The Fable of Market Meritocracy

Markets don't reward smart people. They reward value.

It's a good thing that French President Nicolas Sarkozy is brimming with amour-propre because he certainly did not earn any amour from the business elite gathered in Davos last month. In a bombastic riposte—delivered, no doubt, in one of his fabulously expensive designer suits—he proclaimed that the recent financial meltdown had demonstrated that letting markets decide executive compensation was "morally indefensible." "There are remuneration packages that will no longer be tolerated because they bear no relationship to merit," he said.

But here's some news for Mr. Sarkozy: Markets don't reward merit; they reward value—two very different things. If Mr. Sarkozy does not appreciate the difference, it's not his fault actually. Most advocates of markets have failed to fully make this distinction, perpetuating a cult of market meritocracy—something that has hindered, not helped, the cause of free markets.

With the notable exception of Nobel laureate F.A. Hayek, market theoreticians have to a large extent employed the equivalent of the Great Man theory of history to explain what makes markets tick. According to this theory, the course of history is shaped not by the convergence of multiple, unpredictable events but by the intervention of great men. Likewise, in the conventional thinking about markets, economic progress depends not on the labors of infinite economic actors but on the select few, the brainiacs, who rise to the top and generate innovations from which ordinary mortals benefit through a kind of trickle-down effect.

English sociologist Michael Young noted in his influential 1958 fable, The Rise of the Meritocracy: "Civilization does not depend on the stolid mass, the homme moyen sensuel, but upon the creative minority, the innovator ... the brilliant few … the restless elite who have made mutation a social as well as a biological fact." Less elegantly, Ayn Rand evinced a "pyramid of ability" in capitalism under which "the man at the top contributes the most to all those below him." What's more, this Nietzsche of capitalism opined: "Man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of their brain."

What's good about markets in this line of thinking is that they identify the incandescent geniuses among us and catapult them to the top where their innate brilliance is harnessed to improve the lot of mankind. At once, then, markets yield economic progress and what Rand (and others) regard as justice—the biggest rewards to the best.

The only problem with this neat little formulation is that it is wrong at every level. For starters, the idea that value creation is a one-way street from the top to the bottom is not just offensive, but it ignores the principle of comparative advantage, a key breakthrough in market theory. Put simply, this principle holds that everyone benefits by exchanging goods and services with everyone else, regardless of anyone's inherent capabilities. It's in the interest of even the most annoying "all-rounder" (as we say in India), who is better than me at everything, to specialize in those tasks in which our gap is the biggest and trade with me for those in which our gap is smaller. Under the elaborate division of labor that ensues, both the less-endowed and the better-endowed contribute to each others well being.

But is it the case that this division of labor necessarily directs the biggest rewards to the most gifted by putting them at the highest end of the value chain? No.

The beauty of the market, Hayek brilliantly pointed out, is that it allows people to use knowledge of their particular circumstances to generate something valuable for others. And circumstances, he emphasized, are a matter of chance—not of gift. Furthermore, since no two people's circumstances are ever identical, every producer potentially has something—some information, some skill or some resource--that no one else does, giving him a unique market edge. "[T]he shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices, are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others," noted Hayek.

In a functioning market, Hayek insisted, financial compensation depends not on someone's innate gifts or moral character. Nor even on the originality or technological brilliance of their products. Nor, for that matter, on the effort that goes into producing them. The sole and only issue is a product's value to others. Compare an innovation as incredibly mundane as a new plastic lid for paint cans with a whiz-bang, new computer chip. The painter could become just as rich as the computer whiz so long as the savings from spills that the lid offers are as great as the productivity gains from the chip. It matters not a whit that the lid maker is a drunk, wife-beating, out-of-work painter who stumbled upon this idea through pure serendipity when he tripped over a can of paint. Or that the computer whiz is a morally stellar Ph.D. who spent years perfecting his chip.

The idea that there is no god (or some secular version of him) meting out cosmic justice through the market's invisible hand is unsettling, even to market advocates, but it shouldn't be. It opens up the possibility of a defense of markets that is, as it were, more marketable.

Few would dispute that markets are fairer than the aristocratic order they replaced where privilege was a birthright, not something to be earned. But the view that the super-gifted or the super-smart deserve the biggest rewards doesn't seem a whole lot fairer given that these traits are arguably inherited, too. This conception, in fact, forces those who are less successful to internalize their failure—accept their second-class status as preordained—breeding alienation and resentment. Hard work or some quality of character would offer a more palatable basis for building a case for markets, except that all the lowlifes who routinely make it rich in markets offer too much evidence to the contrary.

Hayek's understanding of markets overcomes these problems by, first and foremost, democraticizing the concept of merit. If anything in your possession, no matter how trivial—some local knowledge, some quirky interest—can potentially be turned into something useful for others, then there is not any one formula for market success; there are a potentially infinite number. This means that success is possible for a far wider range of people in a market, making market societies inherently less hierarchical than more closed ones.

Take, for instance, India in its preliberalization days. Economic opportunities were exceedingly limited in its regulated and centrally planned economy. The most sought-after professions were engineering, medicine, accounting, and—hang on to your fountain pens!—civil service, because they offered a path to secure jobs in government-approved sectors. Competition for professional colleges was fierce. The lucky few who made it into elite institutions such as the Indian Institute of Technology for engineering were regarded almost as a special breed. Even now, the unabashed elite-worshipping that IIT graduates command in India would make Zeus blush.

But free markets change all this. They close the talent-gap by allowing people to ferret out and market whatever they've got—even, regrettably, Paris Hilton. In America, for instance, there are opportunities galore for funny people—standup comedy, late-night talk shows, etc.—who may have no head for math or science. Their sense of humor is a prized commodity, a gateway to riches and fame, instead of social ridicule as it would have been in the India of yore.

But markets don't just expand and democratize the concept of merit; they render it moot. No longer does it matter what great qualities reside in you. What matters is if you can make them work for others. The concept of merit is replaced by that of value. Merit is intrinsic, concentrated, and atomistic; value is relational, decentralized, and social.

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  • Caption||

    "I can fit my cock through this...no trouble!

  • Carla Bruni||

    You can say that again.

  • ||

    Is this a penis joke?

  • ||

    Is this a penis joke?

  • TheOtherSomeGuy||

    A person of merit is smart enough/lucky enough to produce a product or service of some value.

    The market rewards value, but only people of any merit bring value to the market. The people of no merit don't have the brains to find something of value to sell.

  • Jon Jackson||

    You're forgetting Forrest Gump. If Winston Groom can write a book people want to read then anyone can create something that people want enough to pay money for.

  • Attorney||

    The people of no merit don't have the brains to find something of value to sell.

    You're forgetting Paris Hilton.

  • Prosecution rests||

    Brainless Paris Hilton no doubt made more money than you have with a brain. Do you agree she is damn smart or you have overrated your own cerebral power?

  • JV||

    Hahahaha, delightful analysis.

    Luck is all and randomness rules? No god? You eat what you kill?

    A frightening dark street that is to go down. And when you do, who do you meet?

    A very enjoyable read.

  • ||

    All of the above may true. But why didn't the "Market" take care of the situation in the first place. How free is a "Free Market"?

  • Soonerliberty||

    Exactly, b/c it wasn't free. Without gov't intervention such things are highly unlikely.

  • DooDooEcon||

    The market would have taken care of this, but we bailed out the people who were not providing value and there for did not Merit a bailout.

  • K-Y||

    Who linked to this on Forbes? I read this 2 days ago.

  • Attorney||

    BTW, media types should stop according this doofus the respect of pronouncing his name in a Frenchified Sar-ko-ZEE. From now on, he should be plain old Sar-cozy.

  • PIRS||

    His last name is Hungarian anyhow.

  • Chad||

    Ahh, libertarian logic...

    Why do high earners deserve the loot they manage to get their hands on?

    Because they create unquantifiable value!

    How do you know they created this value?

    Well, because they must have created it, or they wouldn't have earned so much money? Don't you get it?

  • TheOtherSomeGuy||

    You in the habit of giving people money in exchange for useless, worthless goods and services?

  • PIRS||

    +1

  • K-Y||

    He must be in government.

  • Carla Bruni||

    I think he donated to the Obama caampaign. QED

  • Chad||

    Actually, people do this all the time. For example, people purchase coal power quite routinely, even though it is worthless (indeed, harmful) once you count all the other factors that affect third parties.

    But that is not my point today. My point is that the value that people add is immeasurable, and you simply ASSUME that it is directly related to what they earn. Your logic, therefore, is entirely circular.

  • Old Mexican||

    Re: Chad,

    Why do high earners deserve the loot they manage to get their hands on?

    Your sudden preoccupation with the morality of looting is so touching, especially coming from a fruitcake that believes each of us has to be looted out of at least 33% of our productive efforts.

    My point is that the value that people add is immeasurable, and you simply ASSUME that it is directly related to what they earn. Your logic, therefore, is entirely circular.

    Let me explain to you why you are an idiot: The value the person creates is in the eye of the person that paid him. You cannot presume to read minds in order to assume the value was immeasurable - that's YOUR opinion, not the person that paid the executive or laborer or designer or whatever. In other words:

    VALUE IS SUBJECTIVE, dumbass!

  • Chad||

    Yes, value is "subjective". Yet you guys sure claim to know a lot about it, which is in fact the very idea I was mocking.

  • ||

    So, you're ignorance is such that "subjective" value means nothing?
    Do you only buy things that are "approved" by the your local committee as "objective" value?

  • Old Mexican||

    Gee, nice comeback there, Chad.

  • ||

    "Let me explain to you why you are an idiot: The value the person creates is in the eye of the person that paid him." No! He is an idiot due to genetics.

  • ||

    "The value the person creates is in the eye of the person that paid him."

    Not when the person paying him is a buddy using other people's money.

  • ||

    Chad|2.12.10 @ 7:18PM|#
    "Actually, people do this all the time. For example, people purchase coal power quite routinely, even though it is worthless (indeed, harmful) once you count all the other factors that affect third parties."

    Truly ignorance for the ages...
    Ah, Chad, I'll make this *very* elementary, since you obviously need that level of instruction.
    A market transaction is what happens between two actors; the seller and the buyer.
    The seller values what's offered more than the good offered for sale; hence the payment is of higher value to the seller than the good.
    The buyer values the good higher than the cost of buying that good; hence the good is of higher value to the buyer than the cost.
    Both receive increased value, regardless of the comments of ignorant, third party, Chads

  • ||

    IMO, I suspect the problem is one of definition. There is subjective value, which is the degree to which and item is perceived to have some usefulness. Then, there is 'objective' value, which would be the same as 'subjective' value if we had perfect information (which we don't, of course). We have disagreement because one person uses the first definition and anther uses the second. (Perhaps it would be better to call this objective value 'utility' rather than 'value'.) It's in everyone's best interests for more information to be available to allow value to match utility as much as possible. It also means one of the most important things people can learn is how to process this information. I think of the label on a carton of milk as an example. If the carton had no label and the contents was a mystery, the (subjective) value might be rather low even though the utility (objective value) would remain unchanged.

  • Chad||

    Ah, Chad, I'll make this *very* elementary, since you obviously need that level of instruction.
    A market transaction is what happens between two actors; the seller and the buyer.

    Let me make it *very very* elementary for you, since you obviously need this level of instruction.

    A market transaction almost never involves just two people, and almost always involves non-consenting third parties whose wishes are not reflected in the transaction.

    Here is another way to show that "value" has little to do with what is earned.

    A couple of months ago, I bought a car. When I was negotiating the price and interest rate, there were about $2000 at stake. Now, is the "value" of this transaction affected by what final price we negotiate? NO. The "value" is fixed, being the difference between the highest I would have been willing to pay, and the least he would have been willing to sell for (roughly $2000, as I noted earlier). Yet the seller's payout is NOT fixed by the "value" he creates, but rather by his salesmanship vs my knowledge (or gullibility, depending on the buyer). Two salesmen often receive drastically different results not because they created more "value", which is fixed, but because they were better at capturing value.

    To an economist (and a libertarian), it matters not a whit how that $2000 is allocated. You simply stop and assume as long as someone got it, everything is fine. But in fact, there can be a big difference between me capturing most or all of it, and him. This is most strongly seen in exploitive situations, where a libertarian argues "Well, those sweat-shop workers MUST be better off". This is true, but you are missing the point. They are indeed "better off", usually by pennies, while their boss is a lot better off. You have no problem with this, and just wash your hands and walk away from the problem.

  • Sean W. Malone||

    No Chad... You're still an idiot. Each successive transaction really only involves two parties, for all intents & purposes.

    The dealer has transaction with the manufacturer, who has transactions with his suppliers, etc.

    The more complexities involved in the system don't really change that as a basic structure of exchange. Ultimately it all comes back down to one man exchanging his time & labor for something he values with another person. In groups this winds up being a situation where 1 person (employer) makes these exchanges repeatedly with each of his employees, and then other exchanges with each of his clients. It's really no different, but each trade is just one person to one other person.

    If you want to get into group bargaining issues, it's still essentially a one-to-one situation.

    But in NO CASE is the value fixed, as you posit above.

    The value is based on your perception of the exchange. If the exchange is worth more or less than $2,000 to you - only you can know that. The Salesman can make a good case for why it should be more, and you can make a case for why it should be less... But if you are going into a sales situation without doing your homework, there's nothing anyone else can do for you...

