Dubai: Land Without Bankruptcy
Via Megan McArdle, a story of a Canadian woman down on her luck in Dubai:
Her husband, Daniel, bought two properties. “We were drunk on Dubai,” she says. But for the first time in his life, he was beginning to mismanage their finances. “We’re not talking huge sums, but he was getting confused. It was so unlike Daniel, I was surprised. We got into a little bit of debt.” After a year, she found out why: Daniel was diagnosed with a brain tumour.
One doctor told him he had a year to live; another said it was benign and he’d be okay. But the debts were growing. “Before I came here, I didn’t know anything about Dubai law. I assumed if all these big companies come here, it must be pretty like Canada’s or any other liberal democracy’s,” she says. Nobody told her there is no concept of bankruptcy. If you get into debt and you can’t pay, you go to prison.
One point to make here is that this is why we have bankruptcy laws in the United States. The alternative is terrible.
Another point, though, is that no normal human being will be all that shocked to learn that a Canadian couple might move to Dubai and even enter in credit transactions in Dubai all without ever having thoroughly research Dubai bankruptcy law. This is the kind of terrible-in-retrospect oversight that people make all the time. But according to the same model of human behavior that taught us that a free market in financial products would be self-correcting, this kind of behavior is impossible. People are rational maximizers and would never make this kind of mistake!
64 Responses to “Dubai: Land Without Bankruptcy”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
April 15th, 2009 at 1:20 pm
Can they just leave the country if they’re ex-pats? Is there extradition, and would it be honored for something like criminal indebtedness that isn’t recognized by their home country?
April 15th, 2009 at 1:22 pm
Matt ruins a good Dubai-bashing story with an irrelevant and silly conclusion. To summarize, not even the hardest hard-core Chicago School types would suggest that there are no unintelligent and/or ill-informed individuals in the world.
April 15th, 2009 at 1:22 pm
Ex-pats made awful investment decisions and got themselves massively in debt during the real estate market boom and now they have to pay the (Middle Eastern) piper?
BAILOUT FOR EX-PATS!
April 15th, 2009 at 1:22 pm
I think this is just a Canadian foible.
Was in Belize many years ago and met the most clueless couple ever, of course Canadian. They told stories of traveling through the the wilds of Mexico, getting robbed multiple times. We were on a bus bound for Guatamala and when the time came to bribe the border guards they started to raise a ruckus. The other bus riders quickly took up a collection and paid their share just to quiet them. Like babes in the woods.
April 15th, 2009 at 1:25 pm
Ask questions first, read article second:
“If you have any outstanding debts that aren’t covered by your savings, then all your accounts are frozen, and you are forbidden to leave the country”
April 15th, 2009 at 1:27 pm
This is not the best example, and it is not even a particularly good example of a failure of the underpinnings of economic theory.
But that subject, the failure of the philosophical underpinnings of conventional economic theory really, really needs a book.
April 15th, 2009 at 1:32 pm
I read this article too and I was particularly impressed by the sheik-class rationalizing that they must be bailed out so that that their secular model isn’t seen as a failure across the Arab world. Of course secular doesn’t mean modern as debtors prisons and sewage washing up on pristine beaches will attest to.
It really is amazing how many times humans have to relearn lessons learned over and over in hundreds of years of recorded history. We are presently relearning the drawbacks to torture that 16th century executive and judicial officials understood inside and out. Dubai’s expat population is relearning the importance of a right they took for granted in their home countries and even our own domestic banks and credit card companies are learning the consequences to limiting bankruptcy protection in 2003. It never seemed to occur to them that prior generations had failed to reduce these protections for good reasons. It’s not as if bankruptcy law is some obscure thing not thought through for 214 years until Bush was president. The U.S. Constitution guarantees it specifically, in fact.
April 15th, 2009 at 1:36 pm
The whole article is worth reading. More disturbing than the tales of unhappy expats are the encounters with expats who just love Dubai, especially the slave labor.
