Government Regulation of Competitive Firms Creates Monopolies
Monopolies are believed to undermine individuals’ well-being, including being the cause of large increases in the prices of goods and services. According to Jean Tirole, the 2014 Nobel winner in economics, monopolies undermine the efficient functioning of the market economy by influencing the prices and the quantity of products, making consumers worse off.
Thus, monopolies supposedly cause market conditions to deviate from the ideal state of “perfect competition.” Effective enforcement of government regulations, then, is needed to control monopolies. Tirole has devised methods to strengthen the regulation of industries dominated by a few large firms.
The ‘perfect competition’ model
In the world of perfect competition, the following features characterize a market:
- There are many buyers and sellers in the market.
- Homogeneous products are traded.
- Buyers and sellers are perfectly informed.
- There are no obstacles or barriers to enter the market.
In the world of perfect competition, buyers and sellers have no control over the price of the product. They are price takers. The assumption of perfect information and thus absolute certainty implies that there is no room left for entrepreneurial activity. For in the world of certainty there are no risks and therefore no need for entrepreneurs. If this is so, who then introduces new products and how?
According to the proponents of the perfect competition model, any real situation in a market that deviates from this model is regarded as suboptimal to consumers’ well-being. It is recommended that the government intervene whenever such deviation occurs.
Contrary to this way of thinking, we suggest that competition emerges not because of a large number of participants as such but because of a large variety of products.
Competition in products, not firms
The greater the variety, the greater the competition is going to be and therefore more benefits for the consumers. Once an entrepreneur introduces a product, he acquires 100% of the newly established market.
A product that makes a profit attracts competition. The producers of older products must come with new ideas and new products to catch the attention of consumers. The popular view that a producer that dominates the market could exploit his position by raising the price above the truly competitive level is erroneous. The goal of every business is to make profits, but producers must offer consumers a suitable price and, if possible, secure a price where the quantity that is produced can be sold at a profit.
According to Henry Hazlitt, “In a free economy, in which wages, costs, and prices are left to the free play of the competitive market, the prospect of profits decides what articles will be made, and in what quantities—and what articles will not be made at all. If there is no profit in making an article, it is a sign that the labor and capital devoted to its production are misdirected: the value of the resources that must be used up in making the article is greater than the value of the article itself.”
To set a suitable price, the producer-entrepreneur must consider how much money consumers are likely to spend on the product. He also has to consider the prices of competitive products and his production costs.
Any attempt by the alleged dominant producer to disregard these facts will cause him to suffer losses. Furthermore, how can one establish whether the price of a product charged by a dominant producer is above the so-called competitive price level? How could one establish what the competitive price is supposed to be?
Murray Rothbard wrote, “In the market, there is no discernible, identifiable competitive price, and therefore there is no way of distinguishing, even conceptually, any given price as a ‘monopoly price.’ The alleged ‘competitive price’ can be identified neither by the producer himself nor by the disinterested observer.”
Furthermore, “There is no way to define ‘monopoly price’ because there is also no way of defining the ‘competitive price’ to which the former must refer.”
Also, “On the free market there is no way of distinguishing a ‘monopoly price’ from a ‘competitive price’ or a ‘sub competitive price’ or of establishing any changes as movements from one to the other. No criteria can be found for making such distinctions. The concept of monopoly price as distinguished from competitive price is therefore untenable.”
Definition of monopoly
Rothbard wrote, “Let us turn to its classic expression by the great seventeenth-century jurist, Lord Coke: A monopoly is an institution or allowance by the king, by his grant, commission, or otherwise … to any person or persons, bodies politic or corporate, for the sole buying, selling, making, working, or using of anything, whereby any person or persons, are sought to be restrained of any freedom or liberty that they had before, or hindered in their lawful trade …
“In other words, by this definition, monopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group. Entry into the field is prohibited to others and this prohibition is enforced by the gendarmes of the State.”
