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Saturday, July 10, 2010

Free Markets and Evolution

This is really a continuation of the previous post, which can be found here. Evolution is the finest example of emergent complexity, but it is not the first such example. The first idea proposed that was based on emergent complexity was free market economics influenced by the ideas of Adam Smith.

Evolution follows a few basic laws of biology, that when put together emerge into an extremely complex structure, the life around us. Free market economics follows a few basic laws of human interaction between one another, that when put together emerge into an extremely complex structure, the market around us. Here are some of the laws behind free markets. First, people want to maximize their revenue and minimize their cost, basically put, people want to get as much possible for the least amount of work. If I sell female sex dildos I would like to sell each dildo for a million dollars, I would be so happy if I can make such a revenue. But the problem is that the women also follow their own rules of economics, that is why wish to pay as little as possible, they would love to get those dildos for free. Therefore, there needs to be some sort of compromise between penis hungry women who want dildos and money hungry me who wants to sell them for a million. I realize that at a million dollars no one would buy. But if I give them out for free, or sell them at a dollar, nearly every women would buy, but then I make no money, in fact lose money because my revenue does not pay off my cost. This brings up to the second rule. People act to maximize their profits. The first rule is more of a wish, what we all want, the second one is really how people act in relation to other people around them. Let us return back to the dildo example. If my prices are too high then I will have few buyers, so my total revenue would be the few buyers multiplied by the price per dildo. If my prices are too low then I will have many buyers. My goal, as a profit maximizing individual, is to maximize the function of price multiplied by number of buyers. It will turn out that the price at what I sell my dildo's will have to be some sort of reasonable price, it will not be able to be too high for that will diminish my profits. Even in a primitive economy where there is just one seller not subject to the rules of competition he will still be controlled by these rules of economics, he will have to sell his products at a price that will determine his profit maximization, not his own desire. The third rule is competition, similar to the competition of the species in evolution. Competition are buyers choosing their selection from the people who can best suit their interests. Sellers who cannot satisfy their buyers sufficiently well will die out, as species do in evolution. So not only do sellers have to compromise with buyers they have to battle against each other for survival. The fourth rule is perhaps supply and demand. There are more rules but these are among the most important ones. When these rules are put together the individual members of an economy will emerge into a very complex market system. Just consider the stock market. Notice how so rapidly the price of stocks are changing. No one person is controlling those prices, rather these prices emerge and change based on the complexity created by buyers and sellers coming together in the market.

Of course, this is a model for how people act, not a perfect description. Not all people are subject to these laws. These laws are in the worst-case scenario if all people were selfish greedy people. In actuality, people make other kind of decisions based on their values too. The wages of labor from employers to their workers will be determined by the market not by how little an employer wants to pay or how much the workers want to be paid. Even in the worst-case scenario of a selfish greedy employer who lives for the purpose of exploiting the workers will not be able to set the wages of labor as little as he pleases if his goal is to maximize his profits. But in actuality most employers are good people that have some respect towards their workers. So they would lean a little in the benefit of the worker. The rules above would aplply to the kind of society which consists of only evil employers. In actuality, life is a little better than the implications from the free market rules above.

In this regard free market economics is really identical to evolution. They are really the same theory just applied in different ascepts, both of them are specific examples of emergent complexity. The main point of evolution is that there is no central designer behind life, in fact bottom-up complexity will do a far more successful job at this than any central designer can. Free market economics is similar. The main point of free market economics is that there should be no central planner. Evolution implicitly rejects God, free market economics implicitly rejects Gov. The complexity of the market will emerge by itself and that any attempt to plan the market with a central designer will lead to less efficiency than otherwise would have happened, because the market is too complex for any planner.

