Home > Uncategorized > Two Basic Free Market Principles Die in Recent History

Two Basic Free Market Principles Die in Recent History

The first was the notion that when you put money into the hands of the wealthy, it will be spent or invested productively.  The investing class is sitting on a grown cache with some estimates as high as five trillion, and doing nothing with it.  A local conservative activist told me a year or so ago that they are “on strike” against Obama.  The more conventional explanation is that they are waiting for consumers to have more money to spend – a tall order when you’re sitting on the money yourselves.

The argument is of course that they need more money to feel “comfortable” about investing.  It reminds me of an old political cartoon where the King and his advisers are sitting at a table looking over the multi-angle photographs of Humpty Dumpty, and the King proclaims, “Gentlemen, this simply means I need more horses and more men!”

….

More locally, the North Coast Journal has an excellent article out about the progress, or lack thereof, of local broadband stability.  Within the first few paragraphs I found this gem:

There’s plenty of space on the new line for more companies to sign on. Mary-Lou Smulders, vice president of strategies at IP Networks, said pairs of fiber optic lines remain available for long-term lease. “We could lease those for a very inexpensive [price], and that would be revenue for us,” Smulders said. “But we have chosen not to do that. We respect the fact that our anchor tenants paid not a cheap price.” Any new tenants will be charged the same amount, she explained.

I don’t know if your experience was the same, but in my college it seemed that the microeconomics courses were always taught by conservatives while macroeconomics was taught by liberals – probably having something to do with figures like F.A. Hayek proclaiming that macroeconomics don’t even exist.  But the mantra in microeconomics was that absent artificial intervention from government, prices were dictated by supply and demand.  I think Ms. Smulders has pretty much put that one to rest.  The liberal economists often claimed that once economic entities became very large, they altered the rules at the expense of free markets – something also vehemently denied by F.A. Hayek who opposed even anti-trust legislation with the argument that even very large corporations can’t alter the “fluidity” of market forces by nature of their size.

Absent from Hayek’s analysis was the exercise of power.  Economic feudalism.  Ms. Smulders almost makes it sound like a moral obligation to deny the smaller entities access at a price that is affordable – when she admits that it would benefit her own company!  Why?  Because the big guys demand loyalty.

  1. KeynesianWarHorse
    August 11, 2012 at 11:40 am

    Drinks are on the house!! Until the house burns……drink up plebeians.

  2. What might have been
    August 11, 2012 at 12:01 pm

    The moral solution to the unused broadband capacity would be to put all leases on a sliding scale. Everyone pays the same relative rate, except the more companies that buy in should lower the cost for everyone. Internet access should be treated as a municipal utility and in a just world it would be criminal to be sitting on unused fiber demanding a high price. It’s a shame all around.

  3. High Finance
    August 11, 2012 at 12:57 pm

    “Free Market principles … First, When you put the money in the hands of the wealthy, it will be spent or invested productively.”

    That hasn’t died at all. When the economy is in turmoil and threatening to fall into a second dip recession sometimes the wisest course is to wait to get a better feel of what is going to happen before investing. The idea that business is on strike because of Obama is laughable, but the fear of Obama being re-elected is real.

  4. Eric Kirk
    August 11, 2012 at 1:19 pm

    The point, HiFi, is that the conservative free-market doctrine since Hayek-Friedman is that you simply need to get the money to these people and they will invest it productively. The theory actually died in the early 1980s when “supply-side economics” caused a double-dip recession and Reagan turned around and spent like crazy to pull us out of it by 1984. I also don’t take the strike theory seriously, because they were sitting on top of a large cache then as well. What Reagan did was to have Cap Weinberger whip up a false concern over “Soviet Military Superiority” and jacked up the military spending to unheard of proportions. Even though it was capital intensive, it did put money into the hands of consumers. And that makes sense if you take seriously all of the concerns conservatives raise about the lack of incentive driven by the welfare system. The fact is, a welfare recipient will spend his/her money. Almost all of it. Putting the money into their hands is much more productive (call it “demand side economics”) because it forces the capitalist to chase after it. Right now, they have no incentive. They’re on the dole. Comfortable and lazy.

    If they’re afraid that Obama’s going to take it all away, there’s no point in sitting on it. That’s obviously not their concern.

  5. Thorstein Veblen
    August 11, 2012 at 3:22 pm

    Normally we figure the down part of the ‘business cycle’ will run a couple of years, and then we pull out of it and get back to ‘normal’. This time, nobody knows where the end is, nor when it will be, nor what it will look like. We could have hyper-inflation, or just as likely have depression and deflation, neither one a happy outcome. Or we could just continue along in semi-limbo like this for many years yet, the flip side of the lengthy up-part of this cycle. Makes people defensive with investments.

