A quote from Schumpeter at Catallaxy Files

A quote from Schumpeter

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Written by Sinclair Davidson

March 10th, 2010 at 11:11 am

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In the 1950s and into the 1960s evidence was tending to support this case. There was a widespread feeling left and right that socialism in some form was inevitable.
It wasn’t so much then that the success of capitalism was weakening the institutions that protect it, but that socialism seemed to have worked during the war.
If planning and the things that go with it can defeat an evil pair of enemies, then bringing social justice and happiness must be simple.
But I don’t think that is what S had in mind.

ken n

10 Mar 10 at 11:20 am
I’m hoping people will notice the prognosis doesn’t imply desirability bit.

Sinclair Davidson

10 Mar 10 at 11:22 am
Hard to miss, Sinc.

ken n

10 Mar 10 at 11:23 am
Actually Ken it was the opposite.
the great Depression made most people thinking capitalism was on its last legs.

After the war ended controls were left on in a lot of countries simply because they feared the consequences.

However certainly the US and then other counties showed this was not the case.
If anything the future is socialism lost most of its bite and only University professors thought capitalism was doomed

Butterfield, Bloomfield & Bishop

10 Mar 10 at 11:31 am
Pretty close to what I said Homer.
The controls were left on for some time after the war partly because some feared the consequences of likting them but mainly for the usual reason it is difficult to deregulate: there is an industry with an very big interest in the status quo. Jobs will be lost, skills made redundant and so on. Remember the IR club in later years?
A belief in the inevitability of socialism in some form was widespread in UK and Australia in the 50s even among those on the right. “The most we can do is slow it down” was a common comment.
The failure of neo-Keynesian (is that OK with you?) in the 70s weakened faith in sociaiism but it was not until Thatcher/Reagan/Keating that anyone dared suggest that the dragon could be killed. They failed but showed that a courageous politician could do it.
We are all waiting for that courageous politician.

ken n

10 Mar 10 at 11:41 am
Ken,

the IR club is still part of Capitalism merely a closed part.

Na it wasn’t Neo-Keynesian policy simply fiscal policy used badly. Should have read Keynes actually.

Socialism isn’t merely autarkic policy is weak or strong forms.
I suspect it is more the UK after the War which proved disastrous for the UK.
I think this is more what Schumpeter had in mind particularly given Hayek’s poor analysis of the UK which was on a par with Marx’s of capitalism

Butterfield, Bloomfield & Bishop

10 Mar 10 at 11:51 am
Homes

If Keynes’ recommendations were ‘used badly’ 99 times out of 100 with the only perfect implementation being in Nazi Germany what does that tell you? Ken did say ‘neo’ you dill. Learn to read. And write.

jtfsoon

10 Mar 10 at 11:57 am
Quoting “Schumpeter” and “creative destruction”:

Some months back I was going to buy some works by Schumpeter. He is often referenced in publications that interest me. Eg:

“The Global Competitiveness Report” (World Economic Forum) p42: Schumpeter, J. 1942. Capitalism, Socialism and Democracy. New York: Harper & Row; 3rd Edition, 1950

I decided not to buy his book after reading quotes like the one posted by Mr Davidson.

Every time I hear the uber-trendy phrase “out with the old, in with the new”, oh, I mean “creative destruction”, I wonder if the writer has actually read any of Schumpeter’s works…

AndrewR

10 Mar 10 at 12:30 pm
AndrewR – you should reconsider. It is a very good book. At least consider this segment. Jason has a review of it coming out (very) soon and with his permission I’ll post it when it comes out. Jason?

Sinclair Davidson

10 Mar 10 at 12:35 pm
Yeah Sinc. It’s supposed to come out in that IPA anthology. Any idea when that’s coming out?

jtfsoon

10 Mar 10 at 12:37 pm
My understanding is very soon – like within the month.

Sinclair Davidson

10 Mar 10 at 12:47 pm
I would pay good money for a well informed review (I recall trying to find one actually and didn’t find anything satisfactory).

Thank you for the recommendation.

A.

AndrewR

10 Mar 10 at 12:55 pm
excuse me Dill but Keynes said only to use fiscal policy when monetary policy didn’t work ie a liquidity trap.

They were not neo at all Merely using expansionist fiscal policy when it wasn’t needed as stated by Keynes.
Next we vwill have Staman saying Marxism can only work in captialist societie!.

Ristchl actually hows Keynesianism wasn’t used in Germany but you would have to read to know that and reading isn’t recommended here at Catallaxy.
Ignorance is bliss

Butterfield, Bloomfield & Bishop

10 Mar 10 at 3:03 pm
OK, we won’t call it neo or any flavour of Keynes. Misunderstood Keynes?
Anyway, during the 70s many governments believed that by pumping a bit more money into the economy they could avoid recession. but as we now know it was like a drunkard thinking that one more drink will make him better. Inflationary expectations were built in to everyone’s planning and we know the rest of the story.
It was the realization that finance ministers were not masters of the universe that made it easier for the courageous politicians to drive out inflation. Keating was slow to get there but he did.
Now, what do you think will happen next?
Is the faith in the genius of governments restored by how they handled the GFC?

ken n

10 Mar 10 at 3:11 pm
Sorry if this is daft, I’m having some trouble digesting that quote, maybe it needs more context… Can someone paraphrase the gist of it? What social institutions in particular is he referring to?

Rod

10 Mar 10 at 4:47 pm
Ken,
most the countries have missed a strong recovery via Keynesian economics because they already had large structural deficits.