He concluded, “Hence, monopoly can never arise on a free market, unhampered by State interference. In the free economy, then, according to this definition, there can be no ‘monopoly problem.’”
It is obvious, then, that monopoly can never arise on a free market. If government officials attempt to enforce a lower price this price could wipe out the incentive to produce the product. So rather than improving consumers’ well-being, government policies will only make things much worse.
Again, in contrast to the perfect competition model, what gives rise to a greater competitive environment is not a large number of participants in a particular market but rather a variety of competitive products. Government policies, in the spirit of the perfect competition model, are destroying product differentiation and thus destroying competition.
Erroneous idea of homogeneous products
The idea that suppliers should offer a homogeneous product is not tenable. Since product differentiation is what the free market sets in motion, it means that every supplier of a product has 100% control as far as his product is concerned, making him a monopolist. What gives rise to a product differentiation is that every entrepreneur has different ideas and talents. This difference is manifested in the way the product is made, the way it is packaged, the place in which it is sold, and the way it is offered to the client.
For instance, a hamburger that is sold in a beautiful restaurant is a different product from a hamburger sold in a takeaway shop. So, if the owner of a restaurant gains dominance in the sales of hamburgers, should he then be restrained for this?
Should he then alter his mode of operation and convert his restaurant to a takeaway shop in order to comply with the perfect competition model? All that has happened here is that consumers have expressed a greater preference to dine in the restaurant rather than buying from the takeaway shop. What is wrong with this?
If consumers were to abandon takeaway shops and buy hamburgers only from the restaurant, does this mean that the government must step in and intervene? The whole issue of a harmful monopoly has no relevancy in the free-market environment.
A harmful monopolist is likely to emerge when the government, by means of licenses, restricts the variety of products in a market. (The government bureaucrats decide what products should be supplied in the market.) By imposing restrictions and thus limiting the variety of goods and services offered to consumers, government curtails consumers’ choices, thereby undermining their well-being.
Conclusion
The idea that government can regulate monopolies to promote competition is a fallacy. If anything, such intervention only stifles market competition and lowers living standards. Furthermore, what matters for individuals’ well-being is not the number of firms but the variety of goods and services. Harmful monopolies cannot emerge in a free market. Instead, we can expect monopolies to emerge when governments heavily regulate an industry and become involved in production and licensing firms and individual occupations.
MESSAGE TO DEEP STATE MINIONS: Don’t Follow Your Orders, Come Out With Your Hands Up & Join The Resistance
CBDC Currency: Creating Shortages With Full Shelves
Of all the areas that economics students need to master, counterfactual reasoning is near the top of the list. Counterfactual reasoning is outlining and comparing the differences and similarities between two alternatives. While everyone uses counterfactual reasoning, such as choosing what to have for lunch, economists look at deeper and more remote consequences. A typical example that students are asked to examine is the effects of price controls — what happens when a price ceiling is imposed below the equilibrium price versus what happens in a free market? The most obvious answer is that shortages develop. People quickly buy as many items as possible while suppliers hesitate to restock.
Shortages are politically unpopular. A cause of permanent shortages is the price ceiling. Price ceilings are often imposed on markets because something even more unpopular is occurring — rapid price inflation. As prices jump up, people want to blame someone for their misfortune. Easy scapegoats are the shopkeepers who are asking for ever-higher prices. Politicians looking to score some quick political points advocate for price ceilings as the solution.
There is a clear causal chain of events. Governments spend more than they tax. As a result, governments turn to money creation to cover the deficit. The new dollars are injected into the economy, which devalues the dollar and moves prices upward. Politicians present price ceilings as the cure to this crisis, resulting in shortages and eventually a political backlash. The politicians try to deflect the backlash and shift blame to anyone else.
