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Hypothetical economic system Opinions wanted
- Thread starter slider123456
- Start date
Excellent Commentary Mercor
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Mercor wrote....
Debt is the key.
Capital exist only to help allocate resources.
If debt was not allowed the capital requirments for projects would be too large for the investors to share.
it would also reduce the overall R&D and non- profit producing research
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There would be two forms of finance....
Local banks.....banks loan on a discounted basis....and are local so that good management is more likely.....
Electronic Stock Exchange....make nonobligatory non interest investments.....in hopefully worthwhile projects.....
Research funding/allocation does not change.....but must have merit.....
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.........................................................................................
Mercor wrote....
Debt is the key.
Capital exist only to help allocate resources.
If debt was not allowed the capital requirments for projects would be too large for the investors to share.
it would also reduce the overall R&D and non- profit producing research
........................................................................................
There would be two forms of finance....
Local banks.....banks loan on a discounted basis....and are local so that good management is more likely.....
Electronic Stock Exchange....make nonobligatory non interest investments.....in hopefully worthwhile projects.....
Research funding/allocation does not change.....but must have merit.....
............................................................................................
Quote from Xuanxue:
Quotes from daddyeaux:
Capitalism is dependent on individual responsibility.
Capitalism is dependent on weak-willed, under-educated, idealogues and politicians overlooking the lack of corporate responsibility to line their pockets with kick-backs and campaign contributions.
Democracy is dependent on vigilance.
Democracy depends on en masse blissful ignorance. It fails when the populace finds they're too complacent to do anything about being used, abused, and lied to.
Marxism is dependent on surrender of the masses.
Precisely what we're on about. It's called Anarcho-Capitalism, and it's here to stay.
Anarcho-Capitalism is on the complete opposite end of the scale from where this country is now. If you must use labels corporate fascism would probably be much closer to reality.
You can't blame capitalism when there are no truly free markets in this country. Once government gets involved in regulating business power becomes available to buy instead of through merit.
I agree with Libertad that the internet has the power to save the planet from corrupt politicians. But that will end if politicians start regulating the internet and passing more and more restrictive laws of what you can and can not do.
The internet can be viewed as one of the greatest free-market experiments of all time. In one decade it has gone from nothing to perhaps one of the most valuable parts of modern society.
Imagine what would happen if government could actually work in the same way. The internet is really just a thin layer of rules and a platform that allows people the freedom to come up with their own ways of utilizing it productively.
There is no one size fits all and smaller, more local government would be a much superior to what exists today all over the world.
The internet can be viewed as one of the greatest free-market experiments of all time. In one decade it has gone from nothing to perhaps one of the most valuable parts of modern society.
Imagine what would happen if government could actually work in the same way. The internet is really just a thin layer of rules and a platform that allows people the freedom to come up with their own ways of utilizing it productively.
There is no one size fits all and smaller, more local government would be a much superior to what exists today all over the world.
Quote from Mercor:
Debt is the key.
Capital exist only to help allocate resources.
If debt was not allowed the capital requirments for projects would be too large for the investors to share.
it would also reduce the overall R&D and non- profit producing research.
I do not believe this to be true and in fact debt is the problem. The money that comes from banks originally belongs to working class citizens who put it there. What I am proposing is a basic cut out of the middle man the banks which does far more harm to our economy than good. Let free market factors decide where people invest there money in order to reap benefits from their dividends.
Our current economy has 2 basic and inescapable problems.
1)It is based on waves of debt each succeeding wave needed to pay of the previous wave and increasing forever. In a closed system this is easy to understand. If I lend someone a $100 and charge 5% interest he will never be able to pay me the $105 unless I make him another loan again with interest. Their are mitigating factors for this outside of a closed system such as exporting products to make up the difference until the importing country succumbs to the same waves of debt and stop importing.
2) the other problem which has the same consequences is the A+B theorem which shows that theere is not enough money to buy the products we create. Again in a closed system say that there is a car manufacturer who has 10 employees. They get $1000 dollars per car they create and the company then puts10 cars for sale for $2000 each. Their is $20 000 dollars in merchandise but only $5000 to purchase them. The difference has to come from somewhere outside the system by exporting products and "balancing" the system or by debt. If money does not come in from exports or loans are not given there is not enough money to buy products so they sit on the shelves and lead to downsizing and unemployment.
In the current economic system debt is the driver of the economy but the inevitable collapses that will occur can not be put off indefinately and will occur from time to time such as the great depression.