April 15th, 2009 at 1:37 pm
I’m a little surprised that anybody would assume a country has a particular law just because big companies invest in it.
April 15th, 2009 at 1:44 pm
Can they just leave the country if they’re ex-pats?
Not if their passports are confiscated, and there’s no laissez-passer treaty to allow consulates to issue emergency replacements. The Hari piece is good, albeit as part of a trend of pile-on journalism pointing out what had been bleeding obvious about Dubai and the UAE for some time.
Matt’s conclusion is dumb, though. There are plenty of foolish expats experiencing the flipside of Dubai’s social arrangement, but there are also those who are trapped by the same kind of debts (albeit on a larger scale) as the traffickers of the emirate’s coolie construction workers and foreign hookers.
April 15th, 2009 at 1:46 pm
I don’t think the relevant conclusion is that they assumed Dubai had bankruptcy laws. I think it’s that the thought of bankruptcy never entered their minds in the slightest. They’re the kind of people that can move to one of the richest places on earth, buy multiple properties, party every night, and apparently have a job with a severence so large it should have paid off all their debt. Before the past year it would have been unthinkable to a lot of people in that kind of position that something like bankruptcy could happen to them.
April 15th, 2009 at 1:52 pm
Daily Show told us all we need to know about Dubai two years ago:
http://www.thedailyshow.com/video/index.jhtml?videoId=83571&title=Long-Kiss-Dubai
April 15th, 2009 at 1:57 pm
@7,
Jill Lepore has a piece on the tradition of bankruptcy law in America and England in a recent New Yorker (abstract only online). The US was much better than the UK on this score, but debtor’s prisons didn’t disappear with the Constitution.
April 15th, 2009 at 2:12 pm
Did you actually read the article? The reason they went bankrupt is because the husband had brain cancer and was unable to monitor his finances. This isn’t an ordinary case of financial irresponsibility.
April 15th, 2009 at 2:16 pm
Actually that mirrors most bankruptcy cases throughout the US. The leading cause of Bankruptcy is medical. People make rash choices while sick or trying to get healthy, compounded with the high medical costs.
April 15th, 2009 at 2:17 pm
I still chuckle about a quarter hour I spent in graduate school listening to a fellow student (of the chicago school stereotype) yammer about the utter realism and appropriateness of modeling people as rational fully informed utility maximizers while I watched him xerox a very lengthy article from front to back and then foolishly spend time reordering the pages. (I know, the chicago school stereotype response is that he must have derived much utility from reordering pages one by one, so what’s the problem?)
April 15th, 2009 at 2:26 pm
No one believes that individual people are rational maximizers. The concept is that the market in aggregate is rational. And even then the quote “the market can stay irrational longer than you can stay solvent” probably holds true.
April 15th, 2009 at 2:30 pm
Yes, except in this case, the rash choices were literally caused by a tumour in his brain
April 15th, 2009 at 2:34 pm
This thing about this guy with the brain tumor is really too bad, but it seems perverse to highlight THAT case given the systemic problems detailed in the linked article.
Isn’t it a bit bigger problem that, say, Dubai’s economy is maintained by a brutal slave system?
April 15th, 2009 at 2:38 pm
of course, yglesias is being sarcastic.
April 15th, 2009 at 2:45 pm
Matt, you could have found this story without quoting McMegan.
Please please please don’t let the stupid onto your blog.
April 15th, 2009 at 2:47 pm
Isn’t it a bit bigger problem that, say, Dubai’s economy is maintained by a brutal slave system?
If you go to the CIA Fact Book, they claim that the country is 99% Sunni muslim.
In fact, a cursory knowledge of the Emirates allows you to know that 3/4 (or more) of the population is Hindu Indian or Catholic Filipino, and that these gastarbeiters are treated like utter shit.
All these Bloomberg and Reuters and Economist writers tend to gloss over the fact that Dubai is a slave state.
