The book review section in Barrons last weekend was interesting - one book talked about the failure of market efficiency and why a lot of govt regulation is needed for a capitalistic society. It derided the economists who rely on the market forces to set asset prices. also berated about how trickle down economics doesn't work. The other book, written in the 1890s, talked about the evils of socialism. The evils of socialism was brought forth thru a story of a family and how they experience the force of socialism. The protaganist believes fully in a socialist society. The daughter saves money to buy a home and becomes devastated when the state takes control of all private assets. This book was published much before the soviet or the chinese communist revolutions.
I have an issue when people claim trickle down economics doesn't work. Trickle down economics isn't supposed to work irregardless of what skills the masses have. One has to have the skills that is demanded in the society to benefit from trickle down economics. If rich people want to buy private jet planes, then the company making the jet planes must be able to find the skills in the marketplace associated with the jet plane manufacturing. The people employed in this manufacturing plant will demand some other consumer goods and the firm providing these goods must be able to find people with skills to make that product. and so on it goes. But if I have a skill that is not demanded by the market or have no skills at all, trickle down economics will not work for me. This does not mean that the concept of trickle down economics doesn't work. If all I know is to raise horses and horses are not in demand in the economy or if there are too many people with the same skills compared to the market demand, I will not get gainful employment and will not benefit from the growth of the larger economy.
Can market forces get asset prices right and if they do or don't, what is the consequence of that? I will have to explore this in my later blogs.
