Utah Free Press

By Richard Okelberry (Note: This Essay was originally published at KVNU’s, For the People Blog.)

This is a continuation of the post by Jason Williams; The Morality of Taxation.  The topic was introduced by Michael Reis, who I must say sounded great when he helped co-host the show the other night.  I think he would make a great regular fill-in on the show.

While I have decided since becoming a candidate for City Council in River Heights to abdicate my authorship rights here at KVNU during the election, out of fairness to my competition, I do plan on continuing in the various discussions and want to continue this conversation by top posting it.  

If you want to come up to speed on this conversation please link back to the original post by Jason, The Morality of Taxation.

 Here is my response to the last several posts by Michael Reis:

 _________________________________________

Michael,

First, I want to step back a bit and address a few past statements that I wasn’t able to address in detail. 

“Thanks for the links, Rich! The complex networking stuff is pretty fascinating. I’m definitely going to look it over more. Seems similar to the chaos theory behavioral stuff I got into a few years ago.

Anyway…

“It’s time for us to take this debate out of the realm of speculation, unproven theory and anecdotal rhetoric.” – Rich Okelberry

… and into the realm of mathematical theory? That’s fine. It’s no more reliable than speculation, unproven theory and anecdotal rhetoric, but we can certainly “go there”, as it were.” – Michael Reis

Economists spend the far majority of their time trying to make predictions about the future.  I had a friend some years ago who was an actuary.  His job was to look into his crystal ball of numbers and make the most accurate predictions possible.  Does this mean that his predictions are 100% accurate?  No!  Are they more accurate than making even the most educated guess?  Always!  This is why Insurance companies have become incredibly reliant on actuarial science rather than relying on the best guess approach.  It ensures their bottom line while allowing them to offer their service at the lowest possible price.  It’s kind of like having a card counter at your side at a blackjack table.  You’re still gambling but at least now you are playing the odds.

To say that mathematical theory is no more reliable than speculation, unproven theory and anecdotal rhetoric is a statement laced with dogmatism.  In fact in all of science mathematic theory enjoys the added benefit of not having to rely so heavily on provable real world experiments because math simply doesn’t lie but can only be misinterpreted. 

History is full of critics of science who have argued against observation that the earth was flat or the center of the universe or that illness was the product of demons or bad spirits.  While it is understandable how people in our age might be skeptical of science, especially in light of its abuse by Man Made Global Warming advocates, it is still important that we recognize the advantages of good solid scientific research and mathematical theory.

A perfect example of what I am speaking of comes from one of the greatest minds the world has ever seen, Einstein.  While Einstein’s creative mind gave us some of the greatest discoveries in science, he allowed himself to become obsessed by his own dogmatic biases.  Einstein simply could not accept the concept of the spawning of multiple-parallel universes as predicted by quantum theory.  As such he spent the last 20 years of his career in denial, trying to develop his Unified field theory, a theory that would unify the separate theories governing the fundamental forces between elementary particles.  Today, the most promising theory in this field is called M-Theory.  M-Theory has shown great promise in unifying the various competing string theories and has given us the first mathematical look into a pre-big bang existence.  While this is still theory, Einstein would have rejected this notion out of principal and the desire to describe the world as he wanted it to be rather than how it likely is.  He refused to follow the math to his demise.

•  “You say that the idea that uncontrolled free markets ultimately leads to monopolies is a myth.” – Rich Okelberry

Yes, I did and yes, it is.

• “So I challenge you to prove it.” – Rich Okelberry

Find me a free-market monopoly. Go ahead, I’ll wait… In fact, I challenge you to find some examples from the semi-free market we’ve had in this country, and I’ll show you how they are always propped up or created by governmental intervention.

The only way to achieve a monopoly in a free market is to provide the best perceived value for the lowest perceived cost consistently to your customers. If you can do that, then you DESERVE to be a monopoly, and there’s no harm in it. The second you start to attempt price gouging or sacrificing quality, you open yourself up to competition, and it won’t take long for a few new businesses to take up that mantle. More realistically, however, you’ll never see a business or product that is all things to all people, so you’ll always see competition.

I am a little confused, you say that monopolies in a free market system is a myth then you go on to describe how they could be formed in a free-market system.  Further more you seem to support monopolies as a deserving aspiration.  Let’s stop for just a second and look at the biggest example of a Monopoly; Communism.  Within Communism, all the means of production are controlled by a central governing authority or board of directors if you like.  This is the very essence of what a true Monopoly is. 

Of course for our discussion we must look at the classic view of a monopoly.  A monopoly is not just having a corner on the market but using that corner to discourage the very competition that you claim would keep monopolies from occurring.  It is this discouragement of competion that is illegal under anti-trust and anti-monopoly legislation.  Say I make Widgets.  In fact I make such a good widget that everyone wants to buy it and I make loads of money and push most of my competition out of business.  Sounds fair right?  Now say I take that huge stash and begin buying up all the commodities that are used to make those widgets so that my competition simply doesn’t have any raw materials to produce a competing product.  Now say I take my ever increasing wealth to also take control of all distribution through kickbacks to various retailers.  Now any competition that might remain has no possible way of even bringing their product to market. 