They need to get rid of these once a recovery is certain. It would have been genius of Government to create surpluses to spend when the GFC came which is what Keynes said.

There is nothing wrong with economic liberalisation HOWEVER you need sound regulation otherwise you repeat history.

We and Canada had it. The US were oblivious to it.

Butterfield, Bloomfield & Bishop

10 Mar 10 at 4:54 pm
What social institutions in particular is he referring to?
.
Come off it. Don;t be so obtuse: the family, the community, the bloody church. All these monkeys now plug into the economy as individuals so they don’t really family the way they used to.
.
Family is flexible, humans adapt. This idea that we can predict something called ‘socialism’ arising out of the rubble is limited in utility. Maybe a better historical mode would be that of cycles; how chaos comes ’round. The question becomes how to avoid feudalism which is what socialism effectively is.
.
Things have a way of evolving from their opposites. The opposite of freedom is…?

Adrien

10 Mar 10 at 4:57 pm
“There is nothing wrong with economic liberalisation HOWEVER you need sound regulation otherwise you repeat history.

We and Canada had it. The US were oblivious to it.”

The US was far more regulated than we are and still have taxpayer funded PMI, mortgage originators and social equity rules and non recourse mortgages.

The less regulation, the more sound the mortgage market is.

Semi Regular Libertarian

11 Mar 10 at 10:47 am
err no sub-prime loans had very little regulation.

Sound regulation is needed not more

Butterfield, Bloomfield & Bishop

11 Mar 10 at 10:55 am
You’re just being religious about this Homer.

An FHA loan is by definition a sub prime loan. These were funded out of Federal revenue and underwritten by the taxpayer.

Our entire mortgage market is more lightly regulated.

Semi Regular Libertarian

11 Mar 10 at 10:57 am
Sound regulation is needed not more

How about stopping the government from advocating the socialization of credit that would prevent people that can’t afford homes from buying one and then defaulting. That would be a start.

JC

11 Mar 10 at 11:18 am
Sound regulation. Socialization of credit. Economic liberalization… My take:

The intelligentsia of the right (eg: IPA/CIS) have made and continue to make a catastrophic error: they advocate “free markets”.

Why, in the post-GFC analysis was the right was impotent to accusations of “neo-liberalism”, “casino capitalism” and “free market fundamentalism”?

I think there is a mis-understanding of free markets, competitive markets, black markets, institutions, regulation, intervention & distortion:

The only free markets are black markets… where goods and services are exchanged with a machete in one hand and an AK-47 in the other. No property rights, no institutional foundations, no law enforcement etc. In sporting terms, this is analogous to an “all in brawl”.

When the right uses the word “free market” they actually mean “competitive markets, underpinned by institutions like property rights, but not distorted by government intervention”. The US Government intervention via Fannie Mae and Freddie Mac distorted the American mortgage market.

“Competitive markets”, much like competitive sports (eg: AFL) require rules and umpires. It is obvious that rules and umpires (like APRA) were missing in American financial markets with unregulated financial instruments like credit default swaps and collateralized debt obligations (though I acknowledge: innovative private sector risk handling instruments developed in response to the market distorting government intervention of fannie mae and freddie mac).

Because the Liberals/right/IPA/CIS built the word/brand “free markets” and not “competitive markets” they were shut out of the debate. They were not rewarded for institutions like APRA. Hockey was embarrassing with his feeble attempts to defend “free markets” after Rudd’s essay.

Why not respond with: “Maaate, Kev, from Brizzie, I read your essay and have this problem: Howard & Costello developed a regulatory agency called APRA which regulates all deposit taking organisations in Australia, how can you logically make accusations of “free market fundamentalism” when they developed a “regulatory agency”?

I see the GFC as the result of:
1. Poor or absent regulation (the risk of the ‘rights’ obsession with free markets)
2. A distorted market (the risk of the ‘lefts’ propensity to subsidise, intervene & distort)

AndrewR

11 Mar 10 at 2:21 pm
no Marky you are as usual wrong again.

Our Regulators came down hard when banks allowed 100% borrowing on houses let alone sub-prime stuff.

I think you will find most sub-prime loans in the period where they increased drastically were actually originally prime loans.
This is further confirmed by the zip codes of the areas worst affected by foreclosures.

Most of these loans were not originated by banks.
My guess is that the FHA loans were not perpetually refinanced like sub-prime loans.

I have never understood why the US of all places has non-recourse loans

Butterfield, Bloomfield & Bishop

11 Mar 10 at 2:32 pm
“Our Regulators came down hard when banks allowed 100% borrowing on houses let alone sub-prime stuff.”

Bullshit. We had up to 106-110% borrowing and it was perfectly legal – and perfectly viable until the US XCP market dried up in the credit crunch.

“I think you will find most sub-prime loans in the period where they increased drastically were actually originally prime loans.”

What’s your point? The US Govenrment supports this entire industry. The Government encouraged sub prime and sub prime financing? Okay, but that’s hardly an argument against less regulation.

“Most of these loans were not originated by banks.”

No. But when you look at GSEs, they may be, or by mortgage origination, they are either CRA banks or the GSEs.

“I have never understood why the US of all places has non-recourse loans”

They’re not as nearly as capitalist as some make out. A bone headed hangover from FDR’s agenda.

Semi Regular Libertarian

11 Mar 10 at 3:22 pm
AndrewR, I think that is an excellent point. I would go so far as to even remove the reference to competition and include civil, thus we would refer to civil markets.

dover_beach

11 Mar 10 at 3:31 pm
I use the word “competitive markets” because we have competition policy and competition laws (eg: anti-trust/anti-monopoly laws) which determine the legal ways organisations can compete with each other (eg: collusion laws, intellectual property laws). These laws/rules are part of the formal institutional framework which determine what behaviour (regularities of behaviour) are lawful and those which are not.

