6 ms·

> No, they're not, because while externalities and other forms of misaligned incentives are departures from the norm in free markets, they are the norm in gover

> No, they're not, because while externalities and other forms of misaligned incentives are departures from the norm in free markets, they are the norm in governments. How do you figure? A totally free market results in monopolies, which are rife with externalities that exist for the purpose of maintaining the monopoly. Government is the body responsible for balancing and managing those negative factors against the desirable results being produced.

veeralpatel979 7y ago
> A totally free market results in monopolies, which are rife with externalities that exist for the purpose of maintaining the monopoly. I'd have to disagree. Not many markets have monopolies - where you only have one firm in the market. Tech is an exception. In fact, I'd say that many government policies, while necessary, are a major contributor to monopolies, by imposing high costs to enter markets.
- arrosenberg 7y ago
  That discounts history far too much. We have more competitive markets today because of antitrust regulation passed over 100 years ago and vigorously enforced up through the 90s. Tech would be more competitive today if the DOJ had completed the Microsoft prosecution instead of settling. Our markets are becoming less competitive today because of government action due to regulatory capture - the intentional weakening of the regulatory state from within. We need more powerful, dedicated regulators in order to maintain competitive, free markets.
- gzer0 7y ago
  https://en.wikipedia.org/wiki/Standard_Oil https://en.wikipedia.org/wiki/Standard_Oil
  - pdonis 7y ago
    Yes, Standard Oil, whose major "crime" was selling oil more cheaply than all of its competitors.
    - barry-cotter 7y ago
      Don’t forget constantly increasing quality as well as falling prices.
    - gzer0 7y ago
      Standard raised prices to its monopolistic customers but lowered them to hurt competitors, often disguising its illegal actions by using bogus supposedly independent companies it controlled [1]. The evidence is, in fact, absolutely conclusive that the Standard Oil Co. charges altogether excessive prices where it meets no competition, and particularly where there is little likelihood of competitors entering the field, and that, on the other hand, where competition is active, it frequently cuts prices to a point which leaves even the Standard little or no profit, and which more often leaves no profit to the competitor, whose costs are ordinarily somewhat higher [2]. [1]. Grayson, Leslie E. (1987). Who and How in Planning for Large Companies: Generalizations from the Experiences of Oil Companies. [2]. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).
      - kortilla 7y ago
        As if price discrimination isn’t a practice used commonly today.
        gzer0 7y ago
        I'm unsure what point you are trying to make here? That the practices conducted by Standard Oil were considered acceptable? Or are you stating that because it is done today (wrongfully so, imo), it was okay back then? Please elaborate.
        kortilla 7y ago
        Price discrimination isn’t really a problem. Companies do it all the time with coupons, origin of purchaser, etc. What your comment doesn’t show is why it was bad when standard oil did it.
pdonis 7y ago
> A totally free market results in monopolies In cases where there is a natural monopoly (because economies of scale outweigh the deadweight costs of a larger firm), yes. Historically such cases are rare. Most historical cases of monopoly are due to government interference, not free markets. Indeed, the word "monopoly" originally meant a government-granted exclusive right to sell some particular good or service.
- arrosenberg 7y ago
  I'm not completely sure about the etymology of the word, but I do know that in the US, most monopolies were not government granted. They were achieved through aggressive M&A, market manipulation, and other abusive practices (much of which should be seen as a negative externality on the affected human communities). That is exactly why the government was granted significant power to restrain concentrated entities from committing these abuses.
  - barry-cotter 7y ago
    This isn’t true. The only industry I’m aware of that might actually be a natural monopoly, as in the efficient number of companies is one, is aircraft manufacturing. Local utilities aren’t natural monopolies, cable isn’t a natural monopoly, water, gas, electricity, these definitely aren’t natural monopolies. If manufacturing semiconductors, with fabs that cost tens of billions of dollars isn’t a natural monopoly, why do we think anything is? > The Myth ofNatural Monopoly Thomas J. DiLorenzo > It is a myth that natural monopoly theory was developed first by economists, and then used by legislators to "justify" franchise monopolies. The truth is that the monopolies were created decades before the theory was formalized by intervention-minded economists, who then used the theory as an ex post rationale for government intervention. At the time when the first government franchise monopolies were being granted, the large majority of economists understood that large-scale, capital intensive production did not lead to monopoly, but was an absolutely desirable aspect of the competitive process. https://cdn.mises.org/rae9_2_3_3.pdf https://cdn.mises.org/rae9_2_3_3.pdf
    - scarface74 7y ago

veeralpatel979 7y ago

> A totally free market results in monopolies, which are rife with externalities that exist for the purpose of maintaining the monopoly. I'd have to disagree. Not many markets have monopolies - where you only have one firm in the market. Tech is an exception. In fact, I'd say that many government policies, while necessary, are a major contributor to monopolies, by imposing high costs to enter markets.