Once I have complete control over my market, I completely lose any incentive to improve my product and the only thing helping to hold prices down is the consumer’s willingness to pay which really is no biggy since each market usually has such a cap naturally.  Effectively, I have broken down everything that is good about a competitive free market and essentially eliminated it in my industry.  Of course the cluster coefficient says that I won’t simply stop there.  I will now use my huge wealth and influence to take over a Buggles market and begin doing the same thing.  Eventually, there are only a handful of conglomerates that hold sway over the vast majority of  the profitable markets and the basic freedoms that consumers once had have been eliminated.  Also, consider that even labor now has lost its market power.  With only a few companies to go and work for, I can now start squeezing profits out of my labor force since they have no where else to go if I do. 

While I have gleamed that you have the belief that economics and government are mutually exclusive concepts, I believe that they are instead forever intertwined products of each other.  Therefore your call for an example of a true Free-Market Monopoly devoid of government intervention is impossible.  It is impossible because there is no such thing as an economic system devoid of governance, whether it be the governance of a small community, the board of directors in a large corporation or a highly organized representative democracy like we have today.

So I will challenge you back and ask you to give one historical example of a large society where the government and economic systems are completely separate.  They don’t exist because they are simply arms of the same entity. Due to the natural compulsion we call human nature, governments in their various forms ALWAYS form.  This formation is caused by the innate need for humans as social creatures to feel secure.  By security I mean the basics: protection from physical harm, sustenance and the opportunity to reproduce. 

Economics and its governance is merely a construct that is a response to these basic security needs.  Because economics is simply an agreed set of agreed rules by which all of the members of a community agree to follow, it then gives way to governance as an enforcement arm of the community.  In fact governance is the basis for civilized society since it helps mitigate the detrimental effects of a pure survival of the fittest free market system. 

Scientist involved in researching Fuzzy Logic have long seen the effects of Darwinian Survival of the fittest in their models and experiments.  One such experiment pitted two groups of small robots set to the task of gathering blocks.  The fuzzy routines were simple and designed to simulate the way ants work as a group.  To the surprise of the researchers, in short order the robots began essentially attacking and obstructing their opponents to gain an advantage over their competition.  This effect in fuzzy genetic algorithms (GAs) has been regularly observed by scientists in this field and seems to point to an underwritten mathematical law that is not observable in the original code.  It’s as if we have suddenly discovered a new law of physics that has always been there, is readily observable through out the natural world, yet not quite fully understood.  

• ” I can put before you a simple equation under the laws of Complex Networks that will repeatedly show that monopolies are the inevitable result of free markets without anti-trust safe guards. The effect is called Clustering and can be observed not just in economic systems but all forms of networks from genetics & evolutionary science, cosmology & astrophysics, sociology and most prominently the internet. The science of Complex Networks is so compelling that it can even show that Keynesian Economics is a farce. Unfortunately it also shows that pure free-market systems eventually end up destroying competition as competitors get gobbled up by ever larger conglomerates and wealth steadily gathers under the control of a few.” – Rich Okelberry

Dots on a screen do not translate genuine social behavior, especially in the context of a global economy. Complex Networks, from what I read in the wiki article you linked to, attempt to recreate general complex social behaviors. It’s definitely fascinating, but I don’t put much stock in it’s legitimacy when it come into conflict with logical conclusion, common sense, and widely supported professional and academic economic theory.

• “Can you show me a competing mathematical system that supports your claim that monopolies don’t occur in an integrated free-market network?” – Rich Okelberry

If one exists, I certainly don’t know about it. All I can tell you is that many professional and academic economists agree that monopolies do not occur in an unimpeded market, for what that’s worth. I understand the logic behind the economic theory, so it makes sense to me. I don’t understand the logic behind Complex Network Theory, so it’s not easy for me to argue in that realm.

In reality complex networks models actually become more accurate not less, the more complex a system becomes.  Thus it would have been better for you to say that Complex Networks may work well for a Global Economy but are less accurate in a micro economy where individual decision making is less quantifiable.  The reality is, the larger the system the more accurate the models become because localized variable become less influencial on the whole.  What effect does an individual grain of sand have on the formation of a beach? 

Imagine for a moment that we are modeling mountain ranges.  Well this is a relatively simple thing to do with today’s technology.  We can easily produce basic mountain ranges in a computer using fractal geometry that look and act like the real thing, complete with watersheds and so on.  Now let’s say that we don’t just want to view those ranges from a great distance but want to include every stone, pebble, piece of sand and bush shrub or tree in those mountain ranges.  Well that certainly becomes much more complicated.  Still, does the fact that we didn’t include every molecule in our original model mean that it was not a pretty accurate depiction of the mountain? No of course not.  The same thing is true here.  We don’t need every tiny piece of information about everyone’s individual lives to predict that populations will respond to certain stimulus in certain predictable ways and that the economic systems that are governed by these lives will also. 

I guess what I am saying is that simply discounting “dots on a screen” in favor of an unfounded non-scientific world view about free-markets and monopolies is a dangerous course that many people have followed to their demise.  While the interpretation of math may not always be accurate, it is always more accurate than simply guessing.

