it is not even a thing of the past. It is a path we humans seem congenitally prone to.)
- makomk 11y ago
forgetsusername 11y ago
>"Markets cease to exist in unstable environment" The "market" is just a place where two parties can meet to exchange something at an agreed upon price. Stability has nothing to do with it. If you get in a jam and essentially advertise to buyers, "I need to sell everything NOW, at any price!" you shouldn't be surprised if the buyer's offers are low. Why would I buy something now for $40, that I can get later for $20?
angersock 11y ago
stability is a precondition for existence of any social institution Luckily markets are an economic institution, and not a social one! I mean, come on, who wants to participate in unstable market? Anyone with a rudimentary grasp of trading or speculative investment?

phelm 11y ago

The CNN article* makes it clear that the circuit breakers 'saved the day' and 'prevented a full-on flash crash' yesterday. Surely there would not be much debate about whether or not that is beneficial? * http://money.cnn.com/2015/08/24/investing/stocks-markets-selloff-circuit-breakers-1200-times/index.html http://money.cnn.com/2015/08/24/investing/stocks-markets-sel...

forgetsusername 11y ago
>The CNN article makes it clear that the circuit breakers 'saved the day' and 'prevented a full-on flash crash' yesterday.* Suddenly we're taking CNN's advice on technically sophisticated subjects now?

VikingCoder 11y ago

I think what bothers me most about your post is that you're right on the verge of pretending that regulating markets causes all of the things we don't like about markets. No. Markets do plenty of things we don't like. And yes, the way we chose to regulate them causes markets to do some other things we don't like, too. That's not a case for not regulating them, though. -=-=-=- This is the point - smallpox functions well on its own, it just happens that humans prefer bodies that are "living." Hence, doctors try to limit the spread of the disease to meet their health preferences. Whether this is ultimately beneficial is an ongoing debate. I would point out that in many cases enforcing artificial health on people can have negative outcomes. Recently, the Ebola virus in Africa killed several thousands. If the sick had been allowed to immediately die without care, the disease would not have spread so far. It could be said that attempts to regulate "living" into people merely leads to a masking of human frailty, which can be very dangerous. -=-=-=- Maybe a slightly less offensive comparison on my part would have been wildfires. They do just fine without human intervention. And yes, maybe humans do intervene too much. But gee, we like our houses to not be on fire. That doesn't mean we let the fire just burn, though.

miscellaneous 11y ago
Reasoning by analogy is not a sound way to make an argument. In fact, reasoning by analogy is always wrong to some greater or lesser degree. It is much better to directly address an argument. Markets are created by humans when humans exchange things. The current market price express the current knowledge of all participants about the value of some traded thing. This is a decentralized process that often involves millions of different people with skin-in-the-game. The argument against government regulation follows from this: regulation distorts the market from an equilibrium price. If this is a temporary measure then regulation is only delaying the inevitable and you should let the market reach equilibrium sooner. If it is a permanent measure, then you have a situation where the market no longer reflects the current knowledge of all participants, and at this point you start to lose the core value of a market. By the way: markets aren't analogous to smallpox and wildfires, and regulation is not analogous to doctors and firefighters. Although this is an interesting insight into your world-view ;)