    As for the law of supply and demand, the assumptions that make that theory work out are rarely found in the real world. So markets work imperfectly, at best. What does seem to apply universally are economic incentives. When we incentivize something, intentionally or not, people respond.

    Finally, as to the broadband pricing, if lease rates drop, how long would it take for the ‘anchor tenants’ to demand similar lower pricing? Clearly, the calculation has been made that it is more profitable to have fewer tenants at a higher rent.

  6. Eric Kirk
    August 11, 2012 at 4:33 pm

    Finally, as to the broadband pricing, if lease rates drop, how long would it take for the ‘anchor tenants’ to demand similar lower pricing? Clearly, the calculation has been made that it is more profitable to have fewer tenants at a higher rent.

    Not long at all, unless the big guys are locked into a long term contract – which I suspect or they would be demanding lower prices anyway. Obviously demand is not dictating the price in any case.

  7. High Finance
    August 11, 2012 at 6:42 pm

    You misunderstand Eric. The private sector will use the funds “productively” but they won’t risk it foolishly. If the fear of double dip is there they will (and so would you) wait to see what is going to happen before committing funds.

    As to the fear of Obama, that fear is more of the negative impact his re-election will have on the economy than that he is “going to take it all away”.

  8. Eric Kirk
    August 11, 2012 at 6:52 pm

    Well, the reason consumers don’t have money to spend is because they don’t have jobs. They don’t have jobs, because we’ve lost much of our manufacturing in trade agreements which force us to compete with slave labor. We saw this coming in the 1990s, but unfortunately Bush became President in 2000 and both parties joined to pass the tax cuts as the remedy. Over 10 years we lost more manufacturing jobs, but managed to keep the wheels rolling with bad credit and war spending. It caught up with us. Yes, they won’t invest money in a third world economy. But the whole point of the tax cuts was to give them the money to “invest,” because under the Hayek-Friedman principle, they will always invest it. So basically, we handed them five trillion dollars for nothing. That’s the point.

    I’m not saying they’re immoral necessarily. It makes complete business sense. But the Bush tax cut policy is a failure, as many economists with common sense warned.

  9. Thorstein Veblen
    August 11, 2012 at 9:45 pm

    And a good point it is, Eric. If tax cuts alone could get our economy going, we should be booming now, shouldn’t we?

  10. Carl
    August 12, 2012 at 7:21 am

    And how many citizens and our military, men and women, that died or disabled for life, These non-elected leaders don’t give a damn.

    Thanks for your time.

  11. Smart 5th Grader
    August 12, 2012 at 8:14 am

    High Finance said August 11, 2012 at 6:42 pm | #7
    “The private sector will use the funds “productively” but they won’t risk it foolishly.”

    Like the investment bonds used to support real estate loans in the private sector, the private sector used those funds wisely. Then the welfare (bailout) funds the private sector got from the taxpayers, nothing foolish going on there.

  12. Ponder z
    August 12, 2012 at 9:25 am

    Thanks HI FI, for this daily dose of reality. A rare thing on the HH.

    “The idea that business is on strike because of Obama is laughable, but the fear of Obama being re-elected is real.”

    I too am sitting on a pile of cash. Normally I would buy property or mutual funds. Property would have a loan too, not something I want in this economy. Mutual funds? No, not now, I’ve been burned to many times by greedy board room manipulations. And you must remember I am a hard core capitalist. I see economic status of Greece in my future if Obama is in the WH after November.

  13. August 12, 2012 at 9:45 am

    Ponder z, that’s Ben Bernanke in the White House, and it doesn’t matter which Republicrat empowers him to depreciate our currency. Surely you don’t believe Mitt’s banksters are better banksters than Obama’s banksters? They’re the same banksters. Mitt’s just management, not staff.

    Being afraid of Obama, the man who barely had the courage to imitate Romneycare in Massachusetts, because Mitt’s more . . . anything but systemically dishonest, while banksters like Mitt and Barack’s donors continue to gut our economy, seems a little like taking the Pepsi challenge seriously to me. It’s all Coke. I’m voting for Obama because I can bear his company more. I think that may be your best reason for voting for the Twit.