    Life requires action, and thinking, and learning stuff - or you make bad choices. I'm sorry to break that news to you Chad, but that's the way it is... Doesn't matter if you're talking about buying a car, or a grapefruit. The value is whatever you make of it, and if you're not going to put in the minimal amount of time to learn what makes a car or a grapefruit good or bad, then you may make arguably bad value judgments. I'd encourage you to grow a pair of testicles, man-up and use your brain instead of whining about salespeople's ability to influence you.

    The fact that you constantly seem to want to evade is that life is in fact, challenging. Sweat shops do suck, no question - but people are in fact better off at the Nike plant in Taiwan versus the jobs they would other wise have access to. But you're making huge mistakes in thinking that you can just write a law and magically make the pay of the average Taiwanese guy comparable to the pay of an average American.

    Reality doesn't work that way.

  • Chad||

    But in NO CASE is the value fixed, as you posit above.

    I did not posit this at all. It is only "fixed" (but unmeasurable) for a particular transaction between two particular actors.

    You didn't even address my point, which is that a world where sweat-shop workers keep pennies and there bosses keep dollars out of each "transaction" they make is a lot different than a world where they split the value evenly, or one where the workers keep most of the value.

    According to market theory, there is no difference at all.

  • oaktownadam||


    You didn't even address my point, which is that a world where sweat-shop workers keep pennies and there bosses keep dollars out of each "transaction" they make is a lot different than a world where they split the value evenly, or one where the workers keep most of the value.

    Again, Chad, you've missed the point. You're conflating several market transactions into one.

    1. Boss pays worker for worker's labor.
    2. Boss directs that labor towards projects which create goods or services.
    3. Boss sells the goods or services to a client.

    Are you really arguing that the Boss has not done anything of value? Because the way I see it, the Boss has created value for both the worker and the client, and benefits independently from both transactions.

    The worker is free to try and circumvent the boss and sell the products of his labor directly to the client, but in many cases, will find that he does not have the time or energy to be able to both create the good AND find a buyer for it.

    As the good involved in the transaction becomes more complicated and more time-consuming to produce, this becomes even more true. Eventually, the role of the Boss is required for efficiency.

    Those poor workers in your hypothetical sweatshop are being compensated for the value they add to the transaction. What value does the product of their labor have if there are no buyers available to purchase it?

  • Chad||

    The worker is free to try and circumvent the boss and sell the products of his labor directly to the client

    lol....what planet are you living on?

  • oaktownadam||

    Planet Earth....what fascist nightmare are you living in?

    In what scenario are you imagining that people can't start their own businesses?

    If I know how to make shoes, I have two choices: I can work for a company which makes shoes as an employee, or I can start my own company to make shoes. If I start my own company, than I have to handle the marketing on my own, which was my point in the first comment.

    In summation, Shut The Fuck Up, Chad.

  • ||

    seriously. if by "circumvent" you mean commit suicide.

  • KPres||

    Chad, none of that matters.

    Profits, wages and prices always migrate to their lowest possible level in a competitive market, because it is ultimately driven by the consumer, who has the last say in whether a transaction occurs.

    In your example...

    If the boss makes $2000 and the workers make pennies, it's because $2000 is the lowest possible incentive that can induce somebody into producing the product.

    If $1500 was enough money to lure in somebody with the capability of producing the product, then they would enter the market and it drive the margins down to $1500.

    That's why libertarians and economists ignore the so-called "problem" you bring up. Because if the profit margins are artificially reduced below equilibrium (presumably by gov't), it doesn't create "fairness", it just means the product doesn't get produced and the consumer loses out.

  • Chad||

    Again, you start right off by ASSUMING your religion, the "competitive market".

    No such thing has, or ever will, exist.

    I am quite sure every one of the sweat-shop workers would love to take the boss's place, and that their relative positions has little, if anything, to do with any form of merit or ability.

  • Sean W. Malone||

    Good luck with that Chad.

    I'm sure any of the workers *would* love to take the boss' place, but success or failure isn't random chance, though I suppose that's a convenient position to take if you're only looking to scapegoat other people for your shortcomings.

  • Chad||

    No, Sean, it isn't "random chance". It is non-random chance - a mixture of non-random and random factors.

  • Sean W. Malone||

    No one here would remotely disagree with that. But as they say, "luck favors the prepared".

  • Sean W. Malone||

    To elaborate the tiniest bit, Chad...

    Even when people are lucky enough to win the lottery, many of those same people are poor again later in life because they never learned money management skills or self-control because it's not actually about luck. Luck presents opportunities, but you still have to know what to do with them.

    I recently just finished working on arranging a musical for a client I met on an airplane. Luck brought me to the individual who needed my services (as it usually does to one extent or another) but I still had to have the skills to back that up. Developing those has taken many years of consciously directed hard work, study, education & practice. No amount of "luck" can make up for that.

  • Sean W. Malone||

    I'm also a bit confused... There is no such thing as a competitive market?

    Funny - as the owner of a sole-proprietorship business, I am actively engaged in that "non-existent" competitive market every single fucking day.

    The only places where that doesn't exist are where asshats like yourself get government to re-write the rules and protect people from that competition.

    Which brings up another kind of important point:

    If the market wasn't inherently competitive, then no business would EVER have the need to influence government to protect them from the hardships of that competition.

    Gotta love how you talk out of your ass though... Wait... The other thing... "Hate"... Gotta HATE how you talk out of your ass.

  • ||

    competitive markets compel those participating in them to mitigate competition. If you can do it by buying government influence, isn't that a 'free market' solution? You're such a trooper, out there every fucking day in your free market fantasy. What a high roller. We're all thankful for your service. Everything Libertarians say is self-stultifying.

  • k||

    Your argument would apply to Korea in the 60's, and china a decade and a half ago. But their provision of low cost labor started a chain of events that has measurably improved the standards of living in those countries. Quite dramatically if I may say so.

    Setting up a running shoe assembly plant in Manhattan and paying the same wages as Indonesia would not get any workers because the workers in Manhattan value their time higher than what is on offer.

    But in a third world country, the alternatives to working in such a plant are being the one too many kid living off an unproductive farm, or something similar. So for that person, as opposed to the person in Manhattan, the wages on offer are of great value.

    And give it a generation, and some non-utterly corrupt and incompetent government system, you have South Korea. If government has a place in this situation, it is to 1) keep costs down by limiting corruption, 2)keep costs down by preventing egregious abuses of power.

    In other words, the government must take the view that this activity is not a source of graft and corruption for them, but rather a foundation upon which a productive society can grow.

    Pretty good exchange for the value, no?

    Derek

  • ||

    Coal power is worthless?
    Call me when you're living in an unheated shack by a lake.

  • ||

    its net worth is negative when you consider the costs of illness and environmental damage from mining it and burning it. Hear about that slag lagoon in tennessee? that's one of 1,300 in coal country. How does the market value a dead lake? increased asthma rates? etc.

  • monkeys||

    Coal power? What the hell is coal power? I need a new newspeak dictionary.

  • racist||

    It's the new word for what used to be called "black nationalism"

  • Jimmy 'Crack' Corn||

    +1

  • k||

    Ahh. You want to be God and tell everyone what is value and what is not.

    So tell me. If someone has a couple of billion in assets, and they need someone to assist in managing them, who are you to say that the person they select is not worth the amount that this someone and a bunch of others decide to pay them?

    I suspect there are many fewer large bonuses going on right now compared to, oh, 2006 because THE PAYERS DON'T PERCEIVE ANY VALUE IN THE SERVICES.

    But who are you to decide that?

    Anyone with a good or service to sell, and more importantly, collect payment for knows that perceived value is all that matters.

    And you or some busybody cannot know the value of something to someone else. It is none of your f****** business.

    Derek

  • ||

    Value isn't unquantifiable. The value of anything is what others are willing to give in exchange for it.

    Value isn't inherent; it's an ascribed quality. If no one wants what you have to offer, then it has no value.

  • Chad||

    You are just re-iterating the circular logic that I am mocking.

  • Sean W. Malone||

    Yep Chad... Still not "circular".

    Value is something only an individual human can ascribe to an object/idea/person, etc. You cannot tell me, or Nick, how much he or I likes the car we drive, the house we live in, our friends, etc.

    For tradeable goods, this can get reflected in a monetary price.

    So you cannot tell me what is the "right" price for me to pay for my dinner tonight, my computer or anything else... All you can do is tell me what value *YOU* would ascribe to those things. But since you and I are different people, with different ideas, different experiences, different needs, different resources and different life goals... What value you ascribe to certain things isn't the same as what value I ascribe to those very same things.

    Sooooooo.... No, Chad... That's not circular at all, in fact, it should be kind of self-evident.

    Value isn't unquantifiable... It's just not objective or consistent from person to person... That's not really a problem, it's just something you have to recognize before you start making idiotic assumptions about economics - as you tend to do.

  • Chad||

    "Value isn't unquantifiable..."

    So wait, now YOU are conflating value with price. You surely cannot measure "value" any other way.

    You guys can't even get your criticisms straight.

  • oaktownadam||

    Price is the way that the market measures value.

  • Sean W. Malone||

    No, Chad, I'm not... And yes, you can measure value in plenty of ways...

    For instance, you could measure it in hours devoted to a specific task, or in relationship to opportunities given up.

    Eg. A person might value their girlfriend above all the opportunities I've past up to go out to bars & clubs to spend time with her instead.

    Value is ordinal though, so often measuring it is kind of a waste of time and/or incomplete.

    I don't value the people I love "X Amount", but by my actions you could measure that level of value relative to other pursuits if you really wanted to. Probably best measured in terms of time. Though even then, since you have no way to know what's going on in my mind, you still can't do it... Though I might be able to come up with a reasonable approximation.

    Problem is, nothing's being traded, so there's no way to measure value in a very consistent way in social interactions. Thus why human relationships are filled with so much confusion a lot of the time.

    With monetary transactions for goods and services, it's pretty easy to measure value... Or at least, a proxy for value, which is "price".

    But PRICE and value aren't identical things.

    There are plenty of ways to measure value, monetary price just happens to be the one we use within market transactions... Most of the other ways are rather inconvenient, unfortunately - and sometimes they don't really function well in real time.

    There's no contradiction in the criticism coming from any of us. You want to presume that you can dictate the value of different goods to people who are purchasing them, but you have no possible way to know what their individual preferences are. What's more, only actions reveal value - thus why measuring it based on time spent doing certain activities is ok to use, while public opinion polling is not. People say they want all kinds of things, but they don't back their statements with action very often... It's a cardinal rule in business & advertising that polling doesn't count for shit as a metric of what people actually value. Unfortunately, most politicians think that markets work like elections where people can just be "asked" what they want and then some overlord will promise to give it to them. Real world doesn't work that way... But I digress. You cannot ascribe value to things for other people, Chad. You don't know what they need or want, or what is in their hearts. That you're constantly presuming you can just makes you an asshole of the highest possible order.

    So again, I'll say once more: Value is quantifiable. But only by those individuals engaging in the transaction, at the point of sale. You can record this information and use it for future reference as guide points, but nothing more. It does not allow you to know what people will do or want tomorrow and if you start dictating what people "should" value, you are not only violating individual's sovereignty, you are also setting up the conditions for poverty and economic catastrophe.

    The fact that you still fail to understand this point, or the criticisms being offered isn't really my fault, now is it?

  • ||

    relax guys according to chad's definition of circular logic, evolution is also circular logic.

  • Edwin||

    Chad SO has no idea what he's talking about here.

    Chad, nothing you're saying about what market theory says or what libertarians believe is even remotely accurate. You have no freaking idea what you're talking about here.

    And try reading the actual freaking article. This article is not claiming that executives are getting their huge pay because they are actually producing that much value - no libertarian believes that. They're getting those huge paychecks by manipulating our crony capitalist system. In a truly free market, with its fierce competition, nobody would get paid as highly as they do, and there would be like 50x as many companies producing the same good/service that these companies are producing. Another way to put it is, those same exorbitant pays would be divided up among many many more competitors.

    And can you guess who's constantly advocating for massive government intrusion into the market which would further perpetuate that same crony capitalism? It ain't libertarians, DUMBASS!

    The only reason you keeping "disagreeing" with libertarians is because you keep ascribing some silly stereotype to them and what they say, as opposed to you know, actually LISTENING.

    Hell, in this string of posts, it's getting hard to figure out what you're even arguing against. Do you know where you're disagreeing with the libertarians? Because if you're saying that those executives with huge pays don't deserve the money they're getting, THEN WE'RE IN FULL AGREEMENT. THIS ARTICLE IS MAKING THAT ARGUMENT. TRY FUCKING READING IT. The only difference is, we know WHY they're getting such high pays. And while putting caps on paychecks would "solve" this "problem", it would do nothing about the inherent problems that created it.

    Chad is a retard of the highest order.

  • ||

    Chad|2.12.10 @ 5:14PM|#
    "Ahh, libertarian logic...
    Why do high earners deserve the loot they manage to get their hands on?
    Because they create unquantifiable value!"

    Ahh, lefty ignorance...
    Want to quantify the value? What did you pay for it? You just "quantified" the value.

  • KPres||

    "Ahh, libertarian logic...

    Why do high earners deserve the loot they manage to get their hands on?

    Because they create unquantifiable value!

    How do you know they created this value?

    Well, because they must have created it, or they wouldn't have earned so much money? Don't you get it?"


    You dumbass.

    Libertarians don't say value can't be measured. They say absolute or fixed value can't be measured.

    In other words, you can't say absolutely what a hot chick looks like, but because Chad only dates fat chicks, it's clear that Chad thinks fat chicks are hot.