But what if this could be avoided? No, I am not suggesting transforming politicians into responsible representatives who “live within their means.” That is clearly a myth. I mean, “what if the backlash could be avoided because no shortages develop?” Some might think that the only way to achieve this is by suspending the laws of economics. Not so. There is a potential solution that is nearly in our politicians’ grasp. The solution is called central bank digital currency.
Beyond the name, what is a CBDC, and is it much different from other digital currencies? Today, most of our currency is digital. Most people use cards or their phones (e-wallets) for most transactions. Only a small fraction (about 10%) of the total in circulation is physical ($2.2 billion in currency versus $20.8 billion in M2).
A major difference between CBDCs and today’s digital dollars is that CBDCs employ blockchain technology. Blockchain technology does for digital currency what the serial number does for the physical note. However, it also goes much further. Not only is each CBDC dollar identified, but its entire history of moving from one account to another is saved. Several other digital currencies, such as bitcoin, have the same tracking feature. The difference, however, is that the owners of the CBDC accounts are known by the central bank while the owners of the bitcoin accounts are anonymous to all. The central bank will know the history of each CBDC dollar and who owns which CBDC dollar at any moment because all the accounts will be centralized under its authority. Each person, nonprofit entity, corporation, etc., will be required to have an account at the central bank.
Blockchain technology used in this way gives the central bank access to the entire history of who owned each dollar, when it was exchanged, and with fairly good confidence, the reason for that transaction. In other words, under a CBDC system, the central bank will know when a particular CBDC dollar originated, see that it was transferred into this specific account owned by corporation X, know that it was transferred in the form of a salary to Mr. Y, and so on. While other blockchain-using cryptocurrencies work similarly, the difference is that the owners of the accounts and the reason for any transaction are unknown. Anonymous cryptocurrencies use blockchain technology as an open ledger that is more akin to everyone looking at the squares of a chessboard (different accounts) and seeing the movement of the pieces (transfers of funds) but not knowing who owns which square.
Bitcoin and similar cryptocurrencies are decentralized, independent and anonymous. Bitcoin accounts can receive bitcoin from anyone at any time, but funds can only be “pushed” out of the account by the owner. No one else, not even the federal government, can “pull” bitcoin from an account. In contrast, the central bank will control access to the CBDC dollars. They will have the power to regulate the flow of funds transferred between accounts.
While this level of control and surveillance by the central bank is ominous, it is essentially taking place today. What the CBDC would do is streamline the ability to investigate anyone’s affairs into a single organization, the central bank. Any amount of friction between snooping authorities is a good thing for privacy advocates, but the reality is that even though these functions are spread across several agencies, the U.S. government can monitor transactions, freeze accounts, directly garnish wages and so forth.
The unique threat found in the CBDC, which gives it a more sinister character, is that it is programmable.
A programmable currency gives the creator tremendous power. Practically anything could be done with such power. Accounts could be frozen. Money could be subtracted from accounts. Transactions could be partially blocked or blocked in total. These accounts could be linked with other data, allowing algorithms to selectively manipulate purchases. It is these manipulations that give the central bank ultimate power.
For example, suppose that an economics professor’s health data shows that his body mass index is too high. The central bank’s algorithms may allow the purchase of fresh fruit but deny the purchase of an apple pie. Alternatively, the algorithm might look at the smog index for the city and thus limit the amount of gasoline purchased in that area for that week. Besides being able to micromanage everyone’s day-to-day transactions (which is already Orwellian), more powerful interventionist policies could be enacted.
Let us return to the earlier situation of politicians overspending. When the government covers a budget deficit through money creation, the money is injected into the economy at specific points. As the new money spreads through the economy, prices rise, but they do not rise simultaneously or uniformly. Some prices rise more than others. These economic distortions are called Cantillon effects. The rise in prices for many popular consumer goods will generate political backlash. Those in power will look for a way to deflect the blame and find a solution to show that they are “doing something.”
