The economic theory: the state intervenes in the economy in order to prevent free-riding – in order to internalize externalities – in order to better ensure that all private parties pay the full marginal costs of their activities, and that all private parties reap the full marginal benefits of their activities – in order to promote competition – in order to protect the weak from the strong.
The political reality: the state intervenes in the economy in order to promote free-riding – in order to externalize costs and benefits that the market has reasonably internalized – in order to better ensure that politically powerful private parties escape the full marginal costs of their activities, and that politically disfavored groups be stripped of much of the marginal benefits of their activities – in order to promote monopoly – in order to render some people weak who are then pillaged by the strong.
Don Boudreaux, “Economists’ Normative Case for Government Intervention is a Very Poor Positive Theory of that Intervention”, Café Hayek, 2016-09-26.
August 15, 2018
QotD: State economic intervention in theory and practice
July 7, 2018
QotD: Crony rules
The direction [by government] of economic activity thus necessarily involves discrimination between persons, the creation of monopoly and privilege, while the aim of the Rule of Law is the abolition of all privilege, be it in favor of the strong or of the weak. And it is no less fatal to freedom if exemption from general legal rules is granted to the weak than when it is granted to the strong. Once the door is opened to differentiation on the ground of deserts or needs, it will be arbitrary will instead of objective rule which will govern men.
F.A. Hayek, “The Political Ideal of the Rule of Law”, 1955.
March 29, 2018
January 13, 2018
The common factor of the Net Neutrality fight and the EpiPen price gouging scandal
Lili Carneglia explains what these two examples of “capitalist excess” are actually the result of regulatory failures:
Without net neutrality, regulations that prevent internet service providers (ISPs) from charging more for priority speeds and higher bandwidth-use sites would disappear. Most Americans are pretty confused by the revised rules but highly skeptical that this action could have any benefits. Many people, especially those living in the rural south where choices are limited, feel like these companies have been taking advantage of their customers for years, and loosening regulatory constraints on these companies seems like a terrible idea.
Net neutrality was a regulatory policy set under the Obama administration in 2015 that mandated ISPs to treat the internet like other utilities, such as highways and railroads, under laws established before most people had TVs. Under these rules, companies must act as neutral gateways to the internet without controlling the content or the speed of the content that passes through that gateway. Supporters of the rule argue that these regulations ensure the free flow of information, while those against the policy see net neutrality as a misapplication that stifles an industry that is more dynamic than other public utilities.
[…]
Yes, a handful of industry giants can and have abused their market power. Most consumers have limited ISPs to choose from in a given area, and options are more limited outside of big cities, where “three-quarters of American homes have no competitive choice for the essential infrastructure for 21st-century economics and democracy,” according to the former FCC chairman Tom Wheeler. It is important to consider how these circumstances came about before deciding that federal regulation might help consumers.
Governments, by and large, prefer to have fewer players in a given market as it makes that market easier to regulate, and the easiest market to regulate is a monopoly. When cable networks were beginning to spread across North America, many local governments were persuaded that a single cable provider would be the best option for their jurisdiction and the broadband internet market that came later was heavily shaped by the already carved-up markets for cable TV. For many, there were no competitive options because the local government had precluded the chance of competition for their already entrenched cable monopoly (or, in a few cases, tight oligopoly).
Competition is the best answer to monopolistic abuse of customers … if you get shitty service from the Blue Cable Company, you’ll be more likely to switch to the Red Cable Company. If you only have Red and Blue to choose from, your leverage is small, but if you have a full rainbow of competing options, Red and Blue are forced to make their services at least comparable to what Orange and Pink and Magenta are offering, or they lose too many customers. If there’s no threat of a competitor scooping up unhappy customers, there’s no incentive for the existing company to do more than the absolute minimum to keep customer complaints down to a dull roar. The customer’s only recourse — other than giving up the service or moving to a different jurisdiction — is to complain to the regulator.
The base problem with Mylan’s EpiPen price gouging is the same: an effective monopoly supported by the government:
The arguments against net neutrality repeals center around fears about what producers will do without regulation since they have significant market power and the ability to raise prices to levels that would not be sustainable under more competitive conditions. The concern about increased internet prices is similar to what happened in 2016 when a pharmaceutical company with market power, Mylan, increased the price of life-saving EpiPens by about 400 percent.
The “greedy” pharmaceutical companies were hung out to dry as Congress berated Mylan representatives in hearing after hearing. There were similar cries of outrage and demands that the federal government do something to prevent such selfish price-gouging, similar to what many consumers fear ISPs will do absent regulations.
