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Thread: Free Market Capitalism Incompatible With Nationalism

  1. #591
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    Quote Originally Posted by kuehnelt View Post
    Crusoe economics doesn't actually strand us on islands; analytical devices and economic perspectives don't actually atomize people. Economics helps you understand what causes what in an economy, it allows you to affirm or refute an assertion about these causes (like, prices have risen across the economy because sellers are conspiring to raise them), or an assertion about what effect some change to the economy would have (like, we can recover lower prices by jailing sellers who raise them).
    So right, but Oh! so wrong.

    Yes, models are analytical devices used to create an understanding of reality. And, yes, our perception of reality is a social construction, but on the individual level as well as on the collective. The metaphors and models we use to organize our sensory inputs and to create our understanding of reality will to a large extent determine our understanding of that objective reality.

    The standard models used in economics are very deceptive in that they, as models do, isolate certain aspects of interest while not addressing others. The Robinson model does a good job isolating optimization problems regarding saving and consumption and so on, no doubt about it, as does Bertrand and Cournot models with different forms of competition. But to base your understanding on these models is dangerous. If you use them to organize and make sense of your perceptions you will miss those aspects with which the models do not concern themselves.

    In game theoretic analysis of problems like these—problems concerning optimization under constraints and competition—as soon as the number of agents are three or more the main problem becomes the formation and operations of coalitions. And one very important aspect of such coalition building is how to keep certain parties out of them, because the more people that are let into a coalition the less will each of them receive in return.

    In this lies the great danger in relying on simple models of economic behaviour: that since you see yourself as an atomized individual you miss out on the coalition building and end up the odd man out, being taken advantage of by the other, more savvy, actors. Thus, certain actors are just thrilled to have you slave under simple economic models of one and two person games that does not address the more important aspects of the problem.

    So, yes, models can be useful, but they can also kill you even if they are perfectly correct in their description of the aspects that they address.

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    Quote Originally Posted by SwordOfTheVistula View Post
    Isn't it even more unlikely that a government of bureaucrats and elected officials can run a modern, complex, fast-changing economy?
    Oh, you do not understand. I am not talking about bureaucrats or politicians running the economy, I am talking about them organizing the framework within which the (relatively) free market can operate, e.g. by smoothing out consumption and providing financing for large and uncertain technological undertakings (like the Internet, which probably would not have seen the light of day if it were not for DARPA and the US government).

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