    Nuance, Chad. Obviously not your strong suit.

  • Attorney||

    And another thing:

    I don't think "value" is much more palatable than "merit" as a way to describe what markets reward. How about "wantableness"? The market rewards those who are best at producing wantables.

  • prolefeed||

    Value reflects how much the highest bidder wants something. So the market rewards one's ability to create something and put it in the hands of someone who places a high subjective value upon it.

  • PIRS||

    France was once a hotbed of proto-Austrian free market thinkers like Bastiat, J.B. Say and Turgot. What happened? How did it change and why?

  • Jersey Patriot||

    It was also a hotbed of socialism, such as Proudhon. The socialists won the arguments - but not the politics - because they recognized history. The liberals were like, "Let's have a free market!" and the socialists responded, "We can't have a free society with unjust land & money distribution. Let's redistribute!" The socialists were correct, and so won.

    Of course, the Socialist party in France is staunchly welfare corporate capitalist. There's no reward for being right. heh

  • PIRS||

    If the socialists were right, as you claim, that must explain all of the burning cars and the governments on the brink of colapse in Greece and Portugal. That must explain why the states in the United States with economies most resembling the modern French are holding out their hands to the Federal Government because they are unable to pay their bill.

  • Jersey Patriot||

    Donny, were you listening to The Dude's story?

  • PIRS||

    So you were being sarcastic then? Good to know.

  • ||

    Over time, it's easier for socialists and their ilk to buy votes. It's that simple.

    This crap has been going on for a very long time. The Roman Republic started going downhill when appeals to populism became totally about power, and not dealing with injustice. For the record, we're past that point today, too.

  • C. P. Cavafy||

    Waiting for the Barbarians

    What are we waiting for, assembled in the forum?

    The barbarians are due here today.


    Why isn’t anything going on in the senate?
    Why are the senators sitting there without legislating?

    Because the barbarians are coming today.
    What’s the point of senators making laws now?
    Once the barbarians are here, they’ll do the legislating.


    Why did our emperor get up so early,
    and why is he sitting enthroned at the city’s main gate,
    in state, wearing the crown?

    Because the barbarians are coming today
    and the emperor’s waiting to receive their leader.
    He’s even got a scroll to give him,
    loaded with titles, with imposing names.


    Why have our two consuls and praetors come out today
    wearing their embroidered, their scarlet togas?
    Why have they put on bracelets with so many amethysts,
    rings sparkling with magnificent emeralds?
    Why are they carrying elegant canes
    beautifully worked in silver and gold?

    Because the barbarians are coming today
    and things like that dazzle the barbarians.


    Why don’t our distinguished orators turn up as usual
    to make their speeches, say what they have to say?

    Because the barbarians are coming today
    and they’re bored by rhetoric and public speaking.


    Why this sudden bewilderment, this confusion?
    (How serious people’s faces have become.)
    Why are the streets and squares emptying so rapidly,
    everyone going home lost in thought?

    Because night has fallen and the barbarians haven't come.
    And some of our men just in from the border say
    there are no barbarians any longer.


    Now what’s going to happen to us without barbarians?
    Those people were a kind of solution.

    Translated by Edmund Keeley and Philip Sherrard

  • Jersey Patriot||

    Of course, the business elite in Davos don't operate in a free market, or anything remotely resembling it. No doubt most of the elite there are either subsidized by governments or protected from competition by governments through taxes, regulations, cartelization, etc. The comedy isn't Sarkozy's attack on merit, it's that Sarkozy is saying "How dare you profit from the privileges we give you!"

  • ||

    "I crush your head!"

  • ||

    Don't fall into the trap of thinking you have to defend the markets in a vacuum. This is the real world. We only have to defend them against the alternatives.

    What Sarkozy is implying is that the Total State should determine how much, and what, anyone should have. On what basis will this allocation be made? He doesn't say. What could possibly go wrong?

  • ||

    I suggest that certain people should be classified as "the elect." These people get more stuff. People that don't qualify get less stuff. Also, people that are even better than the elect get even more stuff. People that totally don't qualify get sent to gulags.

  • PIRS||

    The Soviets had a term for such people. They were called the Nomenklatura.

  • ||

    Sounds like a plan. You know, the Soviets were really a perfect society. It was only evil, Western propaganda that brought them down.

    That, or they were totally evil and idiotic.

  • LibertyMark||

    I'm ok with saying that the market rewards value, but I think there is something even more basic.

    The market actually "rewards" scarcity. That is, if things are in demand, and there is a limited number of them, then the price is high.

    That applies to high-paid CEOs as much as it applies to high-priced hookers.

    The supply of people that have the qualities to produce value is limited. Thus, the high price.

  • PIRS||

    I understand your meaning but it is not scarcity qua scarcity. It is the intersection of scarcity and demand. Some rare virus that kills people in a painful way way well be scarce. But if there is no demand for it, it will have no value in this sense.

  • ||

    Scarcity can increase value but not create it. If no one wanted gold for any reason then it wouldn't have any value despite its scarcity.

  • Chad||

    Do you really think the number of people with the talent to be CEO's is dramatically less than the number of positions available? I think it is the reverse, by orders of magnitude.

    There is a nice story about a "high-class" hooker in SuperFreakonomics that you might be interested in. When she *raised* her prices, demand went *up*. How, exactly, was she increasing the value of her product? It is quite obvious that perceptions matter a lot more than any real value produced.

  • ||

    Chad|2.12.10 @ 8:36PM|#
    "Do you really think the number of people with the talent to be CEO's is dramatically less than the number of positions available? I think it is the reverse, by orders of magnitude."
    Goody for you! Why, I'll bet you "think" (if we can so label it) that labor is the source of value, too.

  • ||

    Chad|2.12.10 @ 8:36PM|#
    "than any real value produced."
    For your homework, please define "real value".

  • Chad||

    My whole point is that you can't, yet your theory implies that you can.

  • ||

    Chad|2.12.10 @ 9:31PM|#
    "My whole point is that you can't, yet your theory implies that you can."
    Uh, did you read your own post? Yes I can.
    How she increased the real value (no quotes) of her services looks like through a pretty sophisticated knowledge of her market. So the real value (no quotes) of her services increased, and yes, I'd define that as increasing the real value (no quotes) of her services.
    You presume to define "real value" as something other than the exchange of the parties involved.
    Your homework is to provide a definition of "real value" in your peculiar economic view. Is that clear?

  • K-Y||

    You can always see a lack of comprehension when someone says "do you really think X?"

    It's just like someone that might value an expensive car that is mechanically like my Honda simply for the bling effect. It is more valuable to them. Not to me, but to them. Maybe you are a bargain hunter in the hooker department. I don't know, but for some people, the social status of overspending is part of the allure of an overpriced item. To them, it is "real value".

    Besides, CEO, like other jobs is not necessarily about talent. It can also be about attitude, connections, sometimes dumb luck, but if it's so easy, what are you doing on an internet forum??? Go make the money your intellect deserves.

  • Chad||

    Ahh, a libertarian that understands conspicuous consumption...even when it applies to hookers. Thank you for acknowledging that the market is full of negative-sum games.

    And then you go and arguing that people who get to the top often benefit a lot from "attitude, connections, sometimes dumb luck". Do you not realize that I have made this point again and again around this place. Your success in life is about equal proportions things you do not control and things you do. You control how hard you work. You partially control looks, health, connections, and education. You do not control the genetic portions of looks, health, or intelligence, the type of family and society you are born into, and plain dumb luck. Looking at a list like this, it is hard to see how one could conclude that there is a tight correlation between what you deserve and what you get.

  • ||

    "Looking at a list like this, it is hard to see how one could conclude that there is a tight correlation between what you deserve and what you get."

    I deserve a 6-figure salary, but my boss won't pay it for some odd reason. In any case, this is sort of what the article said. Markets reward 'value', not 'merit', if that's what you mean by 'deserve'.

  • ||

    Chad|2.12.10 @ 9:38PM|#
    "Ahh, a libertarian that understands conspicuous consumption...even when it applies to hookers. Thank you for acknowledging that the market is full of negative-sum games."
    So for the rest of your homework, prove your "negative-sum" claim.

  • Chad||

    Prove to me that you know what conspicious consumption is first. It is a standard prisoners' dilemma, where the best choices for each player lead to the worst possible overall situation. I am sure you are familiar with game theory, correct?

  • ||

    Chad|2.12.10 @ 10:06PM|#
    "Prove to me that you know what conspicious consumption is first. It is a standard prisoners' dilemma, where the best choices for each player lead to the worst possible overall situation."

    You just made that up, didn't you? Sorry, your ignorance is such that I have no hope of helping you.
    I'm familiar with the fact that you're also a web ignoramus who can never quite find evidence to support your silly claims, so I'll at least pitch in here:
    http://xroads.virginia.edu/~hy.....hap04.html

  • Chad||

    You don't even know what game theory is, do you?

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

    Please get back to me when you have sorted this out. It is a dagger in the heart of your economic theories.

  • Sean W. Malone||

    It really... really isn't, Chad.

    You only think it is because you're a moron.

  • Space Fiend||

    The prisoner's dilemma has no bearing whatsoever on economic theory. Iterate it, and you might get somewhere.

  • ||

    Chad|2.12.10 @ 9:38PM|#
    "Your success in life is about equal proportions things you do not control and things you do."
    Let's presume that's true, which is not shown.
    What does it mean?

  • Chad||

    What does it mean?

    It implies that there is no reason to consider the allocation of money as determined by the market as sacred.

  • ||

    Chad, I agree that the hooker who raised her prices and observed an increase in demand, ceteris paribus, did not provide more value-in a tangible, measureable, FUNGIBLE way. Iow, whatever additional value she may have provided could not be measured with anything approaching mathematical certainty.

    However, how can you quarrel with those who PERCEIVED that they got their money's worth? If one who decided to patronize the hooker, after spotting that she had raised her rates, opens his hotel door and immediately knows that she is his new ATF and has an awesome adult entertainment experience, who are you to deny his assessment that he derived great value from his encounter?

    Free enterprise, liberty of contract, the market, the human hard wiring in favor of trade and free will enable us to derive value from more than just the material, the measureable and what some fucking commisar conceives.

    What you and Tony and others do not seem to understand is that communism, socialism et al are so spiritually barren. so bleak and so destructive of the human spirit.

    What is not sacred are the thoughts of another two bit frecnh fabian with an insufferable napoleonic complex.

  • Tim2||

    How do you however, propose to fix such market allocations given that your subjective preferences quite often lead you to label goods you don't like as mere conspicuous consumption. Maybe the guy soliciting the hooker is using price as a proxy for quality, and feels that he is better off paying the premium for not having to spend his valuable time to research hooker price models. Maybe unrelated factors caused the demand for the hooker's services to rise coincidentally with her price hike. You don't know these things, and have shown every propensity, as will government bureaucrats with a financial incentive to grab more money, to pretend that you do to advance your political agenda.

    You have admitted to being a dirty liar before merely because you thought I was straw manning you for pointing out corn ethanol as one of many boondogles promoted by many in the environmental political class as opposed to the actual scientists. There was no shortage of liberals who liked corn ethanol in the Midwestern state where I grew up. Nor amongst the aspiring political rather than scientific environmentalists where I attended college. http://reason.com/archives/201.....nt_1536515

    So even if Chad something that may sound right, you can't trust it because he could easily just be lying because he doesn't like what you say. Other than his case about externalities, he doesn't have one.

    What system do you advocate replacing freer market capitalism with? How is success in the welfare state any less due to circumstance than in the capitalist one? How is innovation affected, oh that's right some goods are just stupid because you don't like them and only scientists like you are real innovators. Government is full of quid pro quos and capricious regulations that often have nothing to do with real external costs, information problems or alleged negative sum games yet hide their ulterior motives behind those arguments. Lets just assume that the purchase of a good is solely based upon conspicuous consumption, how does taxing that person to give to the poor make him better off? It's impossible for any good to even be solely conspicuous consumption as the good will always have value as an asset especially if it can be resold in some fashion; meaning that the person is made less well off lacking now both the money and the asset. Maybe you could just tax the seller but he would just pass the tax on as a cost of doing business. If you are worried about that negative sum game, isn't upward mobility a negative sum game too since more middle class people getting access to your alleged status goods would diminish the value of being rich? Why does the fact that some people seemingly waste their own money mean that you are entitled to take it from them?

    Markets are voluntary and although often imperfect generally reward value, government is coercive and suffers from far more negative incentives than markets and government rewards power. Except for dire circumstances and abundantly clear market failures (with much higher standards for action the higher up the local, state, federal scale one goes) we should tolerate alleged market imperfections to avoid government rent seeking masquerading behind them.

    Ultimately the progressives have very little interest in adjusting accurately for real market imperfections, such arguments are only means to their ends of inflicting their subjective preferences and arbitrary (and often quite childish to use Chad's favorite insult) notions of fairness on the rest of us via the threat of the use of force. That's the fucking difference between an arrogant guilt/envy ridden progressive intellectual, and a wise classical liberal one.

  • Chad||

    It's impossible for any good to even be solely conspicuous consumption as the good will always have value as an asset especially if it can be resold in some fashion

    Really? Impossible? Ask the peacock lugging around that ridiculous tail what value he gets out of it, other than the right to say "Mine is bigger than yours". There are actually many examples in nature where this is the case. However, note that a peacock having a tail of any sort is not conspicous as long as it is functional. It is only the excess, whose only purpose is to be bigger and flashier than everyone elses', that is conspicious.