• “To be honest I am also a little confused about what your ideal government would look like. Would we still have elected officials or would we simply hire them. Would we do away with our right to vote in favor of voting with our checkbook? This all makes for a good sci-fi novel, but it simply isn’t grounded in reality.” – Rich Okelberry

It actually IS grounded in reality – all of the positions I’ve taken here come with logical arguments and practical examples. In fact, none of the very practical solutions that I’ve been able to provide for the practical conundrums that have been posited to rebut my arguments have been contested, which is usually the case when discussing liberty. It’s always the same conversation:
“I advocate free markets!”
“well what about (some problem)?”
“Well, (solution).”
“well what about (new problem)?”
“Well, (solution).”
“well what about (new problem)?”
“Well, (solution).”
“It’ll never work.”

… It goes that way all the time, unless you’re one of those that can take the idea and try to find the solutions for yourself. It’s not difficult; in fact, most of the solutions that I present I devise myself on the fly by simply following the issues through logically. Once you give it a shot, it becomes clear that free markets really do self-regulate and they are the only real way to treat people equally.

You say that your method is Logical but I find it fatally flawed.  To apply logic to this discussion we must apply what we know in combination to what we can observe and demonstrate.  Your entire argument rests on the fact that we cannot prove any of your points wrong.  Well this is simply because we have never had a free-market system without governmental interference.  It is far more logical to say that we have never had a free-market without governmental interference because it has never existed.  It is thus a far more logical hypothesis to say that free-markets cannot exist without governmental interference.  If they could we sure would have an historical example.  Nothing is more logical than math but you discount a mathematical approach to this discussion as simple dots on the screen. 

Merriam-Webster defines Logic as, “a science that deals with principals and criteria of validity of inference and demonstration.”   While you’re big on the inference part, you have yet to demonstrate validity through demonstration.  On the contrary I have gone out of my way to illustrate that there is a large body of scientific evidence that supports my position.    

My IDEAL governmental structure would be self-governance, which would lead directly into volunteerism. Again, this would be more of an acknowledgment of what’s already happening than a venture into a new realm of government. I do realize that this would eventually lead to governance of some other type, but change will always be inevitable. What would be great would be if we could keep our centuries-long governmental ebb and flow going back and forth between total freedom and small-government representative republic.

• “No government of a civilized society can ever exist without at least a little tyranny. In fact government by definition implies control over a population.” – Rich Okelberry

Not necessarily. Self-governance is merely control over ones self, and this type of government is the only one that persists throughout the ages. In fact, all human interaction occurs on this basis and rarely goes beyond it into a realm external social government.

• “What you call theft, I call repayment for services and investment in ownership.” – Rich Okelberry

To be honest, I was hoping for a little more.  What you are describing is essentially what happened here in the U.S. over 200 years ago.  Small groups bound together by self governance (usually religious) eventually gave way to unification between groups which begat our government which enabled free-markets and open commerce free from tyrannical oversight to occur. 

There has always been one major thing missing from your argument.  You talk about self-governance being preferred to our system.  Well, I say that we already have self governance through our representative government.  While you and I may be on the loosing end of the debate over the roll of government and taxation in this country, we certainly cannot deny that we have our say.  I believe that what you experience as tyranny through taxation is simply misplaced feelings associated with being on the loosing end of political debate.  I don’t mean this to sound offensive but it’s kind of like taking your ball and going home if you don’t get your way.

Okay then, Rich, I am going to start a service that keeps rhinoceroses off of your lawn. It doesn’t matter wether you want this service or not, you still have to pay me or you go to jail and I take your house. How do you feel about that? That’s how I feel.

If you are using rhinoceroses as a metaphor for a crazed man intent on breaking into my home and raping and killing my wife and children, then there would be no question about whether I want the service or not.  You would do better to use a real world example.  On the whole there are many laws that are useless but most help protect me indirectly if not directly.  We all benefit from the enforcement of these laws and thus are responsible for contributing a portion of our work in trade for their enforcement.

• “Rather than the way it is under Socialism/Communism we are owners by birth right of our government and nation.” – Rich Okelberry

No. Becoming an owner and having a burden forced on you are two entirely different things. If I am an owner, then I want to forfeit my ownership and live freely and unmolested without being subject to it. Only, I can’t. I simply can not, because that’s not the truth about our government. I have granted no man authority over me, yet there are thousands who assume that authority by threat of force, which is wrong, no matter what goal you’re trying to achieve.

You do have every right to forfeit your ownership in our nation.  Simply renounce your citizenship and move to Antarctica.  Or did you think that by renouncing your citizenship you could still retain the right to remain in our country, vote, bear arms and be granted title to land and property.  You see it is a myth as I said that these rights are God given; as nice as it sounds coming from the mouth of a politician in a political speech. 