April 15th, 2009 at 2:48 pm
Re: Can they just leave the country if they’re ex-pats?
Or why didn’t they take refuge at the Canadian embassy or consulate?
April 15th, 2009 at 2:51 pm
Another post with Matt constructing an absurd strawman of what “economists” would posit about a situation. It’s really becoming a silly habit, Matt.
April 15th, 2009 at 2:53 pm
The more interesting part of this article is where it explains that Dubai is a full-bore modern slave state. Dubai steals human beings through deception and forces them into permanent slavery. Real slavery. Let me emphasize this: Dubai is a slave state, in the year 2009. It is no model of anything other than stupendous greed and stupidity and evil.
April 15th, 2009 at 2:55 pm
“People make rash choices while sick or trying to get healthy, compounded with the high medical costs.”
No, that’s not it. What’s the rational choice if you have
a life-threatening medical condition and no health insurance ?
Either a) go without treatment and risk dying, or b) seek
treatment and worry about the cost later. Pretty obvious the
answer is b), and that’s entirely rational and not at all
“rash”. Having positive net worth is no use at all if you’re
dead.
Even if the medical problem is not life-threatening, but
merely sufficient to stop you working, you can get into debt
quickly if you have no money coming in, substantial fixed
costs (kids to feed and a mortgage), and low savings. In
that situation a few modest medical bills can put you over
the edge.
The problem with the USA’s social policies is not that
people get into trouble by making “rash choices” – it’s that
people can do their darnedest to follow all the rules and
work hard and play safe, and then *still* get screwed through
pure bad luck.
April 15th, 2009 at 2:59 pm
Debtor’s prisons sounds like the perfect 2010 GOP congressional campaign platform. I’m only half-surprised they haven’t thought of this already.
April 15th, 2009 at 3:12 pm
It’s sad that the man developed brain cancer that impaired his abilities. He didn’t cause it and it can happen to anyone, anywhere, any time.
But what prompts people to assume that all countries have the same laws as their own? Yes, the laws are often draconian and unjust but its another country and sometimes that’s just the way it is.
And why would you invest money in a place you know nothing about?
BTW, as a Canadian I wouldn’t advise any Canadian to bring any personal problems to the Cdn. embassy. They aren’t there for you, ony for larger corporations. Anyone else is disturbing their coffee breaks, pension calculations and paper clip- counting duties.
April 15th, 2009 at 3:12 pm
I love the idea that people are rational though persons aren’t.
Magical Capitalism, you bewitching vixen.
April 15th, 2009 at 3:19 pm
No Matt, free markets teach us that – in the aggregate, people are rational actors. Individually, people vary all across the bell curve. I think we can add “capitalism” to the long list of things Matt simply doesn’t get.
April 15th, 2009 at 3:30 pm
No Matt, free markets teach us that – in the aggregate, people are rational actors.
And I think a lot of people have recently come to the conclusion that this is not actually true.
April 15th, 2009 at 3:31 pm
free markets teach us that
Just so you and I will both know, how do abstractions “teach”?
Magical Capitalism, you bewitching vixen.
lather, rinse, repeat
April 15th, 2009 at 3:46 pm
It is not even true that market efficiency requires most people to be intelligent, well-informed, and rational. Rather, you just need a few very-well-funded arbitrageurs around, competing to exploit any pricing-inefficiencies they can identify.
April 15th, 2009 at 3:52 pm
Doesn’t that icy twat McArdle support a relaxation of bankruptcy laws?
Does this kind of story change her mind about regulation? Or is she still too rich and glib for that?
April 15th, 2009 at 4:05 pm
Actually, markets can achieve rationality even if absolutely no one is rational at all. Random actors who happen to make good choices purely by luck will have more cash to continue making good choices. Repeated iterations of this process could theoretically rationalize markets in the absence of any reasoning processes whatever. Similarly, species can achieve “rationally” well-adapted features even without a designer.