I always use competitive sports as the analogy for competitive markets: Competition in political markets determine who the rule makers will be (ie: law makers in Canberra, board members of the AFL or NRL) and whether their new rules are acceptable and will remain (eg: no ‘bumping’ heads of AFL players for safety) and which rules are unacceptable and should be repealed (eg: Work Choices).

In a competitive market (economic or political) the success or decline of competing organisations is determined by the choices made by consumers and voters. Where there is choice organisations must compete on value. Profitable organisations create value for their customers and do so cost-effectively.

Innovation is the process which ensures new value propositions are continually offered to consumers & voters (the creative destruction of Schumpeter?).

Every edition of the OECD’s “Going For Growth” advocates the greatest stimulus for innovation is vigorous competition. How Kevin Rudd can claim an auto-industry protectionist innovation policy is shameful!

I use the word competitive markets for two main reasons:
1. the term acknowledges the importance of competition laws and
2. for consumers to have a choice in any market organisations must compete to create and offer a value proposition.

I am curious what you mean by ‘civil markets’?

AndrewR

11 Mar 10 at 5:25 pm
No Marky the RBA squashed loans where LTVs were more than 95%.

CRA loans were closely supervised and profitable.

GSE’s only got into sub-prime loans 1) in 2007 when it was essentially all over and then when the Whitehouse and congress forced them to take such loans from investment banks as such they still only got to 9% of their portfolio.

the Sub-prime debacle is mainly a private industry debacle where people were a lot less smart then they thought.

Butterfield, Bloomfield & Bishop

11 Mar 10 at 5:31 pm
where people were a lot less smart then they thought.

You rank as a genius on the score, buddy… A veritable Einstein in reverse.

JC

11 Mar 10 at 5:43 pm
ten minutes after Titanic struck the iceberg an argument broke out amongst three British dudes in the bar. Something about who was responsible for the Charge of the Light Brigade.
.
For some reason this thread reminds me about that.

Adrien

11 Mar 10 at 5:54 pm
I am curious what you mean by ‘civil markets’?

Let me explain.

I use the word “competitive markets” because we have competition policy and competition laws (eg: anti-trust/anti-monopoly laws) which determine the legal ways organisations can compete with each other (eg: collusion laws, intellectual property laws). These laws/rules are part of the formal institutional framework which determine what behaviour (regularities of behaviour) are lawful and those which are not.

What is significant here is not that you have competition, but that you have a civil framework (laws and formal institutions) that set the bounds of just conduct in market relations.

I always use competitive sports as the analogy for competitive markets: Competition in political markets determine who the rule makers will be (ie: law makers in Canberra, board members of the AFL or NRL) and whether their new rules are acceptable and will remain (eg: no ‘bumping’ heads of AFL players for safety) and which rules are unacceptable and should be repealed (eg: Work Choices).

I think this analogy is potentially misleading. Competition in sports does not determine who the rule-makers will be institutionally; nor does it in markets.

In a competitive market (economic or political) the success or decline of competing organisations is determined by the choices made by consumers and voters. Where there is choice organisations must compete on value. Profitable organisations create value for their customers and do so cost-effectively.

This is dangerous because it potentially transforms civil institutions into enterprises. What do civil institutions provide of value to citizens apart from just laws? As Oakeshott says, civil institutions “bake no bread”, they have nothing to give. Thinking of government in the manner of value-improver has in some respect led to welfare state.

The only reason I prefer civil to competitive markets, apart from what I’ve written above, is that the emphasis should fall upon law, rather than what may qualify it.

dover_beach

11 Mar 10 at 5:55 pm
Fine comment DB.

Adrien

11 Mar 10 at 5:58 pm
I think this analogy is potentially misleading. Competition in sports does not determine who the rule-makers will be institutionally; nor does it in markets.

I agree.

I use the analogy to show how rule-makers in the political market can have a profound effect on the competitiveness of game players in the economic market. (It is how I help explain institutions and the institutional framework – I am open to flaws in the analogy).

If we look at professional sports as an economic market (sports entertainment eg: ARU, NRL & AFL), then the rules imposed by the polity of each game effects the quality of competition (entertainment value) eg: ELV’s (experimental law variations) in Rugby Union.

In the competitive market of sports entertainment consumer choice will determine which sport offers the best entertainment value.

Each year the rules of each code are incrementally changed by the rule makers in each sports polity.

The analogy I try to present is that those from the centre-right who aim for “free markets” are aiming for a free flowing game (eg: not over burdening business with costly regulations).

Those from the center-left have a tendency to over-regulate. The over-regulation of the left tends to target i) unfairness and ii) social justice issues.

“Imagine” regulating every ‘unfair’ bump in the AFL, the umpires whistle would be blowing constantly, the game would be bogged down, ultimately the entertainment value of AFL would become more like Rugby Union (bogged down by umpiring and penalties) and eventually the industry would decline as consumers take their entertainment money elsewhere…

“Imagine” if the UK’s Premier League had socialistic rule makers with intentions like “social justice”. Rather than a relegation zone which dumps uncompetitive clubs each year – hypothetical programs like “tax the rich” would lead to big taxes on Manchester United/Chelsea/Liverpool et al. subsidising crap clubs like Leeds.

