There Is No Invisible Hand | Hacker News Reader

There Is No Invisible Hand

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5 pointsgruseom10 comments

Paul Ormerod makes a similar argument in Why Most Things Things Fail: that the economy is a dynamic system, therefore any theory that rests on an assumption of a static equilibrium will not reasonably approximate reality.

It seems though that most economists rarely talk about the invisible hand.

There seems to be more talk of 'emergence'.

Personally, the use of the term 'invisible hand' seems to be increasing, but it seems, in my opinion, to be coming from those who oppose free(r) markets. And it seems to muddy the waters as it is based in metaphor.

Classic liberal economists seem to agree that yes the system is dynamic, that it can rarely be predicted with the tools we have now, and that the best way to communicate the needs of the market on both the supply side and consumption side is through an unfettered price signal.

"Believing far too credulously in an invisible hand, the Federal Reserve failed to see the subprime crisis coming."

I assume he is stating the Fed believes in a stable state.But the Federal Open Market Committee meets 8 times a year to evaluate the interest rate, which is in constant flux at their hand: http://www.moneycafe.com/library/fedfundsratehistory.htm That seems hardly like the activity of an actor who believes they are in a stable environment.

The absence of an invisible hand is caused only when it is wiped away by the punching fist of the government. Whether it is by artificial money out-of-nothing, by regulations or by expropriations and controls. Mr Schliefer is an excellent example of the "intellectual class" (http://www.caseyresearch.com/cdd/doug-casey-pseudo-intellect...)

Is that the right link?

sorry, have edited it now

Nice read, thanks.

Schliefer is only summing up the current state of economic theory, not speculating on his own. Economists have gone looking for some evidence of economic equilibrium and haven't found any in real economies. It seems to me that the pseudo-intellectual is the one who believes in the economic equivalent of luminiferous ether.

"The absence of an invisible hand is caused only when it is wiped away by the punching fist of the government"

I assume you have some evidence of this and it's not just based on ideology since that would make you a pseudo intellectual. You should pass that evidence on to economists, they've been looking for it everywhere.

Well, I think my view is pretty rational, I don't see it based on ideology as such. It's more the other way around: because by studying economic history, and economy in general, I became convinced of the values of (personal) freedom. But, to give some evidence that a stable equilibrium can occur: In the times of history when the free market determined what money was (precious metals), prices remained stable, sometimes for centuries. But once a government starts to interfere with debasing the money by law until it has no intrinsic value anymore, and keep printing it (so the same amount of goods & services are chased by more and more currency units), you can't have actual price information anymore. It's like measuring a distance with a yard stick whose units increases logarithmically in time.

Sure, but there were a lot of other things that remained stable/stagnant as well as prices. Like most measurements of progress or quality of life.

Your view isn't irrational, but if it's not based on ideology and it's not based on evidence then what is it based on? (hint: its actually ideology, it just doesn't feel that way because it's not an insane belief and it's a popular one)

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