768 sats \ 13 replies \ @SimpleStacker 15 Aug \ on: Are Monopolies Always Bad? econ
I think a better question is: "Is the cure worse than the disease?"
There are some markets, the "natural monopolies" as you mentioned, that would naturally gravitate towards a single supplier even if you let the market compete freely. And that's usually in a market where the largest supplier is actually the most efficient provider, due to strong economies of scale or network effects.
However, even in such markets, self interested monopolies will still behave in ways that maximize the profits to themselves, even if that behavior isn't the most "socially optimal".
So, traditionally, that has led to the economic theory that government intervention is needed to get the monopolies to behave in a more socially optimal manner.
In theory, I suppose it's possible to use regulation against monopolies to improve utilitarian outcomes. The question is, in practice, whether or not the government intervention causes more problems than it fixes.
What's lacking, in my opinion, in most Econ 101 treatments of the subject is that regulatory improvements are always assumed to be made by a "benevolent social planner." The problem is that a benevolent social planner doesn't exist in real life. Government itself is a game theoretic system with its own inefficiencies and corruptions.
So my final answer is, yes, self-interested monopolies could always behave in a more socially optimal way (from a utilitarian perspective), but it's not obvious that government regulation will improve the situation.
I think a better question is: "Is the cure worse than the disease?"
That is a better question!
What's lacking, in my opinion, in most Econ 101 treatments of the subject is that regulatory improvements are always assumed to be made by a "benevolent social planner." The problem is that a benevolent social planner doesn't exist in real life. Government itself is a game theoretic system with its own inefficiencies and corruptions.
Another great point. What is rarely discussed as well are tradeoffs. There are no solutions after all, only tradeoffs. Someone smarter than me said that once...
The story I've heard about Microsoft was that Gates and crew mostly ignored politics. It kinda makes senses because when MS came up there was a very strong crypto-anarchist bent in tech. They were building a new world that is above the old world. But after the anti-trust actions of the government MS started doing what other firms did. Lobbying politicians. In other words, spreading money around to get influence over policy.
So what ends up happening is that when the state tries to "fix" monopoly or market dominance they attract more focus from industry. The politicians become king makers and breakers.
Now, that is not to say that there wouldn't be tradeoffs with no state intervention. There would be. But is the cure worse than the disease? I would argue it is.
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Yeah, Joe Stiglitz, an economist known for his progressive views, has a famous saying: "The reason the invisible hand often seems invisible is that it is often not there."
To which I'd reply, "Fair enough. But the problem with the benevolent social planner is that the benevolent social planner simply doesn't exist."
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I was sort of shocked in PhD macro (and sometimes micro) that this lazy treatment was still so common. They never account for any costs of governance. I'm sure there are models out there that do, but we didn't discuss them.
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Yeah, it seems to be a major blind spot in the profession. Oh, someone discovered a new kind of market failure / inefficiency and proposes a policy based on a benevolent social planner - without any analysis of the incentives of those who would implement the policy.
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I had a similar feeling when we covered the more sophisticated treatment of externalities. The amount of stuff the planner has to know to actually correct that inefficiency is ridiculous and it doesn't seem to phase anyone that it's ridiculous.
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This isn't totally related to what we're discussing, but my favorite example of dumb-policy-brain in the Econ profession is a job market talk I went to, where the candidate demonstrated empirically that living in a mixed race neighborhood is causally associated with more tolerant views.
His proposed policy was for the government to airdrop migrants into less diverse neighborhoods.
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Oof. Someone’s advisors dropped the ball.
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Make white neighborhoods less white
No one is dropping immigrants into MLK Blvd (pick any city)
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Yeah, and in the current climate where every election its the most important election of our lifetimes it is even more absurd. Both sides act like the other side is going to destroy civilization. And yet... they pretend that we should have no concern with grating it more broad and sweeping powers.
I am left thinking either most people do not think, or most people that vote are morons. Probably a bit of both.
That sounds dark but I do think these tactics are slowly losing their effectiveness. But maybe that's just because of my circle of young people. They all seem to not fall for this stuff.
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From what I observe the biggest problem is that most people give maybe only 0.1% of their attention to actually thinking about the issues carefully.
They may know something's wrong, like grocery bills are too high, or their insurance rates are going up, or this or that, but they spend very little time thinking about why. Instead, they rely on the bits and pieces they hear through the mainstream media, which almost universally leans left.
I do think more and more people are losing trust in mainstream media... but whether that translates to a more realistic view of how the economy and society functions is debatable.
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Yeah, that's fair. Most people are mostly consumed with making ends meet and their own welfare. This is also why populism and demagogues dominate politics.
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Right, and I'm not really blaming the regular people (by much; I do think most people could do a little more to be engaged in this stuff).
But no one can be expected to be an expert at everything. So reserve more blame for MSM journalists who don't really think critically (which allows politicians to get away with foolish claims), and I blame our education system for not teaching people better on how to think about economic issues.
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MSM journalists
Paid shills mostly. I'd argue almost 100%
education system
You misspelled state education system
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