“Rights” are earned by the few and granted to the many.  In fact every right you currently hold dear in this country is only in place out of threat of violence and incarceration against those that might choose to infringe on those rights.  The only reason you currently have the right to vote is because people like me have been willing to make the ultimate sacrifice if necessary to ensure those rights.  This may sound cliché’ but it is completely true.  Perhaps it’s time you stop seeing your rights as something born of nature and instead see them as something born of dying flesh and anguished minds.  Maybe you need to stop seeing your ownership in this great nation as burden and instead see it for what it is, a gift given out of sacrifice and instead willfully take up the charge to defend and protect that gift so that you may pass it on to your children and grand children.  This is the core of American Patriotism.

This, once again, is the premise of this whole discussion – the morality of taxation. No man has a right to aggress against another, so forced taxation is wrong. The only argument I’ve seen against that is “the ends justify the means” (to paraphrase), which would suggest that there is an elite class of human out there capable of making moral decisions on behalf of an entire society, which is also morally wrong. I’d like to see someone address those points.

• “Still, regardless of that fact you are responsible for a portion in this ownership of this democracy.” – Rich Okelberry

According to the self-imposed legitimacy of this government, yes. However, even according to the very foundational documents of this government, my duty is to do my best to drive it in the moral direction that i see fit, so all of you statists aught to be grateful that those of us that respect equality and liberty are out there agitating for change.

You say that, “No man has a right to aggress against another, so forced taxation is wrong.”  According to whose laws?  According to the Constitution of the United States of America there is no such “right” conferred.  Or are you equating a right to a moral principal.  Moral principals are far from set in stone.  Every nation, culture and subculture has a completely different set of moral principals, many of which grant few if any rights to any person.  Even in this country there are many who refuse to confer even the basic of human rights on an unborn child let alone rights afforded through citizenship.  I am only speaking the truth, brother.  You might want to take a look around.

As far as you agitating for change, I still have yet to see a single law proposed that might help bring our nation towards the utopian ideal of self-governance.  Let me give an example.  I propose a Constitutional amendment that would prohibit the government at any level from competing with the private sector.  This would help guard against the creep of Socialism and help preserve basic liberty in a free market system.  Do you have any similar suggestions that might work within our current system?  Or are you resigned to sit back and wait for the revolt?  Reformation is always preferable to revolt since it involves less chaos and death.

• “You also give up ALL the basic protections of civilized society.”

And it somehow becomes appropriate to throw you in jail. And you keep having these unfortunate logical trip-ups, so I’ll remind you again – “civilized society”, just like order and reason, exists independently of government.

Logical trip-ups?  Well, I’ve already talked about what it truly means for something to be logical.  All, “if-then” statements aside which is only a way for logical statements to be expressed and are not intrinsically logical, please give us the information that you have that fulfills the burden required by logic.  Please validate your presumption that civilized society exists independent of government just like order and reason with a demonstration of fact. 

As I asked you to clarify when you stated that plenty of free-market communities exist using a completely private road system (a question you’ve yet to respond to) please give us the examples in the history of man where civilized societies have existed without ANY form of government.  You might first want to talk about what we mean anthropologically when we say Civilized Society.  Unless of course you have your own meaning that diverges from commonly held and accepted views of the term.  As you can imagine, it is important for us to agree on terminology to keep misunderstandings to a minimum.

• “Our natural inclination is to gather into tribes for protection, then compete even violently against other tribes for valuable resources so that we may pass on our genetic code to future generations. It may sound harsh and lacking idealism but it is a cold reality shared by the far majority of the scientific community.” [Richard Okelberry]

…By this you suggest that our major driving influences are fear and reproduction, but I disagree, as would most intelligent people that ever existed (as long as we’re throwing out apocryphal endorsements). Humans are driven by their values, which are myriad and variable in their imperative. This is a much more elegant and accurate description of motivation.

If you have any doubt about the validity of any of my sources then I ask you to challenge them directly.  I certainly will recant if I am in the wrong.  In the meantime claiming that I am using apocryphal endorsements is simply a way to avoid bringing forward a single piece of information that might pass peer review.  You say that humans are driven by their values.  Can you expand on that?  What are values?  Where do they come from?  Are they genetic and therefore passed on to our offspring?  Do different genetic sets exhibit different value systems? 

What I have given is basic inherited human traits that are engrained in our DNA or the common denominators associated with human existence.  You have responded with an argument about values which are not denominators but numerators.  Any mathematician will tell you that the numerators are controlled by the denominators, not the other way around.  In fact numerators are useless and indefinable without knowing the controlling denominator. 

What you call values I call the various manifestations of social rules and order that are the result of our animal instincts interacting with the instincts and desires of others for millennia.  Because no two independent society’s experiences are the same no two value sets regardless of how similar are the same.  Let’s do a little test…  How many “values” would you say that you have in common with Cannibalistic tribes in New Guinea?  Conversely, how many values do believe would be in direct opposition to yours.  Now which primal motivations do you share?

• “Some religions call this the sinful nature of man. Scientists call it Sociobiology and believe that even unselfish acts of altruism are nothing more than a part of a species survival strategy that is engrained in its genes.” – Rich Okelberry

Hobbes v. Locke, is man inherently good or inherently evil? Man is inherently invested in their own self-interests; man is inherently selfish. That’s a whole other discussion, but that’s my take. Because of the nature of perception, we all behave in the ways that best cater to our highest values at a given time. This makes for a much more complex and unpredictable behavioral pattern than you’re accounting for.

