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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 12:13 AM
Original message
capitalism 2.0
Capitalism 2.0 is the term Nassim Nicholas Taleb used last night on Charlie Rose to talk about the near future - near as in the lifetimes of some of us, I assume. He also wonders if we're not at the beginning of this entire financial crisis (as do many of us.)

He thinks things might be worse than Roubini expects.

He says he doesn't like forecasts, but of course anyone discussing economics is questioned about these very things. What Taleb wants to say is that we do not understand the world and we shouldn't trust those who claim they do - his big example is comprised of the economists telling banks they could ignore long-standing risk assessments in investments.

According to Taleb, Capitalism 2.0 will view banks as utilities. People will no longer tolerate the current system in which stock brokers, banks, magacorps, etc. are allowed to take risks and get bailed out by the government. (Taxpayers as hostage investors.) Markets are stupid - and analyzed by stupid 35 year olds who pretend they know more than they do.

He had been warning about banking risks for 12 years - here he's talking about the economists who tried to ignore him - and the problem with banking.

Taleb says that people should hold 90% of their assets in cash and only 10% in stocks. He thinks we are in for a deflationary period, stock investments will not be favored and hedge funds still have a ways to fall.

Taleb 8 mos ago -

Becoming wealthy = skills but more importantly, luck.

(the youtube links also have links to other Taleb interviews.)

I wondered what you guys in the econ jungle thought of him.

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Hawkowl Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 01:35 AM
Response to Original message
1. Markets ARE stupid
I've thought this for many, many years. Economics dogma states that people act rationally on an individual basis in their own best interests, and therefore, if you aggregate everyone's actions, you arrive at the optimal solution for everyone via the "free market" (or Magic! as I like to think of it).

In reality people aren't rational and when you aggregate everyone's actions, the market most closely resembles a REAL market--picture black Friday's mob at Walmart. People act completely irrationally and unpredictably and their is nothing optimal about the mayhem "free markets" inflict.
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 01:43 AM
Response to Reply #1
2. I think the Bush family should be called "the bailouts"
because they allowed the same scams with the s&l scandals. And then create "hostage investors" when taxpayers are forced to bail them out because their mistakes are so colossal. actually, I wouldn't call them mistakes. I'd say they were plain old flim flam artists disguised as politicians and bankers. Ponzi scheme economics.
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eridani Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 07:18 AM
Response to Reply #1
6. Not in every case. I think they are a perfectly good way of allocating disposable income
Not a good way of delivering necessities, of course.
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ixion Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 08:25 AM
Response to Reply #1
9. also, there's a flaw in the original premise

the premise states that

- given: people are rational, and act in their best interest (both are debatable and not a given)

- conclusion: the raw aggregate of this is optimal.

How ever, this assumes NO CONFLICT in all of the billions of interactions resulting from people looking out for their best interests. This is a rather large flaw in the premise, which is derived from both an over-simplified thesis statement and conclusion.

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Hawkowl Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 02:12 PM
Response to Reply #9
11. Another flaw
Most people think of "free markets" as an egalitarian, democratic way to determine optimal distribution of goods, and optimal production because manufacturers only make what the majority wants, etc.

However, a huge flaw in this is the fact that markets are exactly opposite of democratic because not everyone's vote counts the same. In a democracy the rule is: one person, one vote. In the markets, it is Donald Trump has 2 BILLION more votes than you. Meaning that a handful of ultra rich people determine the economic fate of the country and...the world! Unfettered, free market capitalism is by its very nature an oligarchal, inefficient, charade. Their really is not much of a difference between the old planned, politburo controlled economies and the system we have right now.

A return to a mixed economy is the only longterm solution to our Bush Depression. We need the oligopolies and monopolies broken up. We need massive amounts of small and medium businesses. We should outlaw corporate personhood and reinstate unavoidable corporate taxation. We should also penalize mergers, acquisitions. We should also reinstate the upper marginal tax brackets of 50%, 75%, 90% for the ultra wealthy making 10, 20, 100 million dollars a year.
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anigbrowl Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 07:37 PM
Response to Reply #11
13. Don't really agree here
This is an interesting thread and I have a lot of time for Taleb, great OP.

Where I'm disagreeing is your suggestion that there's not much of a difference between command economies and market ones, per the communist example (I presume that's what you were referencing with 'politburo'). I visited Russia in the 80s when it was still communist. Two things about consumer goods stick in my mind - one was the extremely low quality of anything that didn't have a military application and two was the stock levels.

By military applications, I mean everything from uniforms to watches. This kind of stuff was generally well made and build to last. On the other hand, if you wanted something resembling a pair of blue jeans, forget it. Most consumer goods were manufactured to terribly low standards of quality.

