Bubbles : government intervention is needed

Discussion in 'Economics' started by Kicking, May 3, 2008.

  1. I am a convert. The different schools of thought arguing free markets supposedly work out excesses by themselves is just a bunch of horsesh*t serving the interests of the elite.
    Markets do work out excesses by themselves but not before wreaking havoc on the average folks lives.

    Continental Europe does not have a history of bubbles because there is strong government intervention in the economy.
    Price controls for example, rent control for example makes it more difficult for real estate bubbles to develop. Rent control is pretty much non existent in most parts of the US and in the UK.

    Commodities price control :
    investing in commodities , especially the basic resources such as grains should not be allowed by governments. Even futures markets are questionable since today speculation has been greatly facilitated by a number of innovations. There is absolutely
    no doubt in my mind that commodities are in a bubble caused by easy money and speculation. The huge demand is a lot of B.S.
    World population has not exploded in 5 years, eating habits can't possibly have changed in such a short period of time. This is just common sense, yet experts are inventing plenty of reasons commodities are going higher. The reason they go higher is easy money and those long only funds that should not be allowed.

    Finally central banks should have one and only mandate :
    the control of inflation.
  2. Concerning the grains, it doesn't take a huge shift between the supply and new demand to cause a large price increase.

    In the book "The Theory of Political Economics" by Jevons in 1871, this supply/demand shift is discussed. The author quotes studies by Gregory King in the year 1696 for the price of corn.

    Remember, this was at a time of silver and gold, not fiat money!

    A 10% supply shortfall from demand compared to the past average resulted in a 30% price increase.

    20% shortfall = 80% price increase.
    30% shortfall = 160% price increase.
    40% shortfall = 280% price increase.
    50% shortfall = 450% price increase.

    I'm willing to guess that other commodities are equally non-linear in their price relationships, and that nothing much has changed in the centuries since the study was done.

    I don't think that legislation can solve this. Read "The Age of Turbulence, Adventures in a New World" by Greenspan. He talks about the Nixon price controls and the shortages that resulted. Nixon asked him what could be done to relieve the shortages, and Greenspan answered simply, "raise the controlled price"!

  3. Interesting point but have we really seen a 35 % short fall in grains to allow for 200 % gains ?
    This study , provided it can be relied upon given the methods they must have been using, was done in times very different from today. They didn't have the technology to increase production as fast as today and also with slower information flow supply and demand adjustments probably took longer to effect prices.

    As for shortages I would argue that unless we are talking about life and death matters, they force people into alternatives and at least do not lead to the producers getting rich off of the scarcity, contrast this with today's oil producers etc. making out like bandits while you spend a fortune at the gas station. The only way out is for you to "hedge" by buying futures and becoming a speculator yourself. This is crazy.
  4. Daal


    you fail to realize that the 'solutions' you propose create problems on their own and hurt the very people(the average joe) that you choose to speak for
  5. PaulRon


    Government's preventing bubbles will result in big bubbles later on
  6. lol for a republican unless a problem can be fixed thru deregulation or a tax cut,,there is NO problem. Problem, health care,solution, deregulate it further. Allow dental assistants to fix cavities, there is a program in alaska doing this very thing right now,,just like other nations,,,there pay yearly is $60k as opposed to a dentist. ADA already squawking about this.
    Allow nurses to diagnose and write prescriptions, some states already allow this, there rn's , no appointments and much faster turn around time, I've used this service myself.
  7. ronblack



    You made some good and valid points. I have just a few objections.

    Continental Europe has had it's history of bubles, actually many. The biggest current bubble is the Euro. Besides, EU contries do not and are not supposed to have any price controls and if I recall correctly there are 25 of them in a union.

    The huge demand is not directly related to world population growth but it has to do with the use of several commodities for producing fuel.

    But I agree that there should be more regulation in futures markets, possibly by allowing in particular markets only legitimate players.

    Central banks now a days are market manipulators and seem to do contract work for big speculators. They should be abolished and I believe economies will do better without them.

    Worlwide corruption has its roots in governments and central banks.


  8. ____________________________________________________
    But I agree that there should be more regulation in futures markets, possibly by allowing in particular markets only legitimate players.

    Then they're not really markets anymore, then, are they?
  9. Man, what's with the rise in support of government intervention. Governments are not all knowing entities, they are made up of people who have their own personal interests.

    Price controls and government intervention cause shortages and bubbles.

    Free markets do work, the problem is that they are not free at this time. There is so much manipulation and intervention these days, that it is difficult to discern that the cause of the problems come from the intervention and not the markets themselves.