Correct

6. The best thing for wages and working conditions is full employment, and we can achieve this by getting rid of the minimum wage and regulations. This will increase wages and improve working conditions, but these higher wages and conditions won’t reduce employment in the same way as the regulations did before because free market.

Yup.

Because optimal.

There is some level of wages and working conditions which is the best we can do at any particluar level of technology or wealth. The trade offs of those in work having great wages and conditions and those who can\’t get work because their labour is not worth the great wages and conditions.

We need some method of calculating what is this optimal trade off.

It is possible that the flapheads and addlepates that go into politics are able to calculate this optimal trade off. Historical experience tells us that this isn\’t quite the way it works out.

It is also possible that Hayek was right, that it isn\’t possible to do such calculations about the economy because we have to actually use the entire economy to perform the calculations for us.

65 million people employing the wisdom of the crowds to reach that best as we can get to optimum instead of the flapheads and addlepates who go into politics.

Yes, quite, because free market.

25 comments on “Correct

  1. ‘The trade offs of those in work having great wages and conditions and those who can’t get work because their labour is not worth the great wages and conditions.’

    This seems to be based on the circular premise on which many free marketeers operate – labour is paid its marginal product so we shouldn’t interfere because it’s paid the right amount.

    However, if you approach it from a bargaining power perspective – employers being more numerous than employees – then the state is required to correct a ‘market failure’ and as such its actions won’t be inefficient.

    Politicians may be twats but it’s not a question of them ‘knowing better’ than the market. Designing a system in which individual actors operate does not require you to ‘know better’ than those actors.

  2. Huh? It’s quite noticeable where he states but does not provide links. For example,

    2. “regulators can be captured means we shouldn’t use them.” No, it means we should somewhere between “be careful of” and “distrust them when they refuse to justify their actions.” The same, of course, does indeed apply to police corruption (along the “you can take a picture here” as well as the “taking bribes from crooks” or “ignoring offences by policemen” lines) and I’ve yet to hear a “free marketeer” say that police corruption should not be illegal, investigated or, where proven, punished.

    3. Fraud and “information asymmetry” are the same thing? No, only if you misrepresent. The fact that

    22. Adam Smith criticised the “division of labour”?

    As well as the simple errors. See 5 – where there is an author’s correction that makes his point. Although I’d be up for an argument that inheritances should be considered wealth (a stock) rather than income (a flow.) As, indeed, are capital gains, merely being realised from assets to cash (although if that is your business, I can understand why they may be taxed as flows.)

  3. “The fact that” … different actors in a transaction have different knowledge is not, by definition, fraudulent. You may have an old ford car part, they may need that specific year’s version for the restoration of an original Ford GT.

  4. @2

    I only didn’t provide links where I thought points were well established. Smith has a well known passage on the DoL where he talks about men becoming ‘as stupid as a man can become’ (or something similar).

    Fraud and information asymmetry are the same thing. Fraud as defined by google:

    Wrongful or criminal deception intended to result in financial or personal gain.

    i.e. one party not having the right information. Note how Akerlof never used the term ‘information asymmetry’, instead using ‘dishonesty’.

    On police: I have seen Scott Sumner, for example, argue against regulation on grounds of regulatory capture. My point is that yes, things like that do happen, but they are practical problems and need to be dealt with as such. ‘Free market’ opponents tend to take the latter position with police but the former with economic capture.

  5. An argument for mechanisation (which is very ‘division of labour’:

    The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.

    “Wrongful or criminal deception” is not the same as “information asymmetry”, no matter how you twist it. Some uses of information asymmetry may be fraudulent – and not all frauds require information asymmetry. Intersection of sets does not imply equality.

    Some people clearly believe that our current experience with regulatory capture is so bad that we need to bin it (Ron Paul on the EPA, for example). Even most minarchists believe in state law enforcement (and, as I said, I haven’t seen any free-market argument for police corruption.)

  6. I guess like all of Smith that quote is very open to interpretation – I personally wouldn’t see it as an argument for mechanisation but a criticism of the DoL, and, given his support for regulations ‘aimed at the working man’ elsewhere, advocation for breaks or whatever else to keep people sane.