By stock levels, I noticed that in stores they had copious quantities of some items (for some reason, really bad toy prams stick in my mind) and were constantly running out of other things. Go to a place where they sold kitchenware and they might have loads of forks but almost no knives, for example. Food was also something subject to wide swings in availability.

What was missing was competition. Although some state companies made things very well (eg cameras - russians are good at optics and again, they had a military application), A lot of others didn't. And even if the Moscow #1 mattress factory turned out terrible uncomfortable mattresses, there was no #2 mattress factory to compete, in the sense of ramping up production to take advantage of #1s poor quality, or lowering prices to sell more and drive #1 out of business etc., or raising them a bit to accumulate more capital and expand your factory.

Now certainly, it's true that the rich get more votes than the poor on a dollar for dollar basis, and that capitalism and markets do not automatically optimize things for the consumer. But at least it has competitive pressure. If a company's products are consistently bad, then they can either improve them or get out of the market. In a command economy with production quotas, you can hold on your market share for a long time even if your product is junk. Likewise, the incentives to make a better product are lacking because even if you succeed, you won't be able to derive much extra profit from it.
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Hawkowl Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Dec-06-08 11:22 PM
Response to Reply #13
16. Clarification
I agree that competition is a good thing when possible and I was in no way advocating a command economy. The point I was trying to make was that the LACK of competition was a common fault, although much worse in the USSR, with both economic systems. Yes, the USSR's version was worse compared to our system in terms of consumer goods--but then again we import most of our consumer goods.

The remedy to improve both types of economies is the same, shatter monopolies and encourage small business, entrepreneurship and innovation. Break up the monopoly of capital, the government in the command economy and the half dozen banks in ours, and get money to the innovators. (The Chinese have had great success with introducing competition and free enterprise, although their economy is still in transition.) Local and small is always better than large and centralized, regardless if the centralized is through a politburo or Bank of America.

Few people realize that competition is a process that must be continually renewed. Otherwise we simply compete until there is only one company, one winner, one remaining monopoly stifling all innovation.
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 09:45 PM
Response to Reply #9
14. I guess I start with the idea that our markets are not really "free."
Edited on Fri Dec-05-08 09:48 PM by RainDog
it's not a free market when oil cos are subsidized. alternative energy providers do not compete on a level playing field with lobbyists making sure oil cos are the favored sons. so prices for vacuum tube solar water heaters, for instance (I just saw the application of this on this old house.. I'm a pbs junkie these days - the tubes can be rotated out if one of them breaks, so maintenance is cheaper if part of the whole breaks, etc.) cannot rely upon that whole "economy of scale" idea that their products will be more affordable.

if we paid a price for fuel that reflected its real cost to us in other areas of life - then alternative energy could be more competitive. Van Jones talks about his concern that the "green revolution" is going to leave out the poor for just these sorts of reasons. And by all previous examples, he's right to worry.

But govt. should, imo, give favored status to alternative energy b/c, among other things, it creates a new manufacturing base and market. but again, the govt is too beholden to big oil money, etc.

as far as rational or not - the "wisdom of crowds" idea is interesting because, in order for this idea to work, everyone's input has to be of equal value. this doesn't mean that everything anyone thinks is "all good," but that one pov is not favored.

We do not have a govt set up for this.

The reason the "wisdom of crowds" supposedly works is because all the various types and sources of information either support or cancel each other out. What I see in the U.S. govt is a suppression of a huge part of "the crowd" by both republicans and democrats.

Because of this, economic policies, imo, will fail because certain groups have favored status (or, Trump has 2 billion in value for his ideas while a homeless person has none. ) Of course, Trump was born into wealth and his success is a lot like George Bush's - he was born on third base and pretends he hit a home run.

On another thread I posted the Pew report that noted that the U.S. offers far less social mobility than other western democracies - the ways in which people who are not born with privilege are systematically shut out is a reflection of America's refusal to act as a force for empowerment of its citizens. No universal health care is a part of this problem, as is the influence of fundamentalist religion in our schools and govt. A lack of affordable higher education is another barrier in the U.S.

If our citizens had the same sorts of "vote of confidence" from our govt, I think we would see people do wonderful things. the nasty, hobbesean universe of the "elite" in this nation is shameful.

(oh, and if you buy into "elite theory" - Obama has been "allowed in" to demonstrate it is possible for a black person to become part of the elite. If he governs as a sort of Clinton democratic conservative, I'd say that assessment is true.

I hope we see something different...I hope our leaders are prescient enough to act for the good of this nation and not themselves. I realize I shouldn't hold my breath.)