  14. Man without a Paddle
    August 12, 2012 at 10:10 am

    Anyone who tries to do business in Humboldt County cannot believe in the supply and demand theory. There is a lot of unused land and empty buildings in the county but the cost for these has gone up. People have lost their businesses or have been unable to start them because of high costs. Contractors are another problem. People have been hiring contractors from out of the county because they want the work. Local contractors are still thinking these are the glory days. I do like to see local people get the jobs but where do you draw the line with greed. My landlord who lives in SF charges me 35 cents a sq. ft. Local landlords who have owned their buildings “forever” are trying to charge 75 cents for the same type of building.

  15. jr
    August 12, 2012 at 10:52 am

    Longwind: Why not consider Jill Stein in November? Choosing between Obama and Romney is not the lesser of two evils, but the evil of two lessers.

  16. August 12, 2012 at 10:56 am

    I completely agree, jr. I’ve agreed for 40 years. I’m weak and silly–I’m happier abominating Democrats than Republicans, that’s all.

  17. Walt
    August 12, 2012 at 11:33 am

    The lesser of two weevils is still a weevel. The lessor of the two weevils. . .that’s a whole nother story.

  18. August 12, 2012 at 11:57 am

    jr :
    Longwind: Why not consider Jill Stein in November? Choosing between Obama and Romney is not the lesser of two evils, but the evil of two lessers.

    Just for your consideration, not real hard hitting commentary but it’s worth considering the wasted vote argument vs. the Electoral College:
    http://humboldtlib.blogspot.com/2012/08/safe-state-elections-and-wasted-vote.html

  19. Eric Kirk
    August 12, 2012 at 12:25 pm

    jr :

    Longwind: Why not consider Jill Stein in November? Choosing between Obama and Romney is not the lesser of two evils, but the evil of two lessers.

    I voted for Nader in 2000 as a protest vote. If I actually thought the Greens had a chance at winning the Presidency, I probably wouldn’t vote for them because they can’t even organize their own party very well. I don’t see anybody capable of running a country.

    I think there is a utility to voting third party on some occasions, but all of the real social movements – those who actually make some progress and bring some services and manage to spread a little of the power around, operate through the Democratic Party. It’s why 9 out of 10 African Americans vote Democrat, as well as 2/3 Hispanics and Asians.

    I think the Green Party might make a difference someday if they ever decide to focus on local politics and build their way up. But instead they throw the long ball every four years, collect their 1 or 2 percent of the vote, and wonder why nobody else will vote for them. That portion of the left seems to believe that the “99 percent” all agree with them on some latent basis, and if only they had the money the corporations have to get their message out then everyone would vote for them. It doesn’t dawn on them that many of those people are actually aware of what the Greens stand for and knowingly opt for something else.

    Watching the same campaigns year after year remind me of one of the stories my father told me about sectarians in the anti-war movement. At the Peace and Freedom Party office one of the participating Trotskyist groups had someone active there. He was trying to use a copy machine which kept churning out a solid black sheet of paper. My father sat and watched in fascination as the guy kept swearing, but just kept putting his flier into the machine over and over again. He wouldn’t open the machine to look at it. He wouldn’t consult the manual. He altered nothing about his own approach, and the result was the same – over and over again.

    Now I didn’t support the David Cobb run for Presidency in 2004, but at least he made an effort to alter the circumstances and build some bridges to give the Party some kind of a hope for a change in results. And he caught Hell for it. How dare he try something different?

    The problem is that there are people out there who need results, not dreams of Utopia. Health Care Reform may not be what you or I want, but it is already saving lives. Thousands of them. By this time in two years, it may be saving hundreds of thousands. And it’s something to build on, once we’ve passed through this particularly crazy cycle of politics.

    Political change is a running game. You gain a few yards here. You lose a couple there. But you make your way down the field. The third party approach is basically to throw three long balls each possession, and punt – blaming in public corporate advertising money, while privately being angry at voters you think are too stupid to see through the advertising. And most patronizing of all is the inherent belief that voters are not making conscious choices when they enter the voting booth. The third party strategy is elitist – bottom line – the primary demographic being college educated white “radicals” of an upper middle class background – lacking the common sense to get a copy machine fixed.

  20. Jack Sherman
    August 12, 2012 at 12:35 pm

    “The private sector will use the funds “productively” but they won’t risk it foolishly.”

    Indeed…they lavish it on lobbyists and politics to maintain their massive investments and tax havens overseas. Intel took its bailout and built a computer component cleaning facility 5-football fields long in Vietnam….where the average age is 15.

    Only the rich can save us now?

    BS.