April 15th, 2009 at 4:06 pm
“It is not even true that market efficiency requires most people to be intelligent, well-informed, and rational. Rather, you just need a few very-well-funded arbitrageurs around, competing to exploit any pricing-inefficiencies they can identify.”
Which gets to the heart of the problem. Sometimes “market efficiency” actually means “generation and deflation of asset bubbles that result in the collapse of the banking system and the loss of millions of jobs, but make a handful of pessimists exceedingly rich if they were able to stay solvent long enough during the bubble to successfully short the market.”
In other words, market efficiency and the public interest are not always the best of friends.
April 15th, 2009 at 4:11 pm
Re: In fact, a cursory knowledge of the Emirates allows you to know that 3/4 (or more) of the population is Hindu Indian or Catholic Filipino, and that these gastarbeiters are treated like utter shit.
Greg,
I don’t think that’s correct. There are _a lot of_ Hindus and Christians, but I believe that the majority of the total population is still Muslim (though certainly not 99%). Many of the migrant workers are Muslim- largely Pakistanis, East Africans, and Palestinians.
April 15th, 2009 at 4:35 pm
http://en.wikipedia.org/wiki/Dubai
Hector, Wikipedia says Dubai is 26% Arabian (of which 17% is Emirati, or “free”). The religion is kind of secondary to the nationality in terms of wagering whether or not somebody is a slave.
Is there a shittier country? Is Congo shittier? Palestine?
It seems as though Palestine is less shitty than Dubai.
April 15th, 2009 at 4:40 pm
Sure, and in theory, communism works. I’ll go with the Men in Black line, “A person is smart. People are dumb, panicky dangerous animals and you know it.”
April 15th, 2009 at 4:52 pm
Actually, markets can achieve rationality even if absolutely no one is rational at all.
So, “rationality” has no meaning at all beyond “something I like.”
April 15th, 2009 at 5:15 pm
I think the problem is essentially the lack of differentiation. The bankruptcy laws which Dubai intended for low-skilled labourers, like people hired on mass contracts, do not necessarily fit as well those who come to Dubai of their own free means, i.e. North American and European citizens. The solution is to restructure the banking law (for North American and European citizens) in such a way as to mirror the norm in the first world, while keeping the bankruptcy code separately appropriate the others.
You don’t have to change the whole law; you just have to change it so the application is limited to those who need it; i.e., those who are accustomed to North American and European legal systems.
Is there a shittier country? Is Congo shittier? Palestine?
It seems as though Palestine is less shitty than Dubai.
There is a good reason why Lebanese and Palestinians streamed to Dubai (of their own free agency; Arabs are under different border regulations than say, Philippine maids); it offers an improvement in their standard of living. You ought to check the objective facts, i.e., Dubai is a far better country than Palestine (and about a million times better than getting murdered and raped in the Congo), instead of simply resorting to typical liberal anti-Dubai tirades out of pernicious envy and resentment. I shouldn’t think sanctimonious self-righteousness against an example of what we should wish the Arab world become, would make any good discourse.
April 15th, 2009 at 5:17 pm
Frankly, the liberal bashing of Dubai is ludicrous; if the entire Arab world is like Dubai, we would not have any international problems from that part of the world clogging up the UN Security Council every single session.
We ought to praise and admire Dubai for being the excellent example of what Arab ingenuity, and openness to progressive notions like free markets capitalism, can accomplish.
April 15th, 2009 at 5:46 pm
Re: Hector, Wikipedia says Dubai is 26% Arabian (of which 17% is Emirati, or “free”). The religion is kind of secondary to the nationality in terms of wagering whether or not somebody is a slave.
Luke,
I don’t deny that Dubai is a vile and decadent slave state. I was simply denying that it’s a matter of religion. Most of the people oppressed by the Dubai regime are fellow Muslims.
Why am I not surprised that Myles thinks that the spoiled and p*ssified Emirati sheiks are his models of upstanding heroes. Myles would have fit right in with the Court of Louis XVIII.
