From: Technotranscendence (neptune@mars.superlink.net)
Date: Wed Jun 20 2001 - 10:08:06 MDT
free marketsOn Saturday, June 16, 2001 11:51 PM Smigrodzki, Rafal
SmigrodzkiR@MSX.UPMC.EDU wrote:
>>In other words, a bigger monopoly!
>
>Yes, a power monopoly that under the right circumstances can
>be controlled in non-violent ways by all the voters in a democracy
>(or the draftees in a demarchy). This is much better than a
>government controlled by a few power groups.
Someone else pointed out that if you can trust people to run a democracy,
you can trust them even more to run their own lives. And if you can't trust
them to do the latter, then you can hardly expect them to do the former.
One important difference between a democratic government and a free market
is how costs are controlled. In the democracy, those who make decisions do
not necessarily pay the costs of those decisions. The feedback mechanism is
just not there. This is how we get the regulatory regimes we now live
under. Most people pay very little for bad decisions made in Congress or at
the FDA, e.g., in the US. It perhaps costs each citizen on average a few
pennies.
In a free market, however, decision making is decentralized and generally
tends toward those who would profit or lose from the decision. It's in
their interest to do so and there will be no barriers to them reacting to
profits or losses. (By comparison, the government might prevent people from
entering or exiting relationships or trades.)
The parenthetic remark is not a small one. Myron Lieberman, in his
_Privatization and Educational Choice_, calls this the difference between
"exit" and "voice" systems. Exit systems allow people to enter or leave
arrangements. An example is a grocery store. I don't have a direct say in
what it stocks or charges, but if it's not to my liking, I can find
alternatives -- whether another grocery store, a roadside vegetable stand,
or growing my own.
Voice systems don't allow people to exit, but they give people some say in
how things are done. An example is public schooling. I can vote to change
things, but my choices are limited and to actually effect changes I have to
convince a lot of other people or the right people.
This is why voice systems are very slow to change, while exit systems change
very quickly. One new store or product or service might quickly fail or
takeover -- look at the Sony Walkman, for instance. The exit system does
not need to satisfy each person with each new product. Niches can develop.
For example, I buy a lot of books, but my chief purchases tend to be
technical. Yet I buy right alongside people who read trashy romance novels.
We don't get together and vote how many mathematics texts to print and how
many romance novels to print. Different publishing houses cater to our
differing tastes. Springer generally caters to mine, while the romance
novel buyer gets his or her books from Avon or some other company. (This is
not to say that either of us has better tastes or that one of us is wasting
money here. I'm just pointed out how the market satisfies our differences
without making them a source of conflict.)
>Your monopolies have almost no economic impact on anybody's life,
>except your own, that's why there is hardly any need to limit them.
The point was to show by reductio ad absurdum that the concept of monopoly
is fraught with difficulty. A better example would be trains. Most would
agree, between two towns, there's generally only one train line -- ignoring
for a moment the fact that governments today highly regulate the rails.
That said, you might say there's a rail monopoly between the two towns.
However, rails don't compete just with rails. They compete with other forms
of transportation. If rail service becomes too costly, one can choose to
drive, take the bus, taxi, etc. (I recall one time a bus strike in one area
I lived in. This led to there being no bus service. Alternatives, like car
pooling, quickly arose.) This competition from nonrails would, on a free
market, have a definite impact on the rails -- even if there was only one
rail line.
>The guy who owns the water mains to your house could make you pay,
>and could destroy a competitor trying to build another line quite easily -
>just temporarily lower prices below profit level until the other guy goes
>bankrupt. That's why "natural monopolies" are so heavily controlled by the
state.
If he kept doing that -- lowering prices each time a competitor arose -- he
would never be able to charge the high price you fear. Again, the water
line owner -- which, sadly, in most places is the government -- competes
with bottled water and well water. Also, too high prices on this would make
neighborhoods less palatable that had those prices. This would impact real
estate purchases. Yeah, you might not move over paying higher water rates,
but others might not move in or build because of them. (There's also an
example in Utah, I heard of about a decade ago, where the water company
basically subsidized the rich people living in the highlands in a certain
area with the overall water rates for a community. They had to have pipes
built and pressure maintained to fill their pools and such, so they could
live comfortably out of town. So, public control of this industry does not
lead to people paying lower rates overall. Instead, it's been used, just
like in any other area, for the politically connected to redistribute wealth
to themselves. Competition in water might have lead that community to have
different rates based on where people lived.)
>>Your idea about taxation is flawed for several reasons. One, a lot of
large
>>financial entities are made of small units even individuals working
>>together. Mutual funds are an example of such.
>
>What do you mean?
If you're going to use taxes to punish larger entities, then you're going to
prevent or penalize large scale financial institutions that are made up,
actually, of many smaller units. People, e.g., get involved in 401k
programs to pool their wealth as well as to avoid taxes. But 401k programs
are large scale entities. For example, most people who participate could
never invest at that level otherwise -- except in other large scale funds.
