7 ms·

Back in the early '80s I took course in regulation from one of the leading experts in railway regulation. She was great, and the main idea I took away from it i

Back in the early '80s I took course in regulation from one of the leading experts in railway regulation. She was great, and the main idea I took away from it is "don't regulate if the market will naturally fix itself." So, the big question when deciding whether some issue needs to be controlled through regulation is whether the market will function well without regulation. (In most of the examples she gave, it would.)

culi 4y ago
Who was she?
lock-the-spock 4y ago
That misses about 95% of reality. To mention just one key factor: without government intervention you end up usually with a monopoly or oligopoly. Not to mention safety standards, labour protection, quality and warranty, ... Without regulations and often intervention all goes to pieces. to directly counter your argument: no railroad ever developed without government intervention and at least funding, guarantees and land grants.
- seibelj 4y ago
  Can you name an example of a monopoly that has developed in the last 50 years that didn’t occur because of crony capitalism?
  - nautilius 4y ago
    lock-the-spock explicitly writes about reality, and within the real system we have, monopolies develop.
    - nickff 4y ago
      The problem is that it’s difficult to distinguish whether the government caused the oligopoly, or is mitigating its (often deleterious) impacts.
  - simonh 4y ago
    It very much depends what we agree monopoly means. Did Microsoft Windows have a monopoly on consumer desktop operating systems? Arguably Apple only survived because Microsoft bailed them out in 1997 to avoid being accused of having a monopoly. Does Google have a monopoly on search? Tech naturally tends towards monopolies because almost everyone benefits from using the same tech as everyone else they know. The same messaging system, the same operating system running the same applications that use the same file formats. As for crony capitalism as a source of monopolies, sure of course that can happen, but if we look away from capitalism basically the only other alternative anyone has come up with is pure unadulterated cronyism. Communism, socialism, they all end up being pure cronyist monopoly systems. At least with capitalism you have an outside chance of getting away from that.
  - baq 4y ago
    > 50 years The three main U.S. antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. so yeah, you won't find many, because the regulation works.
- kylevedder 4y ago
  >without government intervention you end up usually with a monopoly or oligopoly. I would love to hear your explanation of how government intervention is the only thing preventing a monopoly or oligopoly of plumbers, electricians, pet groomers, or halal carts.
  - baq 4y ago
    no explanation needed, just look at medieval history where guilds had de facto monopolies on certain services or manufacturing and if you wanted to be independent... tough luck.
    - JumpCrisscross 4y ago
      > where guilds had de facto monopolies on certain services or manufacturing and if you wanted to be independent... tough luck This conflates too many historical threads to support the hypothesis. The guild era was one where most countries required official consent to start a business of any kind. That's how the guilds enforced their monopoly.
- xyzzyz 4y ago
  You seem to have noticed the part where the parent comment says “don’t regulate”, but missed the part where it says “if the market will naturally fix itself”. Please, read it again, so that you can respond to what it actually says, instead of what your imagined version of it says.
- rufus_foreman 4y ago
  Unless you are claiming that there are no issues that don't need government regulations, I don't see how your argument contradicts the parent post.
- Bloating 4y ago
  natural monopolies are short-term, unless propped up by government being propped up includes excessive copyright protections At one time, Walmart and Microsoft were considered by some to be "natural monopolies".
  - rufus_foreman 4y ago
    >> At one time, Walmart and Microsoft were considered by some to be "natural monopolies". Natural monopoly: "A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors" Newspaper headline, 1962: "Can Tiny Wal-Mart Survive Against the Big Guys?" Obviously, by Betteridge's law of headlines, Wal-Mart does not exist. Which is correct, since it is Walmart now. (The Big Guys were Woolco, Kmart and Target. There are 21 Kmarts left in the US. I have no idea what Woolco was. Oh OK, looked it up, Woolworths.)
- darksaints 4y ago
  You could just as easily say that government causes 95% of monopolies. Regulatory compliance is almost universally a fixed cost to a business, and large fixed cost structures are the defining characteristic of a natural monopoly market. That's also the reason why small public IPOs disappeared after Sarbox...small corporations can't handle the cost of regulatory compliance. Regulation can prevent monopolies, but it can just as easily enable them. And lack of regulation can allow monopolies to form, but they can also allow markets to commoditize. Quality of regulation will always matter more than quantity.
- houstonn 4y ago
  Corporations secure their standing through regulation. It prohibits upstarts from competing because of artificial overhead that only the largest and most well-connected (to government insiders) can handle. It's practically dragging the ladder up behind them.
