This is an interesting argument but I don't know any proof that it is correct. It seems very vulnerable to "adding up" or aggregation problems, where local optimization clearly can work, but when you have lots of independent local optimization, the aggregate effect is bad.

Have the Austrians proved that large number of actors each doing the best they will reliably aggregate up to global optimality? (That would actually be darned impressive given the well known problems of getting stuck on local optima.)

If not then there's no clear argument against government action to prevent or deal with bad local optima. And without any strong account of how and when markets fail, the scope of government action needed is potentially broad.

By the way, Shrekli is a pretty good example of "profit as a reward for helping everyone."

> If not then there's no clear argument against government action to prevent or deal with bad local optima.

There may not be an economic argument, but there's a political one.

In theory, government can move you from a local maximum to a global one. In practice, though, government moves you to a maximum likelihood of [them] getting re-elected, not to a maximum of any economic utility function.

More bluntly: You worry that the free market is going to produce a sub-optimal solution? Okay; that's a valid concern. But you think Congress is going to make things better? Have you looked at Congress lately?

(And, yes, of course I know that the Ayn Rand unfettered free market is not the answer. We really do need regulation. I get that. But be wary of the assumption that government can do better than the market at optimizing aggregate results. Government is a very blunt hammer, not a fine adjustment.)

It is indeed very interesting, however it has not been studied enough. Nothing has been proved. Too much effort goes in mainstream economics, while complex systems and agent based models are where the good stuff is, to answer question such as yours.

Aggregation problems are at the very core of Hayek reflection. I would not say it's bad. Look at his excellent 1945 paper: http://www.econlib.org/library/Essays/hykKnw1.html

There seems to be a lot going in favor. The global optimality depends on what one think is best.

Like, maybe Betamax was really better than VHS, but we humans settle on VHS. They went away with DVD. Then, rinse and repeat with Blueray.

Maybe Betamax and HD-DVD were much better, and maybe in an alternate reality they won. But saying they should have won and imposing that by force would be unfair to all those who chose otherwise in this reality.

And if we argue on a coordination problem, I would disagree- all it takes is something much better, like DVDs were to the VHS, or as streaming is to Blueray.

So being "stuck" on a local optima depends on a) the existence of an alternative only slightly better and b) lack of progress, ie never ever having a clearly better alternative to overcome the smallness of the difference or c) disregarding the opinions or the costs to whoever prefers the alternative.

We may not have proofs, but there is a strong argument. But maybe I am biased, as I would consider myself an Austrian economist.

Personally, I think the best way is leaving everyone free, not forcing anyone to do what they don't want to do, as I don't like the concept of force or violence. I don't care about government action as such - if it was optional, as in a "recommendation". As in saying cigarettes are bad. Not in banning or taxing them.

Completely Irrelevant: How do you have 2,000+ karma when your account was created nine days ago and have two comments and zero submissions?

Because I had an anonymous account so I did not contribute under my name. I asked if that could be corrected and it was.

Many women in IT chose to contribute anonymously. Recent articles on HN about the place of women and the lack of role models decided me to act.

If you have read the first comment I posted under my name, you already know :-)

As you were a bit puzzled by that, I added that piece of information to my account to avoid similar questions in the future.

EDIT only to realize my comment had now been downvoted. Still, I intend to participate under my name. Sorry for the irrelevance of this, I only wanted to answer your honest question.

(I just accidentally downvoted this comment. I doubt from the timing that I am the person you are referring to who downvoted your comment, as there was likely no way you could typed an edit after having seen that result quite that quickly, and you may have been talking about another comment, but FWIW: my accidental downvote happened when I went to click on your username on my iPhone to see your earlier first comment, and missed the target :/.)

The downvotes had just started- as you can see, due to further dowvotes it has now reached 0.

It is my fault, I could have prevented the situation by adding the warning to my account. I did not realize it would freak out other commenters that much, or that I would need such a full disclosure.

This escalated quickly! Personally, I only care about things people do, and sharing relevant knowledge. I read what people post, not their profile. Since I had an interest in that topic, I thought I could explain a bit more about such a weird headline that catches everyone eye.

The problem is, the Austrians don't acknowledge the true problems the knowledge problem incurs for capitalism, or that any other workaround can do anything about it. They think the only signalling channel available to human beings is prices.

This model of capitalism only produces the best outcome if the people making decisions can observe the costs of the outcomes of their decisions.

Let's say a super powerful alien has planted a bomb on the earth that will destroy the whole planet. It then tells the whole of humanity that certain actions they take will count down the bomb, but the bomb only updates it's counter once every hundred years. The bomb has a quite large counter, so it not really known when doomsday is.

The world's scientists, even politicians, authenticate and acknowledge the alien's message. However, since the true date of doomsday can't be determined, and the connection between actions and the bomb don't update the clock for 100 years, it is hard to convince anyone to change their economic activity.

That is, it is hard to PRICE-IN the new information about the bomb even though the knowledge is available. Thus, even when concrete knowledge is available, people will make time-preference decisions to defer the pricing until later generations when it reaches a crisis rather than amortizing it over time. This is perfectly rational, but it also leads to globally non-optimal solutions.

I consider myself a libertarian and fully believe that capitalism is the best system for free people to optimally allocate resources given a set of constraints.

When I don't believe is that the only way these constraints should be imposed is by purely "natural" means. Like if a fire or asteroid strike destroyed a critical natural resource, the price would rise and Austrians would say the new price is a fine and natural response to the new constraint. But if the government were to impose a tax on the resource to raise it's price similarly in order to limit it's use, somehow that's not ok.

Capitalism has unfactored costs because property rights can't be applied everywhere, or the coordination cost of some property rights are too high. Ergo, these cause distortions in the market. Thus, I favor a mixed economy. A mostly capitalistic society that acts through collaboration to reign in egregious externalities. (BTW, those just don't include environmental externalities, but also externalities that come from human costs, for example, the costs of inequality, poverty, illiteracy, etc)

That so many people find even minimal social welfare or regulation disagreeable I find rather confusing. I mean, if you agree that you should pay for the use of property, and that usage fees should be paid for usage of common infrastructure of property, then why throw a hissy fit over say, gas or carbon taxes? Isn't your car spewing exhaust an initialization of force against me since I have to breath it? Shouldn't you have to pay a usage free to dump into the atmosphere which you don't own? How can it be justified that there should be no regulation of this when tort is impossible against the individual actors?