Comment by Betelbuddy
2 months ago
Saying this is just the market...is like saying housing is a free market after hedge funds buy your entire neighborhood...
2 months ago
Saying this is just the market...is like saying housing is a free market after hedge funds buy your entire neighborhood...
But... They're not wrong. That IS the market. Unrestricted, gloriously free market with its historically predictable outcomes - yay!
That's not where the interesting discussion is. The interesting discussion is with the notion that free unregulated markets are universally good and will naturally lead to positive outcomes because... I don't know, I'm personally not religious, but somebody here will help me :-).
Commodities used to be proper free markets. Many suppliers and many buyers of a product that was the same regardless of the supplier.
This lead to low prices and/or differentiation with new products.
Most of these markets were too good, so in general we now have a few big companies buying up the lion share of the supply so they can set the price regardless. For example soy, just to name one
Sorry, when you say "gloriously free market", do you mean whatever it takes EU, helicopter money (or, rewinding a decade, Greenspan put) US, or factory of the world China? :)
My point is that it's not a real market economy if the risk premium -- and in China's case, the exchange rate -- is rigged. And it has been, since the 90s.
EDIT: For clarity, I'm agreeing with you, since you were being facetious.
What about even earlier? Like the petrodollar?
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> That's not where the interesting discussion is. The interesting discussion is with the notion that free unregulated markets are universally good and will naturally lead to positive outcomes because...
The textbook desirable outcome is that competitive markets minimize suppliers'surplus which is good for consumers.
Not that this doesn't mean unregulated markets. Monopolies and oligopolies acting like a monopoly are textbook examples of pathological markets where suppliers can maximize their surplus.
I think pretty much everyone would agree that the current situation is a failure of regulation not over regulation. Regulator and legislation have been constantly weakened in the name of international competitiveness since Reagan.
Where are these unregulated markets? Are you trading with your neighbor? If so, good, the more of that the better.
An example of unregulated market is where I come to your house and put a gun to your head and in exchange for not pulling the trigger you give me your various items of value.
That's one form of trading with your neighbor.
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But these markets are only "free" if you ignore the net $5.5 trillion the Fed has printed post GFC.
https://fred.stlouisfed.org/series/WALCL
Don't forget the Republican policy of starve the beast that includes Republicans happily putting the US into un-sustainable debt as a matter of policy, hoping to break the government so badly that Republicans can then enforce unpopular policy they can't get any other way.
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What they probably mean is that it is not a fair market, that there is no balance in purchasing power, pushing small scale buyers away while supply slowly catches up (or doesn't)
I'm not disagreeing with you, but I have not frequently heard the phrase "fair market" (as opposed to a far more limited and specific term "fair market value", where "fair" I believe applies to "value" and not "market") and would be interested in hearing more of its definition and criteria.
Trivially, I would assume proponents of "free market" and "fair market" are a tiny if not zero Venn diagram, and that terms are at least somewhat opposing, but will withhold my judgement :-).
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People love to say that but they own a very small percentage of housing in reality. What’s driving housing costs is also supply and demand. Especially supply, since we’re not allowed to build any houses in most places people want to live.
Prices are decided at the margins. Having PE and REITs at every single table, even if their actual ownership is small as a %, makes huge differences.
You’re still missing the key point: Hedge funds and REITs aren’t arbitrarily buying housing at any cost.
They are responding to the market. If they overbuy then they will lose money and have to sell at a loss, at which point you could snap up some good deals.
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Which doesn't sound like a free market to me. Capping production to keep asset price high is one of the most straightforward default examples of market-distorting interventions there is.
> not allowed to build any houses in most places people want to live
Or to convert them into apartment buildings
Read your response again. You are reinforcing my argument in case you did not notice...
Hedge funds don’t have as high of institutional ownership as you assume. It’s actually pretty small.
That said, nothing about the situation you described is at odds with “free market”. You’re describing the operation of a free market.
I think a lot of people want “free market” to mean the opposite: A highly restricted market where they are protected from any supply and demand inputs from anyone else. They just want cheap things and don’t want to compete with anyone.
There are two sides to a free market, though. In your example where a hedge fund comes in and buys your entire neighborhood, they would have to do so by outbidding everyone. This drives up the price. If it’s an economically irrational move you’d be smart to sell your house to them at an inflated rate, too! Then move back in when the prices crash down.
Which neighborhoods are now entirely owned by hedge funds?
I should point out the relevance of my argument, is completely independent from the fact the reply to this questions of yours, is higher than zero.
So dont see this reply as a justification. Just as a note that you failed to do basic diligence on distortions that are well known. And as I said, that are not relevant to the analogy.
"When Wall Street Is Your Landlord" - https://www.theatlantic.com/technology/archive/2019/02/singl...
"In one Atlanta zip code, they bought almost 90 percent of the 7,500 homes sold between January 2011 and June 2012"
That article doesn't support your point. Only a small fraction of the homes in that area are actually owned by hedge funds. You should check the facts before commenting.
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Are there regulatory barriers to entering the DRAM market like there are in housing?
China blocked from buying ASML machines?
correct, both of those things are examples of free markets
Adam Smith had already clarified free market refers to a market free from all forms of economic privilege, monopolies and artificial scarcities.
You are confusing market outcome with market structure.
But where is the monopoly here? Nobody has a monopoly on housing supply or DRAM production.
Nobody is making an artificial scarcity. They’re producing as much as they can.
You can buy the exact same DRAM that the data centers are bidding on.
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Good point, however we can't miss the history which shows that free market are not achievable, in some fields of economic is seen as "fairy tale".
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Incumbent owners preventing the construction of more supply to maintain their own property values is not "free market". This is very basic stuff