Laundering $800 Mil in Drug $, How Did HSBC Execs Avoid Jail?

[trish]

The collection of people who demand bread is effectively truncated by the price at which bread is sold. The higher the price the smaller the subcollection (i.e. the truncated collection) that "demands" it at that price. [If you imagine a graph of the derivative of the demand function relative to the price p, then the demand at price p is the area under the curve to the left of the vertical through p; i.e. the total area is truncated by the vertical through p].

It is often said by utopian libertarians that supply rises to meet demand, as if some sort of happy equilibrium is thereby attained. Rather, the most profitable price truncates demand and supply only rises only to meet the truncated demand. That's neither a system equilibrium nor is it always happy situation (especially in the case of necessary goods).

[an8150]

The collection of people who demand bread is effectively truncated by the price at which bread is sold. The higher the price the smaller the subcollection (i.e. the truncated collection) that "demands" it at that price. [If you imagine a graph of the derivative of the demand function relative to the price p, then the demand at price p is the area under the curve to the left of the vertical through p; i.e. the total area is truncated by the vertical through p].

It is often said by utopian libertarians that supply rises to meet demand, as if some sort of happy equilibrium is thereby attained. Rather, the most profitable price truncates demand and supply only rises only to meet the truncated demand. That's neither a system equilibrium nor is it always happy situation (especially in the case of necessary goods).

The snowy season apparently having now passed, I was given a free car snow scraper last weekend at the station where I bought petrol. A few weeks ago I suppose it would have retailed at about £9.99.

If I understand you correctly, your complaint is that a certain price may be too high for some to pay, and in the case of an essential like bread some people will go hungry.

The free market response is that prices are signals to the market. If 100 loafs of bread sell for £1 each then 100 people have £1 worth of value and the baker has £100 for his efforts. If there are are 20 people who couldn't afford the bread at £1, the baker has to calculate the value to him (risk/reward) of selling at, say, £0.90, in order to satisfy all 120 potential customers, against the possibility that another baker will enter the market and do the same, or similar, thereby nabbing all 120 bread purchasers.

Alternatively, let's say the baker made 120 loafs and tried to sell them for £1, but found only 100 customers at that price. Come the end of the day, with the bread approaching the point where he will either have to dump it, or sell it for less, he will, if he is rational, lower the price to the point where it can be afforded, even if that is only £0.10. Or he may give it away, so as not to have to store it. Either way, he now has more information with which to plan his price for the next day's batch.

We do not say that these or similar processes will inevitably happen in a free market. We merely say it is the most efficient system for meeting want by allocating resources, because in essence only 121 people are involved rather than the tens of millions who are prey to central planning. However this is a pragmatic argument and not the principled one most libertarians would deploy in favour of a free market.

[trish]

Yet what we actually see in the market is corporations underselling their competitors, buying them up, raiding their coffers and jacking the prices back up once they’ve captured the market. The work by Von Neumann and Oskar Morganstern which I referenced in an earlier post (The Theory of Games and Economic Behavior) establishes (with near mathematical certainty) that this observed behavior is exactly what should be expected in an unregulated, poorly regulated or under-regulated market. Through coalitions, mergers and raids, a game that began with a multitude of rational players will be reduced to handful of players who rule effective market monopolies. Without regulatory devices in place to break them up (or better yet, prevent their formation), the quaint equilibrium which you depict is never realized.

[an8150]

Yet what we actually see in the market is corporations underselling their competitors, buying them up, raiding their coffers and jacking the prices back up once they’ve captured the market. The work by Von Neumann and Oskar Morganstern which I referenced in an earlier post (The Theory of Games and Economic Behavior) establishes (with near mathematical certainty) that this observed behavior is exactly what should be expected in an unregulated, poorly regulated or under-regulated market. Through coalitions, mergers and raids, a game that began with a multitude of rational players will be reduced to handful of players who rule effective market monopolies. Without regulatory devices in place to break them up (or better yet, prevent their formation), the quaint equilibrium which you depict is never realized.

Although it is a generalisation, I wouldn't dispute your characterisation of some corporations' behaviour, but I say that regulations suit the Big Boys down to the ground, because they're the ones who can afford compliance departments and lawyers to make sure they keep their noses clean. Regulations create barriers to entry which make it more difficult for other participants to enter the market to break up the monopolistic tendencies of the Big Boys. I've said before, and I'll say it again, in the world in which we live, many and perhaps most business people are not free marketeers but, in a regulated environment, they act rationally to protect their own interests. The most efficient mechanism to keep them on their toes is the constant threat someone else will come along and do the same thing, better and cheaper. The purest competition.

