Corporate Welfare

[Falian]

UG, I know your post isn't directed towards me but here's a hypothetical scenario:

The market is high-end furniture for yachts. The demand for high-end yacht furniture is 5 units per year. There are a lot of costs involved in producing high-end furniture, so the supplier only turns a profit after selling 4 units per year.

Bob is the sole supplier of high end furniture for yachts.

I think this is a perfect example of a monopoly that can exist without government interference as well as a monopoly that is good for the economic system.

Bob is providing a service that is in demand, which is good for the economy. Due to the nature of the industry, only one supplier can be in business in the long term. If another supplier (Mark) tries to bully his way in, then eventually Bob or this Mark will leave the market, as the industry is only profitable with one supplier in it.

While this scenario is hypothetical, i'm sure there are many business's out there that operate in an industry similar to what I depicted above. I think it would be incredibly unfair to paint them as bad companies solely because they are a monopoly.

The interesting part of this hypothetical scenario is what happens to the market if another supplier tried to enter the market.

If Mark enters the market and captures 2 units per year, then Bob will be running at a loss selling 3 units a year. Bob has been in the industry for 25 years and has built up a lot of capital, so he can afford to run at a loss longer than Mark. Mark eventually has to shut down. Bob captures Marks 2 units per year and turns a profit.

Mark and other people may scream afoul that this was "predatory pricing", when in fact Bob had to operate at a loss to remain in business.

 

[Unarmed Gunman]

I think it would be incredibly unfair to paint them as bad companies solely because they are a monopoly.

I'm not painting them as anything. I simply want to make sure we're working with the same defition because it has been stated in this thread that a monopoly can only exist through interference from the state and that simply isn't true. We have to have clear definitions to get anywhere on a debate.

 

[Falian]

I'm not painting them as anything. I simply want to make sure we're working with the same defition because it has been stated in this thread that a monopoly can only exist through interference from the state and that simply isn't true. We have to have clear definitions to get anywhere on a debate.

I believe that natural monopolies can exist without interference from the state. Having said that, the monopolies that most people refer to on a day-to-day basis are the result of state interference.

 

[Unarmed Gunman]

I believe that natural monopolies can exist without interference from the state. Having said that, the monopolies that most people refer to on a day-to-day basis are the result of state interference.

Agreed. I would also add that monopolies generally will have a negative effect on an economic system by perverting natural market forces such as competitive pricing, innovation, etc. That's why I would argue the Ancap position is untenable - there needs to be some regulation in order to keep a free market operating. Regulating a free market sounds like an oxymoron, but unfortunately it's the freest market that can realistically survive long term. A true free market with no regulations would fail.

 

[cziffra]

A true free market with no regulations would fail.

Regulations and free markets are mutually exclusive. You have one or the other, but not both. Your statement is like saying that you can't have abstinence without sex. You can certainly say that you believe that regulations are necessary for an economy to function (I disagree), but you can't say that it's still a free market.

 

[Unarmed Gunman]

Regulations and free markets are mutually exclusive. You have one or the other, but not both. Your statement is like saying that you can't have abstinence without sex. You can certainly say that you believe that regulations are necessary for an economy to function (I disagree), but you can't say that it's still a free market.

Dude - my post is like 3 sentences long, read it. I specifically said it's an oxymoron, but a "free market" can't exist without regulation thereby making it the "freest market" we can actually have. The reason is that by definition a free market (ie zero regulation or intervention) will always fail, therefore a "free market economy" has to have some regulation to function long term.

If you want to argue the semantics, we can. But it doesn't change the fact that a completely unregulated free market with zero regulations or intervention can not survive, and has never survived. Human nature prevents it from ever working outside of a textbook. Therefore, our goal of a "free market" should be to make markets as free as possible, while still having enough rules and regulations in place to allow them to function long term. If you would rather call that an "As free as possible market", that's fine, but reserving the term "free market" for something that doesn't exist is pedantic.

 

[Falian]

Agreed. I would also add that monopolies generally will have a negative effect on an economic system by perverting natural market forces such as competitive pricing, innovation, etc.

I have to disagree with this because the natural market forces would have caused the monopoly to occur in the first place and the natural market forces would be able to breakup the monopoly as well.

If a company is a monopoly, then we could argue that they could spend less money on advertising and sales. The money saved could be used to lower prices and invest in R&D (innovation), potentially created a better value for the consumer than if there were multiple competitors in the game all fighting a marketing war.

Let's say company B enters the market and competes on innovation. Company A buys out company B. Is that innovation lost? That innovation could have been absorbed into company A, which has more experience servicing the industry. The buyout could actually benefit the consumers.

I'm not smart enough to know what would happen in an unregulated market, but let's assume for a second that there will be good monopolies and bad monopolies and there will be good buyouts and bad buyouts (for the consumer).

Regulation would be our attempt to get rid of bad monopolies and bad buyouts and only keep good monopolies and good buyouts.

I think it would require a supreme being that was all-knowing to only apply regulation when it was necessary to protect the consumer and not misapply regulation, which could potentially cause huge ramifications for our economy.

 

[Unarmed Gunman]

You may have missed these earlier in the thread so I'll repost:

If I own the land and mineral rights to the only known deposit of Element B (here's where your strong property rights come in), and Element B has been shown to cure cancer, then I have a monopoly over the cure for cancer and can charge whatever I want.

One example of a Monopoly that would not be positive since it wasn't created by natural market forces and compeition, but rather due to a choke hold on supply of a necessary product. There is no way to compete with that. If there was competition in the market for element B, then prices would come down, and there may be innovation that results (perhaps it cures appendicitis as well).

Alright, let's try it this way. Monopolies are bad for markets, and ultimately bad for consumers. Any advantage gained by consumers in the area of lower prices is temporary and will be immediately negated once the competition is eliminated, because prices will be raised.

In many markets it takes months or years and immense capital expenditures to break into. What incentive would a company have to spend all of that money and time to break into a market, when they know that they will be forced out of business through uncompetitive practices?

Let's use the case of cellular providers since AT&T is about to buy T-Mobile. That will leave 3 major providers. Now let's say 5 years from now, they've bought Sprint and Verizon too, creating one company that controls 90% of the necessary infrastructure for the industry (the government will not allow that to happen, but under an anarcho-capitalist system it would naturally occur as industries mature). Now once they've completed their final acquisition, explain to me why they wouldn't raise their prices through the roof?

The Ancap position is that if they did raise their prices, other competitors would step in and create more competition - but how? Do you realize how expensive it would be to build all of the necessary infrastructure to be able to have a cellular network to compete? It would take years to do and billions of dollars to even attempt to compete with them. Then what? Then while you're trying to set prices in a manner to compete with them (and don't forget all the debt you acquired to build your business), they simply lower their prices to a level that you can't compete with. They leave their prices at that level until you go out of business, then they jack their prices back up. Meanwhile, you're financially ruined and they've sent a clear message to anyone else wishing to compete.

Once a dominant position is attained in a market, that business can and will do everything in it's power to limit competition. Limiting competition is bad for consumers in the end (even if there is a short term gain from an initial price war). That's why it's bad.

Most Ancaps argue that Monopolies are generally good, because if a Monopoly develops it's because the company deserved it. However, company policies, pricing, procedures etc change all the time. What got a company to the top, isn't going to be what keeps it at the top. Once you have the upper hand you're free to do whatever you want because you can use nasty tactics to prevent competitors as I've shown above. That's where the need for regulation comes in.

 

[JakeStratham]

I agree that monopolies (my definition, not yours) are bad, but that's a value claim. It has nothing to do with economics.

Most Ancaps argue that Monopolies are generally good...

 

[Falian]

You may have missed these earlier in the thread so I'll repost:



One example of a Monopoly that would not be positive since it wasn't created by natural market forces and compeition, but rather due to a choke hold on supply of a necessary product. There is no way to compete with that. If there was competition in the market for element B, then prices would come down, and there may be innovation that results (perhaps it cures appendicitis as well).

Most Ancaps argue that Monopolies are generally good, because if a Monopoly develops it's because the company deserved it. However, company policies, pricing, procedures etc change all the time. What got a company to the top, isn't going to be what keeps it at the top. Once you have the upper hand you're free to do whatever you want because you can use nasty tactics to prevent competitors as I've shown above. That's where the need for regulation comes in.

