<HTML><BODY style="word-wrap: break-word; -khtml-nbsp-mode: space; -khtml-line-break: after-white-space; ">I wouldn't call a market where prices go apeshit crazy (my words) an efficient market, so my intent was never to give an opening to capitalist apologetics. When it comes to markets and information, I guess I'm much more in line with Stiglitz, Akerloff, etc. who emphasize how information asymmetries lead to inefficient markets. For example, I think it was Akerloff who wrote the early paper "The Market in Lemons" about used car prices. His argument was that usually only the seller knows where a used car is a lemon, so the buyer has to approach every used car as if it's a lemon. After all, the only information the buyer has is that the seller is dumping the car. This depresses the price of used cars, according to Akerloff. Makes a lot of sense to me, because my father was an auto mechanic and he almost always buys used cars. Because he actually has the skills to evaluate whether or not a used car is a lemon, he can take advantage of the market's informational asymmetry. And of course I saw informational asymmetry at work all the time in his business (he owned a small auto repair shop). At the time, this business looked like it operated in something as close to an unconstrained market as you could find. Entry costs were low, there was lots of competition from other owners of small shops, etc. On the other hand, I also discovered that prices for auto parts were tightly administered. There weren't just wholesale and retail prices for parts, but half-a-dozen or more prices for any given part, listed in every parts catalog. My father's profit depended a lot on what kind of "buyer" he was considered to be. And then I won't even talk about the handshake deal that allowed him to get into the air conditioning business and keep a large inventory on hand without paying for it in advance. It also became apparent that customers didn't buy auto repair based on price. They buy based on belief that the mechanic won't screw you - i.e., take advantage of informational asymmetries. (My brother, an historian, wrote his dissertation on this. The diss is called "The Repair Man Will Gyp You").<DIV><BR class="khtml-block-placeholder"></DIV><DIV>Quite a ramble, but the moral of the story is that all markets, even those that look very close to perfect, fail. I think Hayek is right that prices are information, but I think that information is almost always flawed. (Not having read Hayek, only second-hand accounts, I'll leave it to Justin to jump in and explain what Hayek had to say about informational asymmetries). The oil markets, which I commented about briefly, just seem to be a market where these informational asymmetries are wild.</DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>There's also a secondary moral for the whole market socialism debate. Rather than come down on the side of market or planning, I think any well-functioning socialist society would have to make decisions about how to use markets and/or planning in any sector based on the kinds of market failure that sector experiences. I think electricity generation, for example, would work best as a state-owned and state-planned sector. (Even now! I have to buy my electricity from Com Ed, which just got approval for a 20+% rate hike. I'd be paying a lot less if I lived across the border and benefitted from the era of sewer socialism, buying my electricity from Wisconsin Energy). On the other hand, I don't think state planning is going to work very well in any sector with lots of product differentiation. I'm pretty sure that the restaurants in Chicago would get a lot worse under state planning. I don't see how you can get around some form of market socialism in a sector like that.</DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>Probably more of an answer than you wanted....</DIV><DIV style="">Michael McIntyre</DIV><DIV style=""><A href="mailto:mcintyremichael@mac.com">mcintyremichael@mac.com</A></DIV><DIV style=""><FONT class="Apple-style-span" face="Helvetica" size="3"><SPAN class="Apple-style-span" style="font-size: 12px;"><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 14px;"><BR class="khtml-block-placeholder"></SPAN></FONT></SPAN></FONT></DIV><DIV style=""><A href="http://morbidsymptoms.blogspot.com">http://morbidsymptoms.blogspot.com</A></DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV><BR><DIV><DIV>On Sep 19, 2006, at 10:03 PM, abu hartal wrote:</DIV><BR class="Apple-interchange-newline"><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Some interesting points below. To Michael McIntyre, I want to ask a question about information and prices. You said (very roughly) that the price of oil includes information about likely political conditions. Don't the Hayekians argue that prices are nothing but information, information which could not be gotten any other way than through anonymous unplanned markets? I know this takes the discussion in totally different direction, but I am wondering about this relationship between prices and information that seems to be the foundation stone for capitalist apologetics. I would love to hear more.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Yours, Abu Hartal</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV></BLOCKQUOTE></DIV></DIV><BR></BODY></HTML>