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sábado, 13 de febrero de 2016

A comment

A propósito del post Do Economists Actually Believe “Greed is Good”?

I think important to distinguish between interactions in competitive markets (as an "ideal") where individuals acting selfishly cannot damage anyone and very very low levels of cooperation/restraining the pursuit of your own interest are needed (just refrain from using violence) and interactions among individuals in any other setting, mostly within groups and between groups of individuals.

In the market exchange setting, the benefits of trade (especialization, division of labor) can be achieved easily: do whatever suits you but refrain from using violence. Thats why Gauthier says that the market place is "moral free". You do not need to restrain yourself or take in consideration the interests of the counterparty in the market. He can take care of himself and you do not have any way to cause him any damage since, by definition, in a competitive market you are powerless as he is. The only problem you have is to solve the zero-sum game of dividing the gains of trade, i.e., the surplus generated by every transaction in the market. No ethics, no moral rules needed except Refrain from violence! If you use violence, this is not a market exchange anymore. This is conquest. War, as Turchin has explained. Unfortunately, we do not enjoy from the blessing of complete markets for every input or output an individual can produce.

In this latter setting (group interactions), the goal of the group is to maximize production by taking advantage of economies of scale, specialization and risk protection. If several members within a group act selfishly, these goals cannot be achieved. And if the group is competing with other groups for the same resources, the full-of-selfish-members group will be destroyed by the other. All this is old hat for Turchin and almost everyone. Therefore, you need morals to make group production sustainable. You need the golden rule to be accepted and applied by all members of the group.

Firms are not individuals acting in the market setting (they could be, but not yet). They are groups of individuals producing goods to be exchanged in the market. In order to maximize production (market prices tell the firm - the group - what to produce and how to do it) members of the firm - stakeholders - must cooperate and act morally - golden rule - in order to succeed, i.e. to maximize production. The reason why is the following. Inside the firm, there are not market-exchanges. There are long term relationships where the competitive forces that select for the rational-selfish individual in the market setting are not present, or at least, not with the same intensity. But firms  are neither bands of hunter-gatherers. Stakeholders can exit the firm and join another firm at a relatively low cost. A hunter-gatherer has high exit costs to join another band. Therefore, in order to sustain cooperation inside the firm, you need less of a moral behaviour than you need in order to keep the hunters-gatherers band toghether and succesful.

This schizophrenia between market settings (behave as a perfect Gekko) and group-firm settings (behave according to the golden rule) makes all of us puzzling because markets cover more and more interactions among humans and they work increasingly well. But they do not cover all our lives, neither all our desires and, worse, it seems that markets do not work at all in some realms i.e., finance. We should stop mingling capitalism and finance. Financial markets do not work at all as markets of products or services do. After 5000 years we are not still able to control financial transactions good enough to avoid the economic crisis that they periodically cause.

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