    There was no shortage of liberals who liked corn ethanol in the Midwestern state where I grew up

    With a big emphasis on "was". I am involved with several environmental groups, and I cannot remember the last time anyone spoke favorably of corn ethanol. It has been about ten years, at least, and even before then there were many questions about land use. However, you do make a good point about the environmental movement: They are at their worst when they ignore science (nuclear, GMO)...just like you guys are.

    You "wise" classical liberals just caused the economy to fall of a cliff, yet you are not even "wise" enough to even contemplate examining that you may be at fault. Instead, you duly blame the nearest government program, and call it good. Nevermind that nations like Canada, for example, had the same too-big-to-fail banks and the same interest rate policies, and didn't fall apart like we did (hint: they had limits on leverage and strong consumer protection).

    Also, it seems apparent to me that you haven't been paying attention to how economic and social mobility are changing in the US. We have been moving *backwards* since the 80's (duh, I wonder why), and are well behind many of the "welfare states" which you despise.

    It's not really hard for government to attack the conspicious consumption problem. Indeed, we are one of the few rich nations that hasn't implemented the most effective on: a VAT. I wouldn't be surprised to see one someday, however. Outside of a carbon tax, a VAT would be the least economically problematic way to increase revenue.

  • ||

    Chad|2.12.10 @ 10:07PM|#
    "What does it mean?
    It implies that there is no reason to consider the allocation of money as determined by the market as sacred."

    Boy, you have a *lot* of homework. Please state why the allocation of money should ever be "sacred".
    Are you faking it, or are your *really* that ignorant?

  • K-Y||

    Really? Impossible? Ask the peacock lugging around that ridiculous tail what value he gets out of it, other than the right to say "Mine is bigger than yours".

    Oh Chad Chad Chad Chad...

    He gets to fuck. Simple as that. For males, that is premium. Same for the jackoff with the Hummer. He gets to fuck. Maybe you don't see the value, but I assure you it isn't wasted on the peacock.

  • MJ||

    Yes, the peacock's absurd tail would not exist if the peahen was not impressed by such things.

  • Sean W. Malone||

    Judging from the fact that "resident scientist" Chad just said that a Peacock's tail has no function... I think in fact he IS really that ignorant.

    He also said that classical liberal philosophy was somehow responsible for the economy "falling off a cliff" - although we were all probably the most vocal group warning of the coming collapse for very specific reasons - which means he's not only that ignorant, he's also a disingenuous asshole. But that, I think we all already knew.

  • Soonerliberty||

    Chad's problem, like most moronic liberals, is that he can't think outside of his group-think models. If people disagree with him, well, by golly, they must be evil Republicans or conservatives. It's tiresome to point out over and over that libertarians are not either of the above, and libertarians even differ between themselves. It's people like him that believe Stossel is a closet conservative. Chad would have to give up his group-think models to even have a chance at understanding classical liberal logic. Until then, he will always be against individual rights and always favor a planned economy, pitting one group against another for political gain. I think the forecast for Chad is "no chance of sunlight."

  • Chad||

    Can you give me some examples of "libertarians disagreeing among themselves". Now THAT is something I rarely see. This is, of course, because you ascribe to the same false assumptions, and derive your theories from them in the same manner.

    It should take all of five seconds of paying attention to the health-care debate that liberals have a wide variety of opinions.

    Here is a challenge: List five substantial issues where you disagree with libertarians, and are closer to the political center. Here are five where I disagree with liberals, to the right.

    1: Abortion
    2: Nuclear power
    3: Unions (both public and private)
    4: Tort reform
    5: Welfare and unemployment reform (there is far too much abuse)

    Groupthink meme, dead. R.I.P. Please try again.

  • oaktownadam||

    You want a topic that libertarians disagree on?

    Immigration.

    You want another?

    Austrian vs Monetarist economic theory.

    You want yet another?

    The causes and proper solutions to global warming.

    Here, one more:

    Abortion.

    Your confusion seems to be based on your incorrect view of "libertarians" and "libertarianism" as being monolithic concepts and groups, with a rigidly enforced dogma. In reality, those are rather nebulous terms. There are economic libertarians, civil libertarians, western libertarians, etc, etc, etc.

    If you really want to see a pie-fight amongst "libertarians", you need go no further than to watch the debates that occur every few years at the LP national convention, when they try to set a party platform.

    Even Wikipedia has a section titled "Internal Debates": http://en.wikipedia.org/wiki/Libertarian_Party_(United_States)#Internal_debates

  • Chad||

    You want a topic that libertarians disagree on?

    No, I challenged YOU to answer it, not give a list of a few things where a few libertarians might disagree once in a while. Or are you admitting that you are locked into party-line groupthink?

    Any "libertarian" who disagrees with open immigration is denying one of his own core beliefs. You are correct about abortion, as the libertarian belief system says nothing about when personhood begins. However, I suspect that well over 90% of libertarians are pro-choice (I used to be one of the exceptions). Virtually all libertarians are climate deniers, it is only a matter of degree to which they deny the science. I have never met one who agreed that we should do anything about it. I have never seen real libertarians argue about monetary theory, either.

  • oaktownadam||

    I think it's hilarious that you think you have any room to tell libertarians what they should think. Of course, that fits in perfectly with your arrogant proto-fascist mindset.

    And your reference to "party-line groupthink" is especially laughable, since you clearly didn't bother to read the rest of my comment.

  • James C Bennett||

    No True Scotsman FTW!

  • Soonerliberty||

    Yet, you share the same assumption that the state should be the solution. All of your economic analysis is clouded by the same thinking: you can judge what is best for whole groups of people. This is what is meant by group-think.

    Oak listed some really good disagreements between libertarians. Others would be exactly how to spread the message or if an LP should exist at all. Then you have the Minarchist vs. Anarcho-capitalist battle. There are many differences between us, but the one thing we agree upon is that the market of individual choices and values is better than one-size-fits-all McD's happy-meal approaches of statists, based on nothing more than the whims of their own consciences Your problem, like most of your ilk, is that you see the market as some human-made construct to be toyed with. It is the lack of human design that makes the market function better than any other system known to man. If humans such as yourself had designed it, it would fail as all planned societies and grand projects fail. But, alas, I am wasting my breath on someone who rejects personal choice and believes his choice to be superior to others'. That is statism and group-think at its worst.

  • Chad||

    Sean and K-Y.

    You don't understand what I am talking about at all. The peacock "gets to ..." because his tail is bigger than the next peacock's tail. Any gain a peacock gets by growing a bigger tail is offset by a loss by the peacock who no longer has the biggest, and therefore doesn't get the lady. Hence, this aspect is a zero-sum game, and since they have to pay to play it (in terms of energy, effort, and danger associated with their over-sized tails), they lose overall.

    This occurs all over in nature, with males frequently growing (or in our case, buying) ridiculously conspicuous appendages with the goal of having the biggest one on the block.

  • MJ||

    So, Chad, you don't like how evolution works?

  • KPres||

    It's not zero-sum, you idiot.

    The female peacock gains by having male peacocks with ever-bigger tails.

  • Chad||

    What does the female gain?

    Sons who are handicapped, too?

    She is actually using it for a proxy measurement for other positive traits that she cannot see, like good health.

  • Sean W. Malone||

    I think Chad just admitted that he's purchased penile implants...

  • Chad||

    Uhh, Ron, I DON'T think it is sacred. You do. It is your religion that the the market allocation is best and should never be altered.

  • Edwin||

    Yo

    Chad

    You're so dumb it's not even funny.

    This whole article is about how the market rewards VALUE and not what people "deserve". Nobody is saying that the market's allocation of money is "sacred". Try reading the article.

    The market's allocation of money is what it is. Yeah, people can be stupid, vain, make mistakes, etc. That's called life, and the market reflects that.

    Libertarians have only ever argued that leaving people free works BETTER than any system of socialism, communism, etc. because those latter systems ultimately ivolve substituting everyone's preferences and desires for some select few's dictates. Now in our eyes, that makes the market better, because we're judging "better" based on how well people can fulfill what they want in life, you know, life, liberty, the pursuit of happiness, all that. Now, if your definition of "better" is how well people do what YOU want them to do, then, yeah, the market fails at that.

    I mean, the only thing I can divine that you're trying to argue here is that people may fail at fulfilling their wishes, and then blame the free market for the recent economic crash. My only response to that is 1) I WANT to be free to fail. FREEDOM involves the freedom to FAIL. 2) The recent economic crash was caused by the market behaving the way it did because of GOVERNMENT INTERVENTION IN THE MARKET. And I think libertarians as a whole have proven that, regardless of whether idiots like you have been listening. Try reading Thomas Sowell's book on the subject.

    As a matter of fact, all the crap you hippies whine about can be laid directly at your market-interventionist feet. The free market, because it is free, because it allows people to follow THEIR OWN values, maximizes their achievement of those values, as much as LIFE will allow. And there's your second problem - even if the crap you complain about were "fixed", you'd still be complaining; noting will ever be good enough for your ilk.

  • Chad||

    Libertarians have only ever argued that leaving people free works BETTER than any system of socialism, communism, etc

    Great! You have just granted me everything I have wished for. Enough about vague theories. Let's look at FACTS, and in particular, what works and doesn't work around the world.

    We can start by noting that many rich countries with thriving exports (say, Japan and Germany) have much higher energy prices than we do (nearly double) and in the case of Germany, notably higher taxes. Therefore, neither high energy prices nor higher taxes will "kill" the economy, or really have that much of an impact. This is further proven by some of the Scandanavian countries and Denmark, where taxes and energy price are even higher. Oh, and what about health care? Lots of nations have tried lots of things, and guess what? What we are doing is an epic failure, both in terms of cost and fairness. We should adopt other nations' best practices as soon as practical, and that starts with universal coverage.

    Oh, thank you, thank you, for conceding that we should be concerned with what really works in the real world, rather than random theories about how many angels can dance on the head of various pins.

  • Soonerliberty||

    Dude, I live in Germany. It sucks. High taxes, expensive goods, outrageous bureaucracy, almost no growth, close-minded culture, and xenophobia. It's also why Germans are fleeing to Switzerland and the US. One of my best friends is from Denmark and wants to move to the US for at least some freedom instead of high taxes, terrible energy prices, which limit mobility, and the general lack of freedom socialism wreaks upon society. Never mind the stagnation in Europe. And don't even get me started on the EUSSR.

    And please spare us your socialist demagoguery about "fairness." Why don't you just move over here and stop trying to force your view of right and wrong upon everyone else, and then making them pay for it? At least, actually living here would shatter your feeble attempts to compare apples and oranges. You're probably one of those liberals that saw the Olympics in China and thought, wow, statism can work. I've been there, too. It also sucks. So, get off of your ass and travel to these paradises, live there, and then judge. I have.

  • KPres||

    Religion?

    No it's math. A perfect and complete market is pareto efficient.

    See the First Welfare Theorem.

  • Chad||

    Belief in a perfect and complete market IS a religion.

  • Soonerliberty||

    Markets aren't perfect. No libertarian would claim that. It just shows how little you understand. The only claim a libertarian makes is that markets on the whole are superior to statism.

    Now, belief in finding a middle ground between free markets and communism is a utopia. Man, if we just pray hard enough, we could find the right people and the right programs to make this work to get the right results that we choose for other people.

  • Chad||

    If we are just arguing about what works and what doesn't work, you have already conceded all the ground I have asked for.

    Indeed, my game around here is to see how often can get you guys to give up on holier-than-though arguments about liberty and force, and just back yourselves into practical utilitarianism. Since anyone actually looking at the real world would realize that markets and governments are both useful tools for solving problems, I win.

  • Sean W. Malone||

    NO ONE believes that!

    You've created a strawman and by god you're fucking sticking to it, damn it all...

    If you weren't such a caricature of yourself, I think we might all have a bit more respect for you, Chad... But by god you're dumb, you're ignorant, you desperately avoid listening and you seem to believe that it's awesome.

  • k||

    Who is saying the market is perfect and complete?

    We'll see how the wonderful European experiment holds up over the next couple of months.

    I suspect Germany may be less of the workers paradise after having either to suffer the consequences of a defaulting Greek, Italian, Portuguese, Spanish, Irish, Bulgarian and who did I miss economies. Or having to pony up the cash to bail out Greece, Portugal, Spanish. etc.

    Derek

  • Chad||

    Just like we are bailing out California, Michigan, etc?

  • Sean W. Malone||

    Uhh.. Yeah, dumbass... Are you really incapable of realizing that A. California & Michigan needing to be bailed out is entirely a consequence of adopting the policies that you support and which we (around here) regularly criticize, and B. That just cause California hasn't gotten a lump-sum Federal bailout yet doesn't mean that they won't... And alternatively, if they don't, then both states will wind up completely bankrupt anyway.

    Again, as a consequence of exactly the kind of bullshit you promote around here daily.

  • Soonerliberty||

    The assumption here, of course, is that Chad knows how the market should allocate better than other people. Or perhaps he has a king in mind. Maybe a Paul Krugman? There's certainly no lack of those who assume to know which direction progress should take. This is the mind of an authoritarian.

  • k||

    Do you know what the 'market' is?

    It is a series of undiscoverable events between actors. With varying degrees of freedom involved for a whole host of reasons.

    What you are saying is that you know better.

    How can you know better? What historical proof do you have that kings/priests/economists/aparachiks/Federal Reserve Chairmen/community organizers have done better than the voluntary exchanges between free people?

