Ask about "free market capitalism"

[Fried Egg]

I know there's a lot of misconceptions out there.

Let me try to clear them up for you...

[Guest]

What does it mean?

[Fried Egg]

Strictly speaking, "free market capitalism" is a sytem whereby people own entirely the fruits of their own efforts and may keep or trade freely with their property.

/edit : By 'free', I mean unconstrained by terms and/or conditions imposed by an extraneous third party.

[extropalopakettle]

[Celt]

Doesn't it make sense for everybody to chip in for the common good, such as the building of schools, roads, prisons, etc.?
If that is the case, then how do you ensure that only those who have chipped in, get to use the communal services?
What happens to those who are unable (rather than unwilling) to work? Won't those who feel morally obligated to care for these people bear an unfair share of the burden?

[Guest]

So... is there no tax under this system?

[Fried Egg]

Extro

[Guest]

1)Given that most people are tribal by instinct and have some sense of social responsibility combined with the fact that under such a system most people will want insuarance of some sort (wrt health care, unemployment benefit etc.) is it not likely that we will end up with stratified communities much as we have now only more extreme?

2) What happens to personal liabilit yunder such a system? If I crash into your car, is there still a legal system which means I have to pay for it?

[Fried Egg]

Guest

[Celt]

Isn't free-market capitalism essentially what existed in the Wild West and before that among the indigenous people? In these cases, and all others, they were superseded by more complex forms of collectives and eventually towards the kinds of government to be seen throughout the world.
Isn't this an idea that had its chance and failed, only to be replaced by safer, more prosperous, societal systems?
What makes you think it would be any different this time?

[Guest]

[quote=Fried Egg]I don't see why.[/quote]
Because of the reasons I gave[/quote]

[Samadhi]

It is argued that transparency in the stock market is very important to the success of capitalism. How would you achieve this without regulation? Or if it is not achieved, how would it be a better system than transparency?
_________________
And he lived happily ever after. Except for the dieing at the end and the heartbreak in between.

[Guest]

It seems unlikely to me that the road owners would find it profitable to mantain the roads in rural areas with low populations. Would rural areas just become cut off from the world?

[Chuck]

They'd have to maintain their own roads and charge more for the food they grow. Maybe the truckers would contribute and then charge more for hauling food to the cities. Instead of paying for rural roads through taxes, city dwellers would pay for them through food prices. If the products an area produces aren't worth the cost of the roads then the businesses there will fold. The people there can migrate to places where their labor is worth more instead of leaching off society by having taxpayers maintain their roads for which the taxpayers aren't receiving fair market value benefits in return.

[extro...]

[Fried Egg]

Celt

[kevinatilusa]

I think what Celt is referring to in his question are so-called "public goods" . To give a more explicit (but contrived) example

Suppose we have a society of 2 million people where each person in society can choose to either perform or not perform action "A". Doing action "A" costs a person $1 million, but gains each member of the society $0.75. This is NOT a benefit which can be restricted to members of a collective, or only to those people who perform action A.

Each individual, acting in their own self interest to maximize their own wealth, should choose not to perform action "A", even though a society where everybody performs "A" leaves everyone $500,000 better off than the other society. How does pure capitalism deal with situations like these, where people acting to maximize their own profits does NOT bring the market to its optimum location?

[Fried Egg]

kevinatilusa

What you have described sounds very similar to what is generally referred to as the "prisoner's dilema".

But individuals acting in their own interests doesn't necessarilly preclude collaboration. Particularly if acting in collaboration is in one's personal best interests.

In reality, it is impossible to judge what is in everyone's best interests because only the individuals themselves understand their own best interets.

Incidentally, here is a rebuttle of the mainstream economist's interpretation of the "prisoner's dilema".

[Guest]

[quote="Fried Egg"]

[extro...]

^me, bad quotes and all

[Fried Egg]

Extro

[extro...]

[Fried Egg]

[Samadhi]

[Fried Egg]

Samadhi

[Guest]

I think the problem with "Insider trading" is that it makes people less willing to invest their money. I don't want to invest my money in a company if i think the owners are just going to screw me over if they ever get into a trouble spot. That means there'll be less new industries etc. Harder for startups.

[OcularGold]

so what exactly is the difference between free-market capitalism, and say, mercantilsim?

back in those days, didnt people trade sevices and goods for free market values? or whats the difference?

[Samadhi]

FE: Insider trading & transparency are tied together. And transparency, believe it or not, is extremely important for the success of capitalism. All publicly traded companies must file their financial information with the SEC (which by the way must be independently approved by a third party; that is why the recent numerous scandals were so egregious. It was collusive action taken by both the publicly traded company AND the independent third party accounting reviewer).

The reason that the filing is done only for public companies, is that the investor must be able to see into the financials of the company in order to help her make a sound decision. That prevents someone from starting a company, then lying about the financials just get investors. You could sell shares in a private company & it happens all the time. You just can't trust it as much because of the government oversight. Subsequently it is illegal to lie on these statements.

And how do I know this system works? The track record. The first company to sell stock shares to the public were shipping companies, I think, in the 15 or 1600s. They did this to defray the cost of shipping in case the ships were lost at sea. Why is the US the most powerful country in the world? It is not the assets that are on this land. It has been the transparent system that now most other countries in the world are imitating.

Now what does this have to do with insider trading? First, lets define an insider. An insider is anyone who may have access to information that is not available to the public yet. This happens all the time because the SEC filings are done on a calendar basis usually quarterly. The info on the company is most likely known by several people within the company before the filing date.

Lets take a more realistic example. Joe Ceo owns a company that he knows lost a ton of $ last quarter. Now lets say he sold 30% of his company to the public in his IPO a year ago. If insider trading were legal he would have a great incentive to either lie on his SEC filing and/or sell his shares before the filing. In short, he has essentially told you the investor that your share was worth $10, then he sells his for $10/share and when the filing occurs the price per share could be $2. When that is translated to the average size of your billion dollar company; Hm, that is a $2.4 billion take home. Nice little scam there, and it is flat out stealing. And what is worse is that the public would lose trust in the system and not invest in companies and that is the beginning of the end for capitalism.

So what did Stewart do? Here's the situation: CEO owns a drug company which has 1 drug it is researching. CEO has been pimping the drug, saying it will save lives. CEO makes millions on an IPO. Then when the drug goes to the FDA trials...
"oh shit, it doesn't work! No problem, I'll just sell most of my shares on the market before the announcement. Oh and along with my wife & a couple of sons will too. Oh, and I'll also tell my cozy broker what's going on so he can let his "best" clients know."
The same day, Ms. Martha sells all of her shares. Now from my perspective, and the Government's, all the parties involved stole money from the general marketplace.

If insider trading wasn't illegal, there would be nepotism, cronyism, and any other ism you could think of. Plus the simplicity, the balance, and the elegance of the free open market would be no more. [/devil's advocate]
_________________
And he lived happily ever after. Except for the dieing at the end and the heartbreak in between.

[Fried Egg]

Guest