Occam’s razor or les parsimoniae, states that entities must not be multiplied beyond necessity.  That is; given equal explanations, the one that is the least complex with least variable elements while describing the phenomenon is likely to be correct. 

“We are to admit no more causes of natural things than such as are both true and sufficient to explain their appearances. Therefore, to the same natural effects we must, so far as possible, assign the same causes.” Sir Isaac Newton

You seem to be trying to rely without an ounce of logic truth on inherent values as a simple explanation of the existence of a value driven society.  Yet you say that my approach is over simplified and that basic mathematical equations like those used in Complex Network theory are not able to describe free-markets.  I say that like a simple fractal equation loaded with a set of real and non-real numbers that is able to describe accurately the formation of plasma clouds in deep space, my approach is more than capable of describing both human nature and its complex apparitions.

Consider also the simple orbit of the earth going around the sun.  Now add the orbit of the sun through the galaxy.  Now add the movement of our galaxy through the celestial kingdom.  Now imagine plotting our course as we travel along each of these trajectories through space.  What may be complex to the outside observer can actually be described by on simple equation, F=mg. 

•  “What would be your method to bring us toward self governance be?” – Rich Okelberry

Well, as I’ve said before, we all self-govern every minute of every day already, so the major change won’t be political, but behavioral. If, for example, you and all of the people in your neighborhood agreed to stop paying your taxes all at once, the change will have been made. Once some success is seen, others will do the same and all of the other solutions come about naturally.

Any movement worth note always seems to need to have someone willing to take the first step into the breach.  Just like Rosa Parks was willing to take a stand for her principals, I invite you to be the first to stop paying ALL taxes.  Certainly if you yourself are not willing to become a martyr and do the time for the cause you can’t expect others to do the same. 

“Now, I think i know what someone is going to say, but I want it to be said, so I won’t address it just yet.” – Michael Reis

I wonder if I just said it?

“Anyway, it would really be that simple. From the initial behavioral change, the art/life cycle and the free market principle of supply and demand would take care of the rest.” – Michael Reis

We really need to find a good way to test your theory against past or future events.  Belief in a theory without tests is simply dogmatic belief.

“I foresee tax hikes causing more and more dissent in small ways among the people until things like agorist markets and off-the-books commercial interactions become so commonplace that similar behavior finds it’s way into personal tax records and such. Then, people won’t be so shy about banding together to peacefully decline participating in the tax system.” – Michael Reis

I believe that we already have a black market system, especially within the drug community which brings up my final what-if.  How would the prohibition of illegal drugs be handled under your system.  Say I wanted to start-up Rich’s Snake Oil company and begin peddling my concoctions loaded down with heroin, a bit of meth and coke and just a few psychedelics added in for good measure.  You know… something that is certain to get the kiddies good and addicted before they hit their teens. 

Would this be something that local governments would deal with?  After all without a national tax base there would be no combined federal authorities.  And how would each community deal with the fact that I would be making so much money that I could simply contract the local police department to focus on the laws that I see as important?  You know; in a free market even the labor goes to the highest bidder.  Say your community prohibited my snake oil, how would you stop me from moving it into your town along a private road owned by one of your citizens?  Would you violate his property “rights” to enforce your moral laws on his private property even if he didn’t agree with you?

Certainly you wouldn’t be for prohibition of any substances anyway, right?  After all wouldn’t that be an interference with the free market system?  Shouldn’t we just let the free market run it’s course when it comes to sale of  powerful addictive drugs?  I can even see marketing these products on the Cartoon Network.  Once we get the kids nice and hooked we can introduce them to pornography and eventually start up a nice prostitution ring.  It’s amazing what young girls will do when they need their fix, right?

Now for just a moment I have some land loaded with Uranium.  Am I allowed to refine a product from the uranium and sell it on the open free-market?  Or would you construct legal prohibitions to keep these materials out of the hands of those that might use it against you?  How would you enforce such a law in a climate where most everyone has simply decided that they won’t pay taxes?

I know..  What if… What if…  What if…  right?

I think you see where I am going with this.  Often in society we see government intervention in business as all bad.  I would argue that there are certain prohibitions and protects that simply must be retained for the “greater good.”  The question is, do any of these prohibitions assault your sensibilities about a hands-off government and society run by self-regulation?  Where if at all do you draw the line with government intervention in our lives and in the free market?

This is a great conversation!  Sorry for the delay and I hope it’s not too long.

 

12 comments to The Morality of Taxation – Continued…

• Michael Reis

August 6th, 2009 at 9:46 am ·

I knew you would pull through! Hope you had a great trip.

Give me about a week and a half to respond to all of this…

• Richard Okelberry

August 6th, 2009 at 10:55 am ·

Sorry again for the length Michael, but you did put me in the position of having to defend science and mathematical theory. Feel free to take it in chunks.

