Quote note (#194)

A realist case for markets:

The market mechanism is loosely efficient. But the idea that efficiency is the main virtue of free markets is wrong. Competition itself is highly inefficient. In my home town, I can buy food from about eight different places; I’m sure this system could be much more ‘efficient’ if Waitrose, M&S and Lidl were forcibly merged into one huge ‘Great Grocery Hall of The People No. 1306’. I am equally confident that after a few initial years of success, the shop would be terrible. […] The missing metric here is semi-random variation. Truly free markets trade efficiency for a costly process of market-tested innovation heavily reliant on dumb luck. The reason this inefficient process is necessary is that, though we pretend otherwise, no one knows anything about anything: most of the achievements of consumer capitalism were never planned; they are explicable only in retrospect, if at all. (XS emphasis.)


October 27, 2015admin 24 Comments »
FILED UNDER :Political economy


24 Responses to this entry

  • Brett Stevens Says:

    The reason this inefficient process is necessary is that, though we pretend otherwise, no one knows anything about anything: most of the achievements of consumer capitalism were never planned; they are explicable only in retrospect, if at all.

    This is what we mean when we gnarled old school conservatives talk about particularity. Localized and specific situations have their own rules which serve as interpretations for general principles. Humans need to always be open to particularity. Free markets offer a more granular response to these particularized circumstances.

    I would identify the eight different places to buy something as being part of this. One factor is a balancing of price vs convenience, and another is seeing which model — the business and social model of each shop — survives in which environment. Like a computer simulation, constantly testing all variables against all others.


    Posted on October 27th, 2015 at 2:30 pm Reply | Quote
  • Seth Says:

    The reason this inefficient process is necessary is that, though we pretend otherwise, no one knows anything about anything: most of the achievements of consumer capitalism were never planned; they are explicable only in retrospect, if at all.

    It is an acknowledged truth, ladies and gentlemen, that the conniving, restless bourgeois never met in synod to theorize or to discern how to unleash their greedy, entrepreneurial energies into the world. But that is precisely what makes that class and their energies so dangerous. Keynes gave us an instruction manual on how to combat spontaneous markets, but it indeed remains a dire mystery how the comings and goings of a few million merchants give rise to that spontaneity in the first place. If we cannot know and thereby dismantle the mechanisms of their markets, and if we cannot quarantine the dangerous circulation of their greedy energies, it has been decided that we must then combat the people themselves—the petty bourgeois, the middle class malcontents. But how does one do that? How does one smear an entire class of people whose efforts have historically (though mysteriously) given rise to all the comforts and advances of the modern world?

    I can happily announce, ladies and gentlemen, that we have concocted a plan by which the class that drives modern history becomes anathema in the eyes of society. A plan by which their values and even their phenotypes become associated with what I like to call “the wrong side of history.” If you’ll open the notebooks in front of you, turn to the table of contents, we can begin walking through this plan.

    Part One: Social Media . . .


    Posted on October 27th, 2015 at 2:53 pm Reply | Quote
  • Seth Says:

    New definition for Progressivism: An ideology which seeks to control and engineer phenomena which no one knows anything about.


    Posted on October 27th, 2015 at 2:56 pm Reply | Quote
  • Exfernal Says:

    This description of market mechanisms is very reminiscent of evolution. Variance is generated, then what is locally worse is being removed, starting from the bottom. What remains is certainly not perfect, but good enough for what is expected of it. Enter infinite loop.


    Posted on October 27th, 2015 at 4:28 pm Reply | Quote
  • Edenist whackjob Says:

    I see this very clearly in software development. For every new Javascript framework that comes out that does basically the same thing as the others, your irritation increases a little bit. It causes fragmentation and drains mindshare and man-hours. Why can’t everyone just use the same framework so we can build a strong ecosystem and get shit done? (And vastly increased efficiency is indeed the result when someone comes along and creates an almost-monopoly for a while, like Google has done with AngularJS (many people complain about the learning curve of that one, but for me it has been a game-changer)).

    But of course, on a macro-level, it’s good that there is a lot of fragmentation in the community as it causes the local zeitgeist to be one of dynamism. Were it not for Javascript hipsters constantly stirring the pot, web dev would stagnate and we’d be like Java or Fortran or something. Also, all those little toy frameworks that come out just to demonstrate some new experiment also serve the purpose of demonstrating that a concept works. The best inventions then get added to the mainstream frameworks.

    So, the critical thing is to find that balance between fragmentation, which gives us dynamism, and solidity, which gives us efficiency. Probably the best model comes from the animal world, where we can talk about having strong local niches while still thinking of the system as being in flux and evolving as a whole.


    Posted on October 27th, 2015 at 5:36 pm Reply | Quote
  • Quote note (#194) | Reaction Times Says:

    […] Source: Outside In […]

    Posted on October 27th, 2015 at 5:58 pm Reply | Quote
  • Irregular Commenter Says:

    If one were so inclined, there’s a nit to be picked about the slippery use of the word “efficiency” as a virtue of the market.

    One might agree with the author and hold that the realization of markets in actual life and practice is anything but efficient, for the reasons he points out.

    One might argue, on the other hand, that the “inefficiencies” noted by the author are anything but. What seems wasteful of time and material is, in actuality, the best that it gets.

    The former usage implies a standard of efficiency which likely cannot exist as anything but an abstraction. The latter grants the point, and says “so what?” Efficiency concerns optimal distribution under real conditions, so who cares about idealizations?

    Markets depend on local knowledge and, as the author rightly notes, a process of iteration and testing that not only supposes but leverages that knowledge. What’s contested is whether this process ought to be evaluated as efficient (or not) from some idealized mathematical vantage point, or whether market behaviors and processes just are the standard.