The problem with both of these arguments is that you're not factoring in that the consumer's demand can be met by more than one industry.

If one company holds a monopoly on silver and shoots the prices through the roof, then that's going to create a huge incentive for an entrepreneur to find a product that can replace the need for silver. Once that happens, the company with the monopoly on silver will have to reduce prices or go out of business.

The exact same thing can be said about a monopoly in the cellular industry. If AT&T, T-Mobile, & Verizon merged into one company and shot prices through the roof, then there would be a huge incentive to invent other kinds of mobile communication devices.

Right now, Wi-Fi is growing rapidly and if the incentive was there, i'm sure wi-fi coverage could become comparable to cellular coverage. Then companies could sell unlimited access to WI-FI for cheaper than the cellular monopoly provided cell phone service for. Consumers could then use free applications such as Skype to communicate.

So while, in this example, short-term the monopoly may look bad for the consumer, the monopoly actually created innovation in other industries, which ended in the consumer receiving a similar product for next to nothing. Now the cellular monopoly is forced to compete or go out of business, all without regulation.

That's the whole thing, no one is smart enough to predict the ramifications of a monopoly, both good and bad.

 

[Unarmed Gunman]

Uh, you might want to reread where he said that it's a value assumption and has "nothing to do with economics". It has everything to do with economics.

The problem with both of these arguments is that you're not factoring in that the consumer's demand can be met by more than one industry.

If one company holds a monopoly on silver and shoots the prices through the roof, then that's going to create a huge incentive for an entrepreneur to find a product that can replace the need for silver. Once that happens, the company with the monopoly on silver will have to reduce prices or go out of business.

The exact same thing can be said about a monopoly in the cellular industry. If AT&T, T-Mobile, & Verizon merged into one company and shot prices through the roof, then there would be a huge incentive to invent other kinds of mobile communication devices.

Right now, Wi-Fi is growing rapidly and if the incentive was there, i'm sure wi-fi coverage could become comparable to cellular coverage. Then companies could sell unlimited access to WI-FI for cheaper than the cellular monopoly provided cell phone service for. Consumers could then use free applications such as Skype to communicate.

So while, in this example, short-term the monopoly may look bad for the consumer, the monopoly actually created innovation in other industries, which ended in the consumer receiving a similar product for next to nothing. Now the cellular monopoly is forced to compete or go out of business, all without regulation.

That's the whole thing, no one is smart enough to predict the ramifications of a monopoly, both good and bad.

You're failing to factor in the effect that the resulting large pools of resources have on creating barriers to entry for new competitors. And if your argument is that these things would "work themselves out" in time - how long? If the innovation takes 20 years, whereas the regulation could have taken 20 days, then limited regulation needs to be looked at as a potentially better solution do it's time effectiveness.

If we were all noble beings, Anarcho-Capitalism would be the perfect system. However, Ancaps can never get around the fact that human's will generally fuck over their fellow human beings and find every way possible to not play on a level playing field. That's why there has to be a regulating force. It's not a perfect solution, but it's better than no solution.

 

[Falian]

Human beings will fuck with other human beings, but you don't think they will use regulation to do that as well?

Regulation can be used to fuck with other human beings by:

1. creating barriers for competition.
2. creating barriers for innovation.
3. bailing out large companies (banks and automotive), while letting others go out of business.
4. allowing large companies (GE) to write off huge amounts of taxes, while other companies have to turn a profit while still paying those same taxes.

Regulation isn't created by angels, humans create regulation. You've admitted that human beings will fuck with other human beings, they'll use regulation to do the same. And they do.

Neither of us are going to change our opinions, so i'm going to hop out of this. Having said that, It's been a great discussion!

One final thing, You're doing business in one of the most unregulated industries today, the internet. When regulation comes, and it will, we will see if your opinion on regulation changes.

 

[lukep]

I have a very good understanding of capitalism in the economic sense. I don't worry myself with much with history when it comes to the social sciences. Historical narratives are heavily biased by the historian, which is why I prefer to stick to deduction, which is value free.

I guess if you know everything there is to know about Edward Bernays and his effects on world society, then you won't need to see this doc then. Otherwise you'll be kicking yourself for not watching it earlier, no joke.

