I hear you re DON’T PLAY… but first of all we’re all encouraged, expected to plan and invest for retirement. Second, even for those of us NOT actively in the market, we’re now getting the consequences.

Enough digression. Last point – the market exists to advance society, not the other way around.

You said you believe in free markets. How much responsibility did your father in law bear in choosing poor “investments”? How much research did he do with regard to the investment acumen of his “broker” and/or his track record? CDs exist for a reason.

Your question w/ regard to the place of morality in markets goes to the same issue. Rubes get fleeced. If you don’t know what you’re doing, DON’T PLAY. Some minimal level of responsibility rests within the individual to recognize WHAT YOU DON’T KNOW and act accordingly. Fool me once, shame on you. Fool me twice, shame on me. Diversify, act incrementally, understand what you own and what it is worth and avoid the crowd (i.e.;don’t overpay).

Let me go at this one again.

In clearing up the affairs of my late father-in-law, who was a longshoreman, we came across an envelope of stock certificates from the late 80′s, sold to him by a broker. The vast majority of the stock became worthless junk within months of the sale.

So… was the broker acting immorally by selling junk to a longshoreman, who was simply looking to invest for retirement? F’ing right he was. If I ever catch up with the guy, I’m going to stuff a large-print hard-bound copy of “The Wealth of Nations” right up his a$$. Now that’s a proper application of theory.

I believe in a free market, inasmuch as the affected parties are voluntarily in the market. So in the example above… sure, caveat emptor. Assuming of course that the seller isn’t actively engaged in a fraud of some sort, like selling sub prime debt as AAA-rated paper.

Being “less sophisticated” myself, I’m finding all this market theory interesting. Which is nice because since being laid off, I have to spend more time reading and stuff. But I do suspect that the prevailing marketing “theory” you refer has maximum efficiency mainly for those running the market. It’s sure proven deadly efficient at stripping taxpayer money and livelihoods. Wealth-generator, indeed…

But seriously, theories aside, what in your opinion is the place of ethics, morality in the modern market?

But, to James point, the public does have a right to require its citizens, whether super rich or super poor to be fair and reasonable in what they do to make money. What has happened because of the immoral and amoral behavior of the usurers, is that the public has generally lost all faith in that community, and trust is a key element in moving our world and economy forward.

It is now up to the government to reregulate, and to expose the a- and im- morality for what it is, and allow it the opportunity in the newly regulated environment to stop its focus on immediate profit to the detriment of long term societal gain. There have been a few admissions of “what we should have done (or not done)”, but the future will be the ultimate arbiter of success in overbridging the chasm that still confronts us. Without agreement and cooperation among all sectors, there will not be uniform progress or progress at all.

The guys like Posner are practicing Ivory Tower legal economics, and are not interested in anything but making their points. Meanwhile those who accept what he speaks are just participating in the poisoning of the waters of progrss, and not finding solutions. I think that he would ultimately lose in any face to face debate with Simon or James, or even Paul.

Meanwhile, the Dependency Ratio is soaring. The ratio of government transfer payments to individuals divided by wages and salaries rose to a record high of 31.4% in April. It was less than 10% before the start of the Great Society in the mid-1960s. The problem is that rather than raising taxes on wage earners to pay the beneficiaries of the government support programs, the US is funding more of such spending through deficit financing. The “Nanny State Deficit” totaled a record $565.2bn (saar) during April. It is simply the gap between the social benefits provided by the government minus the payroll taxes paid by employees and employers to pay for them. This deficit was close to zero at the start of 2001, when the data are first available in the monthly personal income release.

One could also say that the tendency to make sweeping theoretical generalizations is also at the core of market economics. And our present form of market economics isn’t working particularly well.

Some regulation works. Some doesn’t. The trick is to get it right. And better regulation is one one piece of the puzzle.

This is hard work. But the tendency to throw up one’s hand and say that because the results aren’t perfect means we should do nothing will get us nowhere.

The perfect here is the enemy of the good.

As an aside, I find the “efficient breach” idea to be unsound. While it might be efficient in the aggregate, Posner seems to assume that the actors will interact only once. If you are burned by an actor who breaches his contractual obligations, are you going to contract with him again? In fact, assuming the breach is public news, how many other actors will decide not to sign contracts with a known breacher of contracts? Here, Posner assumes that he knows all the factors that lead to aggregate efficiency, but this is unlikely to be the case, especially if trust is diminished as a result of the “efficient breach”.