Taxes like this would decrease the competitiveness of the most innovative clubs and seriously impede their ability to hire talent from the global talent pool – eventually the ‘social justice’ regulations would decrease the entertainment value of the whole Premier League…

Anyway, thats a little more on how I think competitive sports are a good example of competitive markets. The motivation (as I see it) for each individual and organisation in these sports economic markets is competition and competitiveness.

Now for your civil markets concept…

AndrewR

11 Mar 10 at 7:09 pm
What is significant here is not that you have competition, but that you have a civil framework (laws and formal institutions) that set the bounds of just conduct in market relations.

I am in complete agreement. Are you aware of a publication a few years back by the World Bank which asked the question “where is the wealth of nations?” Its conclusions were that most of the wealth was not in land, labor or capital, but the institutional framework of each country.

As I argued earlier, competition occurs in cancerous, productivity eroding black markets which lack any ‘civil framework’ (institutional framework).

Mmm… So competition is not the defining characteristic of the markets I am talking about.

Mmm… So that means your label of “civil markets” is better.

Mmm…

AndrewR

11 Mar 10 at 7:16 pm
AndrewR:

I really like you analogy and it’s clear that you have given this a lot of thought. I think however there may be a weakness with your sports example. It’s acceptable in sports that we have a meritocracy. If you’re in a boxing match you go equal weight against your opponent, however if you’re knocked out , you’re knocked out. You lose.

We don’t really have a meritocracy in the economy to a large extent as we don’t allow people to go to the bottom is a sports sense.

JC

11 Mar 10 at 7:16 pm
This is dangerous because it potentially transforms civil institutions into enterprises. What do civil institutions provide of value to citizens apart from just laws? As Oakeshott says, civil institutions “bake no bread”, they have nothing to give. Thinking of government in the manner of value-improver has in some respect led to welfare state.

The only reason I prefer civil to competitive markets, apart from what I’ve written above, is that the emphasis should fall upon law, rather than what may qualify it.

I would like to think about these last points.

In the meantime, who is “Oakeshott”? I was about to buy Elhanen Helpman’s new book on institutions and economic history…

Perhaps you can make a recommendation?

AndrewR

11 Mar 10 at 7:26 pm
I’m not sure how many people saw Socialism as ‘inevitable’ by the late 1960s. The revelations about the Soviet Union under Stalin, the enthusiasm of the working class for consumption, and the rise of the New Left pretty well cleared out a great store of hope for Socialism.

Peter Patton

11 Mar 10 at 7:45 pm
And Keynesian counter-cyclical aggregate demand manipulation had pretty well run its course by 1966-68.

Peter Patton

11 Mar 10 at 7:46 pm
that the emphasis should fall upon law, rather than what may qualify it.

Just saw this in the link to “The Independent Review”:

The Legal Foundations of Free Markets

AndrewR

11 Mar 10 at 8:39 pm
PP Yes, the idea had pretty well gone away by the late 60s.
Though regulation was still thought to be the solution to most ills. Perhaps the new left shifted the argument towards revolution. The 50s were the height of “socialism is inevitable”.

ken n

11 Mar 10 at 8:49 pm
AndrewR – comparatively heavy regulation in the AFL makes it a far more competitive market place than the EPL which appears to be pretty much an oligopoly.

sdfc

11 Mar 10 at 9:37 pm
Why would someone be using the AFL and the AFL’s internal business rules etc. as somehow indicative of the success or failure of regulation?

Private entities have rules of employee or associates behavior and the processes involved in terms of creating and delivering a service of a product.

They can fail or succeed depending on these elements however the fear of failure offers something. If you fail you go out of business and your dead.

As Rudd has shown, you can blow $45 billion of the nations money and still avoid the perp walk.

JC

11 Mar 10 at 9:54 pm
SO JC you’re saying that regulation has no place in any market even when that market is inherently anti-competitive?

sdfc

11 Mar 10 at 10:08 pm
There are very few things that could be inherently anti-competitive, SDFC. And 99.9999% of the time we find ourselves in that situation is when either the government has a hand in granting monopoly status or the entity in question is coming out of government hands.

There is no such thing as anti-competitive behavior in a unhampered market even when there is one participant supplier.

JC

11 Mar 10 at 10:14 pm
By the way I would class the AFL as a market regulator. A regulator that has been pretty successful in ensuring competitive market conditions.

sdfc

11 Mar 10 at 10:16 pm
Every major anti-trust watch dog is based on the faulty premises of perfect competition model which if really looked simply doesn’t exist.

JC

11 Mar 10 at 10:17 pm
SDFC:

No it’s not. The AFL is not a market regulator at all.

It’s this sort of bullshit that gives economics a bad name.

The AFL is an oversight entity for the footy league. It’s helps create the rules of conduct etc. and ways in which the loot is split as well as player recruitment and promotion etc.

There is nothing that holds the individual teams to the AFL, as they could split off any time they want.

lastly it is NOT regulating a market. “The market” is the sports entertainment market for which there are various codes and other forms of spectator sport that the AFL has to compete in.

The idea of calling the AFL a market regulator is intellectual pollution.

It is not a market regulator. It’s the body that manages that particular code.

You need to get this shit right, SDFC. You need to get your head around these concepts and stop getting sideswiped by sub-standard thinking and rotten ideas.

JC

11 Mar 10 at 10:26 pm
SDFC:

The AFL board and it’s ancillaries are doing the best they can to help the code compete against other codes and in the general sports entertainment business. It’s like a holding company.

The idea that it is a market regulator is such an abuse of the term that you should be put in the sin bin for a few hours to cool you off to get you thinking again.