avgcorrection 4y ago
And if the market doesn’t manage to regulate something just put those things in the Externalities bin.
senttoschool 4y ago
This is taught in any Economics 101 class in college. Government regulation = market inefficiency
- andrekandre 4y ago
  > Government regulation = market inefficiency there are many causes of inefficiency, such as too many middlemen, monopolies, oligopolies, cartels etc...
  - senttoschool 4y ago
    I don't know people downvoted me. Take any freshmen econ 101 class. One of the first things they teach you is that government regulation/intervention means market inefficiency. And they keep pounding this idea over and over again throughout the course. Am I the only one here who has taken Econ 101?
    - notahacker 4y ago
      No. Other people took better courses or read more widely...
      - senttoschool 4y ago
        At the fundamental level, any regulation is a disruption to the free market.
        verdverm 4y ago
        An unregulated market is not a fair market. Companies will put the risk and externalities on others. That's why we don't let them dump chemicals into the watershed, or rather we incentivized them through regulations and fines.
pupperino 4y ago
Most disciplines evolved in the last 40 years (looking at you psychiatry), but economics has changed rather drastically. Methods for testing theory back then were Bad. Like, really bad. Ed Leamer's 1983 paper on this (http://www.econ.ucla.edu/workingpapers/wp239.pdf http://www.econ.ucla.edu/workingpapers/wp239.pdf) is a good read if you want the details. Beginning in the late 80s, there was a movement toward study design and credible identification. Software like Stata (and nowadays there's R, julia and python) started lowering the costs of doing data-intensive work. The 90s and 00s are full of really interesting papers pushing the frontier on what could be done do gather evidence of causality: Angrist and Lavy in 1999 using Maimonedes Rules and RDDs to estimate class-size effects, Hoxby 2000 using rivers and county borders as exogenous variation on public school competition, Acemoglu, Johnson & Robinson 2001 using colonizer death rates to estimate long-term effects of colonization. The discipline has evolved and so has our understanding of minimum wages (https://academic.oup.com/qje/article/134/3/1405/5484905 https://academic.oup.com/qje/article/134/3/1405/5484905), gun violence (https://www.nber.org/papers/w23510 https://www.nber.org/papers/w23510) and nation-building (https://scholar.harvard.edu/files/dell/files/paper_combined.pdf https://scholar.harvard.edu/files/dell/files/paper_combined....). Pretty sure Railway Economics has changed too.
Animats 4y ago
Ah, that was pre-deregulation in the US. Now we know what happens with de-regulation. At first, there are lots of new entrants in the industry. Gradually, the new entrants go bust or consolidate. The industry reduces to an unregulated oligopoly with four or less major players. Examples: - Wireline telephony. (AT&T, Verizon) - Cellular telephony. (AT&T, Verizon, T-Mobile) - Cable TV (Comcast, Charter, AT&T). - Banks. (Bank of America, Citigroup, Chase, and maybe Wells Fargo) - Package delivery (FedEx and UPS, plus USPS). - Airlines (United, American, Southwest, and Delta) Price competition seems to disappear at 3 or less direct competitors, from an EU study.
- darksaints 4y ago
  However, the brewing and trucking industries have done the exact opposite. Maybe your model is broken. De-regulation is a misnomer, and using it as a pejorative shows ignorance as to how regulation really works. Quality will always matter way more than quantity.
  - Animats 4y ago
    Brewing: * Anheuser-Busch InBev - 45% of US beer market * MillerCoors - 25% of US beer market Trucking: The big ones are FedEx and UPS, who of course dominate small package delivery. For big loads, the big players are XPO Logistics and J. B. Hunt. Everybody else is considerably smaller. Full-truckload shipping has distance cost and is simpler than package delivery, so the network effects are not as strong and there's room for local and regional players. [1] https://blog.bizvibe.com/blog/largest-trucking-companies https://blog.bizvibe.com/blog/largest-trucking-companies
    - darksaints 4y ago
      That isn't monopolization. There are over 8000 active microbreweries in the US, and they haven't been put out of business by Anheuser Busch. In fact, Anheuser Busch has been scared of their growth for decades now. In 1979, when the wave of beer de-regulation started, there were only 90 breweries in the entire US. There are almost 1M independent public-carrier trucking companies in the US. There are some 300,000 independent owner operators. Your model is broken. De-regulation doesn't inevitably cause monopolization, there is something else that does that. In fact, you already alluded to it: network effects. Along with high fixed costs (which overly aggressive regulation contributes to), they're one of the defining features of a natural monopoly.
pessimizer 4y ago
> the big question when deciding whether some issue needs to be controlled through regulation is whether the market will function well without regulation. All markets are regulated. Markets are defined by their regulation. You're talking about the calculation one should do when deciding when some market needs to be more or differently regulated.

