René Descartes laid mathematical foundations for much of human endeavor, as well as writing about other aspects of human behavior. His math was relevant to the calculus of Newton and Leibniz. The calculus underlies the work of Lotka and Volterra whose equations model the predator-prey equations in 2 or more dimensions. In their general form these equations have been applied to the populations of blood-sucking fiends in Buffy the Vampire Slayer. My point in all of these is that there can be a stable equilibrium, or there can be wild oscillations of the various populations. It depends on the initial conditions, the changes in those conditions, and the availability of guiding forces outside the natural instincts of the populations.
The same sorts of differential equations apply to economics. There can be relatively stable equilibrium, or there can be wild oscillations, it depends on the amount and type of regulation. Lack of regulation will often result in wild oscillations. Too much regulation may cause the extinction of one, or more, of the species. Regulations come from government, but government itself is subject to wild oscillations.
It's hard to reach equlibrium, especially when the conditions are evolving. It's harder when there are other populations which are not subject to regulation. It's harder still when there is more than one species of blood sucking fiend participating in the government policies, for they may not be interested in equilibrium at all.
The world is full of vampires, and some of them are us.
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6 comments:
So let's name some of the vampires: I'd nominate Barney Frank and Nancy Pelosi.
The answer is to allow the market itself to do the regulation. If someone does something stupid, the market punishes the stupidity with economic loss up to bankruptcy. If they do something smart, they and the market benefit from the smartness.
The biggest problem enters when those who are subject to political pressures enter the picture and reward their friends or benefactors rather than allowing the market itself to render its decision.
There is no utopia. There is no perfect system because people are flawed. But in this imperfect world nothing has proved itself over time like the free market for raising the living standards of all involved.
The current economic crisis is not a result of the free market gone wild. It is the result of government intervention in the free market to temporarily determine winners and losers. Because of that, now we all lose.
All the utopians think they're smart enough to set the rules. They're not. They need to sit back, enforce legal contracts, and let the chips fall where they may. Period. End of story.
Looking at things from one more angle, the problem is that just as modern man wants to deny the consequences of violating Divine Law, they want to deny the consequences of stupid and/or immoral behavior.
We want Economic Universalism - no one pays the price for monetary sins.
Well, there ain't no such world absent of consequences for our sins and misdeeds--here or hereafter--and because it's a fallen world sometimes the innocent get swept up in the fallout too.
Now, recognizing these realities we move on to contruct something that will make the best out of what is. Absolutely no one is smart enough to perfectly regulate the markets other than enforcing legal contracts. Managed economies don't work.
Is there really such a thing as a free market? Doesn't that always turn out to be basically equivalent to rule by feudal lords or robber barons?
History shows that it's never just the ones in charge who get punished: 1857, 1873 (thence further until) 1893, again in 1907, and so on...
I already admitted your point that economic sins hurt more than the perpetrators.
The major difference is that businesses (under the original Consitutional understanding, I will admit fascism is increasingly the flavor of the day) do not have the power of the sword to back up bad economic policy and decisions.
I would rather have a government solely focused on prosecuting rogues in business who break contracts, rather than determining which businesses are blessed to survive (AIG, Fannie, Freddie, Citi, etc, etc.) and which must fail (Lehman's). I also see major future damage from continuing the road which allows government to steal money from me and my children to help my neighbor who did a cash-out refi, bought a boat, took a vacation, and now gets help to keep all that stuff from those of us who were more circumspect.
As it's well been said, he who robs Peter to pay Paul can always depend on Paul's support. That is the way of economic armageddon.
I fear many John Galts are getting ready to say 'the Hell with it all' to the detriment of everyone.
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