JC

11 Mar 10 at 10:37 pm
JC

Reducing your argument to hairsplitting suggests you don’t have much of an argument at all. The AFL doesn’t help create the rules it creates the rules.

While the AFL itself (like the equity market) competes in a wider market the individual clubs compete in the market of the AFL.

Intellectual pollution? Once again your talent for hyberpole is top notch. Just because an analogy challenges your obviously deeply held religious beliefs doesn’t mean it is substandard.

I wait your argument as to why you believe the comparatively unregulated EPL where a few clubs dominate is more competitive than the AFL.

I love the way free-marketeers downplay the benefits of competition when it suits them. In what universe are natural monopolies efficient?

Examples of natural monopolies just off the top of my head. Airports, water distribution, power distribution, gas pipelines, rail, roads, ports, bus services.

sdfc

11 Mar 10 at 11:12 pm
I’m not hairsplitting at all, SDFC. Stop the bullshit.

You suggested this intellectual codswallop:

By the way I would class the AFL as a market regulator. A regulator that has been pretty successful in ensuring competitive market conditions.

The AFL is NOT a market regulator. It’s the oversight board that manages that particular code of football and is competing with other codes as well as other sports for the entertainment dollar and eyeball.

No more to add to ensure that kids aren’t swayed with that crap. Kids could end up reading this and end up having their young minds polluted with that swill you wrote, so I thought it was important that intellectual junk was immediately corrected.

You need to apologize : not to me as I can’t see you do that, but to any kids reading this as we don’t want them going off with bad ideas. Man up and do the right thing, SFDC. Apologize for that bit of intellectual pollution, which I wouldn’t yet classify as Homernomics but it’s getting damned close.

I wait your argument as to why you believe the comparatively unregulated EPL where a few clubs dominate is more competitive than the AFL.

What argument? the argument that the AFL is better able to manage its code, brand and performance than an another competing group in the sports entertainment business? Whay would i do that?

The EPL is NOT unregulated, it’s mismanaged compared to the AFL, that’s all. Regulation has nothing to do with it, FFS.

I love the way free-marketeers downplay the benefits of competition when it suits them. In what universe are natural monopolies efficient?

In an unhampered market? Lots. The essentially single operator in the desktop software market such as Microsoft is doing an adequate job.

Examples of natural monopolies just off the top of my head. Airports, water distribution, power distribution, gas pipelines, rail, roads, ports, bus services.

Funny that. Funny how the examples you mention were all spawned from the loins of the the government providing the typical sovietized service.

JC

11 Mar 10 at 11:29 pm
Homer – what the hell are you talking about?

“No Marky the RBA squashed loans where LTVs were more than 95%.”

See here:

http://www.theadviser.com.au/breaking-news/3350-high-lvr-loans-in-demand

“Although funding constraints have meant that only a few lenders now offer High LVR loans, demand for the products continues to surge, rising 250 per cent since the start of the year.

According to data from Loan Market Group, demand for both High LVR loans and 100 per cent loans has doubled since the end of the boosted federal government First Home Owner’s Grant.”

“CRA loans were closely supervised and profitable”

Then why did the GSEs have an obligation in their charters to buy unprofitable CRA loans from banks?

So the rest of what you said is utter crap, and you’re not as smart as you made out. Hoist by own petard, yet again.

Semi Regular Libertarian

11 Mar 10 at 11:46 pm
JC

I missed your post re: meritocracy. I am inclined to agree with your comment (if its amateur boxing!).

I didn’t mean to stir up a hornets nest with sporting analogies. Of course economies are not sport. But people understand sport. If there are ways to explain economic concepts to lay people using analogies they understand then there is value in that.

Of course the analogies must be evaluated, and their errors addressed. If there are too many errors then it must be dumped.

So much value can be created in economic an political markets by helping people understand complexity. Uncertainty causes confusion; Confusion causes anxiety. And I believe strongly that anxiety is the a profoundly important emotion in decision making, and a very important motivation for the institutions & regulations that polities create and impose on economies and markets.

If the right does not find ways to communicate complex concepts then the space just gets filled with idiotic essays like Rudd’s or even worse; Bob Ellis!

AndrewR

11 Mar 10 at 11:49 pm
The EPL and AFL aren’t remotely comparable. If the AFL had to compete with the NZFL, SAFL, IndoFL, FijiFL, TongaFL etc. do you think they’d have all those artificial barriers in place? Only if they wanted to cease to exist. The EPL has created the greatest football league on earth. I’d rather watch football played at its ultimate level than some contrived lowest common denominator comp.

Infidel Tiger

11 Mar 10 at 11:56 pm
I totally agree Andrew.

I always thought that the man who knew how to translate difficult economic concepts was Milt Friedman. The guy just had a magic touch with being able to put things in way that people understood. The right lost a truly great foot soldier. Listening to some of his talks over Youtube causes me to be upset he’s passed away and if there was anyone that deserves to cheat death it was Milt.

The way to beat these Rudd types into an intellectual pulp is to not let them get away with anything and never give them an even break. That’s why Rudd needs to be scorned and ridiculed at any given opportunity particularly as a result of that appalling little essay the trog wrote.

People aren’t silly, they understand that government provision of services is a fools paradise. They see that.

I think what they fear the most though and legitimately so, is that there may not be a safety net. That’s the biggest fear people have , I think.

That’s why it would be important to push for voucherization as a first step.

JC

12 Mar 10 at 12:00 am
AndrewR – comparatively heavy regulation in the AFL makes it a far more competitive market place than the EPL which appears to be pretty much an oligopoly.