    If anything, you are bemoaning that some people aren't free enough to be voluntary actors in the transaction. Is that a 'market' failure, or government/societal failure?

    Derek

  • Chad||

    What proof?

    Germany, France, Denmark, Sweden, Norway....all rich, free, and happy, despite utterly rejecting your ideology.

  • K-Y||

    And utterly incapable of defending themselves.

  • Chad||

    From whom? Bogey-men terrorists, who in the entire history of our country have killed fewer Americans than butter or coal plant emissions kill each year?

  • Sean W. Malone||

    Chad, that's the first thing you've ever said that I've remotely agreed with.

    But you go too far. Conveniently, you've not cited any statistics at all, but reference only deaths of Americans.

    Most of Europe actually does have real problems with terrorists. France, Netherlands, UK, Ireland, Greece, Italy, Spain... For example... All have serious problems with terrorism and things of that nature.

    So maybe Germany isn't going to have to suddenly spend hundreds of billions of Euros on defense - but I would imagine considerably more than they are currently.

    Regardless... They don't actually have the cash. (Like us... and for the same reasons).

    What I wish you would admit is that the policies in the US and the policies in Europe are actually not that substantially different. The real differences are *degree* of economic intervention, not type (mostly).

  • Sean W. Malone||

    Not that rich, definitely not that free, and happiness is sometimes a proxy for "acceptance", and not fulfillment of personal goals - thus why one of the favorite words in all of Sweden is Lagom:

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

    And wayyyy unsustainable. But good luck believing that it's magic, Chad.

  • ||

    Uh, Chad, *you* called it "sacred", I didn't.
    So your brain-dead lefty view is complimented with lies? Oh, good.

  • k||

    Maybe, just maybe the 'attitude, connections and a record of good luck' are what people who hire CEO's are looking for.

    Derek

  • k||

    I'm surprised at your ignorance.

    Apple does a very smart variation on the high priced hooker gig.

    You do realize that the higher prices means that she can wear better clothes, more expensive perfume, have fancy toys to entertain.

    Again, Apple.

    As I said above, there are vastly fewer very highly paid financial advisors and traders today than there was 2-3 years ago.

    I wonder why? I know. Obama.

    Derek

  • Tim2||

    Chad, what Classical liberals have been running the country recently? Was Bush one, because if he and his ilk were you are just as stupid on politics as you are on economics.

    Second, I have advocated here a carbon tax as the best solution to climate change but I don't rant about the existence of global warming because I'm not a climatologist. Obviously AGW is real, but the question is it's degree relative to other forces; something that I'm not really qualified to comment on other than the fact that many of the politicians exaggerate it just as they do the threat of terrorism.

    Sure many of the environmentalists backed away from corn ethanol but it is still around, which was the point I was making on that post; that we should pursue a carbon tax rather than subsidize the "green" industry and hope for the best.

    Your peacock example is ridiculous because I'm not talking about nature, but the modern economy; where you could always sell something for parts or raw materials creating a minimum asset value so long as people could make use of it. Thus it is impossible to find a good whose value is entirely due to conspicuous consumption, even if we take your subjective preferences that yachts, big houses, and SUVs are only to "compensate people for their small dicks" for granted rather than just cool things people like to have regardless of others. I know I would love a boat even if everybody else had one, the same with a nice big house or nice car.

  • ||

    Id say that dude is right on the money as usual!

    Jess
    www.isp-logging.net.tc

  • ||

    Merit is earned.
    Value is a subjective judgment. It is the price beyond cost.

  • libertybill||

    Wasnt Sarkozy (along side Merkel) being hailed as the beginning of the end of European Liberalism? Guess not so much now

  • ||

    Chad, let's be clear:
    You, as a liberal ignoramus, presume to set "value" on every good regardless of whether you're involved in the trade or not. That is the classic failure of central planning; the hubris of those as stupid as you.
    Value is determined by the parties involved in an exchange, period.
    Your attempts at arguing that "value" is what you think it is merely indicates your lack of knowledge of econ.
    Put plainly, you're a brain-dead lefty; is that clear?

  • Old Mexican||

    Chad-ist bullshetisms, 101:

    Re: Chad,

    A market transaction almost never involves just two people, and almost always involves non-consenting third parties whose wishes are not reflected in the transaction.

    Are you indulging now in unsubstantiated assertions, Chad?

    What third party?

    Here is another way to show that "value" has little to do with what is earned.

    You're equivocating. What is "earned" is simply the fulfillment of an agreement. Value is the psychic advantage a person obtains from a good or service. They are two entirely DIFFERENT concepts.

    A couple of months ago, I bought a car [...] $2000 at stake. Now, is the "value" of this transaction affected by what final price we negotiate? NO. The "value" is fixed, being the difference between the highest I would have been willing to pay, and the least he would have been willing to sell for (roughly $2000, as I noted earlier).

    That's not the value, numbskull. That's the price. The Value you obtain from the transaction can only be known to YOU (your need for a car, your love for cars, whatever). YOU value the car MORE than the money you are willing to give in exchange, and the person that sells you the car VALUES the money MORE than the car. But the PRICE is NOT the value.

    You are EQUIVOCATING!

    [The rest is a diatribe devoid of any knowledge in economics. I won't bother with it]

    To an economist (and a libertarian), it matters not a whit how that $2000 is allocated.

    You got your car, didn't you? If you were SO concerned about the $2,000.00, why did you exchange it for a car?

    But in fact, there can be a big difference between me capturing most or all of it, and him.

    What?

    This is most strongly seen in exploitive situations, where a libertarian argues "Well, those sweat-shop workers MUST be better off". This is true, but you are missing the point. They are indeed "better off", usually by pennies, while their boss is a lot better off.

    What the FUCK does this have to do with the car, value or price?

    You have no problem with this, and just wash your hands and walk away from the problem.

    What problem?

  • Chad||

    Either you didn't read my post, or didn't understand it. You also don't seem to understand the first few lessons of Econ 101. Remember drawing the supply and demand curves, and shading in that space in between? THAT is what I am talking about. The "value" created by a trading opportunity is the difference between the sellers position on the supply curve and the buyer's position on the demand curve. Of course, we can't see these curves in real life, which is why value is "subjective".

    The price (in a free market) could be anything in between these two points. According to classic econ, things just stop there. It doesn't matter WHO gets a good deal or bad deal, as long as both people come out ahead by at least some amount.

  • Sean W. Malone||

    Yet if both parties are coming out ahead - you can't actually define what is a "good deal" or a "bad deal"...

    But no, OM didn't misunderstand you... You've conflated value & price and they aren't the same thing. Price is just a momentary snapshot proxy, and is only relative to the buyer & seller. You are desperately trying to make it something that's objective and definable for all people. Tragic really... Since your attempts at defining value for other people is just another way of denying those people the right to make their own choices.

    ...Because, poor Chad, you appear to be unable to stand living in a world where you don't control all things. As I said, tragic.

  • Chad||

    Except that I DIDN'T confuse value and price and gave clear definitions of what I meant by them, including explaining why "value" cannot be measured in the real world.

    And I was clearly over-simplifying in your favor. In reality, people cannot determine their own valuation with reasonable precision, but rather are influenced strongly by context and emotion. Every marketer knows this...too bad libertarians don't.

    And you seem to be unable to stand living in a world where your divine theory is bunk every which-way one can imagine.

  • Edwin||

    What the fuck are you talking about? What divine fucking theory?

    The failures you keep talking about with people and valuation and knowledge are failures that every libertarian acknowledges.

    The only difference is that we don't think that we can create some magical system where some elite few can correct every little fucking "unfairness" that your whiny ass can come up with in a $14 trillion market made up of 300 million people.

    It's called LIFE. Deal with it.

    I mean jesus christ, your idea of "market failure" is getting screwed in a car deal? Of course the market will "fail" if you're that much of a whiny little bitch. We've all gotten screwed before, but we all don't want to create a command economy because of it.

    And don't you fucking point to sweatshops as some form of "market failure". Clearly, breaking people's legs when they try to unionize doesn't count as a free market, nor does entire countries where basically every last government official is corrupt.

    Oh by the way, do you know how those officials keep the sweatshop workers in line? Do you know WHY it is that the people who own the sweatshop can pay off the cops, and then the workers are afraid of the cops? Because in statist countries, you know, the kind you'd turn America into, the cops have some fifty bajillion bullshit laws they can arrest you for. There's any number of charges they can bring up against you out of whole cloth. All those rules and regulations you love, they're all great ways to randomly arrest people.

  • Chad||

    I mean jesus christ, your idea of "market failure" is getting screwed in a car deal

    You are not understanding what I am saying. My point is that even when market theory is working correctly, and I pay less than my theoretical maximum, and the dealer receives more than his, the allocation of that difference in value (ie, the profit) is not optimized in any way by market theory. It simply notes that a profit was made and moves on. However, there is actually a big difference in practice between situations where the buyer or the seller makes most of the gains.

  • Edwin||

    but jesus christ, you whiny little bitch, that's LIFE

    who freggin' cares who got more for their money (or product if you're the seller) out of the deal? I mean are you going to tell me that the point of government is to nitpick over every little transaction and make sure it's "fair"?

    You know, it's pretty apparent that you're a liberal not for any rational reason, you're just a whiny little bitch. Then again most liberals are like that, you're just slightly better at being verbose enough and changing debates away from the original issue to make it seem like you may actually be rebutting the other sides argument - but you're not.

    Most of us are just happy we can BUY a car in the first place, as opposed to dying in some gulag, or not being able to afford one because, let's say, I can't get a job because it's just too damned expensive for any employers to hire anyone because of all the social welfare laws (now, before you flip out, I'm not suggesting that we shouldn't have ANY employment laws - just that maybe they shouldn't be so extensive that they massively discourage employers from hiring people. See? Maybe if you stop lambasting against your strawmen stereotypes you might learn something)

  • k||

    You know, both you and the seller could have optimized the transaction to some theoretical perfection.

    You could have spent months of time price shopping, comparing, documenting. The seller could have spend vast amounts attracting a very large pool of buyers, say an auction.

    But both those actions are done (I know people who buy like that) or not done based on some value placed on time and effort.

    I personally pay more than a theoretical optimum because I don't want to spend the time. Or for some other value to be gained; relationship with vendor say.

    And if for some reason I was short of money and had ample time, my decisions would be different.

    I fail to see there any problem with this.

    You seem to by trying to teach a bird to fly.

    Derek

  • Sean W. Malone||

    EMOTION IS PART OF THE POINT you dumbass!

    OF COURSE we all value things differently based on emotion. That is what libertarians recognize as a GOOD thing that you and your dumbass fellowship of economic ignorance fails to grasp repeatedly, Chad!

    The whole point is that people are emotional and that value is something that depends on a million different factors - NONE of which are accessible to you. Which is precisely why you cannot plan an economy, as much as you desperately want to exert your authority over everyone who doesn't do exactly what you want them to.

    You don't know people's reasons for feeling certain emotions about certain things - an example I used the other day on here was of these really ridiculously unhealthy sugar filled slices of deliciousness in the form of paper-wrapped pie that I discovered are now at my local grocery store.

    I bought them not because they were healthy or even because they were the best tasting thing of all time, but because they reminded me of being 10 years old.

    That's the point!

    You in your infinite, meddlesome, nannying stupidity would look at my selection as a "mistake", or as a "market failure" because you would judge it to be unhealthy or not a "good" product for any number of reasons. You might be right for all those reasons, but you still fail to grasp that it was EMOTION that drove me to buy it and that is a GOOD THING.

    What you're constantly saying around here, though you seem to have no clue that that's what you're talking about, is that people doing things for purely emotionally satisfying reasons is a bad thing, that needs to be eliminated by the iron fist of some government agency.

    Marketer's do know how to manipulate emotions... But in the process they are often bringing joy to the people who are buying their products.

    Nostalgia, good memories, happiness, love... These are things that motivate people to value certain things over other things. None of us have the same exact experiences. Maybe you never had one of these pies when you were 10 - or maybe you hated them. I don't know! I don't care either, because I wouldn't try to stop you from having one - or something you did like when you were 10... Who the hell knows what you liked?

    I extend you the respect and courtesy to avoid presuming that A. I know better how to run your life than you do, and B. that any choice you make that I dislike makes you an idiot.

    You are an idiot, but I still afford you enough common decency not to step in and try to control your every action "for your own good".

    Funny how you would never dream of extending the same level of respect in return.

  • Brian Trust||

    Being that this post was written on Valentine's Day, and that Valentine's Day cards produce nothing of value (at least to Chad), I propose that the government make it illegal for anyone to create and sell cards commemorating holidays or other special events. They merely waste trees anyhow.

    The people who want cards for silly emotional reasons are just SOL. Same for the people who produce them. Papa Gubment knows best.

  • Sean W. Malone||

    Valentine's Day cards are a way for the greedy bourgeoisie to manipulate the emotions of the unassuming, uneducated proletariat to reap fantastical profits at the expense of everyone else.

    The proletariat only believes the cards are of good value because they have been brainwashed by the capitalist pig-dogs into thinking that.

  • k||

    If I'm paying for your insulin, I care.

    I CARE DAMMIT!

    Derek

  • Sean W. Malone||

    1. I'm not diabetic, and don't have insulin.

    2. I'd never be such an asshole as to ask you to pay for my future diabetes. Only Chad is that asshole.

  • Chad||

    I expect to see an $11,000 check donated to the Sean Hates Medicare Children's Hospital Fund, signed by you, starting on your 65th birthday and continuing annually thereafter.