Obviously, the correct solution is to stop expanding the money supply, but since this choice would require fiscal discipline, the chances of this decision are remote. Throughout history, price controls have been repeatedly enacted to stop rising prices. Placing a price ceiling on certain items prevents the price from rising; however, it also creates unintended consequences. When the price is held below the equilibrium price, the quantity demanded is greater than the quantity supplied, and shortages emerge. Shortages are also unpopular. Often, politicians try to shift the blame to greedy corporations, but with a CBDC, the game can be changed.
What if instead of allowing shortages to emerge, the amount of spending on particular items could be throttled down? Just as easily as preventing a person from buying an apple pie, the central bank could prevent transactions of specific items that are in short supply. During the initial months of the covid scare, people panicked and stocked up on toilet paper. The resulting shortage persisted due to a breakdown in the supply chain. What if instead of letting panic buying persist, the central bank had the power to step in and throttle down how much toilet paper a household could have purchased?
Those who advocate for the CBDC will claim that this power to selectively throttle demand would be highly beneficial for all society. Maybe in this singular instance of a toilet paper shortage, they might be right. However, we live in a dynamic world and not one-time happenings. The history of the Soviet Union showed that there were specific stores that were full while others were empty. The special stores were full because they restricted access to “the right people” and to those with hard currencies.
Similarly, the CBDC also restricts buyers. The restrictions might be as severe as only allowing party members in good standing to make purchases, or it might be a kinder, gentler repression such as limiting how much a household can buy per month (rationing). Despite the injection of new money into the system, the result is that prices will be held down. Price indexes will not record significant increases, and price inflation will be “solved.” And while the shelves will be full, very few people will be able to complete their desired purchases. Their purchases will be denied, and the consumers will be without recourse.
We will have shortages with full shelves. The politicians will be able to continue deficit spending and to create money to cover their profligacy. The buying public will be angry and frustrated but will not know where to focus their anger. No immediate solution will be recognizable because it requires thinking through several layers of economic theory. No election slogan will sum it up, not even “end the Fed.”
But wait, there’s more! As Ludwig von Mises demonstrates in “Middle-of-the-Road Policy Leads to Socialism” and “A Critique of Interventionism,” interventionism is not a stable solution. Mises presents the example of a milk market where a price ceiling is imposed. The price ceiling leads to a milk shortage. The politician asks why the farmer has reduced the amount he produces to which the farmer replies that he has cut production because his costs are too high. The politician “fixes” the farmer’s problem by placing a price ceiling on a major cost — animal feed. However, this price ceiling leads to a shortage of feed. When the feed producer is asked why he has reduced his output, he argues that he must because the price of fertilizer and pesticides are too high. The process repeats.
Each intervention produces undesirable secondary consequences. Instead of admitting an error and reversing the policy, these effects propel the politicians to enact new interventions to solve these new problems. Interventionism leads to the expansion of state power and control over different sectors of the economy. The enactment of a CBDC will, too, create unintended consequences. The effects of the various algorithms will spur more interventions until eventually the market is completely dominated by the government.
The best policy is not to start down this path. The best policy is to recognize that the so-called cure is worse than the disease. Improving our counterfactual reasoning skills are necessary to protect markets from governmental encroachment. Each citizen must become a student of economics and explain the alternate paths that are set before us. We mustn’t waste time because we do not have a moment to spare. The technology to implement a CBDC exists today.
MESSAGE TO DEEP STATE MINIONS: Don’t Follow Your Orders, Come Out With Your Hands Up & Join The Resistance
Joy Behar Says Trump Being Narcissistic, Unchristian By Telling RNC Crowd God Was Watching Him During Assassination Attempt
Vile “View” host Joy Behar told her audience Donald Trump was being “unchristian” when he informed Thursday night’s RNC crowd he believed God was watching after him when he was shot in the ear by would-be assassin Matthew Crooks on Saturday.