I am no expert on either the AFL or the EPL…

But I have long thought the EPL a great example of a ‘free market’ (my objections to the term already noted). My reason is this: they let poor, uncompetitive clubs die and leave the market via the relegation zone. They don’t have “tax the rich” socialist programs which imply the competitive should subsidise the uncompetitive.

In the last however many years, the top clubs from the EPL have dominated the European Champions League – where the finest clubs (top 4?) from each domestic competition compete to become the champion of Europe. For the last decade (?) EPL clubs (Manchester United, Chelsea, Liverpool, Arsenal) have dominated the final 8, even the final 4.

Surely that says something about the competitiveness of the EPL as a whole? Perhaps not just competitiveness, but the ‘productivity’ (in the multi-factor productivity context of the term?) in the industry.

I see it as a great example of what I mentioned earlier in repeated Going For Growth OECD publications: the most potent policy stimulator for innovation is vigorous competition.

AndrewR

12 Mar 10 at 12:21 am
All of the major European leagues have similar arrangements to the EPL (though some may be more stringent about how many foreign players a team can have). The problem is that this leads very quickly to a monopoly on success on the part of whichever teams have the most money. Chelsea is a good example of this – Abrahamovic took over, poured loads of money into purchasing some of the world’s best players, and ensured that Chelsea could be in the top tier of clubs. It makes every competition a four-horse race, since the greater bulk of teams have no access to the resources of the richest four.

THR

12 Mar 10 at 12:28 am
The analogy I try to present is that those from the centre-right who aim for “free markets” are aiming for a free flowing game (eg: not over burdening business with costly regulations).

Those from the center-left have a tendency to over-regulate. The over-regulation of the left tends to target i) unfairness and ii) social justice issues.

It is better to think ‘free’ or civil markets being constituted principally by non-instrumental rules while the ‘regulated’ markets preferred by those on the left being constituted principally by instrumental rules. I have no problem with fairness, that is what contract law, etc. is all about.

“Imagine” regulating every ‘unfair’ bump in the AFL, the umpires whistle would be blowing constantly, the game would be bogged down, ultimately the entertainment value of AFL would become more like Rugby Union (bogged down by umpiring and penalties) and eventually the industry would decline as consumers take their entertainment money elsewhere…

Yes, it is silly to enforce every rule especially where the infraction is only slight, but the reasons not doing so where present even before anyone was concerned with the entertainment value of the game; it was simply the judgement of those playing or refereeing the game that enforcing every infraction however slight would prevent the game from being enjoyed by the players themselves.

Anyway, thats a little more on how I think competitive sports are a good example of competitive markets. The motivation (as I see it) for each individual and organisation in these sports economic markets is competition and competitiveness.

Surely the motivation is to actually play the games their playing at the highest level. Competition is simply the means of achieving this.

I am in complete agreement. Are you aware of a publication a few years back by the World Bank which asked the question “where is the wealth of nations?” Its conclusions were that most of the wealth was not in land, labor or capital, but the institutional framework of each country.

Yes, we do more or less agree with each. And I will look that paper up.

As I argued earlier, competition occurs in cancerous, productivity eroding black markets which lack any ‘civil framework’ (institutional framework).

Mmm… So competition is not the defining characteristic of the markets I am talking about.

Mmm… So that means your label of “civil markets” is better.

Mmm…

As I argued earlier, competition occurs in cancerous, productivity eroding black markets which lack any ‘civil framework’ (institutional framework).

Mmm… So competition is not the defining characteristic of the markets I am talking about.

Mmm… So that means your label of “civil markets” is better.

Mmm…

Yes, that is what I’m arguing. The other reason for preferring civil to competition is tactical; the left hates the latter but finds the former difficult to criticise, at least, openly.

In the meantime, who is “Oakeshott”? I was about to buy Elhanen Helpman’s new book on institutions and economic history…

Perhaps you can make a recommendation?

Look here:

http://www.michael-oakeshott-association.com/index.php/categories/primary-sources

I’d recommend the following as an introduction to Oakeshott’s thought:

http://www.amazon.com/Rationalism-Politics-essays-Michael-Oakeshott/dp/0865970955

dover_beach

12 Mar 10 at 9:04 am
Let me add one more thing here about rules. The rules mostly being talked about here are not really the rules that are particular to any game. The ‘rules’ that sdfc is concerned about are not particular to football, soccer or rugby, as they have nothing to do with how the game is played by the players. Their addition will not improve the fairness of the game as it is played but will purportedly added ‘fairness’ by increasing the variety of clubs that can potentially win the championship. That may be true but lets be clear, this adds nothing in the way of fairness to the conduct of the players playing whatever game it is they’re playing.

dover_beach

12 Mar 10 at 9:12 am
All the EPOL demonstrates is how a largely unregulated market allows large ologopoly players canniblise their smaller competitors. How may clubs have won the premier league in the last 20 years? Three/four? That is a deadweight loss to the majority of supporters in that market whose team can never hope to win a premiership.

Compare that to the hyper-competitive AFL where the majority of clubs have won a premiership in the last 20-years. How is this delivered? By regulation. The salary cap, draft and trading rules.

If you think the difference between the AFL and a regulator is substantive, explain why.

Infidel Tiger, football being played at its ultimate is the AFL.

sdfc

12 Mar 10 at 7:22 pm
For those of you who don’t know who the EPOL is, its the EPL to of us in the know.

sdfc

12 Mar 10 at 7:24 pm
Why do you assume that people attending games only attend to see their side win, rather than watch the sport, SDFC?

Also have eyeballs and gate attendance fallen off because 4 sides dominate the comp (EPL)?