    Somehow, I don't think you have courage of your convictions.

  • Sean W. Malone||

    Right Chad, because THAT is equitable...

    "Hey Sean, here's a fun plan, you pay into a system all your life... If you don't, you go to jail (haha, sucker!), then when you're 65, and a fraction of all that money you paid in might come back to you in some meaningful form - reject it, and pay even MORE into some other fund."

    Or had you forgotten that people who receive benefits for medicare have conceivably been forced to pay for the fucking thing their whole lives???

    That said, had I $11,000 in disposable income for such purposes each year, I would gladly start a private children's hospital charity - and in fact, even with my limited resources regularly donate to children's charities.

    Not only do you want to steal from me my entire life, you want to be thanked for it? No dice, Chad. No dice.

    Oh and, Fuck You.

  • Jimmy 'Crack' Corn||

    +2

  • Tim2||

    Value isn't subjective because we can't see the price curves, but is subjective because it depends upon the buyer and seller's personal preferences for, in a market economy, goods and services vs. money. You really don't understand economics do you? Not any more than the mere motions of doing econometrics and modeling.

    Further you fall back upon the idea that people are too stupid to decide what they value for themselves, and want to thus put yourself in charge of dictating their enlightened future self interest for them right? Your own personal preferences won't possibly play a role in that at all though.

    Sure people are imperfect and make mistakes, but you are a person too; at least broadly speaking and if you are in charge and you make a mistake you fuck up everyone's lives instead of just your own. Mistakes are one of the ways people learn, and while I'd like to avoid them and help others do as well I sure as hell don't want to put anyone in power over me able to define as a "mistake" anything I do different from what they would do.

  • ||

    Actually chad is correct.

    "A market transaction almost never involves just two people, and almost always involves non-consenting third parties whose wishes are not reflected in the transaction."

    Yup. The government seems to butt its fucking head in every transaction I make.

  • oaktownadam||

    +1

    Except that the government is intent upon having its wishes reflected in the transaction.

  • ||

    sure, but in the end we live in a government of the people and by the people. I guess, though, you might opt to label us as "fourth parties"

  • willis||

    At first this article made me cringe.
    i thought about how most engineers in America generally don't make over $100k annually, but most bankers make bonuses at least that large (on top of their base salary).
    In truth, thinking about it still disgusts me, but its better than a government controlled economy.
    Nonetheless it produces a predicament, because it places power in the hands of the opportunist (think of the derivative trader), at the expense of those who wish to build so that all may prosper (think of why your home has light and heating).
    Don't get me wrong, i don't posit some idealized solution; merely, i point to our shortcoming.
    If our so called "republic" had less pomp, pork, and special interest; perhaps such failings wouldn't be for even a "valu-ocracy"...

  • oaktownadam||

    Bankers who cannot generate more than $100k in profit for their employers do not receive $100k bonuses.

    When a banker creates millions of dollars in profits for his bank, then the bank feels like it's getting a good deal by giving him a few hundred thousand for his trouble.

    See? Both parties in the transaction are getting value out of it. Trying to compare the price some other third party got for a completely different product is a non-sequitur.

    This can be simplified as "Banking is different than Engineering."

  • Chad||

    But it is patently obvious that bankers who DIDN'T generate $100,000 in profits (hell, ANY profits) managed to receive monstrous bonuses. Indeed, is not clear if the banking industry has made a net profit over its entire history.

    As one economist put it, picking up pennies in front of a steamroller is highly profitable...until the exact moment it isn't.

    At its core, this is a problem that springs from a moral hazard created by limited liability corporations. The general scheme for getting rich is more or less "Form a corporation, borrow lots of money using insane leverage, make wild bets. If you win, pay yourself handsomely. If you lose, declare bankrupcty and start over. Repeat as necessary". The hard part is knowing the right people, such that you can borrow large amounts to use for speculation.

  • oaktownadam||

    Citation, please.

    Also, show me a citation of where anyone is allowed to form a corporation and instantly take out lines of credit. Usually, people lie about the reason for the loans they take out, and call them 'personal loans', because bankers won't lend to new corporations without established history, due to the doctrine of "limited liability". When loans are made, they usually require the business owner to put up their own assets as collateral.

    Have you even heard of Dunn & Bradstreet?

    You've never really been involved in starting or running a business, have you?

  • Sean W. Malone||

    No, Chad has never come even remotely close to running or founding a business - which I suspect is why he's so bitter about it.

    Anyone who actually has tried to be an entrepreneur actually understands how hard it is, and how much of one's own passion & effort go into being even marginally successful.

    As a result I know dozens of entrepreneurs who have immense respect for what large businesses achieve, and I know people like Chad who foolishly think it's all dumb luck and that "anyone could do it".

  • Edwin||

    I second this - Chad has no freaking idea what he's talking about. His description isn't even remotely close to reality.

    And even if it were, it would describe CRONY capitalism, not ACTUAL capitalism. But, wait, oh yeah, according to Chad that's a moot point because it's never going to happen. Except that A) Chad himself keeps arguing against our idea of actual capitalism itself and blaming it for the economic recession and B) so what if pure capitalism is never going to happen? Nobody ever said it was all or nothing; there are tons of laws out there; it's a matter of degree - but GENERALLY the more capitalism, the better (and yes, it can work the other way around sometimes). And more capitalism doesn't mean that the CRONY capitalism aspects of our economy can't still be bothersome. Just because we're far from being even mostly capitalist, it doesn't follow that everything we libertarians are saying is wrong and we should give up trying to affect our laws.

    Chad repeatedly bring this up in all his posts in Reason articles - he usually goes along the lines of "but perfect capitalism is never going to happen, so you guys are just promoting the status quo!" - but it's the Nirvana fallacy.

    Oh and sorry all for the lengthy/going-off-on-a-tangent - I rebutted Chad, then predicted his rebuttal and rebutted it. My original point was that what he's describing is most certainly not the reality with running businesses/LLCs - and if it were, his own description points to CRONY capitalism.

  • Chad||

    Chad repeatedly bring this up in all his posts in Reason articles - he usually goes along the lines of "but perfect capitalism is never going to happen, so you guys are just promoting the status quo!" - but it's the Nirvana fallacy.

    Two questions to you: Granted that you seem to agree that we are never going to have a Libertopian Nirvana, is not the more relevant question "Does this policy work in the world that exists?" more relevant than asking if it were to work in Libertopia? Additionally, what do you think we should do about a policy that (arguably at least) would work in Libertopia, but fails here in reality?

  • oaktownadam||

    Does said policy get us closer to Libertopia, or not?

    The End.

  • Chad||

    I am not talking about the piss-ants borrowing $100,000 to start a McDonald's.

    I am talking about the bigwigs on Wall Street who are leveraged 30:1 with almost none of their own skin in the game. Even without too-big-to-fail, limited liability gives these guys all upside and minimal downside. Once you get your blood funnel down the throat of the market, it is all "heads I win, tails somebody else loses".

    Or are you telling me that these Wall Street bankers would be living in abject poverty, with loan sharks beating them up regularly and taking every nickel they managed to get for turning in pop bottles out of the trash, if the government hadn't bailed them?

  • oaktownadam||

    And once again, Chad fails to describe anything relevant about the situation he wants to bring into the discussion.

    Really, Chad, and how exactly are "big-wigs on Wall Street" "Form[ing] a corporation, borrow[ing] lots of money using insane leverage, mak[ing] wild bets"?

    Seems like you'd need an established corporation to take advantage of 30:1 leverage, and would not be a fly-by-night operation, as you described.

    And also, why is any of that a problem, except that your liberal chosen few are bailing them out? Or is that a "libertarian" policy as well? Another "market failure"?

    Your comments are sounding increasingly desperate and schizophrenic. Are we talking about people starting up brand new corporations, or are we talking about banking institutions that have existed for decades?

    And here, Chad, the Telegraph explains the situation in small words even you can understand:
    http://www.telegraph.co.uk/fin.....-much.html


    Q - If bonuses are performance-driven, how can banks justify paying them when they are reporting huge losses and taking government hand-outs?

    A - There is no way the paying of bonuses can be explained in a satisfactory way to the rest of the population this year, but within the Square Mile or Wall Street, the attitude of employees is "you eat what you kill," said Mr Springer. Only a small number of bank staff were involved in the subprime-mortgage market or trading derivatives they did not fully understand. Many people were lending and advising and bringing in handsome fees for doing so, and therefore would expect a bonus based on the profit they personally made even if the company as a whole made a loss.
  • Chad||

    You really don't get it, do you.

    Here is Cato, smacking you down (yes, Cato!). Do a search for "limited liability", pg 13.

    http://www.cato.org/pubs/journal/cj29n1/cj29n1-12.pdf

    The very structure of limited liability corporations introduces a very large moral hazard-style market failure directly into the heart of our economic system. This isn't just some little flaw that you can hand-wave away.

  • oaktownadam||

    Oh, whatever happened to the "party-line groupthink" you accused us all of upthread?

    No, there's no disagreement between libertarians anywhere! It doesn't exist! We're all mindless automatons who believe exactly what the libertarian elite tell us to!

  • k||

    Do away with the limited liability corporation and you won't be able to get your car fixed by someone who has employees.

    Speaking of the real world.

    Derek

  • Chad||

    Oh, I agree that limited liability is a necessary evil. Just like health insurance, however, it is rotten right at its core, infused with deep moral hazards which cannot be seperated from it.

  • Patriot Henry||

    "Oh, I agree that limited liability is a necessary evil."

    Evil is never necessary. The phrase "necessary evil" is merely a crutch used by those whose moral weakness is exceeded by their personal weakness.

  • Tim2||

    What moral hazards exist in health care have a great deal to do with government involvement as medicare greatly influences payment which advantages the fee for service system that encourages doctors to run unnecessary tests, along with such test's necessity because of our refusal to adopt sound policies like loser pays and to protect health providers that meet government regulations and/or industry standards from frivolous lawsuits. Further EMTALA can create an incentive for people to just use the E.R.; and tax policy has dried up the individual markets while the government exempts insurers from anti trust law and doesn't let companies compete across state lines.

    I suspect you are thinking of "adverse selection" which is again due in great part to government involvement that mandates coverage for things most people don't need and limits medical underwriting; artificially raising the cost of insurance for everyone while forbidding companies from using the information they can gather creating an incentive for the healthiest people to opt out. Free market insurance doesn't suffer from adverse selection when people can buy insurance at a price that reflects their individual risk, and where government, even if it helps fund something like Medicare through a voucher, isn't being an active player making mistakes which get locked into the system due to the fact that providers must do what Medicare wants or lose patients.

  • Sean W. Malone||

    You do realize that the SEC granted the 5 biggest firms (Lehman, etc.) the SPECIAL privilege of the 30:1 leverage right?

    In a free market, of course they would have been free to attempt such an idiotic position, but that would have been actually balanced against the fear of LOSING 30x their bet.

    No sane person would accept such a thing, and the few people who thought the risk was worth it would have either been rewarded big (congratulations to them) or taken the loss (and rightfully so).

    It seems that since you repeatedly fail to understand that it's government involvement that causes the moral hazard - I'll explain this carefully.

    Risk & Reward are the competing concepts here. Who doesn't want to place a $100 bet and come away with $3,000? Of course we all do... But people are generally very risk adverse. If they are going to be on the hook for $3,000 on a $100 bet if they lose, they will not take the bet. Even your precious behavioral economics recognizes this trait. It's not even very extreme, either, Chad! Most people, when offered a coin-flip to either win an extra 15%, or lose 10% actually err on the side of not risking the loss and won't take the bet. Even though they stand an equal chance of gaining more or losing less.

    30:1 leverage is astronomically out of proportion for the vast majority of people's level of risk tolerance.

    So WHY did it happen!?

    Because the SEC gave special protections to the 5 biggest banks, and the FDIC and a dozen other laws/institutions guaranteed each of those banks that if their bets failed, they wouldn't have to really worry about the consequences.

    You can blame the limited liability aspect of it if you want, but I don't think that's a very adequate explanation and there's a lot of good aspects to limited liability as well. The vast majority of people who start businesses don't set out to fail, and limited liability helps them avoid losing their house in the event that the company they start doesn't work.

    It also helps record-keeping immensely to have assets be owned by the company instead of by yourself.

    But no matter... The point is that GOVERNMENT, not any kind of free market activity caused the moral hazard you're whining about. In a free market - a 30:1 leverage would only happen in the rare instance that the bet is actually worth it (i.e. virtually guaranteed to succeed) or if the people involved are complete idiots.

    If they are complete idiots, the losses will quickly weed them out, and shift the money & resources over to people who are not complete idiots. This is good.

  • Chad||

    You do realize that the SEC granted the 5 biggest firms (Lehman, etc.) the SPECIAL privilege of the 30:1 leverage right?

    In a free market, of course they would have been free to attempt such an idiotic position, but that would have been actually balanced against the fear of LOSING 30x their bet.

    So the government allowed a corporation to do something, they did it, and now you (like usual) blame the government for the failure? Wow, Sean. That is some serious cognitive dissonance.

    Sean, you need to think a little more about *who* has the downside risks related to leverage (the stockholders) and who is making the decisions (the executives), and note the vast gap between their competing interests and exposure to those risks.

    This is nicely summed up here:

    http://en.wikipedia.org/wiki/Principal-agent_problem

    In short, here is yet another market failure that lies right at the core of a "free market" economy...and one that is incredibly relevant to what blew up Wall Street.