Even (supposed) free-market advocates started supporting further regulation during the EpiPen debate. Most notably, then fiscal hawk representative and now Trump budget director Mick Mulvaney, defended further market intervention on the condition that, “If you want to come to the state capitols and lobby us to make us buy your stuff, this is what you get. You get a level of scrutiny and a level of treatment that would ordinarily curl my hair.”
However, in all of those hearings, almost no one bothered to unearth the problem that Mulvaney hinted at: Why was Mylan able to increase that price in the first place? Government intervention. Burdensome FDA regulations and other laws pressuring public schools to buy the drug essentially granted Mylan a monopoly. It was as misguided then as it is now to think that these same institutions can be trusted to clean up the mess they created.
Mylan had no effective competition, so there was nothing to stop the price gouging until it got so bad that even the regulator had to pay attention. If there were other pharmaceutical companies allowed to compete, do you think Mylan would have risked jacking up the price only to watch their competitors gaining market share?
Scott Alexander explained the Mylan monopoly quite expansively in 2016.
December 26, 2017
What makes a diamond priceless? – James May’s Q&A (Ep 7) – Head Squeeze
BBC Earth Lab
Published on 14 Feb 2013James May imparts his knowledge to let us know that diamonds aren’t that rare after all.
James May’s Q&A:
With his own unique spin, James May asks and answers the oddball questions we’ve all wondered about from ‘What Exactly Is One Second?’ to ‘Is Invisibility Possible?’
December 15, 2017
QotD: Crony capitalism
First, we labor under a ubiquitous threat of being shackled by crony capitalists. [Adam] Smith wondered how internally stable a free market could be in the face of a tendency for its political infrastructure to decay into crony capitalism. (The phrase “crony capitalism” is not Smith’s. I use it to refer to various of Smith’s targets: mercantilists who lobby for tariffs and other trade barriers, monopolists who pay kings for a license to be free from competition altogether, and so on.) Partnerships between big business and big government lead to big subsidies, monopolistic licensing practices, and tariffs. These ways of compromising freedom have been and always will be touted as protecting the middle class, but their true purpose is (and almost always will be) to transfer wealth and power from ordinary citizens to well-connected elites.
David Schmidtz, “Adam Smith on Freedom” (published as Chapter 13 of Ryan Patrick Hanley’s Adam Smith: His Life, Thought, and Legacy, 2016).
October 7, 2017
Why We Should Privatize the Postal Service
ReasonTV
Published on 6 Oct 2017What’s the best way to make the Post Office faster and cheaper? Pull the government’s tendrils out of it and let it loose in the private sector.
October 2, 2017
Is it becoming time to let the NFL’s “chips fall where they may”?
The modern NFL as we know it enjoys a legal privilege through an act of Congress, allowing the league to negotiate TV rights as a single organization and sharing the revenue equally among all the constituent teams. In City Journal, Steven Malanga recounts the history of how that privilege was granted:
Many sports fans know that Major League Baseball has a unique exemption from the nation’s antitrust laws, thanks to a 1922 Supreme Court decision, which perplexingly ruled that baseball teams do not engage in interstate commerce. Less well understood, however, is that the National Football League retains its own federal exemption through legislation that has allowed the league’s teams to cooperate on television contracts — a gift from Washington that has been crucial to the development of the modern NFL. Over the years, the exemption has proved controversial, though bipartisan calls to revoke or narrow it have never gained much traction. The exemption deserves a fresh look with the players’ extreme politicization of the league, in which they have been aided and abetted by the owners, who have allowed and even taken part in unprecedented partisan posturing — broadcast to the nation via Congress-approved TV deals.
According to NFL mythology, the league’s success is the result of the vision of its mid-1950s and 1960s leadership, including the marketing savvy of former commissioner Pete Rozelle. But the real cornerstone of the NFL’s rise was successful Washington lobbying by league leadership, after a court ruled in 1961 that NFL teams could not negotiate broadcasting rights as a group, because such power would violate antitrust laws against monopolization. Rozelle got a New York congressman, Emanuel Cellar, who chaired the House Judiciary Committee’s Subcommittee on Anti-Trust and Monopoly, to introduce what’s become known as the Sports Broadcasting Act of 1961, which provided limited antitrust exemption, allowing teams to pool their efforts for the sake of negotiating TV deals. When President Kennedy signed the legislation, it permitted a $4.65 million broadcast deal that the NFL had crafted with CBS for the rights to televise football games. The price of broadcasting packages quickly accelerated, especially after the merger of the NFL and the old AFL, and the antitrust exemption allowed for such singular NFL successes as Monday Night Football, introduced in 1970.
