I'm generally in favor of a free market, except that I don't believe that's that's what we've been having. I think we've been having a rigged free market, and that's when I think government intervention is needed.If a market is rigged, by definition it isn't free.
So how is our market rigged and who's doing the rigging? Aelfscine uses healthcare and financing as two examples. Yet these are two of the most regulated and un-free markets in this country. The govt intervenes in almost every aspect of these industries. Licensure laws, advertising laws, patent laws, etc make these industries the exact opposite of a free market. Harry Browne has shown numerous times (e.g. here, here, here, and here) how govt intervention has destroyed the best health care system in the world into the useless mess we have today. The govt has rigged those markets. More intervention is the last thing we need.
His examples with credit cards are just as bad.
however, your credit isn't good enough to get multiple cards - maybe you're young and starting out. If your credit card company just randomly decides to triple your interest rate, you are screwed, and the 'free market' can't help you.Randomly decides? Every credit card account I have or had (and I've had dozens) has an agreement. That agreement states what the interest rate will be as well as when and why it will change. There's nothing random about the rate changes.
Claiming some can't get multiple cards is absurd. I know individuals with $100,000 of credit card debt, no business profits and little other income, yet they keep opening new credit card accounts. I know children with credit cards. One kid kept getting pre-approved offers when she was 7 years old. If someone can't get a second credit card, it isn't because the market is free. It is because of govt intervention and heavy regulation.
He ends with an extremely absurd statement:
we are currently undergoing a free market 'correction' and shady mortgage companies are going down in flames . . . . . . . . If someone had stepped in and broken up the problem before it got this bad, the free market could have had a correction without getting it all over everyone' faces.With FNMA, FHLMC, FHA, FHEO, FHAP, FDIC, ECOA, SIPC, SOX, HUD, FCRA, PATRIOT, FRB, PTI, CRA, HMDA, etc. just how much more regulation is required. Just one of those laws or organizations creates an unfree market and I've listed close to 20.
The last thing we are currently undergoing is "a free market 'correction'". Those who can't figure that out may be beyond hope. For those who are figuring that out, you may want to read Tom Woods new book Meltdown.
Posts
Good response.
ReplyDelete"Every credit card account I have or had (and I've had dozens) has an agreement. That agreement states what the interest rate will be as well as when and why it will change. There's nothing random about the rate changes."
Yes, but these agreements exist only because of regulations. If there was no government to enforce the agreement, credit card companies would raise interest rates *every day* without notifying the customers! /end sarcasm/
I'll grant flat-out that you know more than I do on health care and mortgage regulations, and those were likely poor examples.
ReplyDeleteHowever, you still did not address the question of what happens if businesses collude and lock down an industry. If a credit card company raised their interest rate to 80%, obviously their customers would all bail on them and close their accounts. It'd be a disaster for the company and the free market would slam them hard. But what if ALL the big banks sat down together and said 'You know what, 80% sounds like a great idea!' What if you couldn't offer a Visa, Mastercard, or American Express without an 80% rate?
Some other bank offers some other card, you say? Capital One buys 'em. Or Chase does. Back to 80%.
While we're at it, if we're all in cahoots with each other to keep this rate so high, we might as well just merge into one bank, that way we can guarantee that any better interest rates get immediately quashed.
Of course, in this scenario, the obvious solution would be for people to stop borrowing entirely, but if we replaced 'credit' with 'food' or something else that reasonable people couldn't go without, there'd be major trouble.
Government can create monopolies, definitely, but it's one of the few instruments available to us for getting rid of them. How was Microsoft attacked when it was gobbling up companies and making it impossible not to use their products? Via lawsuits and acts of congress, all government things. What else could we have done? Waved signs outside their building? Every office in America replaces its PC's with Macs? - not easily affordable or doable. Every office replaces its Windows with buggy, crashy Linux that no one knows how to use? Or worse yet, writes their own proprietary operating system that costs money and is compatible with nothing?
I don't like government as a solution to combatting monopolistic companies, but apart from burning them to the ground, we often have few other means, or means that are as effective.
“However, you still did not address the question of what happens if businesses collude and lock down an industry.”
ReplyDeleteI touched on it indirectly by mentioning contractual agreements. I addressed it more directly by refuting the two examples you gave of this occurring.
To address it even more directly, your scenario is unlikely, if not impossible, to occur in a free market. Collusion rarely occurs and when it does it is either on a small scale or for very short periods of time. It would be beyond miraculous for such a ridiculous banking situation to occur. There are hundreds if not thousands of banks in this country. To get the boards of 1000 companies to agree to collude in this manner would be impossible. Even if you only needed the CEO of each bank to agree, how would you get 1000 CEOs to agree to eliminate 999 of their jobs and become unemployed just so the banks can eliminate all competition? Where would the bank get the funds to buy the stock of all the other banks? The way such collusion occurs is due to government favor and regulations. It is impossible in a free market.
But let’s pretend this impossible scenario actually occurs. Why wouldn’t someone else look at the situation (maybe one of the 999 unemployed banking execs) and decide he could get filthy rich loaning money out to people at less than 80%? Oh that’s right, government regulation favors existing banks and makes it very difficult to start up a new bank. But even so, eventually the red tape will be waded through and new banks will open.
“Of course, in this scenario, the obvious solution would be for people to stop borrowing entirely”
I don’t find this to be the obvious solution at all. In fact I didn’t think of it until you mentioned it and I doubt I would have ever thought of that. Yes, some people deciding not to borrow occurred to me, but everyone in the world no longer borrowing would never occur. There are always other markets to get lending. I have personally loaned a friend money at a rate lower than he could get at his credit union but much better than what I was being paid in my savings account. If banks colluded to charge 80% interest, I would start making loans with all funds I had available.
You two examples of Microsoft and food are even more absurd than your previous examples of credit cards, banks, and health care.
Microsoft has never made it impossible not to use their products. People tend to choose convenience over quality. In the early 80s Apple owned the pc market, in the early and mid 90s Netscape owned the browser market, Lotus owned the spreadsheet market, WordPerfect owned the word processing market. These companies lost their market leadership due to their incompetence and Microsoft’s better marketing. Even today, Microsoft is losing market share to Mozilla, Google, Yahoo, and numerous other companies.
Regarding food, there are thousands of food providers for every bank. If it is impossible to get thousands of banks to collude it would be exponentially more so to the hundreds of thousands if not millions of food providers to collude to raise prices or lock down an industry.
Aelfescine, collusion is a classic example of the prisoner's dilemma: If comepetitors collude, they can act as monopolists, however, it is in the self-interest of any individual firm to reneg on this collusion, undercutting competition, and capturing greater market share & greater profits.
ReplyDeleteMost cartelization in industry has been brought into existence *by* businesses convincing governments to erect artificially high barriers to entry, thus reducing potential competition, and cementing (with the force of law) what would be an otherwise untenable compact.