April 15th, 2009 at 6:09 pm
Given the circumstances of this situation, am I the only person who thinks the Canadian government ought to be doing something?
April 15th, 2009 at 6:29 pm
I knew this was going to be a perfect opportunity for Myles SG Esquire to get all het up about Dubai again, the place where the parents are less ashamed to leave fortunes to their aristocratic youth as they are in the guilt-ridden, culture-declining West.
April 15th, 2009 at 7:24 pm
So, “rationality” has no meaning at all beyond “something I like.”
I don’t know where you got that. A rational market is a market where prices precisely reflect real value given all current available information. One way to achieve this result is if all actors act perfectly rationally (that is, every individual sets price preferences according to real value), but there are other theoretical mechanisms as well to get the same result, including some assuming no individual rationality.
April 15th, 2009 at 7:45 pm
And it’s yet another opportunity to show that for all the lip service conservatives pay to Western history and culture, they’re willing to give it all up and live under a Muslim dictator for a few bucks. And to conservatives, building your economy on the backs of literal slave labor is an admirable display of business acumen, not a moral outrage.
So much for “principled” conservatism.
April 15th, 2009 at 7:55 pm
Realist,
Market efficiency requires market prices to quickly respond to any relevant new information. I don’t see how the process you describe could guarantee that would happen, but maybe you can elaborate.
LaFollette Progressive,
Absolutely. Properly defined, market efficiency is both a more robust concept and also less universally valuable than many people assume. Basically, under the right conditions markets can be useful allocative tools, but anyone who thinks markets should be making all of our decisions for us doesn’t really understand the limits of what they can do (or is trying to sell you something).
April 15th, 2009 at 8:07 pm
Sometimes I read rightist argumentation and it reminds me of an old joke.
Once a fool was in the street proclaiming the beauty of his home. A wealthy landowner, interested in the property, asked him to describe the house.
The fool took the landowner to a nearby pile of bricks.
“It is a collection of these.”
April 15th, 2009 at 8:28 pm
The Canadian government doesn’t give a shit about you if you’re not politically connected. See Maher Arar, Huseyin Celil, etc. Canadian citizenship means essentially nothing these days because the government isn’t willing to go to bat for you no matter how obvious it is that your rights are being infringed on. This was true under the Liberals and it’s even more so under the Cons.
April 15th, 2009 at 8:51 pm
I am not sure what the Canadian government can do. This isn’t like asking to commute a death sentence. If Sheikh Mo wants to play nice, he’ll just release them and send them back to Canada. If he doesn’t, there is very little any foreign government can do in those sorts of circumstances.
It’s like the British couple who got in jail for beach frolicking. When in Rome and all that.
And Adam Villani, it’s not slave labour. It is voluntary, consensual, contract labour. Those people aren’t owned by anybody; they are doing it for their own monetary gain.
April 15th, 2009 at 9:40 pm
Market efficiency requires market prices to quickly respond to any relevant new information. I don’t see how the process you describe could guarantee that would happen, but maybe you can elaborate.
Well, that depends. If the new information is generally of the same type as past new information, then the process I described copes with it fine–one merely needs to accept that there exists some algorithm, likely quite complex, which responds optimally to new information. Then with enough random actors and enough random algorithms some lucky person will come up with the right one. If the market is constantly struck with fundamentally new events then the theory fails–the people who succeed by being right in one year will lose all their money when the situation changes.
I’m not saying that rational markets are an accurate description of the real world, merely that it is mistaken to think that were they to exist, they would necessarily require rational actors. To test the empirical validity of rational market theory one needs to look at actual markets, not individual actors, not even the set of all individual actors.
April 15th, 2009 at 10:03 pm
If the new information is generally of the same type as past new information, then the process I described copes with it fine–one merely needs to accept that there exists some algorithm, likely quite complex, which responds optimally to new information. Then with enough random actors and enough random algorithms some lucky person will come up with the right one.