For those liberals out there who might be wondering how I can say Complex Network Theory disproves the effectiveness of Keynesian economic theory, consider how such governmental interference affects the clustering coefficient. You will see that rather than breaking links in clusters which stimulates growth elsewhere, it actually causes clusters to grow more rapidly as the decision making in the network gets focused into the hands of the few versus the many. In the end a system that is intended to redistribute wealth and get the economy moving actually has the opposite effect by eventually sending more wealth into the major clusters by creating artificial links in the network. At the same time it weakens the natural occurring links.

• Michael Reis

August 6th, 2009 at 1:04 pm ·

I’ve decided to answer piece-meal:

ON MONOPOLIES

– “I am a little confused, you say that monopolies in a free market system is a myth then you go on to describe how they could be formed in a free-market system. Further more you seem to support monopolies as a deserving aspiration.”

They are a myth because they WOULDN’T and HAVEN’T existed in a free market system, not because they couldn’t. I gave the example of the only way it could happen to illustrate how, as long as there is no external compulsion, it wouldn’t be a bad thing in such a system. And I don’t think it’s wrong for any business owner to strive to be everyone’s choice without coercion (but good luck running a business that tries to please everyone).

– “Let’s stop for just a second and look at the biggest example of a Monopoly; Communism. Within Communism, all the means of production are controlled by a central governing authority or board of directors if you like. This is the very essence of what a true Monopoly is.”

A monopoly is a market entity, but I can see the similarity. The main similarity being that they are arrived at by the use of fraud and force.

– ” Say I make Widgets. In fact I make such a good widget that everyone wants to buy it and I make loads of money and push most of my competition out of business. Sounds fair right? Now say I take that huge stash and begin buying up all the commodities that are used to make those widgets so that my competition simply doesn’t have any raw materials to produce a competing product. Now say I take my ever increasing wealth to also take control of all distribution through kickbacks to various retailers. Now any competition that might remain has no possible way of even bringing their product to market.”

Okay, so you make the best widget in town and everyone buys yours because it’s better and more affordable than everyone else’s. Good work! Many of the other companies go out of business because they suck. Oh well – happens every day, and people who suck at making widgets would be better suited to doing something else anyway. You still have some competition, because someone else makes their shoddier, more expensive widget in colors that you don’t, or maybe they offer a customizable widget, which is too cost prohibitive for your company to do; whatever the reason, you still have SOME competition. Great.

Now, you have somehow managed to amass an enormous stockpile of funds on your low-cost widget, which means your manufacturing cost must be practically nothing. Let’s say that nobody knows that it costs so little to make, not even your materials suppliers (who must be blind, deaf, and dumb), so you have little competition. We’ll have to do a lot of pretending, since with such a low cost, if you’re stockpiling cash, you must have a huge profit margin that would be easily beatable. Anyway, nobody knows, somehow, so you’re still not subject to competition.

Now, to secure this position before people start to catch on, you want to take your vault of cash and buy out all of the suppliers of material for your product. In order to make this remotely plausible, let’s pretend that your widget is made out of an extremely rare material that is difficult to procure, and yet still cheap enough that you have a cheap finished product with an ungodly profit margin. What this could be, I have absolutely no idea. You need it to be rare, or else you would bankrupt your business trying to buy out the thousands of suppliers (especially those last few dozen, who would be onto your plot and ask for inordinate amounts of money). It would have to be cheap, or else you would bankrupt your business buying out the first one. So, let’s really stretch and pretend that you somehow manage to buy out every last supplier of every last material that goes into your widget.

Now, just to be sure you never have competition, you decide to start buying the favor of your distributors to cut any possible competition out of the market at the retail end. Each of these kickbacks translates into a per-unit cost, which would have to cover both yours and any potential competitors profits to the distributor, or else they’ll never go for it. Let’s pretend that you can manage to do this by promising a full 50% per-unit wholesale discount, so the markup at the distributors’ end will pay them off big time. Now, you’re selling your insanely cheap to produce widget for less than half of it’s even-more-insanely high profit margin, but you have no competition.

SO, you have a huge company that employs thousands and thousands of people, you supply a high-demand product that is better and more affordable than anyone else could provide, and everyone that has anything to do with your company, from the materials suppliers to the line workers to the sales reps to the retail distributors to the customers, are benefitting… This sounds wonderful to me.

BUT, you get greedy – you start to take advantage of your monopoly. Let’s say you go the less-drastic route and start to lower the quality of your widget… soon, you lose customers – people would rather go without the benefits of your widget than pay for junk. Your fantastic stockpile of money dwindles quickly, and you can’t afford to employ all of your production lines. You’re forced to sell them off, one at a time. You soon can’t afford to pay off your distributors, who long ago broke their deal, since they couldn’t move your product. The debts you’ve incurred force you to sell your source of the miracle material (with it’s affordable rarity), and you’re left with nothing, despite the fantasy perfection you experienced to get you to the place of a free-market monopoly. The second you start alienating your customers in any way, you lose them to your competition. The only way to eliminate competition at this point is by the institution of force, which is where the governmental intervention steps in in one form or another, since governmental force is the only kind that can happen on such a public level without immediate prosecution. In a free market, you don’t have such intervention, so your nightmare monopoly that somehow manages to short-change it’s customers while simultaneously managing to bring those customers back again and again could never exist.