arrosenberg 7y ago
That discounts history far too much. We have more competitive markets today because of antitrust regulation passed over 100 years ago and vigorously enforced up through the 90s. Tech would be more competitive today if the DOJ had completed the Microsoft prosecution instead of settling. Our markets are becoming less competitive today because of government action due to regulatory capture - the intentional weakening of the regulatory state from within. We need more powerful, dedicated regulators in order to maintain competitive, free markets.
gzer0 7y ago
https://en.wikipedia.org/wiki/Standard_Oil https://en.wikipedia.org/wiki/Standard_Oil
- pdonis 7y ago
  Yes, Standard Oil, whose major "crime" was selling oil more cheaply than all of its competitors.
  - barry-cotter 7y ago
    Don’t forget constantly increasing quality as well as falling prices.
  - gzer0 7y ago
    Standard raised prices to its monopolistic customers but lowered them to hurt competitors, often disguising its illegal actions by using bogus supposedly independent companies it controlled [1]. The evidence is, in fact, absolutely conclusive that the Standard Oil Co. charges altogether excessive prices where it meets no competition, and particularly where there is little likelihood of competitors entering the field, and that, on the other hand, where competition is active, it frequently cuts prices to a point which leaves even the Standard little or no profit, and which more often leaves no profit to the competitor, whose costs are ordinarily somewhat higher [2]. [1]. Grayson, Leslie E. (1987). Who and How in Planning for Large Companies: Generalizations from the Experiences of Oil Companies. [2]. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).
    - kortilla 7y ago
      As if price discrimination isn’t a practice used commonly today.
      - gzer0 7y ago
        I'm unsure what point you are trying to make here? That the practices conducted by Standard Oil were considered acceptable? Or are you stating that because it is done today (wrongfully so, imo), it was okay back then? Please elaborate.
        kortilla 7y ago
        Price discrimination isn’t really a problem. Companies do it all the time with coupons, origin of purchaser, etc. What your comment doesn’t show is why it was bad when standard oil did it.

pdonis 7y ago

> A totally free market results in monopolies In cases where there is a natural monopoly (because economies of scale outweigh the deadweight costs of a larger firm), yes. Historically such cases are rare. Most historical cases of monopoly are due to government interference, not free markets. Indeed, the word "monopoly" originally meant a government-granted exclusive right to sell some particular good or service.

arrosenberg 7y ago
I'm not completely sure about the etymology of the word, but I do know that in the US, most monopolies were not government granted. They were achieved through aggressive M&A, market manipulation, and other abusive practices (much of which should be seen as a negative externality on the affected human communities). That is exactly why the government was granted significant power to restrain concentrated entities from committing these abuses.
- barry-cotter 7y ago
  This isn’t true. The only industry I’m aware of that might actually be a natural monopoly, as in the efficient number of companies is one, is aircraft manufacturing. Local utilities aren’t natural monopolies, cable isn’t a natural monopoly, water, gas, electricity, these definitely aren’t natural monopolies. If manufacturing semiconductors, with fabs that cost tens of billions of dollars isn’t a natural monopoly, why do we think anything is? > The Myth ofNatural Monopoly Thomas J. DiLorenzo > It is a myth that natural monopoly theory was developed first by economists, and then used by legislators to "justify" franchise monopolies. The truth is that the monopolies were created decades before the theory was formalized by intervention-minded economists, who then used the theory as an ex post rationale for government intervention. At the time when the first government franchise monopolies were being granted, the large majority of economists understood that large-scale, capital intensive production did not lead to monopoly, but was an absolutely desirable aspect of the competitive process. https://cdn.mises.org/rae9_2_3_3.pdf https://cdn.mises.org/rae9_2_3_3.pdf
  - scarface74 7y ago