 

[jsherloc]

LOL at some of these posts in here. I don't understand why some of the WF community isn't out "shaking the free world up" if they are SO sure that their ideas/theories are the "ONLY WAY" to go for society. I mean, if other people could NOT POSSIBLY be correct in certain assumptions, yet you HAVE TO BE, please do us all a favor here and get out there and really "shake things up".

I would like to take some of these posts on here and send them off to some of the people all over the globe (some younger, some older, operating under and studying all types of systems and theories) that have had career long educations and VAST real world experience in the potential application of, and the analysis of, the inevitable financial/social ramifications of some of these "THE ONLY WAY IT CAN WORK" theories.

What exactly are some of you basing your financial/societal/economic theories and projections on? Masters degrees, etc? What kind of real-world experience do you have in the actual implementation/TRUE analysis of some of this stuff? I see people claiming to have a huge understanding of economics and what not...that's wonderful, but that does not automatically indicate that you have a greater understanding of economics than the people/policymakers(really policy "initiators") at the "top".

I recognize there are some SMART people on WF, but the great thing about being smart is that you willfully accept that others have just as much of a chance of being "correct" in their own assumptions and beliefs than you do. I would take this a bit further and state that being SMART also gives you the ability to assume that people whom have spent their entire lives immersed in something and are world-respected..well they too might actually BE RIGHT and YOU COULD BE WRONG.

Just my opinion of course. And since I consider myself a fairly intelligent human being, I am gonna go ahead and side with some of other intelligent and well-respected beings out there that currently believe we will ALWAYS need regulation. The amount of regulation will FOREVER be debated and change, absolutely....

 

[Unarmed Gunman]

Human beings will fuck with other human beings, but you don't think they will use regulation to do that as well?

Regulation can be used to fuck with other human beings by:

1. creating barriers for competition.
2. creating barriers for innovation.
3. bailing out large companies (banks and automotive), while letting others go out of business.
4. allowing large companies (GE) to write off huge amounts of taxes, while other companies have to turn a profit while still paying those same taxes.

Regulation isn't created by angels, humans create regulation. You've admitted that human beings will fuck with other human beings, they'll use regulation to do the same. And they do.

Neither of us are going to change our opinions, so i'm going to hop out of this. Having said that, It's been a great discussion!

One final thing, You're doing business in one of the most unregulated industries today, the internet. When regulation comes, and it will, we will see if your opinion on regulation changes.

We agree on all of those points (except the last one). I'm pretty confident that having some rules is better than having no rules at all.

 

[guerilla]

I used to firmly believe in Ancap philosophies, but over the years as I've learned more about human nature and motivations (beyond just greed), I have moved away from it.

This statement pretty much proves you have no idea what you're talking about when you talk about Ancap. I challenge you to define Ancap if you were a "firm believer" at one time.

@Guerilla, I can never tell whether or not you're trolling, so kudos to you.

That's not the only thing you have trouble telling.

I can see you don't want to be pinned down on anything, nor do you want to respond to comments in this thread that make your position untenable

Show me what I have not replied to. Then I will show you the dozens of points you have avoided, including the false claims you made about me and have not backed up yet. I have been far more rigorous than you and the record is there for everyone to see.

#1 - Do you believe a monopoly can exist without government interference?

Define a monopoly. I will accept any definition you want to use.

#2 - Are monopolies good or bad for an economic system (ie. its effect on consumers, innovation, pricing, etc.)?

That's a value statement and totally irrelevant to the debate. You can't make an "ought" an "is" and frankly, I might try if we shared values, but we don't. You believe in using violence to shape society, I believe in using peaceful exchange. Our methods and ends are incompatible.

Guerilla, try not to hurt yourself running away from those questions.

I've never run from a discussion on economics as far as I can remember, and the cheap attempts to call me out make you look desperate. Anyone here whose opinion I care about (and damn few of them spend all day in STS) already knows what sort of guy I am.

That said, how much discussion am I supposed to give to someone who has avoided the bulk of my points, and continues to make obviously false claims? You're coming across as a troll or at least dishonest in debate. If you want to have a serious discussion, ditch the cheap rhetorical grandstanding, and address my substantive claims.

Or you can concede if you'd like...