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starroute Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 01:54 AM
Response to Original message
3. Taking control of the formerly chaotic is a recurring theme in history
Edited on Fri Dec-05-08 01:55 AM by starroute
Hunter-gatherers are dependent on the whims of nature -- farmers start to bend nature to their will. Early farmers are dependent on the rains that come to them -- more advanced farmers build irrigation works and aqueducts. Government itself represents a regularization of the distribution of goods and services and a professionalization of the mechanisms for directing communal efforts.

Banking and the "free market" have similarly existed in a state of nature, available to be exploited by financial hunter-gatherers, but we can't afford to be at their mercy any more. We need to take control and make them regular and dependable.

No doubt the risk-takers will find some other exciting game to play out at the fringes of human enterprise -- and they have every good reason to do so -- but their years of milking this one beyond what the system as a whole can endure are over.

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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 02:21 AM
Response to Reply #3
4. nice analogy
Edited on Fri Dec-05-08 02:22 AM by RainDog
from what I heard on the news tonight - some pbs news thing - Obama has people who are talking up things like the Peace Corp and America Corp - I wonder if they'll be current equivalents of WPA and other orgs that worked to create jobs when the markets failed in the 30s.

I'd much prefer a Peace Army over a World War. Peace Army and birth control.. LOL... as in, I'd rather have smaller families than war to keep populations sustainable. (oh, and please, I hope no one takes this to mean any sort of central family planning, blahblah - I know it's too much to expect rational behavior all the time, but when it is really in someone's interest of survival to have fewer children, maybe that will have the same effect on births as did 4 buck a gallon gas on SUV sales.

I'm sure others have already wondered about this - but with gas prices so low - I wonder if this won't encourage people to use more fossil fuel and thus accelerate the exhaustion of accessible oil. The lower price of gas should help with food prices, for the short term at least.
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eridani Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 07:20 AM
Response to Reply #3
7. And just about all of the religions of farming societies--
--feature some sort or creator or creators who fight some other deities embodying chaos.
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judasdisney Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 06:11 AM
Response to Original message
5. Of course he's wrong. People WILL tolerate handouts ("bailouts") for the wealthy.
People ARE tolerating handouts to banks, and damning handouts to little folks.

Because Republicans are rabid facist freaks, and Democrats are negligent pussy doormats.

The future is NEOFEUDALISM. Landed gentry. Elite families who own everything, including your children, who will be fabricating their Nikes with their sweaty 5-year-old hands for 6 cents an hour.

This is not a recession, or Mega-Great-Depression.

This is a New World Monetary Order and New World Class Order.

This is the Bush Revolution.
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 11:18 AM
Response to Reply #5
10. I suppose we'll see how it all plays out
frankly, if people (not the lawmakers who supposedly represent "we the") get pissed off and desperate enough, neofeudalism cannot stand.

the French peasants didn't have a pot to piss in, and when the powers-that-were ignored this, they paid with their lives. when people don't think they have anything to lose, they're willing to put their lives on the line if they can get rid of some of the people who have created their misery.

I don't want this (although I will admit to a secret fantasy that would delight in seeing Paulson tarred and feathered - tho I'm not going to be doing it) but the truth is that desperate people will do desperate things.

This is why I think that jobs creation by the govt is going to be the reality of the near future. Capitalism is broken. Marx was correct in that respect - capitalism destroys itself. Utopia, however, doesn't follow.

If there was any way I could prevent the current bank bailout, I would. It makes much more sense to me for the govt to put the money directly into the hands of mtg holders - that's the problem now, wealth is too concentrated among too small a number of people to sustain an economy. Wealth redistribution has been a fact of life for 8 years... more, obviously... but the last 8 years have been pretty stunning. Why this is okay for some and not others is a mystery to me. There's no rationale for it to be limited to Bush cronies.

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judasdisney Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 03:47 PM
Response to Reply #10
12. Perhaps the rule is
(in view of the French Revolution) either the peasants behead the criminals, or the criminals will behead the peasants.

I have a feeling there are some guillotines literally being stored around here somewhere for our future.
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 09:54 PM
Response to Reply #12
15. so what
there will always be people who want to treat others badly. that's just the way of the world. I'm not going to go around in fear of some powers-that-may-be and I really don't care if the "new world order" is the plat du jour.

Ghandi showed that poor people can bring down an entire empire.

It's far better to act than to react - far better to develop affiliations with people who can help one another than to worry about what one power or another will do.

Roosevelt was right: you have nothing to fear but fear itself. Fear defeats you before you ever get started.

So, I really do not give a flying fuck if someone has a "guillotine" with my name on it. I might pass away in my sleep tomorrow too, but I cannot live my life with that as a plan for the future.

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Warren Stupidity Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Dec-05-08 07:36 AM
Response to Original message
8. It would actually be Capitalism 3.0
2.0 was ushered in after the crash and subsequent debacle of '29.
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