It turns out to be incredibly hard–as yet impossible–to duplicate even ordinary intelligent behavior with programmatic algorithms, and I am skeptical that a bunch of monkeys randomly typing on a keyboard are going to come up with such an algorithm for incorporating even just ordinary information into securities pricing.
By the way, the only promising path to that end (an artificial intelligence) is to allow the entity in question to adapt its “programming” over time in response to stimulus. Which ends up sounding an awful lot like entities capable of learning, which in turn suggests to me to make this work we would end up reduplicating what we were originally trying to replace, namely intelligent, learning beings.
In any event, thanks for the clarification.
April 15th, 2009 at 10:23 pm
Re: And Adam Villani, it’s not slave labour. It is voluntary, consensual, contract labour. Those people aren’t owned by anybody; they are doing it for their own monetary gain.
Actually, they’re doing it because the native-born Emiratis are in large part a bunch of decadent, inbred p*ssified playboys who prefer cavorting in their harems and betting on camel races (run by child slave jockeys) to actually doing an honest day’s labor.
Of course, this makes them (minus the harems) not too different than the Edwardian earls who Myles seems to regard so highly, so maybe it’s not too surprising that Myles likes Dubai either.
April 15th, 2009 at 10:26 pm
“Intelligent” behavior is often a rather poor method of solving a problem. Human-type intelligence only evolved once in Earth’s history, after all. There are many cases where the cost of coming up with an intelligent solution may be more expensive than the cost of coming up with a well-programmed brute force approach. The “well programmed” part is exactly what you described–that of adaption over time (along with some form of selection, e.g. financial reward for success). Maybe that sounds like learning to you (my favored analogy is biological evolution, of course) but the learning and intelligence of real human “rational actors” are not programmed for good market actors, but good biological actors. And our computers are programmed by the minds of good biological actors. Therefore, it is at least possible that blank slate random actors would eventually produce a more rational market than humans, who, not willing to accept the minuscule chances of success in random processes, instead take “good enough” approaches which leave hidden global maximum optimums unexplored.
This discussion has no bearing on whether markets are actually rational, though.
April 15th, 2009 at 11:22 pm
“Random actors who happen to make good choices purely by luck will have more cash to continue making good choices.”
But if it’s purely by luck, then there’s no reason to think
the winners will do well in future. Darwinian evolution only
works when because a) some individuals have features which
improve their chance of survival and reproduction, and
b) those “fitness” features have a tendency to be passed on
to future generations. If you tried to breed racehorses by
rolling dice to choose which get to breed, then you wouldn’t
get anywhere.
April 15th, 2009 at 11:31 pm
“And Adam Villani, it’s not slave labour. It is voluntary, consensual, contract labour. Those people aren’t owned by anybody; they are doing it for their own monetary gain”
Read the damn article: the deal they consent to isn’t the
deal they get, contracts apparently don’t mean a thing in Dubai, and passports are taken away leaving the workers
effectively captive and working under inhumane conditions
for practically no money. It seems many die.
April 16th, 2009 at 12:26 am
passports are taken away leaving the workers
effectively captive and working under inhumane conditions
for practically no money.
It’s called mass contract labour. The reason that they submit to such an arrangement is that they do not possess the qualifications and skills to enter Dubai by only their own agency, unlike say, Europeans and North Americans, and thus measures like passport removal are present. If I were to go to Dubai today I certainly would not be surrendering my passport, and rightly so.
It is merely a rational response to the possibility of undesirable illegal immigration or overstay of visa terms.
Again, I really don’t understand why you are bashing Dubai; if the rest of the Arab world became more like Dubai, the world would be a more peaceful place.
April 16th, 2009 at 12:27 am
working under inhumane conditions
for practically no money.
And I wouldn’t advise to let your bizarre and spiteful contempt for the average working-man disguise the fact that what you describe as “practically no money” is still far, far better than what they get in India or Pakistan or whatever, and in any case, is the amount for which they signed up.