My position is based on fact and logic. You're welcome to refute it. We're all waiting for you to man up and make an argument worth hearing. Please, go for it. I've answered both of your "questions" now it is time for you to go back and answer ALL of mine. I can provide a list.

As an aside, I can't reply as fast as you these days. I don't spend my time online in STS all day like all of the other ballers here at WF.

If you're not going to argue in good faith, you're not going to get responses. You can call me a coward until the cows come home, but the thread speaks for itself.

Let me know if you need that list of points you avoided thus far in the discussion.

 

[guerilla]

It's just the most recent example, but competition would have resulted in specific companies being larger than other ones too (doesn't it always?).

Wow, great point. All companies are not equal. Who would have thought of that?

Without government interference it may have even happened a long time ago, but we don't know because the only instance of an economic system without government interference that we can point to is Somalia, and nobody wants to talk about how well that worked out.

Your entire argument is based on the argument from ignorance fallacy. You continually imply the lack of proof is proof and then you turn around and claim a strawman, which is that Somalia has been without government interference, which is false.

The reality is that those with large pools of capital can take over markets and stifle competition and that's a fact that can not be ignored.

This is an assertion, not a fact. Again, you're insinuating (because you have avoided addressing this directly when asked) that big firms competing in a big way is somehow wrong. You won't actually say what they are doing that is wrong, or why that is wrong. You just continue to insinuate that anyone who has been very successful and reaped the rewards of being successful is obviously screwing everyone else.

I want to call this UG's Michael Jordan fallacy. The best player in the league is immoral and bad for basketball because everyone else isn't as good as him.

What your fallacy reduces to is a race to the bottom. No more successful businesses, socialism (regulation) will make them all equal.

 

[Unarmed Gunman]

Show me what I have not replied to.

You have failed to respond to everything I've posted regarding monopolies (several posts now), including my examples of monopolies that have nothing to do with state interference. I'm not even sure if you would consider them a monopoly since you're still avoiding defining it. Since we can't argue about the effect of a monopoly if we can't agree on the definition then the whole argument is pointless.

Falian seems to hold a similar economic view as you and yet it took us 2-3 posts to agree on all but one point. Anytime you enter into a debate you do your best to sidetrack it with semantic arguments and other pedantic bullshit. It's funny to a point, but generally a waste of time. So I'll try one more time: I maintain that a monopoly does not necessarily exist "only due to government interference in the free market", and I think...although you still won't answer it, that you believe a monopoly can only exist through government interference in the free market.

It makes a huge difference because one of the biggest concerns that some people have (myself included) about a completely free market devoid of any rules or regulations is that Monopolies would eventually form, which brings us to our second point.

This is an assertion, not a fact. Again, you're insinuating (because you have avoided addressing this directly when asked) that big firms competing in a big way is somehow wrong.

Where have I said it's wrong? To play your game, that's a value assumption. I'm making an economic argument that it will eventually be counterproductive to the long term health of a market by causing increased prices and stifling innovation. I don't think it's "wrong" for a business to take advantage of any legal means of increasing it's profit, provided everybody knows all of the rules and is playing by the same set of rules. We disagree on the fact that I think you need a set of rules/regulations and you seem to think we don't need rules, that the market will regulate itself. At least, I think that's what you think, but it's hard to tell so feel free to correct me if I'm wrong. I believe that monopolies are dangerous to the longterm health of a market, and I'm not sure what your stance is on it, so feel free to give it. Or not, it probably doesn't matter.

You believe in using violence to shape society, I believe in using peaceful exchange. Our methods and ends are incompatible.

I never said that. In the interest of moving things along I'll assume you're not just blatantly making shit up and intentionally making false claims, and that what you mean is you believe that regulations are somehow equivalent to violence. If you think having a set of rules and regulations that everybody has to abide by equals violence, then that is your opinion. I don't believe that it is violence, particularly if everybody agrees to play by those rules. We can disagree on the need for regulations, or the amount needed to allow a market to operate efficiently, but making shit up will not help your case - stick to the points.

I would love to have a list of questions I've supposedly avoided, and I'll be happy to answer them clearly and concisely, one at a time, so there isn't any confusion as to what I believe. I already feel like I've invested way too much time into this thread, but that may help move the debate along, and may even bring us together on a few points so fuck it.