Theory of Markets

John Paul Koning has a very real Point in this Post, and one which will come around to bite the Fed. The Fed will probably need to permanently purchase the Mortgage-backed Securities, if the quality of such Mortgages guaranteed is poor; Markets do a horridly bad evaluation of poor quality Product of dubious value. Pricing will descend easily to Scrap wholesale, and Financial Paper holds the Conditions of only Good or Bad without intermediate values which are trustworthy. An Intervention by the Fed, by its basic nature, must be permanent to regulate the Securities throughout the Period of exercise. Predecessor Sale of the Securities will only renew the Market insecurity.

John Whitehead comes up with another good Post reflective of the power of Markets, both Gains and Limitations, to affect the economy. I agree with John that the Government policy must be to harness the economic incentives, and there is nothing functionally greater that can be accomplished with restrictive policy. Government has never been effective at any practice in comparison to Private industry, except in the arena of Taxation–therefore I even oppose Cap-n-Trade. James Galbraith is correct in the expectation that Private industry will never succeed in Budgeting for delay of current Production, in order to maximize long-term Production potential. Where I disagree with James and Scientists is in the level of Threat existent in Carbon emissions. The worst Situation devised would be some form of desert conditions to some level approximately three times the current geographic amount in my estimation, and Land Reclamation practices are much cheaper than complete elimination of fossil fuels as Energy source.

Alex Tabarrok explores aspects of Markets today as well. I forewarn Readers that they study Alex’s Post carefully before understanding my message. My Stance on Markets states that Participants need neither be competitive or rational, in order for Markets to be efficient. This flies directly against the First Theorem, but is true in my estimation. The efficiency of Markets are dependent on the best employment of Resource and Product. Few Markets are totally competitive, and yet they express a high degree of efficiency. Participants are not rational, if efficiency is the expectancy of highest Profitability; Participants being concerned only with the maximization of their Productive capacity. Here is the key element: Market efficiency is determined by the continuous, high level of Productivity; degrees of Profitability and Rationality being subverted in the pursuit of Productivity. lgl