culi 4y ago

Who was she?

lock-the-spock 4y ago

That misses about 95% of reality. To mention just one key factor: without government intervention you end up usually with a monopoly or oligopoly. Not to mention safety standards, labour protection, quality and warranty, ... Without regulations and often intervention all goes to pieces. to directly counter your argument: no railroad ever developed without government intervention and at least funding, guarantees and land grants.

seibelj 4y ago
Can you name an example of a monopoly that has developed in the last 50 years that didn’t occur because of crony capitalism?
- nautilius 4y ago
  lock-the-spock explicitly writes about reality, and within the real system we have, monopolies develop.
  - nickff 4y ago
    The problem is that it’s difficult to distinguish whether the government caused the oligopoly, or is mitigating its (often deleterious) impacts.
- simonh 4y ago
  It very much depends what we agree monopoly means. Did Microsoft Windows have a monopoly on consumer desktop operating systems? Arguably Apple only survived because Microsoft bailed them out in 1997 to avoid being accused of having a monopoly. Does Google have a monopoly on search? Tech naturally tends towards monopolies because almost everyone benefits from using the same tech as everyone else they know. The same messaging system, the same operating system running the same applications that use the same file formats. As for crony capitalism as a source of monopolies, sure of course that can happen, but if we look away from capitalism basically the only other alternative anyone has come up with is pure unadulterated cronyism. Communism, socialism, they all end up being pure cronyist monopoly systems. At least with capitalism you have an outside chance of getting away from that.
- baq 4y ago
  > 50 years The three main U.S. antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. so yeah, you won't find many, because the regulation works.
kylevedder 4y ago
>without government intervention you end up usually with a monopoly or oligopoly. I would love to hear your explanation of how government intervention is the only thing preventing a monopoly or oligopoly of plumbers, electricians, pet groomers, or halal carts.
- baq 4y ago
  no explanation needed, just look at medieval history where guilds had de facto monopolies on certain services or manufacturing and if you wanted to be independent... tough luck.
  - JumpCrisscross 4y ago
    > where guilds had de facto monopolies on certain services or manufacturing and if you wanted to be independent... tough luck This conflates too many historical threads to support the hypothesis. The guild era was one where most countries required official consent to start a business of any kind. That's how the guilds enforced their monopoly.
xyzzyz 4y ago
You seem to have noticed the part where the parent comment says “don’t regulate”, but missed the part where it says “if the market will naturally fix itself”. Please, read it again, so that you can respond to what it actually says, instead of what your imagined version of it says.
rufus_foreman 4y ago
Unless you are claiming that there are no issues that don't need government regulations, I don't see how your argument contradicts the parent post.
Bloating 4y ago
natural monopolies are short-term, unless propped up by government being propped up includes excessive copyright protections At one time, Walmart and Microsoft were considered by some to be "natural monopolies".
- rufus_foreman 4y ago
  >> At one time, Walmart and Microsoft were considered by some to be "natural monopolies". Natural monopoly: "A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors" Newspaper headline, 1962: "Can Tiny Wal-Mart Survive Against the Big Guys?" Obviously, by Betteridge's law of headlines, Wal-Mart does not exist. Which is correct, since it is Walmart now. (The Big Guys were Woolco, Kmart and Target. There are 21 Kmarts left in the US. I have no idea what Woolco was. Oh OK, looked it up, Woolworths.)
darksaints 4y ago
You could just as easily say that government causes 95% of monopolies. Regulatory compliance is almost universally a fixed cost to a business, and large fixed cost structures are the defining characteristic of a natural monopoly market. That's also the reason why small public IPOs disappeared after Sarbox...small corporations can't handle the cost of regulatory compliance. Regulation can prevent monopolies, but it can just as easily enable them. And lack of regulation can allow monopolies to form, but they can also allow markets to commoditize. Quality of regulation will always matter more than quantity.
houstonn 4y ago
Corporations secure their standing through regulation. It prohibits upstarts from competing because of artificial overhead that only the largest and most well-connected (to government insiders) can handle. It's practically dragging the ladder up behind them.

avgcorrection 4y ago

And if the market doesn’t manage to regulate something just put those things in the Externalities bin.