It's a long time since I studied Game Theory, so I won't bite off more than I can chew. Suffice to say, we have a regulated market. In almost everything, in your country and in mine. Hell, I gather in the US nowadays you can't even sell lemonade outside your house without a permit (was it not, incidentally, for a similar obscenity that the Arab Spring got going?). And yet the position you describe above still obtains. So we're not in that position of overbearing corporations protecting their own positions because of a free market. It may be that we're in that position because the regulation currently is inadequate in terms of solving these problems but, aside from the implications for liberty of ever-increasing regulation, it seems to me you're chasing a fool's gold, because in a land of laws, which both our countries still purport to be, the regulators will always be playing catch-up, introducing new regulations to deal with the latest deemed abuses where the old regulations are powerless. The only way around this, and this is in fact increasingly what is happening, is to frame legislation in terms of its aspirations, leaving legal compliance a matter for quasi-official 'guidance' the result of which is that, in point of fact, we are no longer a land of laws so much as we are governed arbitrarily according to bureaucratic whim. So I suppose we always get back to the principle of the thing: are we, or are we not to be dictated to?

Where, btw, do you stand on government monopolies?

[trish]

You have several times alluded to a problem with which I sympathize. Unlike systems composed of inanimate parts (like a steam engine which is regulated by a governor) nations and markets are systems composed of people and the regulators are also people. Too often regulators fail in their duties, either because they have misunderstood the situation over which they were to preside, they overcompensated or undercompensated or they are just plain corrupt. The same complaint can be made of the legislators who write regulations into law. The law is often written by committees who suffer under a misunderstanding, or a regulation can be the result of a poor compromise or it might simply written by parties with an interest in subverting the purpose of the regulation. All these are valid complaints. But a demonstration that regulation is difficult, can be corrupted and needs constant monitoring is not a demonstration that unregulated markets will fairly and efficiently distribute goods at reasonable prices to all who require them. For that we need a separate proof that demonstrates exactly those libertarian claims.

The failings alluded to above are also failings of self-rule in general. We are not unacquainted with the necessity for checks and balance in democratic government, and we are not unacquainted with the failings of the system of checks and balances and the need for constant monitoring, yet we do not take this to be a reason to abandon self-rule in the form of a democratic republic.

Not sure exactly where I stand on government monopolies. Depends on how they're defined, implemented, the services they provide etc. In the U.S. various government entities run state and national parks, wetlands etc. and most citizens are pretty happy with the service. We understand ourselves to be custodians of those lands and we care for them through governance. Of course the lumber industry and others would prefer free reign in those areas. I'm not sure if that counts as a government monopoly, but if it does I think it works fine. The interstate highway system is another example that I and others (imo) are happy with (if you want to call it a government monopoly). At one time telephone communication in the U.S. was a public/private monopoly. Bell had one of the best research institutions in the world until the monopoly was broken up. When it existed technology was such that it made sense to have one entity coordinate all national service. But with advanced technology those services can be rendered on a individual bases by different entities. The moral being a monopoly might make sense at one stage of an evolving industry and not at another stage.

[an8150]

You have several times alluded to a problem with which I sympathize. Unlike systems composed of inanimate parts (like a steam engine which is regulated by a governor) nations and markets are systems composed of people and the regulators are also people. Too often regulators fail in their duties, either because they have misunderstood the situation over which they were to preside, they overcompensated or undercompensated or they are just plain corrupt. The same complaint can be made of the legislators who write regulations into law. The law is often written by committees who suffer under a misunderstanding, or a regulation can be the result of a poor compromise or it might simply written by parties with an interest in subverting the purpose of the regulation. All these are valid complaints. But a demonstration that regulation is difficult, can be corrupted and needs constant monitoring is not a demonstration that unregulated markets will fairly [you and I probably mean different things by this word: to me, it is a process; you, I suspect, it is an outcome] and efficiently distribute goods at reasonable prices [reasonable? the value of something is what someone is willing to pay for it. Intervention by planners to set a 'reasonable' or 'fair' price will warp the market and make it less efficient] to all who require them. For that we need a separate proof that demonstrates exactly those libertarian claims [the claims you say we make are, I think, rather different from those we actually make, because we use different definitions, but it is certainly logically correct to say that the failure of a particular regulated system no more means that a free market will succeed than it means greater and/or different regulation will succeed, although when the failures of regulation develop a family tree we might begin to suspect that those failures are a feature not a glitch].

The failings alluded to above are also failings of self-rule in general [but regulation is not self-rule, it is the opposite of self-rule]. We are not unacquainted with the necessity for checks and balance in democratic government, and we are not unacquainted with the failings of the system of checks and balances and the need for constant monitoring, yet we do not take this to be a reason to abandon self-rule in the form of a democratic republic [quis custodiet ipsos custodes? I have never heard an answer, much less a satisfactory answer, to this question].

