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View Diary: Time to resurrect an old idea: Economic Rent (107 comments)

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  •  healthy market. (3+ / 0-)
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    arendt, Randtntx, potatohead

    I like you formulation of the concept of a "healthy" market.  I think I'll start using that with only one minor change.  Instead of healthy/unhealthy, I'll use the terms functioning and broken.  I like to frame the market as a machine and not a natural biology.  Framing it as a machine means that it is a human construct that can be broken and must be fixed by humans, but a natural biology feeds the conservative market fundamentalists notion that markets spontaneously evolve into fair outcomes.

    Our Dime Understanding the U.S. Budget

    by maddogg on Mon Oct 24, 2011 at 07:16:26 PM PDT

    [ Parent ]

    •  Oh I completely agree. Great call. (0+ / 0-)

      I'll do so as well, and we shall see where it goes.

      And it is a construct, though it could also be characterized as an artifact too.  Best ignore that for ordinary people though.  I've never had good luck with that.

      ***Be Excellent To One Another***

      by potatohead on Tue Oct 25, 2011 at 10:10:03 AM PDT

      [ Parent ]

    •  I don't think (1+ / 0-)
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      it's necessary to frame the market as a machine in order to claim that it is dysfunctional and not adaptive. Also if we do frame it as a machine, the conservatives will only come back with the organic formulation, saying we don't know what the market is. However, I think a couple of things can be said about this issue.

      First, Adam Smith did formulate the idea of the market as a mechanism. He used what was essentially a Newtonian model

      Second, there are modern formulations of economic systems and the market that view them as complex adaptive systems. Some of the most advanced work in economics views the market that way, and also uses that kind of formulation to deny the validity of Newtonian equilibrium theory in economics. CAS theory as applied to economics emphasizes the possibility of feed forward economic processes that are inconsistent with the key idea that free markets will produce stable equilibria, and that instead recognize the possibility of emergent phenomena, including bubbles, that neo-classical economics doesn't easily deal with.

      Third, there is research in CAS theory that emphasizes the possibility of dysfunctional transformations of complex adaptive systems to less functional or dysfunctional states. Such systems are supposed to be maintained at "the edge of chaos" as the systems interact with their environments. But they are always threatened by the possibility that they will not be able to maintain themselves at the edge of chaos and will either freeze into a near-mechanical non-adaptive State on one side of the edge; or that they will de-evolve into chaotic dynamics on the other side of the edge.

      The basic idea here is that self-organization among the interacting components of a complex adaptive system has to invent new emergent phenomena that maintains the system at the edge of chaos; e.g. a healthy market, actively maintained by the continuous actions of its participants, without any implications that these actions and interactions are limited to those we normally recognize as economic. If, however, these interactions result in feed-forward chaotic dynamics, the system can be beset by uncontrollable and unsustainable chaotic dynamics that disrupts and/or destroys the CAS.

      On the other hand, the interactions can also result in the decline of repression of self-organization, and the creation of a dynamic that approximates a machine with limited ability to adapt to changes in its environment. When that happens the  market that results will look and act like a machine whose functionality will decay over time as conditions change and whose continued existence will depend on top-down cybernetic controls; but not bottom-up invention and adaptation.

      All this is by way of saying, that whether machine or organic framings are used to talk about this problem, economies with large rentier and/or monopolistic components can be attacked as dysfunctional and maladaptive, and that it's not true that an organic/CAS analogy necessarily leads to a justification for conservative prescriptions. There are broken CAses too; and these are markets that have moved away from the edge of chaos and that are either going crazy with uncontrollable bubbles, or are frozen through controls imposed by rentiers and monopolists.

      Finally, congratulations on a great post maddog! It's very well-written and provides very good background for bringing rent-seeking front and center again.

      Also, btw, a number of commenters have called attention to Michael Hudson's work. It seems worthwhile to point out that Michael is one of the members of the premier center of new economic thinking in the world today -- the University of Missouri at Kansas City's economics department. Its blog is at  

      Bill Black, Randy Wray, Stephanie Kelton, and other leading economists that are part of the Modern Monetary Theory (MMT) school of thought, or closely associated with the department, including Michael Hudson, blog there.

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