senttoschool 4y ago

This is taught in any Economics 101 class in college. Government regulation = market inefficiency

andrekandre 4y ago
> Government regulation = market inefficiency there are many causes of inefficiency, such as too many middlemen, monopolies, oligopolies, cartels etc...
- senttoschool 4y ago
  I don't know people downvoted me. Take any freshmen econ 101 class. One of the first things they teach you is that government regulation/intervention means market inefficiency. And they keep pounding this idea over and over again throughout the course. Am I the only one here who has taken Econ 101?
  - notahacker 4y ago
    No. Other people took better courses or read more widely...
    - senttoschool 4y ago
      At the fundamental level, any regulation is a disruption to the free market.
      - verdverm 4y ago
        An unregulated market is not a fair market. Companies will put the risk and externalities on others. That's why we don't let them dump chemicals into the watershed, or rather we incentivized them through regulations and fines.

pupperino 4y ago

Most disciplines evolved in the last 40 years (looking at you psychiatry), but economics has changed rather drastically. Methods for testing theory back then were Bad. Like, really bad. Ed Leamer's 1983 paper on this (http://www.econ.ucla.edu/workingpapers/wp239.pdf http://www.econ.ucla.edu/workingpapers/wp239.pdf) is a good read if you want the details. Beginning in the late 80s, there was a movement toward study design and credible identification. Software like Stata (and nowadays there's R, julia and python) started lowering the costs of doing data-intensive work. The 90s and 00s are full of really interesting papers pushing the frontier on what could be done do gather evidence of causality: Angrist and Lavy in 1999 using Maimonedes Rules and RDDs to estimate class-size effects, Hoxby 2000 using rivers and county borders as exogenous variation on public school competition, Acemoglu, Johnson & Robinson 2001 using colonizer death rates to estimate long-term effects of colonization. The discipline has evolved and so has our understanding of minimum wages (https://academic.oup.com/qje/article/134/3/1405/5484905 https://academic.oup.com/qje/article/134/3/1405/5484905), gun violence (https://www.nber.org/papers/w23510 https://www.nber.org/papers/w23510) and nation-building (https://scholar.harvard.edu/files/dell/files/paper_combined.pdf https://scholar.harvard.edu/files/dell/files/paper_combined....). Pretty sure Railway Economics has changed too.

Animats 4y ago

Ah, that was pre-deregulation in the US. Now we know what happens with de-regulation. At first, there are lots of new entrants in the industry. Gradually, the new entrants go bust or consolidate. The industry reduces to an unregulated oligopoly with four or less major players. Examples: - Wireline telephony. (AT&T, Verizon) - Cellular telephony. (AT&T, Verizon, T-Mobile) - Cable TV (Comcast, Charter, AT&T). - Banks. (Bank of America, Citigroup, Chase, and maybe Wells Fargo) - Package delivery (FedEx and UPS, plus USPS). - Airlines (United, American, Southwest, and Delta) Price competition seems to disappear at 3 or less direct competitors, from an EU study.

darksaints 4y ago
However, the brewing and trucking industries have done the exact opposite. Maybe your model is broken. De-regulation is a misnomer, and using it as a pejorative shows ignorance as to how regulation really works. Quality will always matter way more than quantity.
- Animats 4y ago
  Brewing: * Anheuser-Busch InBev - 45% of US beer market * MillerCoors - 25% of US beer market Trucking: The big ones are FedEx and UPS, who of course dominate small package delivery. For big loads, the big players are XPO Logistics and J. B. Hunt. Everybody else is considerably smaller. Full-truckload shipping has distance cost and is simpler than package delivery, so the network effects are not as strong and there's room for local and regional players. [1] https://blog.bizvibe.com/blog/largest-trucking-companies https://blog.bizvibe.com/blog/largest-trucking-companies
  - darksaints 4y ago
    That isn't monopolization. There are over 8000 active microbreweries in the US, and they haven't been put out of business by Anheuser Busch. In fact, Anheuser Busch has been scared of their growth for decades now. In 1979, when the wave of beer de-regulation started, there were only 90 breweries in the entire US. There are almost 1M independent public-carrier trucking companies in the US. There are some 300,000 independent owner operators. Your model is broken. De-regulation doesn't inevitably cause monopolization, there is something else that does that. In fact, you already alluded to it: network effects. Along with high fixed costs (which overly aggressive regulation contributes to), they're one of the defining features of a natural monopoly.

pessimizer 4y ago

> the big question when deciding whether some issue needs to be controlled through regulation is whether the market will function well without regulation. All markets are regulated. Markets are defined by their regulation. You're talking about the calculation one should do when deciding when some market needs to be more or differently regulated.