    The difference is between the temptation to fall into universalizing abstractions, as against (in the latter case) the recognition of particularity judged on its own terms.


    Grotesque Body Reply:

    If you construe efficiency in terms of the contingent properties of markets instead of the other way around, the claim ‘It is good if society is based on markets because markets are very efficient’ is going to end up meaning ‘It is good if society is based on markets because markets are very market-like.’ Hm.


    Irregular Commenter Reply:

    I suppose that is a rather serious issue for those who enjoy torturing themselves with word-games that miss the essence of the point.


    Grotesque Body Reply:

    When the point made is trivial and poorly argued, word-games can only be an improvement

    Irregular Commenter Reply:

    One has to understand a point to judge it as trivial and poorly argued. When will you be getting around to that?

    Grotesque Body Reply:

    “No, I really am brilliant, you just don’t understand!” Such histrionics.

    Irregular Commenter Reply:

    Histrionics. That characterization is almost as laughable as the nonsense you tried to pass off as my original point. Goodness of markets? Efficiency as identical to market behaviors? Histrionics? Must it all be a bag of third-rate channer tryhard posts?

    SJW-caliber snark, instead of making a basic attempt to grasp at an idea you might — just might! — have misconstrued. That’s the ticket.

    Bold times, these.

    Grotesque Body Reply:

    Bold enough that you unwittingly counter an accusation of histrionics with… infantile histrionics.

    At some point you’re going to realise that you’re not nearly as clever as you think you are. It really doesn’t matter if the one who brings you to this realisation is myself or somebody else.

    Irregular Commenter Reply:

    Unwittingly? Well I never!

    I’m sure your advice is as sound as it is thoughtful, accurate, and well-informed — surely not the deliverances of a frustrated chan-browsing teenager signaling as hard as he can make the internet go! — so I’ll take great care to give it all the due consideration it demands.


    Grotesque Body Reply:

    What’s a chan? It’s something you seem to know a lot about.

    admin Reply:

    Unless you guys stop squabbling I’m going to have to show up with the meat-ax.

    Grotesque Body Reply:


    Acknowledged. Most of your commenters aren’t this sensitive and entertaining though.

    Posted on October 27th, 2015 at 8:02 pm Reply | Quote
  • OLF Says:

    That’s the Taoist case for Laissez-faire.



    Posted on October 27th, 2015 at 9:06 pm Reply | Quote
  • grahf Says:

    I would argue a stronger case: no being of finite intelligence can ever know everything about everything. The same limits apply to simulations carried out by computational devices with finite memory and finite processing power bounded by finite time. Simple hard limits imposed by physics. Ironically, most central planners of yesteryear, today and beyond all fail to grasp this notion, and the ones that do understand the futility of such a pursuit.


    Posted on October 28th, 2015 at 11:48 am Reply | Quote
  • Anomaly UK Says:

    To be a tiny bit pedantic, the key point is not that “no one knows anything about anything”, it is that those things that anyone does really know how to do efficiently become, as a result, so cheap and plentiful that they have small economic significance.


    Things that can be done efficiently are done efficiently, by private monopolies, by the state, by everyone at home doing them themselves. Economics is about how we do the hard things.


    Posted on October 28th, 2015 at 12:58 pm Reply | Quote
  • michael Says:

    The inefficiency the author describes assumes there is a static ideal, a best product price per consumer, to judge free markets against. But since markets are in a multi feedback loop, actually changing the physical, mental emotions of the consumer; markets and consumer co evolve. and the markets are also feeding back on competitors, and constantly changing commodity and asset prices and technical,scientific innovations. There really is no static ideal, even on a very short time frame theoretically perfect product price is not possible the time it takes to develop bring a product to market and consumers to adapt and judge it is much longer than a thousand variables have already changed, even assuming all consumers have evolved their needs in the same ways.
    What will make markets more efficient will be hastening the entire process. information technology gives manufacturers quicker access to new information robotics 3d printing etc allow much faster product development and production, shipping is improving drones for instance, consumers can google a review of a new product against old products and add their own feedback the day something is released sometimes sooner. And increasingly consumers can custom order or modify themselves or buy accessories from other manufacturers that improve modify and customize a product.
    The friction in the entire system is necessary but always improving. The biggest problems are what they have always been the barrier to new entrants. near monopolies efficiencys like deep R/D budgets and connections/experience are shared with consumers to an extent, But they can also be a barrier to a better mousetrap by a smaller startup. Regulating this without damaging the free market private property system has always been the challenge.


    Posted on October 28th, 2015 at 1:32 pm Reply | Quote
  • Lesser Bull Says:

    Random variation is too tepid an answer. The real answer is failure. Failure is capitalism’s killer app. Random variation is just a handmaiden to it.


    Posted on November 1st, 2015 at 1:09 am Reply | Quote
  • TheDividualist Says:

    Um, no. The reason why “Great Grocery Hall of The People No. 1306’” would be terrible is that monopolies are excellent at maximizing efficiency for the owners of the monopoly: so it would deliver you the cheapest quality goods, at the worst kind of service, at the highest price.

    The reason we want competition is to wrestle away some of that efficiency from owners to customers, but it is obviously a lossy move. It is a trade-off between reduced aggregate efficiency vs. distributing efficiency more equally.

    Which sounds hilarious, because it amounts to saying communism is more efficient but capitalism is more fair, but this is exactly true as long as communism = monopoly and efficiency is defined as enriching the owners or managers of the organization. Capitalistic competition redistributes some of those monopolistic profits to customers in the form of lower prices, higher quality or service.

    What we see as efficiency – like better goods – is not efficiency because it is inefficient for the goals of the organization, namely enriching owners. But competition forces this inefficiency, and it is good for us.


    Posted on November 9th, 2015 at 1:58 pm Reply | Quote

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