Do Markets need Regulation?
You see everyone calling for market regulation, with ideas like the market is just so evil, so we need the government to regulate them. I just cannot even know from where to start, because these kind of ideas are just so stupid that it leaves me shocked.
Well first of all, we need to understand what the market is. It basically has 2 broad definitions, which are actually the same, only viewed from different perspectives, implying the same thing below the surface, yet above the surface it signals different things to different people, mostly resulting from a lack of understanding.
First Definition: The physical place
According to Merriam-Webster the market is:
- a place where products are bought and sold
- a store where foods and often household items are sold
- an area (such as a country or part of a country) where a product or service can be sold
I assume 90% of the people have this in their mind when they hear the word market, and it's granted a reasonable definition in the minds of the less educated people. When people hear the word market they all think of the nasty retail chains how evil they are and this and that..., of course everyone thinks of their Supermarket and it fills them up with irrational hatred and envy.
Second Definition: The exchange and pricing mechanism
According to The Free Dictionary the market is:
A system of exchange in which prices are determined by the interaction of multiple, competing buyers and sellers
Or just how my economics teacher used to say back in the day:
The place where demand meets supply
It is basically just a place where a transaction or exchange happens, using the very efficient pricing mechanisms of auctioning or bidding, and the price will be set in accordance to the supply/demand balance.
Now this definition is more subtle, and people lacking economic knowledge can't really figure out how trading works and how prices are set. They just think that the evil capitalists set the prices unfairly, whatever that word means, and exploit the poor customers. (Beware of the highlighted words, they are the tools of choice for the propagandists, pushing you into emotional rage instead of rational minded debate)
Regulation
2nd Definition
Now if people understand the 2nd definition, which is really the core of trading and transacting (even gifts which are for 0 cost), then they are pure lunatic idiots if they advocate for regulating that.
It is just people transacting voluntarily, being that selling you an orange, or gifting you salt, it's all a market basically.
Now if people really want to regulate that, then they are control freak lunatics. Why on earth does voluntary trade need to be regulated? The market is already efficient, the prices are always correct, because it's just voluntary people voluntarily determining the prices, in fact the word "determine" is not correct, since in no way there is a central authority, it's just people trading, and the price emerges as a result.
Regulating a voluntary market is like turning lovemaking into a rape, or peace into war, it is literally an assault on peace, by imposing laws that are always backed by violence (arrests, imprisonment, extorted taxes). If people support this, then their are either very evil or very stupid.
1st Definition
Of course probably people don't advocate for regulating the market structure, since everyone understands that voluntary transaction is good, and it's a form of friendship between people (giving gifts to your friends, or selling good products to customers to earn trust).
However I think when people want to "regulate the market", they imply to regulate the businesses, a.k.a the supermarkets, retails chains, grocery stores, etc...
But is there a difference really? What is the difference between the market as an exchange vs the market as a physical location, isn't the same? Of course it is. The grocery store is where the supply and the demand meets, the demand is the customer and the supply is the store itself.
What regulation does a store need? Are the prices not fair? Of course they are. That is how the market works. If the grocery prices high, that means that either the farmers produce less, or there are too many customers buying food, or similar things.
It is fair by default, that's how the market is, it might not be pretty, but that is reality. You cannot legislate reality away. If you think prices are unfair, you might wanna abolish sales taxes, GST, VAT or however it is named that is imposed by the Government.
What about wages? Well, it is still the same thing. If wages are low, due to the job market being over-saturated or less jobs available, that is not the markets fault. Salaries are always fair, because it reflects workers productivity. If a worker thinks he deserves more,then he should show his boss his full talent, and they will be glad to raise his salary, if he is really a valuable worker.
If he doesn't then he should go to another workplace, I am sure somebody will reward his talent if he is truly that good. But if he is not, then he should better start improving it, or look for other ways to make money. Crying and whining is not a solution, people should take their lives in their own hands. Legislating money into existence is illogical, a minimal wage distorts a perfectly fair market. It is not pretty that people earn little, but it's not the market's fault that they earn so little.
Maybe instead of watching silly youtube videos with cats all day and listening to pop music, they should read some investment books or improve their talents, and they might make a little bit more money, but that is just my crazy wild idea, of course being lazy and crying to the government for welfare is more comfortable.
You say:
And then:
I highlited the words in the second quote for you. While I understand your sentiment, I find that you tell that it is propagandists that want to control you with emotions, and then do the same thing a bit weird.