April 16th, 2009 at 1:27 am
Re: Again, I really don’t understand why you are bashing Dubai; if the rest of the Arab world became more like Dubai, the world would be a more peaceful place
Dumbf*ck, the rest of the Arab world can’t “become like Dubai”, any more than the rest of Europe can become like Monaco. Dubai fills a particular role in the Middle East economy. It exists only because the Palestinian refugee camps in Gaza and the slums in Karachi produce enough impoverished young men who go there to do menial labor. If the slums and refugee camps didn’t exist, then neither would Dubai.
Why anyone would propose Dubai- the city that seems to have combined the worst of monarchy, aristocracy, Islamism, free market capitalism, and welfare-state liberalism into a kind of toxic brew- as a shining example rather puzzles me. What’s next- will Myles sing paeans to the Bourbons?
April 16th, 2009 at 1:44 am
But if it’s purely by luck, then there’s no reason to think the winners will do well in future.
It’s not that every individual choice is chosen randomly, it’s that everyone randomly chooses an algorithm which they stick for on the long term. So provided there is some consistency in good market actions, the people who choose good algorithms by luck will increase their wealth, increasing the ability of the good algorithms to rationalize the market as time goes on.
April 16th, 2009 at 7:27 am
“what you describe as “practically no money” is still far, far better than what they get in India or Pakistan or whatever, and in any case, is the amount for which they signed up.”
Read the fraking article. The Bangladeshi workers are very
explicit that a) what they get is *less* than they could make
in Bangladesh, and b) it is about 1/4 of what they signed up
for, e.g. they were promised $360/month, they get $90/month.
And the expat with the brain tumor had a contract with a
guaranteed payoff that would have been sufficient to cover his
debts: that’s why he chose to resign. The trouble is that
contracts don’t mean a damn in Dubai: his employers didn’t
pay the promised amount, leaving him in debt (and thus in
jail, with his wife destitute and living in a car).
April 16th, 2009 at 9:48 am
Myles, READ THE ARTICLE. These people are getting screwed. They are coming over based on false promises from their employers and their contracts are not being honored.
and thus measures like passport removal are present.
Once they take away your passport, how exactly do they have any more voluntary say in the matter?
You seem to be failing to grasp that the treatment of the workers there doesn’t even fall under the normal workings of capitalism. Capitalism is, indeed, based on different parents making voluntary, consensual contracts with each other and honoring them. The employers are not honoring these rules.
April 16th, 2009 at 12:08 pm
“It’s not that every individual choice is chosen randomly, it’s that everyone randomly chooses an algorithm which they stick for on the long term. So provided there is some consistency in good market actions, the people who choose good algorithms by luck will increase their wealth, increasing the ability of the good algorithms to rationalize the market as time goes on.”
Well, yeah. Like the “algorithm” of selling high-interest
subprime mortgages to people who couldn’t afford them. That
was a “good algorithm”, for a while, and it was adopted by
most big players in the financial markets. How’d that work
out ?
It’s not clear what you mean by “rationalize the market”.
Markets lead to some form of ordered behavior, by the kind
of mechanism you have suggested. But that behavior is not
necessarily “rational” in any useful sense; nor is it stable.
Markets, notoriously, have booms and crashes.
The analogy to Darwinian competition for survival is
illuminating: what matters, in the market, in an ecological
system, and in game theory, is not just the external
environment (e.g. economic fundamentals) but also the
behavior of all your competitors. And that encourages
lemming-like strategies: buy when everyone else is buying,
sell when everyone else is selling, and thus the boom-and-
crash patterns seen in stock prices and often in populations
of animals.
There’s behavior. The behavior follws some rules and exhibits
some patterns. But it isn’t “rational”, it isn’t stable,
and it often doesn’t maximize anything useful.
Nevertheless, markets are often desirable because the
alternatives are even worse.