Though the act also applies to professional baseball, hockey, and basketball teams, its significance to the NFL came to outweigh the benefits to other leagues, because pro football—with many fewer games per season—exclusively and collectively sells all its TV rights through monopoly pooling, then distributes the revenues to teams equally. Without this exemption, each team would have to negotiate its television contracts individually, which would be fine for powerful teams like the Dallas Cowboys that could probably arrange to have all their games broadcast nationally, but less advantageous for weak teams such as the Cleveland Browns, which might struggle even for local coverage.
[…] The majority of companies in America would not, and do not, allow demonstrations at work by individual employees on political issues unrelated to their employment — just the sort of demonstrations begun last year by former San Francisco 49ers quarterback Colin Kaepernick, and carried on through this weekend by more than 200 players. That the owners have tolerated and lately even encouraged such protests over an issue — charges of police brutality — that divides many Americans is a business risk that they seem willing to take. But the league’s use of its platform — created by its federal antitrust exemption — to broadcast its message across the country is more than a simple business matter. It represents an improper use of resources made available to the NFL by special federal legislation. It’s past time to revoke the Sports Broadcasting Act — and let the “chips fall where they may.”
September 15, 2017
Will Google’s quasi-monopoly last as long as AOL’s did?
In the big picture, I’m concerned with Google’s current market power and their ability to quash online freedom of speech almost at will (if not directly, through pressure on other companies to co-operate, or else: “Nice little business you’ve got here, Mr. Forbes. It’d be a shame if something happened to its Google search results…”). Google is huge and has fingers in an unimaginable number of pies, but it is still subject to market forces, as was an earlier behemoth of the online world:
The film [You’ve Got Mail] was released in 1998. Amazon was founded in 1994 and had its IPO in 1997. It was about to crush big discount bookstores — does anyone still remember the other big chain, Borders? — and nobody had a clue. There isn’t a single mention in the film of Amazon or online sales.
But the Internet is mentioned. It’s right there in the title of the movie. You’ve Got Mail, for those who are old enough to remember, was a tagline for America Online, the largest Internet service provider in the dial-up era of the 1990s. For millennials, let me explain: we had to connect our computers to a phone line, and an internal modem would place a phone call to a local data center from which it could download information at impossibly slow speeds. […]
AOL is there in the film’s title, because that’s how our protagonists are communicating: by trading e-mails on their dial-up AOL connections.
AOL’s high point was its merger with Time Warner in 2000. It was all downhill, rapidly, from there. Dial-up was quickly surpassed by broadband, and as the Web developed, nobody needed a “Web portal” any more. Again, for younger readers, let me explain. When you managed to get to this exciting new thing called the World Wide Web, how did you know what sites to go to or how to access information? Before the Google search, before Facebook, before Twitter, you went to a Web portal, a launching off point that gathered links and directed you to various sources for news, entertainment, shopping, etc. These Web portals had a huge amount of influence — until they didn’t.
Now here’s the fun part. At the same time nobody was paying much attention to Amazon because Barnes and Noble was going to crush all competitors and control the book business, there was widespread panic about the unstoppable monopoly power of AOL.
AOL was going to gain a monopoly because of its death grip on instant messaging. The “computer editor” for The Guardian worried that this was putting AOL “on its way to world domination.” The AOL-Time Warner deal raised “concerns that its merger would create a media powerhouse that would level competitors, dominate the Internet, and control consumer choice.”
A Wired podcast talked about fears of a Sun-AOL monopoly, but they didn’t call that sort of thing a “podcast” yet because the iPod hadn’t been invented. The audio clip was an MP3 file, and they suggested you listen to it on a Sonique MP3 player from Lycos. The Sonique stopped being produced about a year later. Lycos was a major Web portal, and according to Wikipedia, it was “the most visited online destination in the world in 1999.” It was bought by a multinational conglomerate for $12.5 billion at the peak of the dot-com bubble.
Whatever is left of Lycos was last sold for $36 million in 2010, though that deal seems to have collapsed in acrimony later on. Sic transit gloria mundi.