    You are wrong about how often leverage would occur in a "free market" precisely because of this. Indeed, it will occur as often as anyone can get away with trying it. In a world of hyper-attentative, hyper-rational investors, maybe this would be very rare indeed, but we are talking about reality.

  • josey||

    "So the government allowed a corporation to do something, they did it, and now you (like usual) blame the government for the failure? Wow, Sean. That is some serious cognitive dissonance."

    Stop.

    Hypothetical: you and I both own investment houses. There is no government; it's a level playing field and we spar, value for value, risk for risk. Enter government, which introduces an implicit or explicit backstop. New choice for both of us: use it to advantage or not? You, being the slimy corporate fat-cat that you are choose to use it, while I, being the frugal, honest, forthright, people-oriented businessman that I am, do not. What does my choice represent?

    Corporate suicide.

    Your perception that leveraging these advantages is ever optional is fundamentally flawed; once they exist, they simply become an integral part of the competitive environment, and as such, must absolutely be factored into the decision-making process. It's not about blaming the government; the backing represents an egregious market distortion and ends up accomplishing the opposite of what was most likely its intended result; in this case, guaranteeing that the only types of businesses to survive must necessarily be those which are most successful in subordinating traditional scruples to cold corporate interest.

    Moral hazard is a faulty term; it implies that there is a choice to be made. There isn't one, unless you believe in the idea of angel-as-CEO.

  • Chad||

    josey|2.14.10 @ 3:30PM|#
    "So the government allowed a corporation to do something, they did it, and now you (like usual) blame the government for the failure? Wow, Sean. That is some serious cognitive dissonance."

    Stop.

    Hypothetical: you and I both own investment houses. There is no government

    Why waste time arguing about how many angels can dance on the head of a pin? There IS a government, and there will ALWAYS BE a government, and no sane person wishes otherwise.

    You are missing my point: leverage is dangerous for a firm, but it is all upside for the management. Even in the worst case (which we just saw, more-or-less), they didn't even lose their jobs, still got bonuses, and still get to laugh their way to the bank and gloat over their millions. How did they "earn" this money? By betting other peoples' money, and keeping two and twenty.

  • josey||

    That's rich. You say I miss your point, then spend your entire response willfully avoiding mine. I didn't miss anything, and I never claimed any of these scheisters deserve a dime of what they get. I hold that their positions should no longer even exist; it's only by means of the very government intervention I caution against above that they still do. The effects you cite are nothing more than the oh-so predictable result of the environment we create with our simplistically-intuitive, yet completely wrong-headed fiscal and regulatory policies.

    So again, since you seem to need to have every little thing spelled out for you, the question of whether there should be a government or not is irrelevant to this analysis - I used it above only to give contrast to the hypothetical. You missed that and veered off-topic; predictable, but whatever. So try again, and let's see if you can point out where my above diagnosis is inaccurate, in terms of real, current, on-the-ground business dynamics.

  • Sean W. Malone||

    Chad, you honestly must TRY really hard to avoid reading comprehension, don't you?

    The government granted special privileges to FIVE of the biggest corporations, complete with implicit guarantees that if anything went wrong, the government would pick up the tab for failure.

    That is NOT "freedom" in any sense, least of all a free market.

    Further, I didn't say leverage wouldn't happen, I said that the risks would be balanced against the rewards for doing so. If I leverage myself 30:1 on a bad bet and lose, I lose 30x my initial investment. Translation: I probably spend the rest of my life paying for that mistake and never have an opportunity to do such an idiotic thing again.

    Leveraging assets is, in and of itself, NOT a bad thing!

    Even 30:1 isn't a bad thing... But I have to be prepared to take the risk and suffer the losses if I fail. None of the companies that got special privileges were prepared to take the risk and most of them had every right to believe that if their plans failed, the government would be there to bail them out.

    Funny how moral hazard works, huh?

    At any rate, the point is, if you do this repeatedly or even once in a huge way, you go out of business, and lose everything. In the meantime, your competitors can and probably will point out that anyone who invests with you is doing something risky.

    Ugh... Can you please try to read what people actually write in context next time?

  • Chad||

    If I leverage myself 30:1 on a bad bet and lose, I lose 30x my initial investment.

    No, in fact, you do NOT Sean. You just declare bankrupcty. If you have half a brain, most of your savings, personal possesions, and home cannot be touched. You rarely lose much more than the initial collateral you put up.

    I do enjoy watching YOU argue "We adopted a mostly libertarian policy in a non-libertarian world, and the conflict between the two caused a massive cluster-@#$#." This is what I have been pointing out forever around here: individual libertarian polices may well work in some fantasy Libertopia, but they do not work here. You just proved my point.

    Now, you will just go on arguing that if only our Libertopia was more pure, these conflicts would evaporate and there would be no problem. True, perhaps, but totally irrelevant, as it will never ever ever ever ever be tested.

  • Sean W. Malone||

    Where the fuck did I argue that we adopted a "mostly libertarian" policy?!??

    WE adopted NOTHING even remotely CLOSE to a libertarian policy, you fucktard!

    We adopted a policy where favored firms got a special deal and special protections at the expense of the tax-payer.

    What in god's name is remotely libertarian about that?

    Jesus christ.

  • Sean W. Malone||

    What I've argued, is that if we'd actually adopt ANY kind of libertarian policies, instead of the ones your strawman caricature of libertarians "support" - then we would see improvement. As for example happened in Costa Rica, China, Hong Kong, South Korea, Singapore, Estonia, India... Etc.

    Mercantilism isn't the same thing as libertarian, dumbass.

  • Tim2||

    One also can't forget the actions of the Fed which by artificially lowering interest rates and keeping them there too long made previously bad investments and consumption choices look good by reducing the cost of borrowing. The government also makes mortgage interest tax deductible, which encourages more people to go purchase more bigger houses, which you detest, than the market would provide.

    Limited liability does indeed give managers protection, although it need not be created by government to exist; but it isn't exactly easy to leverage a firm up 30:1 when the Fed isn't inflating the currency and implicitly promising to bail companies out. The libertarian argument is against creating such a guarantee in the first place; and you can't even fully make your case about the alleged "more libertarian" solution of letting some firms leverage 30:1 is worse than harsh regulations in the first place. Why? Because such regulations could end up stifling real innovations as well as speculation; and such innovations might be a net benefit in the long run even accounting for the malinvestments in the speculative boom. Back to the Fed though, it is hard to even call such malinvestments speculation when given the price signals available to firms that were heavily distorted by fiscal and monetary policy those malinvestments looked like good bets. The gambling with the taxpayer's money analogy is not quite accurate, because the government wasn't just staking the players but also stacking the deck however incompetently such that the players perceived increased odds of winning.

  • Soonerliberty||

    Now this is a good description of our federal gov't.

  • k||

    Chad. Tell me. How many people have gotten oversized bonuses this year.

    Compare that number to 2006.

    Tell me if this is a result of market failure or market success.

    Homework due at beginning of next class.

    Derek

  • Chad||

    Such information is not pubically available. However, the total bonuses are nearly the same between these two years. Clearly, neither is based on "success".

  • Sean W. Malone||

    Says the guy with absolutely no information on the internal successes of individuals receiving bonuses or any information on what the contracts of those people stipulated.

    The reality, Chad, is that you have NO CLUE what people did or did not do to earn the bonuses. Is it possible that some weren't "earned"? Sure... Is it likely that en masse, companies are busy handing out bonuses to poor earners? No.

  • Chad||

    Sean, the "internal successes" at the big banks last year were consisted of

    A: Borrow money from their rich uncle for virtually nothing

    B: Buying just about any asset on earth

    As long as I had a blood funnel directly into the heart of the fed, I could have made zillions too.

  • Sean W. Malone||

    You're absolutely right, Chad. So where exactly are you confused about the problem being the Fed, the powers of government and central banking institutions?

    You've just identified the source of the problem... Now use your meager powers of deduction to figure out how to fix it.

  • Sean W. Malone||

    PS: You're right that if you had "a blood funnel directly into the heart of the fed, [you] could have made zillions"...

    Please do not misconstrue the above statement to mean that I've accepted your God-like abilities to know who did and who did not earn their bonuses last year as accurate.

    You have NO idea who got bonuses, who didn't or why. Some may have been for "nothing" and some may very well have been for acting to save companies billions, or in some sectors even earning billions. Not everyone fucked up 100% of everything, you presumptuous twat.

  • ||

    "...you presumptuous twat"
    Typo or Freudian slip?

  • Sean W. Malone||

    Intentional. Calling Chad a cunt seemed too vulgar ;)

  • Sean W. Malone||

    Ohh... you meant with regard to "presumptuous"... I suppose Freudian slip counts. Sorry, I didn't catch that immediately.

    Tip o' the hat.

  • G Mc||

    Markets don't reward value (which is subjective), they reward what the market values.

  • ||

    As interesting a read as this is, I think Dalmia is misrepresenting how most pro-market people think of and argue the issue in order to reiterate their actual position. If all of the focus is truly on the "Great Man", why is the most common argument against regulation and increasing taxes that doing such kills *small* businesses? No, most market advocates believe in an economy driven by countless people who provide unique goods and services, even at small levels of output and/or in small areas.

    Similarly, I see almost no one arguing that some intrinsic property determines what a person can produce and earn. On the contrary, the argument is that what matters is *not* what you are given by chance but what you make of what you're given. That hard work, "making the most of it", is what most of us think of as "merit". We also recognize that merit is not always rewarded by the market because of uncontrollable factors, but minimizing human control over the system (read: minimizing corruption) maximizes the likelihood that merit will be rewarded.

    All in all, this is really just a restatement of the pro-market principles common amongst conservatives while claiming to be different on the basis of semantics.

  • Tim2||

    Because small businesses are politically more popular than big businesses; they employ a lot of people, one often personally knows the owner/operator, a large amount of people aspire to and can reasonably seem themselves owning a small business as opposed to being Bill Gates.

    Despite all free marketeer's respect for things like property rights, it's a whole lot easier to sell property rights for the average person or average business than it is to sell them for Bill Gates and Microsoft. Politically at least.

  • ||

    "The sole and only issue is a product's value to others."

    redundant

  • Bashan||

    Another dichotomous article of fabled Reason! The "pyramid of ability" and comparative advantage are co-occurring phenomena--merit as well as value contribute to the market. Furthermore, the "pyramid of ability" is a response to Marxist materialism, which sees physical labor (neither value, nor merit)as the driving force.

  • ||

    The writer has not grasped the identification made by Ayn Rand regarding the role of individuals in society. Every man is his own responsibility and must create the values his life requires by his own direct efforts or trade with willing individuals the values he creates for the values he requires produced by others. She identified that the most creative individual produces enormous value that he could not possibly consume alone and that his surplus necessarily benefits all others. Those individuals properly deserve what they earn. All of those less productive owe an expression of gratitiude to the great men and women throughout history from whom we all benefit.

  • ||

    Chad|2.13.10 @ 1:53PM|#
    "My point is that even when market theory is working correctly, and I pay less than my theoretical maximum, and the dealer receives more than his, the allocation of that difference in value (ie, the profit) is not optimized in any way by market theory. It simply notes that a profit was made and moves on."
    If I understand, you are arguing that the optimal outcome wasn't achieved in this particular case, and you therefore presume a static circumstance.
    In this case both parties profited more than expected; the seller got more than expected and the buyer paid less. In a free market, both will be competed-out until the excess capital goes to something approaching a Paretto efficiency. And I'm guessing that's what you presume 'optimal'
    So your point is wrong. Got that?

    "However, there is actually a big difference in practice between situations where the buyer or the seller makes most of the gains."
    Whoever makes most of the gains is pretty much irrelevant; both did. Hardly ever would there be an exchange where each party 'felt' exactly the same about the exchange. How in hell would you ever measure it, oh 'science-biased-liberal'?
    Please think before posting.

  • tzu||

    It would seem that this article has only created a mobbing effort.

    Beauty is in the eye of the beholder. Value is subjective. All opinions of valuable matters contrary to your own are bullshit. Why bother continuing the argument if you know or believe your own definition of value? Unless, of course, you are a member of a group that seeks to spread its own conception of value and to enter that conception into the "status quo".

    How easy it is to spread around the word "value" and use it to make people feel worthless when you have enough in your gang to do so!

  • ||

    "How easy it is to spread around the word "value" and use it to make people feel worthless when you have enough in your gang to do so!"

    I believe the term "value" has a definite formal definition within Economics. (I don't know exactly what that is.) Something like the term "alien" (as in illegal alien) having a formal legal definition and is *not* the monster from the movies.

  • tzu||

    As to the implication of a free-market in this country? Hah!!! This article is grasping at fantasy!

  • bp||

    excellent separation of markets per se, from those who participate in them, but otherwise depends heavily on the justification of market power at the expense of competition, or the regulation necessary to mimic competitive outcomes

    competitive outcomes yield entirely different market values than non-competitive ones, in contrast to Hayekian beliefs that there's no difference, as long as the market power in question is private and unregulated, i.e., creative destruction is the only legitimate competition recognized by Hayek

    absent competition, individual actors easily stamp their brand on market values and collect huge economic rents for the privilege, the same actors typically heralded as Randian type heros by those holding them out as a symbol of market success and trickle down economics, when under effective competition, they'd fall flat on their individual meritorious faces

  • ||

    If I'm successful selling socks today and tomorrow I have a competitor it does not translate I will fall flat on meritorious face.