I also would like to point out a contradiction. You say "markets are always correct", and then you say that the price "emerges". Thing is, the market price is something that emerges over time. It isn't always magically always "correct" at any given point in time, or we wouldn't have the term "correction", to describe price movement when "the market" "thinks" that something is either overvalued or undervalued. If the market was always correct, then it would be impossible to "play the market", by betting on something being undervalued, or overvalued. And what about terms like "market efficiency"?
For market to be always correct, every actor participating in the market would need to have all the information to make rational decisions. However, individual actors do not have this information, and most of them being humans without complete information are not always rational.
What could use regulation is the amount of information being disclosed to the actors of the market. Otherwise it cannot be said that they are participating voluntarily in 100% sense, since I feel that it requires a rational decision based on complete information.
Of course, for the current markets there is another term, that is required to complete the picture, and that term is risk, but you could probably tell me more about it, since I am not an economist, or a trader, I am learning the ropes, though.
Very good point, but it's a question of semantics. When I say the market is always correct I mean it, they are always correct, since it's the only way to objectify subjective values.
Now the question should be do the market's always reflect reality? And the answer to that is: absolutely no.
Indeed some market participants are not always up to the news, or over/underreact certain events, this makes the market temporarly inefficient, and leaves room for speculators to make money, and to correct that.
So the market is always correct in the sense that it's the only way to objectively measure a value, and whatever the price is, it is still more accurate, than if 1 person would pull a price out of his backside. Of course the size of the market, the liquidity is another issue. Obviously a bigger market is more accurate than a small one,or if there would be no central bank manipulation, markets would be much more accurate.
However it is still an efficient valuation system, much more efficient, than when the prices were set by communist comissions.
As for maximum accuracy, a huge liquid market, without central bank intervention, is a maximally efficient market.
An efficient market resembles a random walk, the more random the price is, the more efficient it is. You can use econometric tools to measure the efficiency of the market. I do that.
The problem with the "communist commissions", or rather "party committees", as that is what they were, is that they were distanced away from reality of the common people. Planned economy, or rather USSR like, is VERY good at doing rapid industrialization (and other large scale projects), but not so good at anything else. It does lack flexibility, and the feedback is lacking. Besides, they operated under pressure, and a lot of decisions including Nixon Shock, as well as Reagan policies, that resulted in our current predicament, we based on the fear of USSR overtaking the USA, don't you agree?
But after the events of the 2008 crisis, can you say that the market is much better? The situation in the banking sector is sooo distanced from reality that the results of the system are the same for common people. Oh, and this bit:
Would you be so kind to back those claims, please? I agree with your further points, that financial education is really important, and regret that I was so carefree that I started so late on it, apart from some idle curiosity that I've had for years.
By the way, the problem in USSR was not the "communist comissions", but that due to ideological pressure, the mathematical models used to do the planning were very simple. In fact during 60s there was a movement of digitizing all that, but sadly it lost to the hardliner faction. It is doubly a pity, because the only actuall example of planned economy based on cybernetic principles was a great success.
And the working example for such a system was in fact created in Chilie, during Aliende administration. Ever heard of Project Cybersyn? Do look it up, fascinating stuff! In fact, the same technology that we are using, as well as cybernetic principles it may be possible to achieve post scarcity society, now that solar and other alternative energy sources are efficient enough.
In my opinion, the problem in todays world is inefficiency in logistics, partially caused by the fact it is very profitable. :->
A lot of truth in this post but not many upvotes. People don't like to hear truth specially if they can recognize themselves in the post.
Indeed, but I rather tell the truth than to lie to people. I dont like lying , I think the truth in the end is more rewarding than lying to people.
Muy buen material lo que has publicado. Hermosas fotografías, me han dado ganas de consumir unas naranjas, Voy a comenzar a ahorrar para darme un gusto de consumir una fruta. Disculpe la ironía del precio. Me gusta lo que has publicado. Muchas Gracias
Thank you!
Hey, this is just a small request. But I would love to see your financial insight on the energy industry, more specifically on oil. I know the Saudis are burning through their reserves faster than their oil products. The Saudis are going to in debt by next two year. But do you see a new energy paradigm happening? Something away from the industrial and public use of oil, perhaps more solar?
Interesting ,I haven't paid much attention to the Oil industry lately, but I have heart some interesting things, I will write my next article about it, thanks for the request.
Here is my answer: https://steemit.com/money/@profitgenerator/the-oil-market-1-3
It is a 3 part series, since it's a broad subject with many subtle elements, but I will explain everything in the series.
Here is a trading strategy for Oil:
https://steemit.com/money/@profitgenerator/the-oil-market-2-3
Holy shit you took my request into consideration. Awesome!!!!!!
Of course, you have me some very good ideas with trading. So I thank you.