Now preventing everyone from doing that -- or making it more costly to do so
by taxing it -- would lead to less wealth creation NOT more and would
generally hurt the little guy NOT help him.
>Corporations are legal entities using hired labor in a coordinated fashion.
>The little constituent units (salarymen, cubicle dwellers) do not make
decisions
>for themselves except when they choose to be hired or fired. Otherwise they
do
>what they are told to do, and the larger the corporation, the less choices
there
>are for humans and other corporations.
This sort of makes it seem like the cashier in a local bodega has lots of
choice over everything there. What if that cashier decides he wants to work
for a large grocery firm because the pay is better and there are other perks
(medical coverage, paid vacation, training, a chance to be promoted). You
proposal would prevent such opportunities. Also, often the reason for
bigger units is take advantage of opportunities that only happen at that
size. Granted, there are costs too, but my point here is not to praise
larger units to the hilt, just to defend their right to exist. Your plan is
not to let come what may, but to prevent or reduce the chances of certain
things happening. Mine is merely to let the market go where it will --
i.e., where its participants _effectively_ (meaning they are willing to pay
the costs of) want it to go.
>>Also, preventing the growth of larger units would seem to be a
destabilizing
>>thing. Sometimes a larger unit is better suited to weather storms and
>>invest in economies of scale and scope. Sometimes coordination on that
>>level is needed and this would _not_ happen between smaller sized units.
>>(See, e.g., Frederic Sautet's _An Entrepreneurial Theory of the Firm_.)
In
>>essence, your notion would prevent that type of coordination by taxing it
>>out of existence. By disallowing certain things or making them more
costly,
>>your create more problems...
>
>I agree you have a point here.
Thanks!
>What comes to my mind as a possible solution is the idea of reinsurance
>used by insurance companies to spread the risk, and the formation of
research
>consortiums, or investment consortiums - these would hopefully avoid the
>problems you mention. But I agree, this could be a showstopper.
But such things are: large entities! Also, they will need to be coordinated
internally. Large investment and research units already exist, but many of
these are parts of large units -- not consortia. Even the ones that are the
latter need some autonomy to work. So, we are back to the very thing you're
against: large units which can outcompete small units.
If you disallow even these, then wind up with missed opportunities and a
less stable economy. If you allow them, then there's no reason not to allow
any large unit. The differences between these and others are pretty much
arbitrary -- like saying we can have a huge insurance consortium, but no
large grocery stores.
>>Then the smaller units would be less stable and would run to the
government
>>for more aid. The system would eventually evolve into a bloated welfare
>>state.
>
>Not necessarily. Corporations ask for government help not when they are in
>trouble but whenever they feel they can get it for free.
I agree here, BUT this is not an argument against free markets. It is an
argument against government subsidization of industry. Let the big guys
suffer if they make bad decisions! Never bail them out! Doing so --
funding their mistakes -- only makes them more likely to make bad mistakes
again. (I'm not for corporate welfare.)
>If small units fail, you can just tell them to go take a hike, but if
Chrysler is in
>trouble, politicians will print some money to pull it out.
All the more reason to keep the government and economy separate. The
Chrysler bailout or the more recent Long Term Capital Management bailout are
not the free market in action. These bailouts only occurred because
government was willing and able to do so. Recall, both, too did not meet
with huge protests. So much for your democracy in action.
>>Back to problem creation. You seem to smuggle in the notion that the free
>>market, which is merely all the minds on it coordinating their activities,
>>is arbitrary, while a tax or a government is not. Why?
>
>No, definitely not. The free market is not arbitrary, just unstable.
>At some point a it all too frequently stops being free - in medieval
>cities it was the formation of merchant guilds, then it was railway
>magnates, nowadays it can be a diamond cartel. At that point a
>tax might the lesser evil.
The examples you use are not free markets in action -- except maybe the
diamond business, which I know little about. Free markets are not perfect,
but typically instabilities are caused by government interference. With one
example, the railways, governments made that market less stable by providing
massive subsidies to connected players and also by chaining it with massive
regulations. That's generally why trucking took over the market for moving
goods around in the US.
What we need is not another tax or control, but to remove the layers of
taxes and controls that already inhibit action on the market. What you're
arguing for is more liquor for the drunk -- a little more won't hurt,
right? -- instead of him sobering up.
>Governments, in contrast to corporations, can be to some extent directly
>controlled by large segments of the population.
Whoa! Today, most large corporations are owned by large mutual funds that
are in turn funded by small investors -- 401k policy holders and the like.
>Even the, God forbid, World Government, could be controlled by people
>like you and me. But, if you ever lived in one of those small one-factory
>towns in the middle of nowhere, you'd know that the only way of voting
>against the factory boss is with you feet, by going away. If you have
>somehwere to go to.
With world government, you'd have nowhere else to go.
Daniel Ust
http://uweb.superlink.net/neptune/
This archive was generated by hypermail 2.1.5 : Sat Nov 02 2002 - 08:08:12 MST