  21. jr
    August 12, 2012 at 5:07 pm

    Eric: I agree with your comments above, but the problem in NOT voting for a third party candidate is that party risks being made a “non-entity” for their failure to get the minimum percentage of votes (which I believe is 5%). I like your football analogy and also think that the Green Party (or any “third” party) should concentrate in building their party at the local level leaving national politics to the two dominate parties and working for desired changes through their platform. What has always been a gripe of mine is that the minor parties are excluded from debates and media coverage (other than a token “feature” article). If the media will not increase the amount of coverage for these parties and if the debate organizers continue to exclude them, then these parties will never gain the traction needed to become a serious threat to the established parties.

  22. August 12, 2012 at 7:59 pm

    …, then these parties will never gain the traction needed to become a serious threat to the established parties.

    I’ve read that the two major parties made many of their changes as a result of third parties. I understand Eugene Debs, who ran as the Socialist Party Pres candidate did pretty well back in the day. As a result, the Democrats, and then Republicans, took up parts of what he proposed.

    Gary Johnson also points out many of the earlier Presidents came from what were considered third parties at the time.

  23. Thorstein Veblen
    August 12, 2012 at 10:44 pm

    Parties change in order to win. Win by appeal to our worst instincts, or our best. I’ll take best, myself.

  24. Thirdeye
    August 12, 2012 at 11:55 pm

    The comments by HiFi and Ponder z show that there’s no reason not to tax the shit out of those bastards if they’re not going to hold their end of the supply side bargain. Better to put the money in the hands of those whose priority is putting people to work.

  25. Plain Jane
    August 13, 2012 at 8:42 am

    The idea that the people who are hoarding trillions need more tax breaks to get them to invest their gains which were taxed at record low rates is absurd. That, coupled with the other side of the Romney/Ryan plan (higher taxes for working people with fewer subsidies for the poor) will mean lower consumer demand and even less incentive for hoarders to invest in supply (jobs). That they are still buying our debt at low interest is somewhat surprising with all their screaming about how dangerous the debt is.

  26. Eric Kirk
    August 13, 2012 at 8:43 am

    Fred Mangels :

    …, then these parties will never gain the traction needed to become a serious threat to the established parties.

    I’ve read that the two major parties made many of their changes as a result of third parties. I understand Eugene Debs, who ran as the Socialist Party Pres candidate did pretty well back in the day. As a result, the Democrats, and then Republicans, took up parts of what he proposed.

    Gary Johnson also points out many of the earlier Presidents came from what were considered third parties at the time.

    Fred Mangels :

    …, then these parties will never gain the traction needed to become a serious threat to the established parties.

    I’ve read that the two major parties made many of their changes as a result of third parties. I understand Eugene Debs, who ran as the Socialist Party Pres candidate did pretty well back in the day. As a result, the Democrats, and then Republicans, took up parts of what he proposed.

    Gary Johnson also points out many of the earlier Presidents came from what were considered third parties at the time.

    In 1912, Eugene Debs ran a brilliant campaign that grabbed 6 percent of the vote. In that same year, the Progressive Party drafted Teddy Roosevelt, and came in second place. But that was a vote for Roosevelt more than the party, and it all fell apart by 1916.

    Debs had a profound influence well beyond the 6 percent however, not due to his Qixotic Presidential runs, but because he had the backing of major unions.

  27. Jack Sherman
    August 13, 2012 at 11:29 am

    When billionaires restrain their spending and banks restrain loans desperate people use high-cost secondary markets and accumulate outrageous credit card debt, and the financial industry becomes the largest industry in the nation.

    It explains the explosion of predatory businesses in our town and the glee of bigots who have more poverty, drug abuse, violence and crime that they love to get tough on.

  28. anonymous
    August 13, 2012 at 11:52 am

    So that explains why there are so many Advance Americas and Allied Cash Advances around.

  29. Plain Jane
    August 13, 2012 at 12:14 pm

    Pay day loans are like a modern version of the company store. Easy credit with sky high prices as customers become economically entrapped in the endless cycle of higher debt and not enough to live on. They’re really worse than pawn shops because the poor can surrender their pawned item rather than have to pay from their already too meager paycheck.

  30. jr
    August 13, 2012 at 12:46 pm

    PJ: Many years ago there were companies like Household Finance, Beneficial Finance, and Dial Finance that would make short term loans (36 months or less). While their interest rates were high, I do not recall them being as high as payday lenders now. So why are payday lenders so high, especially considering extremely loan interest rates available elsewhere?