I write this post both towards any atheist liberals reading this or any religious conservative who reject evolution that may be reading this. For the religious conservatives who reject the theory of evolution, you should think of evolution as the same concept as free market economics (yes, I know, conservatives are not really in favor of free markets, they do support anti-trust policy and the FDA along with other regulations, but they at least have some understanding and support for free markets). You agree that government is inefficient and that markets should be the way to go. So now think of evolution as being the same concept. Life does not need a central designer just like an economy does not need a central planner. It can emerge by its own structure. If you can see how the market can operate in absence of a central planner then try to understand and see how evolution can operate in absence of a central designer. For the atheist liberals the same advice applies to you too. Try to understand the reasoning behind free market economics. Do not just dismiss it as some crazy insane non-sense theory. It is counter-intuitive, I agree, but at first evolution is counter-intuitive too, try to see past your initial intuitive feeling and try to understand how this market complexity can emerge from within in absence of central planners.

9 comments:

  1. What about somewhat religious libertarians who believe in evolution?

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  2. "What about somewhat religious libertarians who believe in evolution?":

    Then you are talking about theist evolutionists. The way I look at theist evolution is in this manner: evolution cannot develop by itself, there needed to be a designer behind the laws of evolution, but once he put the laws in place evolution took place. But the problem with such a position is that we can say: the market also needs a central planner, to put the laws in place, and then once the laws have been put in place the complexity can emerge. These people reject the necessity for an initial central planner in the market but do not reject an initial central designer from evolution. Which is a minor difference between evolution (that is non-theistic) and free markets. If they realize that evolution and free markets is really the except same theory just applied to different contexts then hopefully they would come to support the fully materialistic theory of evolution without a God.

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  3. Newsflash: Us 21st century liberals believe in the free market's power, too. :-) We just want to shape it a little so that (1) the slow and weak don't live in squalor and starve to death and (2) so that the very very few don't end up with near-monopolies on anything.

    Give evolution a few million (perhaps even a few hundred) more years and humans may well bring the whole system crashing down, or at least bring it to a place where it needs to be propped up "artificially," through technology. Just because evolution does some things great (evolving fantastic creatures) doesn't mean that we mustn't interfere with it.

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  4. "Us 21st century liberals believe in the free market's power, too.":

    I do not get this impression from liberals in the US, especially not liberals from something like the UK or other places in Europe. If prices are high how many liberals would support laws to lower those prices? Quite a lot. Free market supporters will realize the danger of trying to keep those prices low. Modern liberals do not pay attention to economics. They may claim to be supports of free market principles, but it does not matter what people claim, it matters what they actually believe. And seeing what they support and say they have very little, almost nothing, to do with free market ideas. Which is fine. If they want to come out and say they reject the free market, that is okay, just say it, do not hide it.

    "the slow and weak don't live in squalor and starve to death":

    This has nothing to do with the free market. That is no longer economics, that is social Darwinism. I wrote about the none existent relationship between laissez-faire capitalism and social Darwinism in one of my other posts if you would like to see. Saying that free market are about getting rid of the weak and poor people of society is wrong. Free market supports are not necessarily fat capitalist pigs who enjoy exploting the working class, sure you can find those people, but that is not an inherent trait to free markets. So this point is irrelevant to free markets.

    "so that the very very few don't end up with near-monopolies on anything.":

    Essentially the argument is this: in a free market large monopolies will form, therefore we need the largest and most coercive of all monopolies, the state, to prevent that from happening.

    Monopolies are not problems. Almost every monopoly that has existed was protected as a legal monopoly. I plan to perhaps write a long series about monopolies and why they are not problems. I really hope people stop using the monopoly argument against free markets because it is a bad argument against them.

    "Give evolution a few million (perhaps even a few hundred) more years and humans may well bring the whole system crashing down, or at least bring it to a place where it needs to be propped up "artificially," through technology. Just because evolution does some things great (evolving fantastic creatures) doesn't mean that we mustn't interfere with it.":

    How will we bring the system crashing down? And furthermore I would like to ask how can people, as central designers, creative the complexity and diversity of life that they want by their own design? How can this even happen? The problem is of tremendous calculation that people will not be able to do. It is just too complicated to solve. It cannot be solved from the top-down. Can people change the complexity of life to their own liking? No.