You’re making really stupid assumptions to somehow fit into your preconceived opinions.

You need to first define your terms, Dumphy. You need to define what success and failure means in this context. Why is the AFL a success and the EPL a failure by your metrics.

JC

12 Mar 10 at 7:44 pm
Dumphy? I love it when you get upset.

Once again you are trying to move the argument to whether the AFL is part of a larger market rather than answering the key question as to whether regulation has made the AFL a more competitive market than the EPL. Call it a market, call it a league it makes no difference to the central question.

As for bums on seats, the AFL also regularly breaks attendence records. From my undertanding you couldn’t get a seat to one of the big clubs games whether you are a supporter or not. That is beside the point however, most soccer fans in the UK watch the games on TV. I reckon they would get more enjoyment if they thought their lowly or middle of the road team might one day have a shot at the premiership.

Of course if you were a supporter of the English equivalent of Fremantle you would never be in the hunt no matter how favoourable the rules.

sdfc

12 Mar 10 at 8:08 pm
Dumphy? I love it when you get upset.

I’m not upset in the least.

Once again you are trying to move the argument to whether the AFL is part of a larger market rather than answering the key question as to whether regulation has made the AFL a more competitive market than the EPL

I never mentioned your abominable error last evening when you actually suggested the AFL is a market when in fact it’s a code competing for fans.

Call it a market, call it a league it makes no difference to the central question.

It sure does make a difference. It’s the polluting of economic terms that is quite troubling. Harry does it all the time by referring to things he doesn’t like as “externalities”. Now you’re referring the AFL as a market when it’s nothing of the sort.

As for bums on seats, the AFL also regularly breaks attendence records. From my undertanding you couldn’t get a seat to one of the big clubs games whether you are a supporter or not. That is beside the point however, most soccer fans in the UK watch the games on TV. I reckon they would get more enjoyment if they thought their lowly or middle of the road team might one day have a shot at the premiership.

You can’t make those assumptions, as you don’t really know what enjoyment people get out of the game. They may actually get enjoyment from watching their local team and then watching a super team on the TV. For instance I prefer to watch a good thorough stomping in footy matches rather than nail biting stuff. Personally I think they ought to simply ban soccer as it brings out the worst in people possibly because of its socialist rules. The fans are simply despicable. I hate that fucking game and wish it wasn’t played in oz.

You need to define your terms and what success and failure actually mean

JC

12 Mar 10 at 8:36 pm
JC

The AFL is not an analogy for a market? Who do the individual clubs compete against? Each other, to answer my own question. The analogy holds.

In what terms do I frame success or failure. You’re just being facetious. During the last eleven out of sixteen clubs have one the AFL premiership as opposed to four out of what, 40? That regulation, rules what ever you want to call it has made the AFL a more competitive market place is beyond question. You obviously favour the dead weight loss of oligopoly or monopoly over regulation in all circumstances.

In what way is soccer socialist by the way?

sdfc

12 Mar 10 at 9:09 pm
…obviously you two have history

JC – is it fair to think of the EPL as an ‘industry’? In that an industry can be defined as the collection of firms competing among themselves to offer a similar product/service?

This is one of many industries in what could be broadly defined as the sports entertainment market?

Likewise the professional football codes in Australia (NRL, AFL, A League & ARU) are analogous to ‘industries’ in the Australian sports entertainment market?

As for arguing which is better, AFL or EPL, I am not trying to get into that subjective discussion. I am just trying to find ways to explain economic concepts.

Another example is this: enormous salaries.

In the post-GFC analysis and its conclusions like “blame the banker” I always bring up the EPL… Some of the worlds highest salaries are paid to footballers in the EPL. Ironically many prominent banks sponsor clubs in the EPL: AIG sponsors Manchester United, its the Barclays Premier League, RBS is a sponsor etc. etc.

I love the irony that many of the footballers in the EPL make more money than the evil bankers and their CEO’s who sponsor EPL clubs!!!

If people were to start “regulating” outrageous salaries in the EPL then it would effect its clubs from hiring talent from the global football labor market… and the competitiveness of EPL clubs would decline.

Many on the left want to ‘regulate’ CEO salaries and banker bonuses… has anyone read any of the submissions to the Productivity Commissions recent inquiry into Executive remuneration? Its gobsmacking what the left wants to ‘regulate’.

People on the left find it easy to talk about regulating the wages of evil CEO’s or bankers… they choke when you apply their concepts to celebrities in entertainment markets.

AndrewR

12 Mar 10 at 9:12 pm
Years ago I read a book called “Worlds of Capitalism”…

In one of its papers, an author (?) differentiated two broad classes of capitalist countries:

Liberal market economies: eg: UK, US, Australia

Co-ordinated market economies: eg: Germany, Sweden

In some comments above, some have called the EPL “unregulated”… it just reminded me of the label of “liberal market economies.

AndrewR

12 Mar 10 at 9:23 pm
Andrew its not about which code is better, Aussie football is obviously better, but whether one league is more competitive than another.

sdfc

12 Mar 10 at 9:32 pm
JC

I always thought that the man who knew how to translate difficult economic concepts was Milt Friedman. The guy just had a magic touch with being able to put things in way that people understood.

You know what, that is so true! I had never really thought of him like that. My fascination with the potential for civic growth through education vouchers was piqued by Milton Friedman using nothing more than basic words; no recourse to fancy and ponderous ethics or philosophical diarrhea on ‘distributive justice,’ let alone proofs using Real Analysis or GARCH Econometric models.