  31. August 13, 2012 at 12:51 pm

    jr, there used to be usury laws that limited interest rates. They were swept aside in the deregulation manias of the 80s and 90s, originally because galloping inflation made previously fair rates unprofitable. When interest rates collapsed to near-zero, of course, lending rates to victims remained high.

  32. Anonymous
    August 13, 2012 at 1:15 pm

    “…because galloping inflation made previously fair rates unprofitable…”

    Should read: “Less profitable”!

  33. Freedom fighter
    August 13, 2012 at 8:08 pm

    The key now is to get the burden of government regulation off the backs of the people and make them more independent. Honestly, think about your expense. How much goes to government mandated fees and cost? Everything from licensing, insurance, business, permits, on and on and on in every area of life. If you could own a piece of property, live on it without government intervention, you would be insulated too a large degree from trouble. You might even grow your own food and ride your horse to town to sell your products ;-/ Now we can’t have that can we it must be regulated! You must be a productive (slave) member of society and buy into the socialist system, after all the leaders know best.

  34. Aesop
    August 13, 2012 at 8:55 pm

    Freedom fighter, that might have made some sense when there were only 1 billion people in the world. But now, the world is coming to you, even on your own piece of property. Just try to insulate yourself from the escalating heat. Or fallout from nuclear disasters. And if you have anything of value, someone will come take it. Yup, independence is just grand. No need for government intervention.

  35. Anonymous
    August 14, 2012 at 11:55 am

    “Live simply, that others may simply live”….ain’t gonna happen in the U.S..

    In tough times history’s empire’s turn on their own people hastening their collapse.

    Our Captains of Industry were thrilled to reinvent America’s child labor overseas…but after only a generation, jobless citizens with garages full of crap can no longer afford to buy so much “cheap stuff”. In response, mortgage and credit card qualifications were liberalized to boost consumption…then they came for our homes.

    Trillions of dollars in credit card debt hasn’t defaulted…yet.

  36. Freedom fighter
    August 14, 2012 at 9:38 pm

    I’m not saying to keep all our rights individually. We must alienate some of them, like forming a police force to collectively protect. But living on your own piece of land free from government property taxes, licenses, etc. is the way back to prosperity. Otherwise you are a perpetual slave of the government fee collectors.

  37. Plain Jane
    August 14, 2012 at 9:57 pm

    Fee for service police, fire, education, roads, etc? What if your neighbor’s land use damages your land? There are countries where there is little in the way of government or taxes but they aren’t doing very well on the prosperity scale.

  38. Thorstein Veblen
    August 15, 2012 at 9:42 am

    Good thinking, FF. I think you should move to Somalia, and live in paradise.

  39. Anonymous
    August 15, 2012 at 11:03 am

    Like it or not, government is the only entity capable of protecting citizens from the excesses of others, their deadly chemicals, foods, pharmaceuticals, water and air pollution, dangerous workplaces, resource depletion, environmental destruction, etc, etc, etc…

    If citizens are informed, democracy might work, and the other half of eligible voters could vote to ensure government works for them…Eureka offers many examples of the failure of government by the deepest pockets.

  40. Freedom fighter
    August 16, 2012 at 8:00 am

    You folks sound like the kind of people who rely on food stamps, welfare, and government jobs to survive, with a side business selling marijuana.

  41. Plain Jane
    August 16, 2012 at 9:35 am

    You, FF, sound like the kind of guy who uses classist insults while whining about class warfare.

  42. Just Middle Finance
    August 16, 2012 at 12:09 pm

    Yeah Libtards “food stamps, welfare, and government jobs to survive, with a side business selling marijuana”. You should get into the Corporate Welfare scam that Hi Fi and I are into. Ka-Ching! P.S. Thank you taxpayers. (suckers!)

  43. not a fan
    August 17, 2012 at 4:57 pm

    An so ends another thread. With insults from the regulars. None of who proved any points or put forth any real suggestions. Just the same old political crap. Ponder Z and High Finance make valid points and are hit at by do-nothings. Same shit, different day. What will the T/S and Hank Sims do when this blog goes down. They might have to do what Jack does and go out and report. Hope it happens soon.

  44. Amy Breighton
    August 19, 2012 at 12:57 pm

    And yet, strangely, Not A Fan cannot avert his eyes! Hilarious!

    The blogs have been the only medium where individuals can immediately share information and debate the news freely…it scares the Hell out of China, they shut down the entire internet system within hours of the Weegan/Han riots a few years ago.

    When the truth is uncensored and ubiquitous, it becomes common knowledge….VERY dangerous for “communist” dictators and imperial “capitalists” alike!

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