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Mitch SMith

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Should we trust the invisible hand?

James B Glattfelder outlines an emergent entity in his study of transnational company data.

Is this entity trustworthy?

Please state your reasons for trust or otherwise on the assumption that this emergent entity exists.

I'd also be interested in your opinion of whether the entity outlined in the math is essentially separate from the people who created it?

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    Feb 14 2013: There is a tradition in economics at least since the early 20th century of distrusting concentrations of power of the kind Glattfelder identifies. Regardless of country, government units called things like the Bureau of Competition focus on analyzing concentrations of power, interlocking directorates and so forth. These bureaus are staffed by economists. Since economics has changed from being primarily a historical subject to primariy an analytical subject, many of these economists originally studied fields like mathematics and physics. So the point he raised in the comments that some have suggested that physicists stay out of economic inquiry seems quite peculiar to me.

    In the original formulations of these identities, and in the field of 'industrial organization" that encompassed these considerations, it was specifically the market share of the top few actors that triggered attention. This was replaced later in the century by other indices of concentration as well as an assessment of conditions for entry, as concentration matters when others cannot enter to challenge incumbent firms or can do so only at prohibitive cost.

    Once the conditions of atomistic sorts of market players do not hold and the situation in an industry swings strongly to the other end, even among the most traditional economists, game theory comes into play, considering the interactions of small numbers of actors.

    In terms of the emergent entity, I think results of interactions among actors combined in an entity could be thought of to have a life of its own, particularly with so many "decisions" and results coming unintentionally as a result of rules of thumb, some irrational or almost random actions, and so forth.

    This is a long way of saying that there is a solid history of distrust for market power, even among traditional economists. Many people's ideas of what professional economists believe are only a caricature.
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      Feb 15 2013: It seems to me that putting people in charge of the economy whose incompetence has been well demonstrated is quite peculiar, Bernanke and the Federal Reserve for instance.

      Many people's ideas of a regulated economy are only a caricature. Never connecting big evil business with crony capitalism.

      Why is it that the regulated economy can only exist where there is plenty of tax revenue from the free market to support it? In Calif for instance the worst state in country to business in.

      The players change as often as competition requires it, the assumption that it does not without regulation is a fallacy. Even GM would be gone if not for subsidy.

      The thing to think about in any area of knowledge is that each level of the pyramid of knowledge must encompass the lower levels of knowledge with a more general axiom. As I have stated elsewhere the top of the pyramid is survive, near the top is exchange, well covered by Matt Ridley, which is responsible for our current standard of living. Because of this regulation is well down on the pyramid and mostly superfluous.

      This is not to say some regulation is not necessary. But humans seeking to survive work inside of the monolith of government to build their own empire without market accountability similar to termites.

      The other thing that comes to mind is that if the market is controllable as you contend what is the batting average of someone like Paul Krugman?Although government interaction/regulation appears to create control it is really just a self fulfilling prophecy because of how it spends money. The closest thing I have seen to prediction/control is Praxeology because it studies human behavior which is somewhat predictable. This is the opposite of Keynesian propaganda.
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        Feb 15 2013: My point was a different one- only that traditional economics, including the most conservative variant symbolized by the Chicogo school) includes and considers the conditions under which there can be sustainable market power.

        Many people believe professional economics begins and ends with the assumption of atomistic, perfectly informed actors in conditions in which transactions are costless. This is not true.
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          Feb 15 2013: Ok, like the CBO.

          It defies the very definition of economics which is simply the study of scarce resources that have alternative uses. In other words they are not practicing economics and calling it economics.
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        Feb 15 2013: Most people who work in budget offices (I assume you mean the Congressional Budget Office) are not, I think, economists.

        But I agree with you that the label "economics" is attached to many things that are not economics, just as the word science is attached to many things that invoke some science vocabulary but are not science.
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          Feb 16 2013: Their conduct indicates they are not economists. And they do not account for human behavior.

          But influence the economy greatly because politicians use them to further their agendas.

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