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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: regli who wrote (53455)	2/13/2006 11:25:31 AM
From: gpowell	Read Replies (1) \| Respond to of 110194

OT Humans have learnt from experience, this is one of our strength and, at least at times, we have incorporated an experience of failure into something we hope will result in "better". I think it is helpful to view human history as a learning experience. In economics we define a state of “pareto optimality”, it defines an equilibrium point where no further exchanges can occur without making someone worse off. As such, it also marks a point of maximum utility and a point where no further unanticipated coordinating activities will occur. Given that knowledge is limited, tacit, and dispersed, a free market never quite allocates resources in a way that maximizes total utility with respect to a condition of perfect knowledge – it never quite “gets it right” – and the fatal conceit is that recognizing this, that rational planning, usually by means of one controlling coercive authority, can obtain higher state of utility than market solutions alone (keeping in mind that market solutions include the creation of institutions such as government). The fact is that solutions (institutions and conventions) derived through a market (learning) process tend to be robust, adaptable to changing conditions, and utility maximizing within a given knowledge constraint. There are a large number of individuals who don’t believe that to be true – or relevant. They believe outcomes guided purely by rational thought and then bestowed, like manna from heaven, on to the people lead to better outcomes than those derived from evolutionary rationalism (or alternately spontaneous order). Also most "doings" will have an impact on somebody. Yes, these can be classified into positive, negative, and pecuniary externalities. The free market, to the extent it moves towards perato optimally, will tend to reinforce positive externalities, mitigate negative externalities, and do nothing about pecuniary externalities. Just about all of our actions have a purpose, most often to benefit ourselves in some form. Therefore, it is extremely difficult to qualify what "doing good" implies. In the context used with tooearly, “good” refers to attempts to eliminate pecuniary externalities. This has the direct result of moving the market away from perato optimality, and that necessarily implies that total utility is reduced, and also usually imposes restrictions and incentives that restrict markets from exploring higher utility paths. Examples of a pecuniary externality are: the purchasing power effect a user of a particular brand of money confers onto others by modifying their cash balances , the effect that two working family members have on home prices, and wage dispersal that result from a growing economy. I am reminded of a discussion I had with a group of socio-economically disadvantaged students whose parents could not afford home computers or internet connections. They viewed the informational advances embodies within theses technologies as negatively impacting them as it would enable the educational gap between rich and poor to widen. Their solution was to prevent others from using the internet and computers except in locations where everyone had the same access. In addition, what is considered "good" is generally culturally biased. Therefore any action can be considered "good" or "bad" depending on the context and a personal or a group's perspective. If the market can be characterized as a learning process, then culture, and consequently what is good or bad, is largely determined by the state of knowledge. Until we reach perato optimality, culture transforms with the knowledge constraint.