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Hank Sedan

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Everything posted by Hank Sedan

  1. Seems common for Randian thinking to deal with uncomfortable economic situations -- situations where regulation makes economic sense -- by concluding that people could just live in total isolation. Strange in light of economics being all about exchange.
  2. People ought to stop asserting that large start-up costs necessarily entail a monopoly situation. High capital requirements need not be an insurmountable barrier to entry. In a competitive market scenario, it will make sense for investors to pour money into a high start-up cost venture that replicates an existing producer if the investors believe the market can sustain greater supply and return a profit. In the utilities context, which seems to be one referred to frequently, a high capital requirement, by itself, is not the primary reason why we tend to think of those as exemplar monopolies. High start up costs are part of it, but equally important are: lack of substitute, huge economies of scale/increasing returns to scale (meaning essentially that the cost of producing more units goes down as the volume of production increases.), high fixed costs (essentially the high start up costs) yet low variable costs (all the other costs). These are what we call natural monopolies. There are other situations where there is only one producer in a market, and these are monopoly situations, but absent these elements those other situations aren't natural monopolies. Monopolies can exist in other forms. An owner of intellectual property has a legal monopoly over the use of the property. Rand was a strong supporter of IP monopoly rights.
  3. to ToyoHabu I don’t think I’m saying people are entitled to anything. I still have to pay for the natural gas I use. I’m saying that the market doesn’t work well unless there is regulation, and that regulation is in fact in everyone’s interest -- buyers and sellers. Rational companies in natural monopoly situation won’t even get into the market if they think there is a likely chance that there will be competition that will preclude the recovery of the initial costs. This is too unspecific. “there are always alternatives” is not a priori true. Why make this assumption? My suspicion is that you are wrongly assuming an unlimited time frame. But if you are more specific, and take a discrete time frame, say a 40 year period, there may be no comparable alternatives to a product in that period. Try telling someone in 1910 that they should ship something by truck instead of train. Those weren’t alternatives then, though they are now. The argument that there are always alternatives seems like a case of trying to skew the underlying facts to construe an ethical stance as leading to the most economically efficient outcome.
  4. to Spiral Architect My idea was to conjure up the clearest circumstances in which regulation provides for a more optimal allocation of resources. Objectivists on this forum seem to frequently conflate two types of arguments. One is empirical: unregulated capitalism is the most efficient allocation of resources. The other is normative: government regulation, as a form of coercion that restricts the will of some human being, is wrong. But these aren’t the same. Randian capitalism would in many instances lead to market failures. While there is a normative argument that gov’t ought not interfere with an individual’s right to accumulate capital, there is a priori basis for thinking that unrestricted capitalism would, economically speaking, work very well. A natural monopoly does not exist because there are high start-up costs. I tried to emphasize in my initial post that high initial costs are just one aspect of a natural monopoly. This rejects the factual premises of my hypothetical, which is that there are not substitutes. This is an example of the normative-empirical conflation I mentioned above. There seems to be an irresistable impulse by users of this forum to find any way possible to force the economic argument, even if that requires changing the facts so to make them fit. The (proper) regulation of a natural monopoly will not prohibit the development of alternative technologies. What it restricts is (1) entry narrowly defined, the duplication of parallel operations, e.g. re-building existing infrastructures, and (2) prices, what the monopolist can charge. Proper regulation won’t prevent cell phone systems from developing because they compete with land lines. They prevent the restringing of a land-line infrastructure. (One bad form of regulation, in my view, occured in the 1970s. MCI came up with a way to transmit phone calls for businesses long-distance over microwave, and the government wouldn't let them operate initially because the MCI system competed with AT&T's long-distance landlines, and AT&T was charging a lot to business to subsidize residential long-distance costs. This was bad regulation.) That’s too general. Even Rand accepted intellectual property balance between which is merely regulation by another name. An IP rights regime is simply a balance, struck by lawmakers, between rewarding the creator and permitting others’ use of. I appreciate that.
  5. There has been a little discussion of the objectivist view on natural monopolies, but I haven’t seen any answers which fairly square up to the problem, so I’ll re-ask the question: Why should or shouldn’t the government regulate a natural monopoly? It’s important to understand, first off, what is meant by natural monopoly because there is often confusion over this. A natural monopoly does not exist merely because initial investment costs are high, though this is a central feature of a natural monopoly. Additionally, a natural monopoly does not exist merely because a duplication of infrastructure is messy. And lastly, though there have been industries wrongly treated as natural monopolies, this does not preclude the existence of natural monopolies. A natural monopoly situation exists where initial investment costs (fixed costs) are high, but after that it is very cheap to add new customers, to provided more and more of a product. I’ll use as an example a company that transports natural gas across long distances. It’s very expensive to acquire tracts of land and lay down miles of 48” pipelines, but once those investments are made operating costs are fairly low. That is, relative to the initial cost, delivering a high volume of gas is not that much more expansive than the delivering a low volume; the cost of servicing 10 customers is not much different than the cost of servicing 100 customers. In this situation, costs are typically recovered over a long period of time, often decades. The problem in this situation is the market naturally does not support more than one provider. In a true natural monopoly it is economically irrational (unprofitable) for a competitor to enter the market. Here's explanation, which can be skipped if all the above makes sense: With all that said, my question again is: Do objectivists believe that it is wrong for the government to regulate pricing in this context? Why? I really hope to get an answer that squarely works within the parameters of a natural monopoly context. Meaning, please do not say “there are always alternatives,” or “no one needs natural gas” or “government regulation of pricing is inherently wrong.” This is skirting the question. Just to be clear, not everything is a natural monopoly. Often something gets labelled a natural monopoly when it isn’t one. A company that wants to build and sell cruise ships requires enormous resources at the outset, but no one would call this a natural monopoly context. People used to think air travel was a natural monopoly, but this turned out to be wrong; regulating airlines was only for the benefit of the airlines, the regulators, and perhaps some politicians. Still, there are instances where it is simply economically irrational for more than one company to enter the market. The result of this is a natural monopoly, and it isn’t a government creation. Rather it is a complex implication of economic laws operating in the real world. My understanding is that Objectivism doesn’t posit that government regulation is simply inherently wrong; rather, it’s that government interference in the market is a fundamental deprivation to individuals because competition in a free market is the medium through which individual self-realization is possible. But if the market will not support competition, I don’t understand how regulation could be wrong.
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