Re: Free Market Works

[Wes ManTooth]

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Pretty much. Because the point about economic efficiency and price controls rests completely on the supply side.

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economic efficiency has to also rest on demand side

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Controls shifting the demand curve in the short term has nothing to do with efficiency. In addition , the points he makes about demand - that large families will get fewer rooms and that people with decent enough houses wont get rooms - are totally speculative and probably represent very minor effects anyway.

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minor effects in the long term economy is key... over government involvement to disrupt these high prices has little to do with influence major swings in the economy. It has to do with preventing bigger or longer lasting swings in overall market as well as negative side effects that may result in "price gouging" such as a sudden increase in crime like theft.

[SheetWise]

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Other forms of market intervention to increase/ensure competition are incredibly common, especially in complicated sectors like telecommunications.


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In sectors like telecommunications, market intervention is almost universally done to prevent competition.

[sam h]

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What would motivate people to quickly shift the supply, if the price is controlled? I can quickly get all the plywood I want if I'm willing to fly it in or truck it in -- if I want it at the same price it was at it's going to have to come by rail, and take six weeks. Supply can shift because demand allows prices to shift.

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I don't understand what you're arguing here. Let's talk hotels. Supply cannot shift in the short term because you can't build hotels that fast. Therefore, the overall efficiency of the economy is not changed. Fluctuations in short term demand induced by the price controls have no effect on this picture. Got it?

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You believe that market intervention can foster competition?

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Obviously. This is the case for many sectors, especially complicated ones like telecom.

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You'd be surprised how quickly that beach could be lined with 5-star motor homes and all the support services -- in an open market.

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You need permits to put those things on public beaches as well as licenses to open them as hotels. Whether those regulations are good or not is beside the point. In current conditions, supply is not elastic in the short term and it doesnt depend upon the price. You are fighting a losing battle here arguing against this.

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Only that it is the incentives provided by higher prices that allow the market to quickly supply an artificially high demand.

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But in this case it doesn't really matter. You are not getting higher supply in the short term at $160 a room versus $40 a room anyway.

[sam h]

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In sectors like telecommunications, market intervention is almost universally done to prevent competition.

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Wrong.

[tylerdurden]

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I don't understand what you're arguing here. Let's talk hotels. Supply cannot shift in the short term because you can't build hotels that fast. Therefore, the overall efficiency of the economy is not changed. Fluctuations in short term demand induced by the price controls have no effect on this picture. Got it?

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So supply is constrained. That means price caps are good? Should gas prices be capped? Wells and refineries are supposedly at capacity.

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But in this case it doesn't really matter. You are not getting higher supply in the short term at $160 a room versus $40 a room anyway.

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So what? You're getting fairer allocation.

[tylerdurden]

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Other forms of market intervention to increase/ensure competition are incredibly common, especially in complicated sectors like telecommunications.

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You mean like the intervention that gave the Bell companies a lock on local service which they are still leveraging today?

[SheetWise]

The author may have a "compelling political challenge" -- I haven't read it. But I did see the list of reviewers;

--Deputy Chairman, Lloyds TSB Group, plc.
--Japan Times
--Gerald L. Curtis, Columbia University
--Comparative Political Studies

Think about it. Today we can perform almost all communication services over fiber. Cable TV, Internet, Telephony, etc. The entire network was built with virtually no regulation, because the content of the fiber was not anticipated. The entire worldwide network was built in a few short years, and is now available as a conduit for all of these competing services.

Compare this to regulated services -- cable tv (regulated monopoly), telephone (regulated monopoly), etc.

Even with the incredibly inefficient duplication of services, myriad of access methods, and fees for private right-of-ways, --- it beats all regulated services.

Obviously there are competing bandwidth considerations for wireless services, and some regulation is necessary -- but it's not to foster competition.

[sam h]

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Think about it. Today we can perform almost all communication services over fiber. Cable TV, Internet, Telephony, etc. The entire network was built with virtually no regulation, because the content of the fiber was not anticipated. The entire worldwide network was built in a few short years, and is now available as a conduit for all of these competing services.

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Regulation is absolutely key to telecommunications. You are not going to have multiple companies owning there own physical infrastructure and thus you have a very complex regulatory environment setting up rules to structure the ways in which companies share the infrastructure.

In most countries, deregulation of monopolies in telecom (which was obviously a good thing) involved a lot of intervention to get enough major players into the market. The market system was not going to provide sufficient competition on its own, because the barriers to entry were way too high and entrenched players were too powerful.

The point is not that regulated monopolies are better (obviously not) but that "deregulation" in complex sectors really has just amounted to "reregulation," since the market alone will not provide optimal competition structures.

[sam h]

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So supply is constrained. That means price caps are good? Should gas prices be capped? Wells and refineries are supposedly at capacity.

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Don't try to shift the debate just because you're losing it. Sowell argued that price gouging laws were inefficient and detrimental. I pointed out that this was stupid because we were dealing with a short term situation in which supply wasn't going to shift. Nowhere in this thread have I argued that price caps would always be good if supply was constrained.

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So what? You're getting fairer allocation.

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What does that mean? What is fair in the market system is totally subjective. Again, don't just try to shift the debate because you're losing it.

[SheetWise]

Last year we had a supply line failure to the entire city of Phoenix. Almost all retailers had empy tanks, and when they received a delivery it was gone in hours. The Governor threatened a "gouging" law -- but never did anything. Most stations simply added the transportation costs, and sold at about .25 over the previous price. There were several stations which sold at around $5 a gallon -- and none of them were ever without fuel. In most stations, the wait was frequently an hour or more. There were no lines at $5 an hour. So price can and did effect supply in the short term. Because some stations sold at $5 it meant that I could get gas if I needed it in an emergency. For other people, such as my attorney who charges me $400 an hour (and includes travel time), I welcomed the $5 a gallon gas.

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In current conditions, supply is not elastic in the short term and it doesnt depend upon the price. You are fighting a losing battle here arguing against this.


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I may be fighting a losing battle -- but economic realities aren't won or lost in battles.