    Surely frauds by definition require one party to have more information/correct information than the other, and to use that to their advantage?

    I’m not sure of your point at the end – I’m not saying ‘free market’ proponents advocate corruption, just that they use it as an argument against enforcement somewhere and see it as a practical problem somewhere else.

  7. “However, if you approach it from a bargaining power perspective – employers being more numerous than employees ”

    Is this a typo? Presumably you mean employees are more numerous than employers.

    Assuming so, I an not sure that automatically means that employers are more powerful than employees. (As just one example, I would find it a lot easier to leave my employer than my employer would find it to get rid of me).

  8. Yeah that’s a typo

    That is only because of state regulations though. Capitalism tends to keep a large section of the population unemployed (witness: history) and as such workers rarely have much control over their hours/conditions/pay (again, witness history).

    I mean, just take a look at your average job listings. What % of pay rates are negotiable? How can an individual employee effect meaningful changes in conditions? Can you see your average office worker getting out of the roughly 30-40 hour working week?

  9. “What % of pay rates are negotiable?”

    100% of them. Up to you whether you take the job offered at the money. If the employer can’t fill the vacancy the rate needs to be raised.

    Sorry but you can’t individualise your employer then collectivise labour just to prove a point.

  10. State regulation isn’t the only thing that makes it harder for a company to get rid of an employee.

    When the company has to take into account the cost of advertising a replacement, finding the replacement, training the replacement up to the level of the previous employee, then it can be quite difficult decision to get rid of good productive staff.

    All state regulation does is make it difficult for a company to get rid of non-productive staff which would otherwise be relatively cheap. The replacement would quickly recoup the cost of their hire compared to the cost of keeping a useless member of staff on the books.

    Employees can always leave a company at the drop of a hat, not withstanding notice periods.

  11. BiS,

    You are confusing action with competence (or logical coherence). He clearly can, he just has. Whether he should or not, is a different matter.

    But, like our favourite WGCE, we have clearly got a “man on a mission” here. However, he is at least willing to communicate. Even if it seems to be mostly by restatement of previous declared positions.

  12. “That is only because of state regulations though.”

    Ok, fair observation. Not a good example on my part.

    I’ll try another. I get paid considerably more than the minimum wage. This is not because my employer is nice (although they are quite a good company), but because they would not be able to fill the role for minimum wage, or indeed for considerably more than minimum wage.

    ” Capitalism tends to keep a large section of the population unemployed”

    I fail to see the mechanism by which Capitalism does this. Moreover, regulation not only does mitigate this, it causes more unemployment by making labour more expensive.

  13. Surely frauds by definition require one party to have more information/correct information than the other, and to use that to their advantage?

    Nope. They can be done by different interpretations of the same information. And you insisted the converse as well – different information makes it fraud. Only if there is, under English law (Fraud Act 2006), either false representation (s2) or a failure to disclose information that you are legally required to disclose (s3).

    Saying nothing, for example, about how much you need an item (which is clearly asymmetric info) does not make it fraud. Neither does the vast amount of information your insurance company holds, but you don’t, and it uses to provide you with a quote.

  14. “Surely frauds by definition require one party to have more information/correct information than the other, and to use that to their advantage?”

    Don’t think so. Both parties could be equally utterly ignorant about the truth, and each could fraudulently make up “facts” and try to convince the other party that they are true. That would be fraud with equal information.

    But more widely, information assymetry does not equal fraud. Fraud requires an active attempt to make someone believe something that isn’t true.

    As an example:
    – If I am selling my car, and know that it takes 6 goes to get it to start on a cold morning, but the potential buyer doesn’t because it’s August, that’s information assymetry but not fraud.
    – If I advertise it as being a “good starter”, that’s fraud.

  15. @14, most transactions are the result of asymmetric information aren’t they? If you knew what I was going to do with X you’d do it yourself/ if I knew where you obtained X I’d get it from the source.
    A market means you don’t have to do all that gathering of information & go to the trouble. You pay for it in the price.