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  5. I don't see what 'interfering with evolution' could possibly mean, but it's quite clear what 'interfering with the economy' means. Unless it means nuclear bombs or something like that, in which case yes, we shouldn't interfere with evolution.

    Really, the difficulty with a lot of economic discussions is that free marketeers too often fall into a form of vulgar free marketeering, and act as if the world they want is basically like the current one, without welfare. In reality, so much of our world is a product of government interference, much of it far more evil and anti-market than welfare could ever be: I'm talking about pro-business interventions, and stabilizing interventions designed to prop up big business, and subsidies, and protectionism, and all the various ways that the haves are protected in their positions and not permitted to fail. All the talk about people starving in the streets is built on the presumption that markets lead to less equality and sharper differences in outcome than interventionism, when in reality the opposite is true. Markets tend to reduce profits, interventionism on behalf of business tends to increase them. Markets have competition, interventionism restricts entry at the behest of the leading firms.

    In response to Baruch - I really don't hold the position you described, although I might be called a theistic evolutionist. My theism, though, is far closer to pantheism than to what you're describing, which obviates a lot of the evolution/design questions. Hence the somewhat - I'm more religious than theistic, in a sense. But, actually, I was just kidding with my suggestion that libertarian somewhat religious evolutionists weren't getting any love in the original post.

    The real point in both cases is spontaneous order and the emergence of complex structures. That's why even socialist economists working on complexity theory are reading Hayek.

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  6. If prices are high how many liberals would support laws to lower those prices? Quite a lot.

    Are you just making things up? Can you provide any real-world examples?

    Monopolies are not problems.

    Well, maybe monopoly is the wrong word. It doesn't have to be a person or group dominating a single market... The real problem is that wealth is power, so as you gain wealth, your power gains, and it becomes a runaway feedback mechanism in which you are so powerful that you are no longer "fairly" competing with rivals and the whole free market fails.

    How will we bring the system crashing down?

    Obviously life will go on pretty much whatever we do in some form, it's just that we might not like it. For example, if the US and USSR had actually decided to engage in all-out nuclear war, we would have utterly destroyed many, many species, even perhaps our own.

    In a couple of decades, we might have biological weapons that some tiny religious group could use to destroy all human life, etc.

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  7. "Are you just making things up? Can you provide any real-world examples?":

    Before I give any example you need to understand how a typical liberal thinks. Of course, it is not true with most liberals, but plenty of them, most of them I would say, if you go to college you would know exactly what I mean. Liberals do not think of cause-effect, they think of intention-hope. If prices are too high and businesses are charging high prices liberals do not think, "well why are these prices high, what is making them be so high?". They rather think, "those businesses are really nasty and greedy, they are raising their prices to take advantage of people in tough times". Liberals look at economic issues from their system of values. Does the current economic situation fit with their values or not? If not they will support policies that have the intentions of fixing up the economic problems with the values that they have, instead of trying to figure out the cause and the effect. Thomas Sowell, an economist, summarizes it nicely by saying that, "economics is not the study of intention and hopes but the study of cause and effect".

    Now on to some examples that you asked about. I am not even sure why you ask for examples, if you understood the point of the above paragraph it should be clear where you can find examples. But take, for example, the currect healthcare reform proposal. How many liberals blamed the insurance companies for denying people and trying to take advantage of sick people? How many of them tried to figure out the cause and the effect? How many asked the question why are insurance prices so high in the first place? It was simple for them, high insurance prices are morally wrong, denying certain people is morally wrong, therefore we need a policy that will fix up these evils.

    "The real problem is that wealth is power, so as you gain wealth, your power gains, and it becomes a runaway feedback mechanism in which you are so powerful that you are no longer "fairly" competing with rivals and the whole free market fails.":

    So I guess what you wanted to say was essentially: Too much wealth is a problem, therefore we need the largest coercive monopoly which has the most amount of wealth to take it from wealthy people to prevent concentration of wealth from happening.

