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As it turns out, I'm not making up my own definitions here. The view of a free market being a market with equitable access is attributable to Adam Smith from hi

by nrr 28d ago

As it turns out, I'm not making up my own definitions here. The view of a free market being a market with equitable access is attributable to Adam Smith from his Wealth of Nations. He bases his understanding of this freedom on the absence of private rent-seeking and absence of monopoly privilege (though in 1700's vernacular). Henry George in his Progress and Poverty makes similar gestures toward defining a free market this way. Part of the reason why it's important to consider other definitions (and other economic models) is that there is an important result in economics from the 1970's that, more or less, establishes the lack of a guarantee that the demand curve in an aggregate demand model (a macroeconomic model) will slope downward. This makes the aggregate demand model less than useful for a priori arguments about supply and demand in the macro context; they must instead be approached a posteriori. It's also the big reason why I'm uninterested in a colloquial definition that is heavily filtered through von Mises and Friedman.

WalterBright 28d ago
People often try to derail debates by arguing about the definition of a word. I'm not interested in such. The government tries to repeal the Law of Supply and Demand all the time. Unsuccessfully. A while ago, a good friend of mine asked me what would happen to jobs if the minimum wage was raised. I said the number of jobs would go down. He said "aha! here's a study that proved that the jobs increased!" I said I don't need to read it, because the researchers goofed. Some years later, the study was retracted because it was flawed. It was like a story on HackerNews some years back that made a claim that electric cars were 90% efficient. I knew that was hokum right off the bat. But I still had people with PhD's in engineering saying it was true. The car loses 10% just in losses in the battery, let alone anything else. So I did some research on the author. Seems it was a person without a degree in physics or engineering who worked at a ski resort.
- nrr 28d ago
  Please forgive me. I happen to have a formal background in economics by way of training as an actuary, and I can't take seriously the implication that the standard model is a law. Supply and demand aren't invariant under all conditions.
  - WalterBright 27d ago
    > Supply and demand aren't invariant under all conditions. I'm curious. When does it not apply?
    - vkou 27d ago
      I have demand for people not dumping garbage in the oceans. Other people have a demand to dump garbage in the ocean because it's cheaper than disposing of their trash properly. How does the free market solve this? Will someone be buying the ocean any time soon?
      - nec4b 25d ago
        Ironically you are making his point. Countries that have stronger respect for property rights dump way less or no garbage in the oceans as the countries where there is no such respect.
    - nrr 27d ago
      I'll flip this around and instead elucidate when it does apply if that's alright. The supply and demand model only applies to analysis of microeconomic systems with perfect competition, namely of systems that lack monopoly and monopsony; that have perfect information; that lack an ability of a single economic actor to affect the price in the market; that lack externalities[0]; that lack transaction costs; that lack unknowable probability distributions of outcomes; that lack economic actors that change their behaviors based on what they expect other actors to do; and that lack non-market rules or structures that restrict prices, quantities, or entry. These assumptions are all-or-nothing, and there are a lot of them. It's also an equilibrium model, and we aren't guaranteed to have equilibrium. For macroeconomic analysis (i.e., analysis of multiple sectors of an economy or multiple economies), it's problematic because of a theorem from the 1970's due to Sonnenschein, Mantel, and Debreu. I've stated it elsewhere, but it also has the implication that the behaviors of the actors in a microeconomic system do not carry over to the macroeconomic context. This tends to violate many of the assumptions above. (Though, if it isn't obvious how or why, please ask.) Furthermore, in the macro context, I don't think we'll ever have equilibrium; at least, I'm having a hard time thinking of an example when it exists. Let's bring in a physics analogy. While we can look at mechanics through the lens of elementary algebra, those tools really only give us the ability to look at static force-balance problems for springs and pulleys in equilibrium. To model such a system more closely to how it behaves in the universe, with damping, inertia, and feedback (and whatever other time-dependent behaviors I may be forgetting), we are best served moving to differential equations. Economics is no different; the supply and demand model is a lot like Hooke's law in its simplicity and its applicability. (In fact, in my modeling, I very heavily used numerical solutions of PDEs.) -- 0: When the retail price of kerosene tanked by 70% between 1860 and 1880, this resulted in millions more kerosene lamps and lamps broadly being lit for longer periods of time. This had externalities in the form of more soot and particulate matter (and probably also respiratory illness, but I couldn't seem to find anything with observations from the time period).