– “While I have gleamed that you have the belief that economics and government are mutually exclusive concepts, I believe that they are instead forever intertwined products of each other.”

They are both products of human interaction that can and do exist independently of each other. Look at the myriad various combinations of economic structure and governmental system that have existed throughout history. I think it’s fairly plain that you can have a market without government and vice-versa, but you most often don’t for the very reason that you’ve suggested…

– “Due to the natural compulsion we call human nature, governments in their various forms ALWAYS form. This formation is caused by the innate need for humans as social creatures to feel secure.”

… but imagine that I meet you in the middle of the ocean and trade you 15 goats, 6 hits of heroin and a high five for 3 sandwiches, a pair of slacks and one of those little plastic neon orange rock formations for the bottom of my fish tank. Let’s say we meet like this periodically over the course of the rest of our lives. We’ve created an economy completely outside of the scope of any government.

– “Because economics is simply an agreed set of agreed rules by which all of the members of a community agree to follow, it then gives way to governance as an enforcement arm of the community.”

It tends to, but it doesn’t have to. I’ve already explained that part.

– “In fact governance is the basis for civilized society since it helps mitigate the detrimental effects of a pure survival of the fittest free market system.”

This makes no sense to me. “Governance” is simply the rules by which anything happens – our entire universe is governed by the laws of physics. A free market is governed by natural laws and human behavior. If you mean “a government”, then I disagree with your premise. Civil society exists between any people willing to respect each others rights, a state of being that most governments disincentivize (which I’m pretty sure is not really a word). Also, government does not mitigate the detrimental effects of anything.

– “(fuzzy logic GA’s)”

Again, this seems like a weak comparison. None of your mathematical evidence is close enough to a real economy to be a reliable enough predictor.

More later!

• Richard Okelberry

August 7th, 2009 at 11:04 am ·

I was hoping that by top post, more people would like to join in the conversation. Too bad, readers seem to have lost their passion for deep political debate. At least we have each other.

You know, maybe I can save you some time by getting down to the meat of the conversation. I feared that throwing that hypothetical about monopolies out might become distract you from the core of our disagreement. It was not intended to be an end all example of how monopolies form just an example of how it could happen.

After reading your own hypothetical retort, I will concede, though I don’t believe that I was arguing against it, that there are a myriad of possible sets of conditions under which monopolies may not form. However, simply saying that sometimes companies don’t form into monopolies does not mean that they can’t. This is the same type of reverse logic that seems to have strangled this conversation.

Therefore, I will try to break down your argument into a theorem. Please tell me if I get it right.

Michael’s theory on the Myth of Monopolies:

Theory: Economic Monopolies in Free Market Economies are a myth but a possibility within Pure Free Market systems that exist without ANY governmental interference.

Definitions: Monopoly – exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices. Myth – any invented story, idea, or concept: an unproved or false collective belief that is used to justify a social institution.

Inference: Monopolies wouldn’t and have not existed unless there is no outside influence on the market.

Evidence to support Inference: 1. Personal belief. 2. No free-market without governmental influence has ever existed therefore the theory, while not provable, is also not disprovable which should carry greater weight in the argument.

Conclusion: Free Market capitalism naturally exists independent of government regardless of the fact that it has never occurred in the history of modern civilization. If such a system did exist, it would be the only way that monopolies could form even though they are still a myth. If a monopoly were to form in the vacuum of a free market economy that is devoid of governmental authority, they would not be a bad thing and would eventually fall apart. Because monopolies are transitory they don’t ever really exist. In conclusion all the greatest economics minds, including the Nobel Prize recipient for Economic Sciences, Milton Freidman, and all supporting sciences including the Clustering Coefficient as described in Complex Network Theory that have supported the concept of monopolies are wrong because they have failed to remove government from free markets as I have done. Additionally, such scientific methods of describing the function of economic systems and the formation of monopolies with in a Free Market are incapable of describing such a complex system as I have been able to by shear power of thought.

Proof to support Conclusion: Anecdotal experience and hypothetical thought experiments.

Proposed experiment to prove theory: Overthrow current government by having everyone refuse to pay their taxes. Then let Free-markets evolve uncontested without any form of institutionalized government.

Would you say that is your argument about the Myth of Monopolies in a nutshell?

• MichaelR

August 12th, 2009 at 11:13 am ·

I’m back. Again, the pure length of these posts are a hinderance upon my time, but I am eager to post full responses. Expect something soon, but I will have to address this in chunks.

• Richard Okelberry

August 13th, 2009 at 3:38 pm ·

Good to see you back… Take your time… I think that it’s just you and me following this now anyway. Now if we could some how relate free- markets and Complex Networks to Michael Jackson’s missing nose, maybe we’d get a few more participants.

I know that you’ve expressed an interest in Chaos Theory and now Complex Networks. While we don’t have to go back and forth about the validity of Complex Networks, since you expressed an interest, I thought I would give you this link to a documentary about the six degrees of separation theory that led to break a through in Complex Networks. I found it when looking for a basic reference to Complex Networks for another post. While it is not very in-depth or technical, it gives great insight into the new science and the possibility for Complex Networks to change whole fields of scientific study.