Similarly, it was Hayek’s simple discursive exposition of the notion of the market as giant social information calculator and sifter that lighted a thousand bulbs in the attic of my little political imagination

Peter Patton

12 Mar 10 at 10:01 pm
Hi sdfc,

When you use the phrase “more competitive” it seems to me you are making the argument that a ‘closer’ competition is a ‘fairer’ competition. And fairness seems to be an important element of your evaluation.

Immediately the incongruous objectives of Australian higher education come to mind: at times the nation wants some of our higher education organisations to be ranked in the worlds top ten; then at other times we want there to be no gap between our “elite” and our “accessible” Universities because that would be “unfair”…

To me there is no question that the EPL is more “valuable” than the AFL. The eGDP would dwarf the aGDP (a hypothetical “EPL gross domestic product” compared to a hypothetical “AFL gross domestic product”).

The AFL does not have to compete for labor in a global football athlete market.

The AFL is miniscule when looked at in terms of sponsorship revenue.

The AFL is miniscule when looked at in terms of television licensing deals – probably the best indicator of entertainment value.

The fact that television networks around the world compete so vigorously for the television rights for the EPL – and almost don’t compete at all for television rights to the AFL – so it ends up entertaining insomniacs in the USA suggests to me that the EPL is far ‘entertaining’ than the AFL.

I am not sure that the (almost) exclusively domestic AFL industry is the best economic microcosm to draw conclusions about “regulations”.

AndrewR

12 Mar 10 at 10:05 pm
All you say about the revenue of the EPL compared to the AFL is a function of population. The question which league is more internally competitive. Theory as to the relative competitiveness of oligoploy and monopoolistic competition is well established. The deadweight loss of a competition where one or members has excessive market power is well established. The benefits of private ownership to the wider market are postively correlated to the level of competition.

The question as always is has regulation made the AFL more internally competitive than the EPL.

sdfc

12 Mar 10 at 10:10 pm
JC

Dover_Beach was kind enough to make a recommendation for a publication by Oakeshott.

Would you be kind enough to recommend a starting point for Milton Friedman. While I am familiar with the name (alongside Von Hayak) – I have to confess I have read nothing by either…

I am pretty sure picking up somewhere that one of them was from the “Austrian school” of economics… Again, woeful ignorance!

A.

AndrewR

12 Mar 10 at 10:15 pm
sdfc:

I hate quoting Wikipedia: but this collection of facts before I answer your question:

The Premier League is the most lucrative football league in the world, with total club revenues rising 26% to £1.93 billion ($3.15bn) as of 2007–08.

The Premier League’s gross revenue is the fourth highest of any sports league worldwide, behind the annual revenues of the three most popular North American major sports leagues (the National Football League, Major League Baseball and the National Basketball Association),

In terms of world football, the Premier League clubs are some of the richest in the world. Deloitte, who annually release figures on club revenues through its “Football Money League”, listed eight Premier League clubs in the top 20 for the 2005–06 season.[26] No other league has more than four clubs in this table, and while La Liga rivals Real Madrid and FC Barcelona take up two of the top 3 places, no other Spanish clubs are listed in the top 20. Premier League teams have dominated the list for many years, and even topped the list for almost a decade until the 2004–05 season. After the Premier League’s new TV deal went into effect, the league-wide increase in revenues is expected to increase the Premier League clubs’ standing in the list, and there is a possibility that a Premier League club will be top of the list

Another significant source of regular income for Premier League clubs remains their revenue from stadium attendances, which, with the 2005–06 average attendance of 34,364 for league matches, is the fourth highest of any domestic professional sports league in the world, ahead of Serie A and La Liga, but behind the German Bundesliga. This represents an increase of over 60% from the average attendance of 21,126 recorded in the league’s first season (1992–93)

AndrewR

12 Mar 10 at 10:36 pm
Hi Andrew:

It was along time ago, but I read the following, which I suggest you read (if you want) in the order i list them

1. Free to Choose

2. Capitalism and freedom

3. Monetary history of the United States.

Those are the three I read.

Loved every single one.

I recall reading free to choose in my youth.

I then was living in the US and saw Milt of Charlie Rose being interviewed and bought the other two books.

I ended up just loving the guy. He fully converted me.

JC

12 Mar 10 at 10:41 pm
Andrew, SFDC.

I don’t see the AFL or the EPL as a market. It may be thought of as part of an industry in the same way as BHP is thought of as being part of the mining industry.

SDFC asks:

In what way is soccer socialist by the way?

The offside rule.

JC

12 Mar 10 at 10:46 pm
Thank Christ hockey got rid of it. It’s a freaking stupid idea.

Semi Regular Libertarian

12 Mar 10 at 10:53 pm
Speaking of Friedman:

“The available evidence…casts grave doubt on the possibility of producing any fine adjustments in economic activity by fine adjustments in monetary policy….and much danger that such a policy may make matters worse rather than better…The basic difficulties and limitations of monetary policy apply with equal force to fiscal policy.

Political pressures to ‘do something’ …are clearly very strong indeed in the existing state of public attitudes.

The main moral to be had from these two preceding points is that yielding to these pressures may frequently do more harm than good. There is a saying that the best is often the enemy of the good, which seems highly relevant. The attempt to do more than we can will itself be a disturbance that may increase rather than reduce instability.”

- Milton Friedman, (as presented in testimony to the Joint Economic Committee in 1958, also in Monetary vs. Fiscal Policy: A Dialogue, 1969, p. 48.)

HT:
John B Taylor

Capitalist Piggy

15 Mar 10 at 1:16 pm

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A quote from Schumpeter

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