Archives for posts with tag: economics

 

But what if they were millionaires?

 

Today my professor was teaching my class about Keynesian economics. I watched in awe as he drew graph after graph explaining how governments can eliminate recessions. Apparently when the Fed increases the money supply by 10% it means we completely avoid a recession and prices increase by 10%. But that price increase doesn’t hurt because everyone has 10% more money – money going exactly where it needs to is another perfectly reasonable assumption. Many Libertarians and other advocates of free markets will spend a huge amount of time explaining why Keynes’ theories don’t actually lead to economic success. I have spent a lot of my time pointing to terrible economic consequences of Keynesians running the show; however, I think that this focus misses the point. Even if a manipulative government outproduced a hands-off government would we want it? Read the rest of this entry »

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"I'm so hot for your hospital bed"

I’m in a class called Government Regulation of Business and today I found that my idea of a monopoly is way off base.  According to Encarta:

  1. control of market supply: a situation in which one company controls an industry or is the only provider of a product or service
  2. personal and exclusive possession: an exclusive right to have or do something
  3. corporation with exclusive control: a company with a commercial monopoly

My professor consults as an economic expert in anti-trust cases and loves it.  He really got giddy when telling the following story.

Once upon a time there were no aids convalescents outside of hospitals.  So Medicare paid for hospital bills.  Then someone realized that most of these people could recoup at home just as well, and for much lower cost, if they had the proper hospital beds, walkers, bedside tables, etc.  BOOM!  An industry was created around renting out hospital beds and all the rest.

So now we have lots of companies competing to have their beds in patients’ houses.  Medicare is happy because renting is cheaper than hospitals and patients are happy because they’re home.  Hospitals aren’t happy though because they just got cut out of a chunk-o-change.

Some sharp business guy figures out how he is going to increase sales:  work out an exclusivity deal with hospitals to allow him to go in and pitch for his rentals.  “I can have your bed and walker and everything else ready for you at your home when you get there.  You don’t need to worry about price because Medicare will cover it.  Also, I have a list of other companies that could supply the bed for you.”  Obviously the patient isn’t going to shop around, Uncle Sam is covering it.

This strategy worked really well and the company that got in hospitals ended up with around 85% of all sales in the industry.  This is cutting into the profits of other companies.  My professor’s client sues.  Why?  Because they’re getting in the way of competition.  The winning firm is said to be acting like a monopolist.

A firm makes what is essentially a strategic partnership that works well and because of that success is punished.  The other firm could have made similar deals with other hospitals or found another way of reaching customers.  “Innovate or die” becomes “innovate and die” in the face of government.

The best part is that the innovating firm actually offered patients alternate companies to go with, but because Medicare covered the fee the patients didn’t care.  It’s like the government sets up systems and then slaps you when you figure out how to win with them.  Who killed the competition here?

"Dam your effort Hum0n!"

Pure laissez faire capitalism is often thought of as a chaotic system where businessmen do their best to fuck over everyone else.  When in fact this kind of capitalism is obedient to natural law and is therefore the most orderly economic system.

Metaphor time!

A stream of water moving down a mountain doesn’t stop any longer than it needs to.  Gravity pulls it down the mountain as quickly as possible.  No tree, rock, or any other natural force stops the water until it gets where it needs to be.  That’s a lot like capitalism, when people are free they put their energies where it is most profitable for them – financially and otherwise.  Supply and demand makes sure that people will be guided to do what they need to do to best serve themselves and the community.

Zeus decides he knows better than Gravity and starts throwing lightning bolt dams all over our mountain to divert the water where he wants it to go.  Our loving Zeus thinks he’s doing what’s best for the stream but he’s really just fucking its shit up.  The stream is being spread too thin, it’s being sent places that it’s not really needed or where it can’t be used.  The stream is also too thin in some areas so evaporates and becomes useless.

This doesn’t have to be Commy-Zeus or Marxist-Zeus or Obama-Zeus or even Mixed-Economy-Zeus.  This is any Zeus that does anything besides watching his stream and making sure that other people don’t throw up dams or blow up his stream.

Pure laissez faire capitalism allows human energy to be directed where it can best be used.  No bubble or serious collapse can occur when incentives are the natural ones of capitalism.  If you look at the causes of any of these events in history you will see that the fundamental cause was some government trying to direct the stream of human effort in the wrong way.

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