Thursday, September 16, 2010

Vox Genius strikes again.

According to Vox day, voluntary exchange is a generally bad idea:
The second and much more serious error is in the statement that "voluntary exchange benefits both parties". This is both logically and empirically false because it posits a non-existent human rationalism without temporal limits. While it is true that value is subjective, thereby allowing the possibility to defend totally irrational actions as at least nominally rational, this still doesn't avoid the problem of how the subjective values that the Misean acting man assigns are necessarily momentary in nature. What the acting man defines as a beneficial exchange at one moment he may very well not define as beneficial in the very next moment for a wide variety of reasons. And it is this fatal flaw in the logical foundation that causes the entire edifice in support of free trade to collapse.
Most people tend to revise their positions when they derive a contradiction, but not Vox. So, having "proven" that free trade is a really stupid idea, how does he account for that fact that free-trading South Korea is so much more prosperous than its relatively non-trading neighbor to the north?

The way that reality works is that voluntary exchange and free trade are almost certainly economically good ideas in the presence of perfect information being possesed by both parties. There's always that slight possibility that, say, a meteorite strike will take out human civilzation, thus preventing you from purchasing your morning cup of coffee. Voluntary exchange and free trade are therefore not absolutely certain to be of mutually benefit even with perfect information possesed by both side.

In the presence of limited or asymmetric information, voluntary exchange and free trade are generally of economic benefit. Yes, it is true that the possibility of irrational decision making, rapidly changing conditions of worth, and human trickery -- in general, risk -- make exchange problematic. There have been some developments that have been discovered that mitigiate the effects of risk. For example, advanced civilizations typically develop an information economy in which some economic actors specialize in providing reliable economic data in exchange for monetary renumeration. Even primitive societies deal with risk by creating institutions such as tribes and kinship groupings. Risk management is one of the keystones of economic success, right?

The key misrepresentation that Vox Day makes in his blog post is assuming that all potential transactions are plagued by utterly disabling levels of risk, which of course makes the possibility of useful exchange disappear. In the real world, that is simply not true.

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