The Market as Information Aggregator

[Uccisore]

@Carleas

I’m slightly more charitable, to a point: I think Arminius may simply be making a mistake in deriving the state of nature from his understanding of what a free market entails. He seems to think that any regulation of society means that any market that is created by such a society is a regulated market, and I don’t think that’s totally unreasonable, though I do think it’s wrong.

I think your charity is misplaced simply because his wrong concept of a free-market isn’t something he endorses, he’s something he’s proclaiming other people he disagrees with politically endorse. Seems like a classic strawman to me.

As I would define it, a market does not, in theory, require a minimal state to enforce, even if in practice it always does. A market is simply any system of voluntary exchanges. That can happen without state intervention, but for a robust global market to exist, some level of state is probably necessary (I think libertarians would accept this definition, but anarcho-capitalists would disagree).

Yeah, state enforcement is required for a market to sustain for any length of time, not purely to exist I suppose.

This describes a free market, which exists even though the society itself is regulated.

I guess I don’t find the distinction meaningful. Everybody can understand the details of a market in which contracts are enforced by the state, lying is discouraged, and violence is prohibited. Whether or not such a market is ‘regulated’ or ‘free’ seems to me only to matter to people concerned with who gets to be called a free-market advocate and who doesn’t.

Contrast it with a situation where other laws are added to the simple set: “beets can’t be exchanged for corn; you can’t demand more grain for beets than you do for corn; grain producers can’t produce more than X pounds per year”. This is a regulated market: market transactions are directly targeted by the laws.

Sure. But somebody could argue that such a market is free if it’s still more free than any other market out there, though it’s less free than a hypothetical market which doesn’t exist. I mean, ultimately I agree with you about the difference, but if somebody wants to declare that any market that occurs in a human society subject to the sorts of mores human societies have is ‘regulated’, I find it to be a pedantic point made for tactical reasons.

[Dan1 (Dan~)]

Bribes go around in almost any form you could imagine.
Theft and war, in its most domesticated form, would be debt and morality.

Morality of that kind is war vs the immoral.

Theft of that kind has to do with tiething, and if you don’t give it,
you become “in debt”.

Freedom is a large cage in a zoo.
Tyranny is a small cage in a zoo.

That’s all for now.

[Homo_Existentialus]

All electronic exchanges such as the NASDAQ that deal only in virtual goods like shares of company stock are markets, and so are certain places deep in the heart of the Amazon that deal in the physical exchange of things like fried insects and witches potions. It’s a bit hard to say which one of these is closer to being something like the market… I guess it depends on what you are, uh… in the market for!

As far as pure “information aggregation” is concerned, I’m quite happy with my Googs:

@google.com/about/company

Google’s mission is to organize the world’s information and make it universally accessible and useful.

[Carleas]

@Dan~

Theft and war, in its most domesticated form, would be debt and morality.

I reject the idea that debt is theft, provided that the debt isn’t exploitative (which in some contexts is a large proviso). I would guess that debt increases with wealth, which is what we should see in a properly functioning market economy: wealth should be correlated with productivity, and if you’re level of productivity is above average, you should borrow at market rate and expect to beat the market return for the use of the money you borrowed.

Debt is a very valuable thing, it’s empowering when used correctly, it allows for much more efficient and productive markets. Good proof is in societies where lending is outlawed for religious reasons (medieval Europe, much of the modern middle east), which flounder economically and produce perverse outcomes like lack of investment and high failure rates for completing development projects.

H.E., I’m not sure if Google uses any market-like processes to improve its information-access products; certain information is best collected by use of a market, but Google probably tries to connect people to those markets, rather than run the markets themselves.

I think it’s a plausible argument to say that there’s a market for search results, where the cost is paid in time by users looking for answers, and Google analyses user choices in that ‘market’ to improve its suggestions. The behavior here almost certainly has similarities to traditional markets, and I would be interested to know if they borrow from economics in designing their search algorithms.

[Uccisore]

@Carleas

@Dan~

Debt is a very valuable thing, it’s empowering when used correctly, it allows for much more efficient and productive markets. Good proof is in societies where lending is outlawed for religious reasons (medieval Europe, much of the modern middle east), which flounder economically and produce perverse outcomes like lack of investment and high failure rates for completing development projects.