September 12, 2017
Google doesn’t mind flexing its muscles now and again
Yet another instance of Google proving that someone erased the word “Don’t” from their company motto*:
Dear Editors,
You might be interested to learn, that your websites have been almost blacklisted by Google. “Almost blacklisted” means that Google search artificially downranks results from your websites to such extent that you lose 55% – 75% of possible visitors traffic from Google. This sitution [sic] is probably aggravated by secondary effects, because many users and webmasters see Google ranking as a signal of trust.
This result is reported in my paper published in WUWT. The findings are consistent with multiple prior results, showing Google left/liberal bias, and pro-Hillary skew of Google search in the elections.
I write to all of them to give you opportunity to discuss this matter among yourselves. Even if Google owes nothing to your publications, it certainly owes good faith to the users of its search.
* For all I know, Google’s original motto may already have gone down the memory hole: “Don’t be evil“.
September 2, 2017
August 12, 2017
End supply management in one swell foop!
As always, Colby Cosh can express my thought far more eloquently than I can myself:
Why should eliminating supply management take forever? The dairymen opposed Bernier’s huge buyout: just do it overnight without one. https://t.co/k2U1kdZ3I9
— Colby Cosh (@colbycosh) August 11, 2017
Mad Max tried to sugar-coat it as much as possible. They rejected that option with great vigour. Now let’s just burn the whole thing down … before Trump forces us to.
July 12, 2017
The real newspaper problem is not Facebook and Google … it’s their monopolistic heritage
Tim Worstall argues against allowing US newspapers to have an anti-trust exemption to fight Facebook and Google:
The first thing to note is the influence of geography and transport. By definition a newspaper needs to arrive daily — in physical format least — meaning that there’s a useful radius around a printing plant which can be served. What then happened is exactly what is happening with Google and Facebook, network effects come into play. Each urban area effectively became the monopoly of just the one newspaper. Sure, there were more than that in New York City for example, SF supported two majors later than many other places. But even in such large and rich places we did really only ever end up with one “serious” newspaper.
The network effects stem from the revenue sources. Roughly speaking, you understand, one third came from subscription revenues, one third from display advertising and one third from classifieds. Classifieds are a classic case of said network effects. Everyone advertises where they know everyone reads. Everyone reads the ads where they know everyone advertises those used baby bassinets. Whoever can get ahead in the collection of either then almost always wins the race. Classifieds are also hugely, vastly, profitable.
The way that American newspapers are sold, on subscriptions with a local paper boy, also contains elements of such network effects.
The effect of this economic structure was that each major urban area really had the one monopolist newspaper. This is where that famed “objectivity” comes from too. If there’s going to be the one newspaper then it’s going to try to make sure there’s no room for another by steadily occupying the middle ground on anything and everything. This is just the Hotelling problem all over again. Swing too viciously left or right (on any issue, political, social, whatever) and there might be room for someone to sneak in from the borderlands. Thus the very milquetoast indeed political views at most of these newspapers.
[…]
And that, I insist, is what is really happening to US newspapers. Most certainly, their problems stem from the internet. for the internet broke that monopoly imposed by economic geography and all else stems from that. They got fat and happy within those monopolistic areas and their pain is coming from the adjustments necessary to deal with that. The likely outcome I would expect to be many fewer first line newspapers staffed by many fewer people in much the way that the UK market has worked for near a century now. I would also expect to see them using political stance as a differentiator just as in Britain.
July 6, 2017
Words & Numbers: Let Amazon Play Monopoly
Published on 5 Jul 2017
Amazon’s offer to buy Whole Foods for $13.7 billion sounds pretty great to both parties, but it seems that isn’t good enough. The proposal has a lot of people worried about Amazon becoming an indestructible monopoly, and the government is all too happy to step in and settle the issue. But this concern ignores consumers’ own preferences as well as business and entrepreneurial history. This week in Words and Numbers, Antony Davies and James R. Harrigan discuss the probable future of the Amazon-Whole Foods merger, what it could mean for us, and what it could mean for another once-equally feared corporation: Wal-Mart.
April 17, 2017
QotD: The dubious “value add” of the LCBO
The liquor board’s cocktail recipe of the month, offered on its website, is for “gin and lemonade,” which you make with a shot of gin and some lemonade. The gin is cherry, so there’s that. Its three recommended beers of the month are themed for the hockey playoffs. They are — I am not kidding — Molson Canadian in a bottle, Molson Canadian in a can, and Molson Canadian in a larger can. The value the LCBO’s adding that a private retailer couldn’t is not obvious.
David Reevely, “LCBO union uses government’s rhetoric against it in brewing labour battle”, National Post, 2017-04-06.