    It does not matter how much wealth I have if my product sucks. If I have a trillion dollars how will I be able to make a better computer than what computer companies already do? I have no slighest idea how to build a computer. It will not matter how much wealth I have, I will not be able to do it. And even if I do it, people will still buy what they like the most. Wealth is irrelevant at gaining market dominance, most relevant to market dominance is who is able to satisfy the needs of the masses the most. Besides what you say is historically untrue. The largest existing businsseses were once non-existent and entered the market when they were tiny. And the business giants from the past are long dead. It does not matter how much money they head, they ended up losing out.

    "Obviously life will go on pretty much whatever we do in some form, it's just that we might not like it.":

    Haha, that is still part of evolution, I think you conceeded to that when you said we might not like it. Evolution is not about who is most superior but who is best at survival. So if humans kill each other in a hundred years with nuclear weapons and we are all gone the remaining existing species will be the most able to survive. Yes, that is still evolution. And by the way, how is a nuclear holocaust that different from a massive asteriod impact? It is basically the same level of destruction. Mass extinctions have occured by asteriods. Our nuclear holocaust will not really be much different.

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  8. It's funny to watch you talk about how liberals are this way when I'm a liberal and you aren't and your conception of liberals seems to be a total straw man.

    Regarding the health care example, it's simply factual that the health insurance industry is largely a middleman industry that adds little value while skimming a lot of profits. Most other first-world countries have eliminated that middle man and saved a lot of money. Also, it's simply factual that insurance companies try to save money (increase profits) by allowing people to pay into the system for years and years and then as soon as they get really sick, trying to find a way to drop them.

    So I guess what you wanted to say was essentially: Too much wealth is a problem, therefore we need the largest coercive monopoly which has the most amount of wealth to take it from wealthy people to prevent concentration of wealth from happening.

    Yeah, that sort of is what I'm saying, although obviously without your melodramatic spin on the matter.

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  9. "It's funny to watch you talk about how liberals are this way when I'm a liberal and you aren't and your conception of liberals seems to be a total straw man.":

    My conception of liberals is between 95% to 97% accurate. Just go to college, please go to college, and meet the people there. My description will be very accurate. Michael Moore will most certainly fit my description. I am sure that Keith Olbermann will fit my description also. The fact that there are 3% to 5% of self-identified liberals who do not fit my description does not make what I said a strawman. Or consider that crazy woman, what is her name, Jeane Garlofolo, however you spell it. She definitely fits my description of liberals. So you cannot tell me I am strawmaning when I say liberals pay more attention to what they think is right/wrong rather than cause/effect. Especially if you listen to the liberals callers who call up the Michael Savage show. Listen to them and then tell me if I am strawming. My guess is that I am at least 95% accurate, why would that be a strawman?

    And what is said about healthcare is a good example of what I was talking about. I said that the typical liberal blamed the insurance companies: "They were greedy. They only care about money. They made prices too high. They deny people so that they can continue to make money. It is all their fault. They are evil." Instead of asking the intellectual question of why are prices high in the first place, these liberals put their values first, and thereby missed the entire economics of this situation. Even if I am wrong about free market healthcare that is all irrelevant because my point was to show how liberals put their values first before trying to find out the causes and the effects.

    "Yeah, that sort of is what I'm saying, although obviously without your melodramatic spin on the matter.":

    Why is it melodramatic? Is there anything about what I said that is actually wrong? I was calling the situation for what it is. I think of people in the military as a bunch of paid thugs dressed in green who go around killing innocent people in other countries. Is that also melodramatic? No. That is actually the closest description to the actual situation. Simple language is what we need, not fancy expressions. Language is used as a tool of confusion. If you use expressions as "national security" or "operation Iraqi freedom" or whatever other non-sense terms you are masking what is really going on. It is only when you describe army men as a bunch of paid murderes that the situation of war only begin to make sense. So my melodrama is more accurate than other descriptions that people give.

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