Quote from slider123456:
I do not believe this to be true and in fact debt is the problem. The money that comes from banks originally belongs to working class citizens who put it there. What I am proposing is a basic cut out of the middle man the banks which does far more harm to our economy than good.
I think your belief that bank == the middle man is faulty. In many ways, banks function more as a conduit for risk-pooling rather than just intermediation. Think about it this way: individuals dont' have the time or the expertise to diversify their investments across many different ventures such that the risk to one default is small. Banks, on the other hand, can. Through specialization as well as risk tiering (the bank's own capital is the first piece suspectible to losses [and in the absense of depositor insurance] and the depositers' are the last-to-lose piece). This waterfalling of losses cannot be constructed without a risk pooling entity like a bank.
Moreover, I take issue with your notion that banks do more harm than good. We can readily see that through a web of regulations a perverse web of disincentives have created some problems, it's hard to imagine how modern capital allocation can work effectively without banks.
For example, assume you are really good at making Wedget A. In fact, you are the best and the world is willing to pay you for Wedget A. You grow rich. However, you now have to decide: you can continue to make Wedget A, or you can spend time working on your investments so that you don't lose your wealth due to inflation or opportunity cost. You'll have to fly around and interview different firms and working on various asset allocation decisions. However, you aren't very good at investing (or rather, you are much much better at making Wedget A). In a world without banks (and asset managers, etc), you will have to forgo part of your speciality; overall, society losses from the lost productivity;
Moreover, under your proposed system of bankruptcy insurance for investors, incentives will be as such that everyone will take very high risk ventures: heads, shareholder wins, tail - the population losses.
Not to mention everyone will get married (if only on paper) the minute they are allowed to do so to maximize their "household" share of the economy.
Quote from sjfan:
I think your belief that bank == the middle man is faulty. In many ways, banks function more as a conduit for risk-pooling rather than just intermediation. Think about it this way: individuals dont' have the time or the expertise to diversify their investments across many different ventures such that the risk to one default is small. Banks, on the other hand, can. Through specialization as well as risk tiering (the bank's own capital is the first piece suspectible to losses [and in the absense of depositor insurance] and the depositers' are the last-to-lose piece). This waterfalling of losses cannot be constructed without a risk pooling entity like a bank.
Moreover, I take issue with your notion that banks do more harm than good. We can readily see that through a web of regulations a perverse web of disincentives have created some problems, it's hard to imagine how modern capital allocation can work effectively without banks.
For example, assume you are really good at making Wedget A. In fact, you are the best and the world is willing to pay you for Wedget A. You grow rich. However, you now have to decide: you can continue to make Wedget A, or you can spend time working on your investments so that you don't lose your wealth due to inflation or opportunity cost. You'll have to fly around and interview different firms and working on various asset allocation decisions. However, you aren't very good at investing (or rather, you are much much better at making Wedget A). In a world without banks (and asset managers, etc), you will have to forgo part of your speciality; overall, society losses from the lost productivity;
Moreover, under your proposed system of bankruptcy insurance for investors, incentives will be as such that everyone will take very high risk ventures: heads, shareholder wins, tail - the population losses.
Not to mention everyone will get married (if only on paper) the minute they are allowed to do so to maximize their "household" share of the economy.
I do not take exception to the resource pooling and the minimization of risk that that entails but this could be better carried out by different mutual fund like carrying institutions and in effect would be an investment in the entire country with dividends coming from the increased efficiencies of that country which would inevitably occur when everyone profited from those efficiencies.
The interest and ever increasing debt aspect in point 1 and the imbalance between spending money and purchasable merchandise in point 2 is the part that does not work and in the long run is unsustainable.
Quote from slider123456:
I do not take exception to the resource pooling and the minimization of risk that that entails but this could be better carried out by different mutual fund like carrying institutions and in effect would be an investment in the entire country with dividends coming from the increased efficiencies of that country which would inevitably occur when everyone profited from those efficiencies.
The interest and ever increasing debt aspect in point 1 and the imbalance between spending money and purchasable merchandise in point 2 is the part that does not work and in the long run is unsustainable.
Really? Please show why it does not work.
It's easy to argue that consumer debt is indeed problematic because of the perverse incentive structure created by various government sponsored insurance programs; However, debt is one of the most fundamental form of financing.
Again, the problem is with moral hazard created by poor regulations. Under your scheme, your state sponsored bankruptcy insurance is FAR more problematic than the current consumer debt regime.
Oh. Don't forget: consumer debt does not equal to corporate debt;