  16. Obviously a couple of things need to be established:

    – The information needs to be relevant to the parties involved.

    – The information asymmetry needs to be abused.

    With these conditions I truly do not see a difference between problems created by ‘information asymmetry’ and those created by ‘fraud’.

    ‘100% of them. Up to you whether you take the job offered at the money. If the employer can’t fill the vacancy the rate needs to be raised.’

    You’re implicitly assuming that the worker can choose not to work or choose another job. History suggests this is rarely the case.

    ‘I fail to see the mechanism by which Capitalism does this.’

    I’m offering an ‘appeal to history’ as large segments of the population have been unemployed for long periods of time for the last few centuries. I’m aware it is considered a formal fallacy in economics, though.

    ‘Employees can always leave a company at the drop of a hat, not withstanding notice periods.’

    Right but it’s not costless for them either – they have to search for a new job in the same way employers have to advertise it.

    Tim adds: “The information asymmetry needs to be abused.” “With these conditions I truly do not see a difference between problems created by ‘information asymmetry’ and those created by ‘fraud’.”

    You’ve answered your own question right there but seem not to realise so. It’s the abuse that constitutes fraud, not the information asymmetry. Thus the problems of information asymmetry and abuse are different, see?

    “You’re implicitly assuming that the worker can choose not to work or choose another job. History suggests this is rarely the case.”

    Many millions of people change their jobs each and every year. This is evidence that people cannoot change their jobs how?

    “I’m offering an ‘appeal to history’ as large segments of the population have been unemployed for long periods of time for the last few centuries.”

    Large numbers of people have been unemployed in pre-capitalist societies too. So unemployment is a defining characteristic of capitalism how?

  17. Sorry, we are forgetting that “neoliberal capitalist economics is the breeding ground for horrid baby-eating monsters who only exist to grind the faces of the poor into the dregs of their Chateau Petrus and clearly responsible for all the ills of the world. Except possibly the Nazis. But they were right-wingers too!” is now established fact.

    Established, of course, by popular vote. Of a publicly invited audience. Of the members of OccupyLSX.

    Proper neo-liberal economics? The banks should have been allowed to go bust. IMHO, it was Labour support for Northern Rock – simply pandering to their core vote – that allowed the real rot to set in. The Yanks did it better, for the banks at least. Where their core vote lay, in the auto unions, they’ve done as badly if not worse.

  18. Pingback: Libertarianism Versus Public Choice Theory « Unlearning Economics

  19. Tim did you try and edit objections into my post? I’m slightly confused at what’s going on.

    SE I’m not sure if what you’re saying about the banks and neoliberalism is relevant to this argument.

  20. You’re not having an argument. You are merely repeatedly restating your various positions. That neo-liberalism, capitalism, eating babies and not accepting that something is true because you have declared it are all evil.

    This is you, isn’t it?

    This blog is intended as an antidote to mainstream or neoclassical economics

  21. UnlearningEcon if I were to say “The Earth’s climate changes wildly without any kind of human behaviour that explains the changes. See: history” would you accept that as an argument for doing nothing about climate change?

  22. UnlearningEcon – “That is only because of state regulations though. Capitalism tends to keep a large section of the population unemployed (witness: history)”

    Actually wherever the State is weak and the market strong, unemployment tends to be low. It is only in Social Democracies (and to a lesser extent their weak extensions in Latin America although that is largely a problem with official figures) that unemployment remains high for as long as months much less decades.

    “and as such workers rarely have much control over their hours/conditions/pay (again, witness history).”

    All through history workers have had as much control over their hours, conditions and pay as they have liked. They have had to negotiate such things, but they have always been able to do so if they want.

    “I mean, just take a look at your average job listings. What % of pay rates are negotiable?”

    All of it. You may not get far, but I always demand more money at a job interview. I have always got something more as well.

    “Can you see your average office worker getting out of the roughly 30-40 hour working week?”

    Not if they are average, no. But if they have a talent that someone wants, they can write their own ticket.

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