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I'm economically illiterate. Could you explain why markrts require regulation? What happens in unregulated markets? What variable does "appropriate regulation"

by weberc2 10y ago

I'm economically illiterate. Could you explain why markrts require regulation? What happens in unregulated markets? What variable does "appropriate regulation" optimize for? GDP?

MagnumOpus 10y ago
The main reason why regulation needs to exist: - Unregulated markets often become oligopolies or monopolies, see the 19th century US robber barons (the reason for existence of FTC, antitrust laws, price dumping regulation etc) - Unregulated markets can pose massive health and safety hazards, because operators pursue cost cutting at the price of safety - see the accident rate Chinatown buses between Boston and NYC, or see the regular food scandals in any developing country of your choice (reason for existence of OSHA, FDA etc) - Unregulated markets can pose big fraud risks - particularly unregulated securities markets (reason for existence of SEC, NASD, etc) - Unregulated markets will ignore externalities like pollution, public health, damage to commons both environmental and infrastructural [roads, buildings, trash, spectrum interference]. Regulation is needed to avoid the externalities or to internalise the costs into the market which causes these costs (reason for existence of EPA, FCC)
losvedir 10y ago
I think you might get some mileage out of skimming the wikipedia article on "Perfect Competition".[0] While "free markets" are a bit of an ill-defined, political term, "perfect competition" is well-defined, in a mathematical sense, well-studied in Economics, and generally regarded as a good thing. But (as you'll read in the wikipedia article) there are a number of required conditions for it. So good regulations could help ensure those conditions are met. For example, one of the conditions is "no externalities", which are things that affect 3rd parties not involved in the buying/selling decision. Pollution could be relevant to airlines; perhaps one airline can offer cheaper tickets by burning dirty and dumping soot all along the way. That's not perfect competition because it affects all the people who suffer from the pollution, but not the person buying the ticket (who naturally would be incentivized to buy the cheaper ticket). But if the government mandated pollution standards that protects all the non-flyers, and that all the airlines are subject to, then it's a fair competition on price again. [0] https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition

by weberc2 10y ago

I'm economically illiterate. Could you explain why markrts require regulation? What happens in unregulated markets? What variable does "appropriate regulation" optimize for? GDP?

MagnumOpus 10y ago

The main reason why regulation needs to exist: - Unregulated markets often become oligopolies or monopolies, see the 19th century US robber barons (the reason for existence of FTC, antitrust laws, price dumping regulation etc) - Unregulated markets can pose massive health and safety hazards, because operators pursue cost cutting at the price of safety - see the accident rate Chinatown buses between Boston and NYC, or see the regular food scandals in any developing country of your choice (reason for existence of OSHA, FDA etc) - Unregulated markets can pose big fraud risks - particularly unregulated securities markets (reason for existence of SEC, NASD, etc) - Unregulated markets will ignore externalities like pollution, public health, damage to commons both environmental and infrastructural [roads, buildings, trash, spectrum interference]. Regulation is needed to avoid the externalities or to internalise the costs into the market which causes these costs (reason for existence of EPA, FCC)

losvedir 10y ago

I think you might get some mileage out of skimming the wikipedia article on "Perfect Competition".[0] While "free markets" are a bit of an ill-defined, political term, "perfect competition" is well-defined, in a mathematical sense, well-studied in Economics, and generally regarded as a good thing. But (as you'll read in the wikipedia article) there are a number of required conditions for it. So good regulations could help ensure those conditions are met. For example, one of the conditions is "no externalities", which are things that affect 3rd parties not involved in the buying/selling decision. Pollution could be relevant to airlines; perhaps one airline can offer cheaper tickets by burning dirty and dumping soot all along the way. That's not perfect competition because it affects all the people who suffer from the pollution, but not the person buying the ticket (who naturally would be incentivized to buy the cheaper ticket). But if the government mandated pollution standards that protects all the non-flyers, and that all the airlines are subject to, then it's a fair competition on price again. [0] https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition