Four questions for libertarians

[LordZeebmork]

Or for fiscal conservatives in general, but that wouldn't fit in the title.

I am in the rather interesting position of not wanting to be a fiscal conservative, but not being able to find a logical way out of it. So I'm just throwing things at the ceiling until I find something that sticks.

1. Information asymmetry exists almost everywhere in the market, and the fully informed choices that the free market relies on cannot be made in situations of information asymmetry. This leaves the market open to manipulation through other factors, which are completely unrelated to the actual value of the product: advertising is the most obvious example. Considering this, how is there no room in the economy for government intervention to move the market away from that natural state and toward how things would operate with perfect market transparency?

2. It is generally accepted in modern economics that human capital is a significant factor of production. Investing in development of factors of production leads to higher production possibility, and therefore to the creation of wealth in the long term. However, in the short term, it is in the best interest of corporations to have access to cheap labor, to lower the costs of production, and to an uneducated consumer pool, to make higher quality unnecessary and thereby lower the costs of production. The construct of a corporation is such that it must act only in its short-term interest. How is it logical to sacrifice the long-term interests of society as a whole, and each individual within it, for the short-term interests of corporations?

3. Conglomerates pose a significant problem to the operation of a free market, by raising the entry barrier to the market. If I start a business that competes with businesses owned by conglomerates and I need supplies that are produced mainly by conglomerates, it is not in the interest of the conglomerates to allow my business the opportunity to succeed, so, unless they think there is a high probability of my business failing (read: my products are garbage), they will refuse sale of those supplies. It is possible that another business exists outside that conglomerate that can provide me with the necessary supplies, but what if those supplies are natural resources that only appear on certain plots of land, effectively all of which are owned by conglomerates? How can the market function then?

In addition, it is in the interest of conglomerates to conglomerate further, for several reasons: vertical integration lowers the cost of production (back in the early days of personal computers, Commodore priced many of its competitors out of the market by buying many of the companies that produced hardware that they needed, most notably MOS Technology), and mergers in related markets increase the share of consumers in that market that buy from that conglomerate, especially considering brand loyalty. (That last point only applies in the short term, though; in the long term, they can be outcompeted.) In the end, it is in the interest of conglomerates to gradually merge into one massive superconglomerate that controls the entire market for everything. Once they do that, they can do anything they want: they are the job market, so they can treat their workers like dirt; they control the market for every product, so they can cut costs at the expense of quality with no adverse consequences, and can even benefit by reducing quality (if cars, for example, are all designed to break down irreparably after five years or so, people will buy more cars than if cars were built to last); and there is no competition and therefore no need for innovation. What can be done about that in a libertarian system, keeping in mind that it is very difficult for competition to emerge once conglomerates are established, due to the control those conglomerates already have, or could get under a completely free market, over essential means of production?

[WolvenBear]

At 3/15/11 05:31 AM, LordZeebmork wrote: 1. Information Problems: Considering this, how is there no room in the economy for government intervention to move the market away from that natural state and toward how things would operate with perfect market transparency?

Information asymmetry is largely a product of laziness. Advertising is no excuse. Hundreds of thousands of reviews of products are available daily, and virtually everyone researches big purchases. If you make an uninformed decision...how is that on anyone else but you?

2. How is it logical to sacrifice the long-term interests of society as a whole, and each individual within it, for the short-term interests of corporations?

How is it in the interests of society to sacrifice job creation for illusive long term goals? Is a cheap job better than no job? Is being unemployed better than being employed? No one in the developing world seems to think so. At some point society has to acknowledge that "trying to give everyone a living wage" costs jobs.

3. Conglomerates pose a significant problem to the operation of a free market, by raising the entry barrier to the market.

Eh, that's a rather silly question.

If I stand to make money from your business, why wouldn't I sell to you? If you are dependent upon me supplying you with materials, the risk of you becoming a threat to me is so small and the profit is there...so why wouldn't I take advantage? Besides, if I don't, someone else will. And the person in a position to supply you is my competitor NOW. It's suicide to refuse to sell to people.

Hope that helps.

[SmilezRoyale]

1. Information asymmetry exists almost everywhere in the market, and the fully informed choices that the free market relies on cannot be made in situations of information asymmetry.

It's a question of the lesser of two evils. Positive government intervention for the purposes of making information more readily available or making transactions more 'equal' has to assume that transactions between States and the constituencies they serve have a level of transparency or 'symmetry' if you want to use that word.

Otherwise you would have to assume that States 1) know what the right thing to do is already, better than anyone else 2) Will do the right thing knowing what it is.

That is you would be perusing a policy of attempting to correct imperfections in human social arrangements based on a prior faith that the institution doing the correcting is perfect itself.

I chose a woolly and dangerous world of 'Market Anarchy' [in the figurative sense] over the promise of a stable society because I know states have tools at their disposal for preventing transparency within their own operations that private institutions simply do not have. [Either for lack of funds, power, or social expectations]

Many schools of economics rely on faulty assumptions about perfect information, and so interventionists assume that everyone who defends the market based on ANY economic arguments must be assuming this as well. The reason economics uses these silly assumptions is not to justify Laissez-Faire, but to allow economic theorems to be put into mathematical terms.

2. It is generally accepted in modern economics that human capital is a significant factor of production. Investing in development of factors of production leads to higher production possibility, and therefore to the creation of wealth in the long term. However, in the short term, it is in the best interest of corporations to have access to cheap labor, to lower the costs of production, and to an uneducated consumer pool, to make higher quality unnecessary and thereby lower the costs of production. The construct of a corporation is such that it must act only in its short-term interest. How is it logical to sacrifice the long-term interests of society as a whole, and each individual within it, for the short-term interests of corporations?

First, you need to separate what an institution would theoretically want from what it can practically achieve with the powers it has at its disposal. Saying that super markets would prefer bread be priced at 100 dollars a loaf, ceteris-paribus, compared to its present level is not the same as saying they can or would do so if not for the regulating finger of the god-state.

Businesses have no stately power to prevent individuals from educating themselves. And businesses themselves do not want the entire population of potential employers available to them being ignorant and thus under productive.

Businesses would like to have a consumer populace so ignorant that advertisements are all that is necessary to get people to buy products. But consumers have their own desires and so businesses have to cope with a reality that, while advertisements are important, so is consumer feedback and gradually improving one's product. The reality of business behavior doesn't necessarily correspond with what situation a business would prefer the most because of constrains imposed by, well, reality.

You're few sentences on Capital versus wage labor assumes the profits of labor intensive industries are going to be higher than capital intensive industries, this is not necessarily the case. It should be sufficient enough to say that no one business has the power to compel other firms from 'upgrading' and no business has the power to compel employees to engage themselves in work involving antiquated levels of technology etc.

I could just as easily argue that Governments would like to have a populace that is ignorant and gullible to prevent them from any need of accountability and would thus The difference is that States actually have the power to compel the entire citizenry into using their schools for very long periods of time, and so such a reality IS attainable, while the ones you describe are not.

3. Conglomerates

Conglomerates are formed only when the firm finds advantage in doing so. One firm may be in a conglomerate with another and is thus in the business of selling a good of higher order for the production of lower ordered goods. There is no reason to expect that a firm would enter a conglomerate knowing it would throttle the potential supply of customers.

Not so much that a firm selling higher ordered goods cares whether or not a firm making lower ordered goods actually manages to succeed, but there's no reason to believe they would be opposed to their existence and refuse to sell with them.

Frankly I'm amazed an argument like this could be made.

I'll also point out that, with respect to monopoly land ownership, the very definition of a state is it's monopoly on the ultimate control of land. [If it can be taxed, it's the Governments property, not yours]

In addition

There are always limits to conglomeration, namely the larger the firm the more difficult it is to manage, and innovation tends [save in a regime of heavy IP regulations] to favor firms that are more flexible. Economies of scale do not exist indefinitely, especially due to the modern prevalence of Niche markets.

The things you describe are **potential** outcomes of Cartels, all of which can more or less be put under the heading of lower output of crappier products at higher prices. I don't buy that the State has ever played a role in fighting cartels, at least not on net.

Throughout US history the State has primarily 1. Used antitrust laws to smash companies that acquired large market shares only by undercutting their competitors price-wise or offering newer better products 2. Given companies franchise monopolies 3. Enforcing IP laws that reward companies that higher lots of lawyers rather than innovators. And has now gotten into the business of propping up failed and inefficient firms with laws and taxpayer dollars.

Suffice it to say that the guns of the state are not working on the side of the innovator.

Anyway you came to the WRONG thread to ask questions about economics. If you are dead set against the idea of a society not framed around coercion and are making a case for it, that is a matter in of itself. But if you have particular issues with a free society that you can't answer on your own, and want these questions answered in good faith, then you should probably just head directly to a place like www.mises.org and post your Q's on their blog.

But in general, as mentioned before, the main flaw is failing to differentiate between what a business firm would like and what a business firm is actually capable of doing.

[KemCab]

At 3/15/11 05:31 AM, LordZeebmork wrote: 2. How is it logical to sacrifice the long-term interests of society as a whole, and each individual within it, for the short-term interests of corporations?

Assuming that the goal is "the betterment of society" or whatever then an answer would be: The businesses get the economic engine moving, at the very least. A portion of the profit would inevitably go into some sort of development because currency is less useful in an environment that is less developed, i.e. there are less things of quality to buy.

In the end, it is in the interest of conglomerates to gradually merge into one massive superconglomerate that controls the entire market for everything.

In other words, control everything, which is essentially the end result of complete freedom in the economic sphere.

At 3/17/11 03:28 AM, WolvenBear wrote: Information asymmetry is largely a product of laziness. Advertising is no excuse. Hundreds of thousands of reviews of products are available daily, and virtually everyone researches big purchases. If you make an uninformed decision...how is that on anyone else but you?

Suppose there are 5 manufacturers of highly prized commodity X, of which I am one. I collude with the other four to deliberately misinform people of what X does, how X works, et cetera, that is, conduct an elaborate campaign to skew any useful information regarding X in favor of the X manufacturers and obscure any potentially harmful information about it.

In an environment where a vendor deliberately attempts to prevent the consumer from finding out any information about their product, would it still be your fault?

By the way, more doctors smoke Camels than any other cigarette!