  • k||

    If I am first in a market, for the simple reason that I discovered, developed, and supplied that market, is there not a value in that?

    And by definition, if there is competition, the advantages of being the only actor in that market disappears.

    Is it not reasonable to assume that the skills that led to being first would be different to the skills in a competitive market?

    I fail to see a problem here.

    Derek

  • ||

    The advantage disappears not necessarily the outcome is my point.

  • ||

    I am generally a free market Guy. I figure most often it will work out any inequalities. However Michael Moore may be the exception that proves the rule. He has made millions producing films that are not informative or entertaining. They simply appeal to some people's basest emotion. Like fear,jealousy and hatred. He preaches distain for power and wealth just to makes himself rich and powerful. No value, no merit, yet riches galore.

  • Craig||

    The moral defense of free market compensation has nothing to do with arbitrary definitions of value. Free market compensation is moral because the individuals paying the compensation to the compensated individual do so freely, out of funds they possess -- it's their decision to make, and not yours to second-guess.

  • ||

    This column is silly. This dichotomy that Shikha is creating between merit and value production, or between great men and comparative advantage, is phony and nonsensical. It is precisely because they know how to create so much more value than others that these businessmen are great. It sounds like she is jealous of great businessmen and has to cut them down to size somehow.

    If you truly want to get rid of hostility to markets, you will not succeed by joining with the leftists in denigrating the great businessmen and pooh-poohing their accomplishments. You do it by pointing out that these businessmen have been hogtied by the government all these years and that the government is responsible for the crisis, not the businessmen. You do it by fiercely defending what capitalists do, not giving ammunition to their opponents.

    By what stretch of the imagination can you agree with leftists that individuals are more or less interchangeable, and then hope the left will then abandon collectivism and lay off capitalism?

  • Grover||

    Dalmia's article is based on a theoretical free market that does not exist in the real world. The wealthy and powerful have no opposition to government. They use the government to build up monopolies in the professions and in industry. They bankroll politicians who give them license to pollute other people's air water and land. And they fund a massive military complex which pillages foreign lands for their resources.

    The free market exists in textbooks. What we have in reality is socialism for the rich.

  • ||

    This was an enlightening article. Thank you very much for your insights and humor, as well. I learned some valuable information from it. Very well done!!!!

  • ||

    How could someone be so misguided as to Rand's basic concepts? One glaring example, she never believed in an "intrinsic" concept of merit.

  • ||

    Chad, unregulated (free) markets are not concerned with optimizing outcomes, nor are they concerned with the allocation of value.

    Whenever government regulates, it causes inefficiency. Politically, regulation (including taxation) may be seen as necessary, but economically, it is always costly. The motive for regulation may be to optimize outcomes, but regulations always favor some and disadvantage others as per the political preferences of the regulators.

    Those who favor free markets believe that the preferences of the participants are more efficient drivers than the preferences of the regulators.

    The examples you cite of markets "not working," such as large bonuses for bankers and financial institutions becoming insolvent due to insufficient reserves, are not market failures at all. They are failures of individual decision-makers. In an unregulated market, we are free to gamble, loan to the untrustworthy, and make bad investments. In an unregulated market, those who make bad decisions lose money. That's evidence of the market working, not failing.

    Your criticisms reflect your desire to maximize outcomes. Your idea of value, I'm guessing, is related to allocation of resources. Your view of fairness apparently drives a desire to regulate various transactions.

    Free market advocates usually avoid trying to define fairness, and they always avoid concentrating on outcomes. Instead, free market advocates stand against fraud, theft and violence. When those elements are not present, and when government does not regulate, then unfettered competition works remarkably well. Transactions take place according to the value assigned to them by the transactors, not -- as you seem to wish -- according to the value assigned by third parties.

  • ||

    "Whenever government regulates, it causes inefficiency."
    This seems like an inaccurate and unnecessary generalization. Government *can* create more efficiency. It's just unlikely given the vast amounts of information that would need to be managed and analyzed before being able to make a competent decision. If you were a decent gambler, you wouldn't bet that it would, but that doesn't mean you'd be guaranteed to win the bet.

  • Tim2||

    David also seems to have a narrow concept of economic activity as government provision of the police and military often even with massive amounts of mistakes and inefficiencies can be of net benefit. Free market advocates that speak of economic activities only as the traditional business world will often walk into liberal traps when they bring up legitimate public goods, externalities, collective action problems etc; even if some of those market failures often get solved by technology that can internalize costs and bundle benefits to private goods.

  • Ebeneezer Scrooge||

    Once again, Shikha Dalmia manages to dream up some really weird shit.

    Can anyone tell me, by what stroke of what -- luck? merit? insanity? -- did this person become a "senior editor"? At something that's supposed to be a free market think tank?

    She's so fundamentally confused I don't even have time to rip the story apart.

  • Ebeneezer Scrooge||

    But Craig gets to the heart of most of it in short order.

    The moral defense of free market compensation has nothing to do with arbitrary definitions of value. Free market compensation is moral because the individuals paying the compensation to the compensated individual do so freely, out of funds they possess -- it's their decision to make, and not yours to second-guess.

  • Ebeneezer Scrooge||

    "The concept "value" presupposes answers to the questions "of what value?" and "to whom?"".

    Unfortunately Shikha Dalmia was confused and lost in the philosophical swamps long before she got this far.

    Which is why, I won't be surprised to learn in the near future that she's become a socialist. The logic she lays out here leaves absolutely no defense against the Left.

  • ||

    Or, to borrow from King Charlemagne in Pippin: It's smarter to be valuable than it's valuable to be smart.

  • ||

    Its an interesting article. I think may classical liberals have felt that advocacy of free markets have been hijacked by the likes of Ayn Rand. Can any one find a reference to Ayn Rand in a economics text book?

  • ||

    I 100% agree. Free market principle of Smith/Hayek/Friedman has mutated to an unabashed free-for-all of self-interest, what I would call "Greed market". It appears noone has ever read Adam Smith's consternation about the unchecked self-interest that can result in monopoly, collusion, bribery, and plain old deceit that can yoke the "invisible hand".

  • Tim2||

    Free market thought hasn't really been hijacked by Rand; but by corporatists who misuse use her ideas and the idiots that fall for such misinterpretations of "greed is good" to promote special privileges and corporate welfare. The only problem that Rand contributed to is that her strident individualist anti altruism rhetoric is so easily misused to justify selfishness as opposed to self interest. Greed is checked by fear, thats why most people aren't gamblers; but the corporatists have gotten the government to remove that risk of loss for them by co opting the language of both free markets and social justice, whichever is more convenient at the time.

  • ||

    Merit is in value creation.
    Merit accrues.
    Demirit is in value losses.
    Demirit accrues.
    Net expectation accrues.
    Compensate on net expectation accrural.

  • Andrew||

    Market rewards value only if it is familar and easy to understand. Markt is short sighted, it often makes mistakes and sometimes catastrophic ones. It is far from perfect as the author claims.

    Some examples:
    1. People who created the greatest values were only nominally rewarded:
    -Inventors of paper and printing
    -Inventor of the internet
    -Discoverer of vacine
    -Newton
    2. People who creaetd no values are richly rewarded:
    -Wall street speculators
    -Many CEOs
    -Arab oil kingdoms
    -Hilter, who was freely elected
    -Stalin, winner in the market of violent politics

  • Sean W. Malone||

    You're very, very confused as to what constitutes a "market".

    Hitler & Stalin, for instance were not involved in a market - which would have implied "trading". Electoral or dictatorial politics has no features of a market. There is no voluntary exchange of goods or services taking place, only the illusory appearance of sanction to one thug or another getting his hands on the power to force others to do what they want.

    Likewise, Wall Street speculators actually create an immense amount of value, though that value is complex and hard for ordinary people to understand. Speculation is one of the things that regulates price of goods relative to current & (believed to be) future demand and helps markets allocate resources for the future. CEOs also typically create immense value for all involved since they are the ones whose success or failure in their position tends to affect a great number of people. A bad CEO can cost not only his own job but the jobs of his presumably many employees AND the wealth of the company's owners & investors.

    I'm not sure how you could claim that Arab oil kingdoms produce "no value" either, since we all pretty much use what they produce on a daily basis.

    More to the point, all the people you cited as not being richly rewarded for creating much "value" may or may not be true (most of those are pretty debatable or outright unknowable... who invented paper??) but to some extent the inventor is irrelevant.

    Imagine, if you will, that I've invented a fabulous new wireless communication technology. It's 100x faster than any internet on the planet, transmits any kind of data and would revolutionize mass-communication in a way that would reshape the world. Now imagine that that product stays in my basement.

    I've added no value to anyone but myself.

    The point is not merely to add what we generically call "value", but to specifically improve the lives of other human beings. The inventor of any product may, or may not, have any hand in doing that. Typically it's much more likely to have a marketer or a CEO of a company be the one who actually takes the product from invention stage all the way through mass production and actually gets that product out into the world where *other* people can use it.

    Inventions are only as good as the benefits they provide to real people - as judged by the end users - and if you invent something great and it never sees the light of day, you've done the world no service. Unfortunately many inventors just aren't the right people to take what they've created and actually get it sold...

    That said, you may be confused in general because you are right that some CEOs do not add value to the end user - but rather add value to the company by having connections with government who then bails them out and gives special benefits.

    This is bad. No question... It's just not the same thing as what Dalmia is talking about.

  • Andrew||

    Sean, think about it. How can the same ill- informed voters who freely elected a congress regarded by you as corrupt and incompetent be at the same time perfectly intelligent and efficient participants in voting with their dollars in a free market economy? There is a contradiction in your belief.

  • Dustin||

    Dear Sir,
    Your point that markets reward value creation and not intrinsic merit is well taken, and I agree that it is largely misunderstood. However, even understanding the distinction, I still think there is a good reason to question the kinds of salaries and bonuses Wall Street bankers make. Look at how much "value" was lost when the stock market imploded. Much of the "value" for which bankers were compensated during the '00s turned out, in the end, to have been nothing but hot air filling up a bubble that was bound to burst. Moreover, the pay structure at the big banks, far from discouraging this kind of empty value creation, seems to have fostered it. My question: the next time the stock market tanks, will you support going back and reevaluating the salaries earned by people in the finance sector to determine the real "value" they added to the system during the boom years, distinguishing it from the chimerical value of the bubble, and taxing them for the difference? My guess is "no", but then how, and at what point in time, do you assess the value added by an individual's economic activity? If seemingly value-creating economic activity turns out down the road to be value-destroying, who pays?

  • ||

    Justification for exorbitant CEO compensation, especially those associated with government bail-out, bears NO resemblance to the market force. It actually has more in commmon with OPEC price-fixing (e.g.arbitrary, irrelevant to market, AND arrived via COLLUSION). It is not a manifestation of free market, but represents a CARTEL. Adam Smith would be (just as Sarkozy was) justifiably appalled.

  • ||

    Sarkozy is lucky there's been one country where markets are allowed to operate.

    This guy makes a very compelling case that all of us would still be living in the eighteenth century if not for the progress made in one single nation called the US: http://historyhalf.com/america.....-progress/

  • ||

    Markets themselves are subject to market forces, and will be gamed or owned by those with the ability to do so. Libertarian arguments all seem to boil down to "if only people would act in a certain way" while ignoring the directly observable ways people act / have acted. Whenever a free market produces results contrary to their ideals, Libertarians will make the self-stultifying argument that the market wasn't 'free enough'. It's never going to happen. Enough people realize that certain things should not be subject to free market forces. Look around.

  • Sean W. Malone||

    Fail... :(

    Libertarians are probably the only folk who actually directly pay attention to the way real humans act and take that into consideration. Especially where economics & policy are concerned. Try again.

  • jcr||

    Somewhere, at sometime in the late 19th century a newly freed African American made a critical life mistake the cost him dearly, and forced him to act prudently for decades become. If only his wise, seasoned slave owner was around to protect him from his own stupidity.

  • jcr||

    *to come

  • Bruce||

    Bank CEOs get paid alot of money because they run organizations that have accumulated alot of capital. Their organizations accumulated capital by financing other large organizations that have alot of collateral. These organizations usually obtain their collateral by stealing. Some of these large organizations are governments, who steal by taxation and inflation. Other large organizations are corporations, who steal by getting governments to pass laws that favor them over other organizations. If you want to limit CEO compensation, limit the ability of governments to tax, to inflate the monetary supply, and to pick market winners and losers. This will limit the collateral available in large organizations, which will limit the size of financing deals from banks, which will reduce capital accumulation at banks, which will lower CEO pay.

  • DooDooEcon||

    I would argue that as markets become more decentralized, individual effort (merit or value based) is better rewarded.

    I would also refine the thought to represent that merit is achieved by finding value in a meritocracy.

    Further, most "merit" is rewarded by employers, and "value" seems to be rewarded by customers.

  • ||

    Nice try, Ms. Dalmia -- but you haven't gone far enough. Markets don't reward anything. Markets don't even exist.

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    My only point is that if you take the Bible straight, as I'm sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won't get the full deal by just doing regular skill english reading for those books. In other words, there's more to the books of the Bible than most will ever grasp. I'm not concerned that Mr. Crumb will go to hell or anything crazy like that! It's just that he, like many types of religionists, seems to take it literally, take it straight...the Bible's books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on...the Bible's books were written by people with very different mindsets...in order to really get the Books of the Bible, you have to cultivate such a mindset, it's literally a labyrinth, that's no joke.

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