Joy Behar: “When something like this happens to you, like this assassination attempt, and you say something like ‘God was watching me,’ that is a very un-Christian thing to say because it’s very narcissistic.” pic.twitter.com/R4E7m8XISm
— Daily Caller (@DailyCaller) July 19, 2024
She began her bizarre rant by explaining she was raised a Catholic and considers herself “a Christian girl.”
“When something like this happens to you like this assassination attempt and you say something like ‘God was watching me,’ that is a very unchristian thing to say because it’s very narcissistic,” Behar said.
Continuing, “The View” host claimed Trump’s comment insinuated God wasn’t watching over Corey Comperatore, who was killed in the Trump rally shooting, or the people at Sandy Hook Elementary.
Behar went on, “It’s like, ‘Oh, God was watching me and not them.’ There’s something very disturbing about that.”
“God should have pulled the plug on that mic yesterday,” chimed in Behar’s co-host Ana Navarro.
Navarro also insinuated she wished the bullet had hit Trump in the mouth.
VILE: Ana Navarro says she wishes Trump was sh*t in the mouth. pic.twitter.com/Xyep60w5g0
— Ian Miles Cheong (@stillgray) July 19, 2024
Segments like this are why the daytime talk show is known as one of the biggest propaganda arm of the globalists.
Shock Video: Woman Shoots Baby in Stroller in Philadelphia
Authorities are searching for a woman who shot a baby in a stroller in Philadelphia this week.
The shocking incident unfolded on Thursday in the City of Brotherly Love.
Surveillance footage released by the Philadelphia Police Department (PPD) appears to show a woman engaged in a dispute with another person pushing a stroller on a sidewalk.
2/2 Closer view pic.twitter.com/Pjikb1ytMd
— Steve Keeley (@KeeleyFox29) July 19, 2024
The suspect fires three rounds at point-blank range as another person flees the scene on foot, video shows.
“On July 18th, 2024, on the 4000 block of Meridian Street, a seven-month-old child was shot once in the leg by a suspect described as a heavy-set black female with long dreadlocks,” PPD explained in a press release.
Wanted: Suspect for Shooting Incident/Victim in the 15th District [VIDEO] https://t.co/JevDr7M3gr pic.twitter.com/ayK9emFxnR
— Philadelphia Police Department (@PhillyPolice) July 19, 2024
It is unclear if the person pushing the stroller was struck during the shooting.
The suspect remains on the loose, according to the latest available updates.
PPD is asking anyone with helpful information to submit an anonymous tip.
InfoWars has been documenting the surge of crime across the United States, including carjackings, ‘street takeovers,’ smash-and-grab loot mobs, home invasions, and physical attacks on innocent victims.
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Alex Jones said After Trump Shooting the CYBER ATTACK will Begin
Since the attempted assassination of Donald Trump Saturday, Alex Jones had been predicting the next crisis will be a cyber attack.
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Biden Versus Lettuce: Livestream Pits Embattled Prez Against Head of Produce
With scores of Democrats urging Joe Biden to “pass the torch” and exit the 2024 race, a new betting market is asking bettors to predict whether he will outlast a head of lettuce.
Similar to a 2022 stunt guessing whether former UK Prime Minister Liz Truss would resign before a head of iceberg lettuce spoiled, prediction market platform Polymarket on Thursday launched a livestream with Biden’s photo sitting next to a head of lettuce and a countdown clock.
Will Biden outlast the lettuce?
— Polymarket (@Polymarket) July 18, 2024
10 days. The countdown starts now.https://t.co/8GecLvoO3m
“The shelf life of a head of lettuce is 10 days – Will Biden outlast the lettuce?” the Polymarket site states.
The guessing game comes as rumors swirl Biden, 81, is receiving pressure from all sides to withdraw his bid for the Democrat Party presidential nomination, with reports Friday claiming his family has already begun discussing a possible exit plan.
In Truss’ case, she resigned before the lettuce wilted.
The betting market will close on July 28, but as of writing the lettuce is winning.