Another example would be China during the Great Leap Forward. When the peasents lost the ability to lend, rent, and borrow against the land they owned, it completely destroyed them economically. You can see peasent farming as a sort of small business that needs to borrow against future yields in order to get itself going after each winter.

[Carleas]

I often use (and may have used on ILP before) the example of a friend of mine. He’d racked up some driving infractions, and his license was suspended until he paid off a sizable fine. He couldn’t afford the fine, and because of where he lived, he needed to drive to get to any of the jobs available to him. So he had no money to pay off the fine, but because he couldn’t pay off the fine he couldn’t earn any money. Catch-22. He solved the problem by taking out a small loan, paying off the fine, getting his license back, getting a job, and then paying off the loan.

This is a toy example, and we can quibble over the details (why not get a ride from a friend? Is that a form of loan? Should the state provide public transportation? or make exceptions to laws like these?), but it illustrates one way in which taking on debt can be valuable for both the debtor and for society as a whole. Debt is a tool, and it can be used for good or ill. Unfortunately, the good that loans do is sometimes harder to appreciate than the negative feeling of being personally in debt that post people know first hand.

[Carleas]

I came across an interesting story this morning related to the market’s role as an information aggregator. A charity called Feeding America, which gets surplus food from large food producers and distributes it to local food banks, switched from a centrally planned to a market-based model to determine where food should be shipped:

Before 2005, Feeding America allocated food centrally, and according to its rather subjective perception of what food banks needed. Headquarters would call up the food banks in a priority order and offer them a truckload of food. …

This Soviet-style system was hugely inefficient. Some urban food banks had great access to local food donations and often ended up with a surplus of food. A lot of food rotted in places where it was not needed, while many shelves in other food banks stood empty. Feeding America simply knew too little about what their food banks needed on a given day.

In 2005, the Chicago team helped design an auction-like system to allocate the food, and have been tweaking the system for a decade. Today, it runs as smoothly as eBay.

Every day, each food bank is allocated a pot of fiat currency called “shares.” Food banks in areas with bigger populations and more poverty receive larger numbers of shares. Twice a day, they can use their shares to bid online on any of the 30 to 40 truckloads of food that were donated directly to Feeding America. The winners of the auction pay for the truckloads with their shares. Then, all the shares spent on a particular day are reallocated back to food banks at midnight. That means that food banks that did not spend their shares on a particular day would end up with more shares and thus a greater ability to bid the next day. In this way, the system has built-in fairness: If a large food bank could afford to spend a fortune on a truck of frozen chicken, its shares would show up on the balance of smaller food banks the next day. Moreover, neighboring food banks can now team up to bid jointly to reduce their transport costs.

Initially, there was plenty of resistance. As one food bank director told Canice Prendergast, an economist advising Feeding America, “I am a socialist. That’s why I run a food bank. I don’t believe in markets. I’m not saying I won’t listen, but I am against this.” But the Chicago economists managed to design a market that worked even for participants who did not believe in it. Within half a year of the auction system being introduced, 97 percent of food banks won at least one load, and the amount of food allocated from Feeding America’s headquarters rose by over 35 percent, to the delight of volunteers and donors.

The emphasis is mine. The first emphasis is for its relevance to this thread, the second for the silly dogmatism of the idea that socialist ideals can only be achieved through Soviet means. Markets are valuable tools that price in information that central planning can’t efficiently take into account. In this case, the market made achieving charitable ends easier, resulting in the charities being able to help more people. Progressives should get behind market means as a way to do good efficiently.

Here’s a little more from a George Mason economist, who also deserves the hat tip for bringing the story to my attention.

[Carleas]

And here is a video of someone making much the same point I attempted to make at the start of this thread: that through pricing, the market aggregates a significant amount of information. The focus on the video is on just how hard it would be to aggregate and act on the information without a market mechanism.
[youtube]http://www.youtube.com/watch?v=zkPGfTEZ_r4[/youtube]

[Red_Skull]

There really isn’t much of a market anymore so much as there is now an international monopoly on labor, capital, and the value of currency through interventionism.