Not Everyone Likes Freedom of Choice

This blogger took some exception to my post condemning Congress and the President for making light bulbs illegal.

7 Responses to “Not Everyone Likes Freedom of Choice”

  1. noops says:

    I’m not really arguing this specific case, because I couldn’t care less about light bulbs. However, do you think there are times when public policy should “bend” the free market?

    For example, should we allow insider trading? Collusion? Price-fixing? Should we eliminate the Sherman act and related laws? What about predatory business practices? There are times when free markets DON’T really work. Most free market or efficient market hypotheses elocute some form of “rational behavior” ideal as part of the theory, which we’re more and more finding out does not hold true. Heck, I’m working at a marketing research firm now and I’ve definitely learned a little about the psychology of human purchasing decisions, and it is often anything but logical (the industry has terms that they research and design for like” emotive levers,” etc).

    Now, I admit I’m playing devil’s advocate here a little. I would probably be considered a somewhat libertarian economist. But you’re arguments on this issue have primarily centered around free markets, and I’d like to understand better where “free markets” DO require governmental intervention?

    Now I agree with your comments on that blog that choice has a related impact here. But the thing that people who hate business-related legislation often forget or underestimate is the power of the entrepreneur. SOX may be one of the worst bits of legislation ever, but some smart people have built empires around compliance. Some silly inventor is going to get rich coming up with fancy bulbs for you and people like you. That certainly isn’t justification for bad legislation, but it’s an effect I’ve seen often and often overlooked or at least remains unmentioned by “free market” economists.

    As a p.s. I’m an economist with degrees in finance, business admin, and economics. I even used to work as an antitrust economist (for a regulated Trust industry-AKA the bad guys).

  2. Sebastian says:

    Anti-trust law is one are I grudgingly accept some government regulation of the economy, though I’m not sure the federal government has the power to regulate it under the constitution. States certainly do, since they issue corporate charters. A good libertarian will believe the market never fails, and that the cost of maintaining a monopoly is too powerful. But I do think there’s some industries where the barrier of entry is so high that the dominate player can easily ensure that there are no new entrants into the market. This is especially true in knowledge industries, which are created by a government distortion in the first place (patent and copyright laws).

    I’m also not against governments funding scientific research that has very little hope of short term economic reward (which means industry and entrepreneurs aren’t going to bother with it), and if they had chosen to fund more research into low-power lighting, I would have no issue with that. I don’t have a problem with them promoting the technology, just taking the choice away from the consumer. Now industry no longer has to convince me through the market, they’ve had the government mandate it.

  3. noops says:

    OK, I understand that, and that makes sense. And I largely agree with you.

    I’m not sure what “the cost of maintaining a monopoly is too powerful” means. Do you mean for the “state?”

    However, this is were totally free markets break down. By definition a free market (using the “strong” or “semi-strong” efficient markets hypothesis) works at the non-monopoly status. Ignore for the moment, the failure of the “known information” and “rational behavior” ideals of these hyoptheses. One of the primary metrics for that free market status is that business operates at its free market efficiency point which is where Marginal Revenue curve meets the Marginal Cost curve (in other words MR=MC). I’m over-simplifying, but let’s run with it.

    In a monopoly, a business is generally able to create and maintain a marginal revenue higher than marginal cost. By definition, the market (or a market) is neither efficient or free at that point.

    This creates a sort-0f catch-22 for free market economists (I generally include myself in this category). Government intervention is bad, but the market is neither efficient to the whole or free at that point. It seems that market forces alone can’t affect that condition.

    I’ll admit, that I’ve seen first hand the damage that both government regulation AND monopoly power can do. Monopoly power is especially dangerous to free markets. Ho-hum…as usual things are never quite so black and white.

    Ancillary note: RE your comment about states control, do you not think the commerce clause affords the federal government intervention rights in a monopoly case? I’m very pro-states, but I would argue that the nature of a monopoly is the exact example of where ONLY the federal government can intervene. The state of Washington certainly could not really have affected Microsoft, but nor would they want to from a tax basis (almost like a conflict of interest).

  4. Sebastian says:

    I don’t know what I was saying there, but it’s not what I meant. What I meant that the cost was too high over the long term, and over the long term they wouldn’t be able to keep new competitors from entering the marketplace.

  5. Sebastian says:

    In reference to the monopoly issue with the feds:

    Yes, I think they can, but there has to be a jurisdictional hook in order for the feds to assert authority, namely they have to show that the monopoly in question is interfering with commerce among the several states. The action has to be aimed at the preservation of interstate commerce.

    For instance, an airline monopoly could be regulated by the federal government because airlines are an instrumentality of interstate commerce, and there is an interest in protecting its utility in that regard. Same with a telecommunications monopoly.

    They could bust up a local monopoly only if they could show that the local monopoly was interfering with commerce from out of state competitors.

    This is, needless to say, a pretty broad power. But I would argue certain local monopolies are outside of federal reach.

  6. Ride Fast says:

    I hope “Signal Filter” enjoys the commentalanche. Heh.

  7. straightarrow says:

    “I don’t know what I was saying there, but it’s not what I meant. What I meant that the cost was too high over the long term, and over the long term they wouldn’t be able to keep new competitors from entering the marketplace.”- Sebastian.

    Which is why contrary to their public protestations of governmental interference and “over-regulation”, privately in conference with government the large players in every field design and lobby for and support that over-regulation. It makes it too expensive for new players to enter the market. No matter how good their mousetrap is.