by nrr 28d ago

WalterBright 28d ago

People often try to derail debates by arguing about the definition of a word. I'm not interested in such. The government tries to repeal the Law of Supply and Demand all the time. Unsuccessfully. A while ago, a good friend of mine asked me what would happen to jobs if the minimum wage was raised. I said the number of jobs would go down. He said "aha! here's a study that proved that the jobs increased!" I said I don't need to read it, because the researchers goofed. Some years later, the study was retracted because it was flawed. It was like a story on HackerNews some years back that made a claim that electric cars were 90% efficient. I knew that was hokum right off the bat. But I still had people with PhD's in engineering saying it was true. The car loses 10% just in losses in the battery, let alone anything else. So I did some research on the author. Seems it was a person without a degree in physics or engineering who worked at a ski resort.

nrr 28d ago
Please forgive me. I happen to have a formal background in economics by way of training as an actuary, and I can't take seriously the implication that the standard model is a law. Supply and demand aren't invariant under all conditions.
- WalterBright 27d ago
  > Supply and demand aren't invariant under all conditions. I'm curious. When does it not apply?
  - vkou 27d ago
    I have demand for people not dumping garbage in the oceans. Other people have a demand to dump garbage in the ocean because it's cheaper than disposing of their trash properly. How does the free market solve this? Will someone be buying the ocean any time soon?
    - nec4b 25d ago
      Ironically you are making his point. Countries that have stronger respect for property rights dump way less or no garbage in the oceans as the countries where there is no such respect.
  - nrr 27d ago
    I'll flip this around and instead elucidate when it does apply if that's alright. The supply and demand model only applies to analysis of microeconomic systems with perfect competition, namely of systems that lack monopoly and monopsony; that have perfect information; that lack an ability of a single economic actor to affect the price in the market; that lack externalities[0]; that lack transaction costs; that lack unknowable probability distributions of outcomes; that lack economic actors that change their behaviors based on what they expect other actors to do; and that lack non-market rules or structures that restrict prices, quantities, or entry. These assumptions are all-or-nothing, and there are a lot of them. It's also an equilibrium model, and we aren't guaranteed to have equilibrium. For macroeconomic analysis (i.e., analysis of multiple sectors of an economy or multiple economies), it's problematic because of a theorem from the 1970's due to Sonnenschein, Mantel, and Debreu. I've stated it elsewhere, but it also has the implication that the behaviors of the actors in a microeconomic system do not carry over to the macroeconomic context. This tends to violate many of the assumptions above. (Though, if it isn't obvious how or why, please ask.) Furthermore, in the macro context, I don't think we'll ever have equilibrium; at least, I'm having a hard time thinking of an example when it exists. Let's bring in a physics analogy. While we can look at mechanics through the lens of elementary algebra, those tools really only give us the ability to look at static force-balance problems for springs and pulleys in equilibrium. To model such a system more closely to how it behaves in the universe, with damping, inertia, and feedback (and whatever other time-dependent behaviors I may be forgetting), we are best served moving to differential equations. Economics is no different; the supply and demand model is a lot like Hooke's law in its simplicity and its applicability. (In fact, in my modeling, I very heavily used numerical solutions of PDEs.) -- 0: When the retail price of kerosene tanked by 70% between 1860 and 1880, this resulted in millions more kerosene lamps and lamps broadly being lit for longer periods of time. This had externalities in the form of more soot and particulate matter (and probably also respiratory illness, but I couldn't seem to find anything with observations from the time period).