Not sure exactly where I stand on government monopolies. Depends on how they're defined, implemented, the services they provide etc. In the U.S. various government entities run state and national parks, wetlands etc. and most citizens are pretty happy with the service. We understand ourselves to be custodians of those lands and we care for them through governance. Of course the lumber industry and others would prefer free reign in those areas. I'm not sure if that counts as a government monopoly, but if it does I think it works fine. The interstate highway system is another example that I and others (imo) are happy with (if you want to call it a government monopoly). At one time telephone communication in the U.S. was a public/private monopoly. Bell had one of the best research institutions in the world until the monopoly was broken up. When it existed technology was such that it made sense to have one entity coordinate all national service. But with advanced technology those services can be rendered on a individual bases by different entities. The moral being a monopoly might make sense at one stage of an evolving industry and not at another stage.

[so a monopoly is ok if people like it, for whatever reason? thus a company selling chocolate bars at an undervalue in order to drive out a new competitor is desirable if its chocolate bars remain popular?]

[Stavros]

an8150

Perhaps we can agree that communism is the natural condition of mankind [you mean that when Ugg and Grunt first crawled out of the primordial ooze feeling peckish and Ugg snared a frog for dinner, he noticed Grunt looking at him enviously and was confronted by the choice of sharing or not, realising that if he didn't then Grunt might try and take the frog from him by force, or that Grunt might starve and then he'd be left alone, or that by sharing on this occasion then Grunt might share the fruits of his labour subsequently, or that by sharing neither would have enough and they would both starve? Well the frog is Ugg's property. It is the fruit of his labour, although there is no rule of law to uphold property rights, and the land on which it was found has presumably not been claimed by Ugg. So I suppose I'd say that at this stage, we have a sort of hybrid, where property is literally up for grabs, but sharing, or perhaps bartering (part of a frog now, in the hope of a return favour later) is on the radar; but what if they both find a frog? if their frogs are of equal plumpness then all we have is the acquisition of property rights by each, absent the application of force by either to denude the other of his frog. The scenario can be sliced and diced a number of ways, but I rather doubt that Ugg, if he is initially the most successful scavenger, is going for any length of time to apply the principle of 'from each according to his abilities, to each according to his needs'],...[everything belongs to everyone? so if we were in the same room together right now, and I walked over to you and started to remove your watch and car keys, you wouldn't stop me?].

I am puzzled by your ignorance, as you do reveal yourself to have a sound intellectual background -there is a wealth of evidence on the lives of others for whom private property has little or no meaning, not all of them pre-literate 'stone age' tribes in the Amazon basin -island communities in the South Pacific were led astray/corrupted by missionaries, merchants and traders, by the military -yet the evidence shows they did not covet belongings and shared -I was even told by someone from Tonga a few years ago that they still help each other to other peoples things -cigarettes, to take one trivial example. In the Middle East, there was a mis-conception by early European and American travellers who complained they were being robbed by the Bedouin when the bedouin merely took what they believed was theirs, not sharing the European concept of private property -even the rustling of sheep/horses/goats/camels is seen as part of economic recycling rather than theft. As in A hustles goats from B, C hustles goats from B, A hustles goats from C... Marx was not the first to argue that capitalism has turned everything into a commodity that can be bought and sold, and which must therefore have an owner, but he did describe in withering detail how men and women who had once owned their own tools and even in the harsh conditions of feudal production had their own plot of land to farm, end up centuries later owing nothing, tied to a machine performing tasks that could be and these days often are being performed by robots. The point being that it was difficult for merchants and traders to deal with non-capitalist societies until they integrated them into the 'modern world system' to borrow Wallerstein's term -in some cases the local people were exploited by traders precisely because the concept of ownership was not strong, and barter appeared to be a good deal; this seems both the positive and negavtive pivot on which early relations between traders and first nations in North America turned, until the only 'solution' to people who did not want to become part of a market-led society was genocide.

I don't wear a watch, and would not be pleased if you entered my home helped yourself to the things I value most, but that is not what the debate on private property is concerned with.

[trish]

[so a monopoly is ok if people like it, for whatever reason? thus a company selling chocolate bars at an undervalue in order to drive out a new competitor is desirable if its chocolate bars remain popular?]

what the monopoles I listed have in common is not that people liked them but that the people run them. National parks, the interstate highway system, for example, are not out to make a profit. We regard their maintenance as our duty and we maintain them through governance.

[trish]

Regulation is indeed self-rule when it is legislated into law by a democratic republic.

[buttslinger]

This is old news.