BTW: Your intuition about Complex Networks being related to Chaos Theory was right on by the way!

This show is very cool. I hope you like it!

“How Kevin Bacon Cured Cancer.” – http://www.vimeo.com/album/49299

• Grumpy

August 21st, 2009 at 1:43 pm ·

Chaos Theory has been shot down numerous times in both the mathematical and physics worlds. I wouldn’t grant it much credence in a horizontal application to macroeconomics.

• Richard Okelberry

August 21st, 2009 at 2:55 pm ·

@Grumpy
Grumpy,

“Chaos Theory has been shot down numerous times in both the mathematical and physics worlds.”

Bold statement my brother. Would you mind providing something to back up your statement? Here’s at least one professor with a Harvard PH.D that would disagree with you and is currently teaching a course contrary to your statement.

“It has been called the third great revolution of 20th-century physics, after relativity and quantum theory.

But how can something called chaos theory help you understand an orderly world? What practical things might it be good for? What, in fact, is chaos theory?

“Chaos theory,” according to Dr. Steven Strogatz, Director of the Center for Applied Mathematics at Cornell University, “is the science of how things change.” It describes the behavior of any system whose state evolves over time and whose behavior is sensitive to small changes in its initial conditions.

The 24 lectures of Chaos take you to the heart of chaos theory as it is understood today. Taught by Professor Strogatz, an award-winning Ivy League professor and a scientist described by Nature magazine as “one of the most creative biomathematicians of the past few decades,” Chaos introduces you to a fascinating discipline that has more to do with your everyday life than you may realize.”

http://www.teach12.com/ttcx/coursedesclong2.aspx?cid=1333

Steven Strogatz
Cornell University
Ph.D., Harvard University

Professor Steven Strogatz is the Jacob Gould Schurman Professor of Applied Mathematics and Professor of Theoretical and Applied Mechanics at Cornell University. He graduated summa cum laude from Princeton University with a B.A. in Mathematics and received his Ph.D. from Harvard University. Before joining Cornell University in 1994, Professor Strogatz was a faculty member at MIT.
Professor Strogatz’s books include Nonlinear Dynamics and Chaos—the most widely used textbook on chaos theory—and Sync: The Emerging Science of Spontaneous Order (chosen as a Best Book of 2003 by Discover magazine).
Lauded for his exceptional teaching abilities, Professor Strogatz holds a Communications Award—a lifetime achievement award for the communication of mathematics to the general public—from the Joint Policy Board for Mathematics, which represents the four major American mathematical societies. He also received the Tau Beta Pi Excellence in Teaching Award from Cornell University’s College of Engineering and the E. M. Baker Memorial Award for Excellence in Undergraduate Teaching from MIT.

Also, you do know that we are not talking about Chaos theory here but the study of complex networks which has not only gained wide acceptance by the scientific community, but is now being adapted to an incredibly wide range of studies.

If you’re looking for a good introduction to Complex Networks I would suggest you watch the video above in its entirety. If you’re still interested I can pass on piles of links to various papers and research into this new science.

• Grumpy

August 21st, 2009 at 3:08 pm ·

From behind my academic IP address I have access to all the latest academic journals. Chaos theory is regarded as an interesting but practically useless artifact of number theory.

The fundamental flaw is that Chaos theory suggests the world is a closed system when it is not. The connections leading from A to B–> Z aren’t there.

I honestly wish I saved all those PDF’s that ran across my desk. I didn’t though. I”ll be sure to keep an eye out from now on and provide you guys copies.

Rich there are numerous “frontier” areas in Math. Alot (ALOT) of time and work remains in these fields to determine if they’re relevant to anything, particularly the bold horizontal jump to economics—> A completely model based, pertubative field.

• Grumpy

August 21st, 2009 at 3:12 pm ·

@Grumpy

Rich,

Yes I’m aware you’re discussing Complex Networks. I was simply offering a comment on Chaos Theory specifically.

Down boy.

–Grumpy.

• Richard Okelberry

August 21st, 2009 at 4:49 pm ·

I will agree that the practical application of chaos theory is limited, unlike Complex Networks. Still that is not what your statement read. It read that it has been discredited or “shot down” causing an understandable disagreement.

The problem with any small area of expertise in science is that it often exists for a time in a bubble and often researchers and theorists have trouble seeing how various studies are incomplete because they fail to relate them to other areas of study. Everyone wants the next Theory of Relativity discovery. If there is any true enemy to science I believe it can honestly be said to be the egos of those engaged in it.

This is plainly evident in string theory where multiple theories competed for dominance among the scientific community. Scientists would often get in heated discussions and actively engage in trying to discredit their opponents. Then came M-Theory which has done a great job of bringing the competing theories together. It’s not that any one theory was wrong, they were just incomplete.

• Grumpy

August 21st, 2009 at 5:17 pm ·

M-theory may have united the math of the competing theories, but remains “Pop Physics” in my opinion.

Let’s see an experiment on it. Then we’ll talk. Hopefully CERN will be up and running at full-energy in a few months.