Wednesday, March 28, 2012

Crushing Economic Liberty to Protect Status Quo

About a year ago, I reported on CD about the Institute for Justice's legal challenge of the anti-competitive protectionism in Nashville that was being practiced by the city's high-end limousine cartel, with help from their government enablers, against competition from lower-cost entrepreneurs.

George Will writes in today's Washington Post about the Nashville limo cartel, which he describes as the "collusion between entrenched businesses and compliant government."

This is good time to invoke the spirit of French economist Bastiat, who wrote these words in a letter four days before his death in 1850:

"Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race."

Given a choice between siding with the disorganized, dispersed consumers/human race and  the concentrated, well-organized special-interest of the producers, the politicians will crush economic liberty to protect the incumbent producers almost every time, and the city officials in Nashville are no exception.  Sadly, the human race suffers.

Interestingly, in the Nashville case the government supported the price-fixing behavior of the limo cartel, which pressured city regulators to set prices at a $45 minimum charge for any ride.  The intention of the price-fixing was obviously to squash competition from the cut-rate newcomers, who were charging only $25 to take customers to the Nashville airport.  But in another recent case, the government just sentenced auto executive Norihiro Imai to one-year in jail, and imposed more than $550 million in fines on several auto suppliers, for fixing prices on automotive heater control panels. 

So in some cases the government enables incumbent producers like limousine companies to fix prices and in other cases it fines auto suppliers and sends their executives to jail for price-fixing?  Welcome to the wacky world of government anti-trust.   

30 Comments:

At 3/28/2012 10:25 PM, Blogger Andrew_M_Garland said...

Via Reason.com
A few economic jokes from Russia and the United States [edited]

Three prisoners in a U.S. jail.
One:  I charged higher prices than my competitors. I'm in for exploiting consumers, profiteering, and monopoly.
Two:  I charged lower prices. I'm in for predatory pricing and cutthroat competition.
Three:  I charged the same prices. I'm in for collusion, price fixing, and cartelization.

 
At 3/28/2012 11:55 PM, OpenID Sprewell said...

Simple answer, you can only fix prices as long as the govt gets their cut: try to do it on your own and the govt mafia will crack down. And it's wacky, btw, not whacky, though the latter apparently is a slang variant.

 
At 3/29/2012 5:47 AM, Blogger Methinks said...

Government isn't against price fixing so long as it's government doing the fixing.

This is a problem in all markets.

The government very much disapproves of people buying commodities or selling stocks. If you short stocks or buy oil futures, you'll soon find yourself heavily scrutinized or rules will be introduced to prevent it as the government attempts to control prices, but indirectly.

Government manipulates price by changing the rules as well. The Hunt brothers case in 1981 was a classic example of government market manipulation and there are too many other examples (reg 204 is a classic example as is the ban on shorting 25% of publicly traded companies in 2008) to list here.

So, market manipulation is A-okay with our public servants whom we all serve, so long as it is they or a favoured group doing the manipulating.

I don't expect it to change.

 
At 3/29/2012 7:43 AM, Blogger Michael E. Marotta said...

Ayn Rand famously pointed out that the problem with dictatorship is not the harsh laws - though there is that - but really the whim of the enforcers. Objective law is lacking. If the law were the same for everyone, it would be bad enough, but at least understandable. It is the unpredictable nature of government power that makes it damaging.

BTW here in Austin, all taxi companies must charge the same rates by law. It is that way in most cities I know of in the USA. As airports are interstate and taxis serve airports especially - one here is called "Airport Cab" - perhaps the challenge in Nashville may open the markets.

 
At 3/29/2012 8:54 AM, Blogger morganovich said...

speaking of price fixing:

http://www.calculatedriskblog.com/2012/03/report-us-uk-and-france-considering.html

looks like obama looking to round up support from using the strategic oil reserves to manipulate markets (again).

never mind that this is a) not what they are for b) not going to work in any kind of long term fashion and c) will lead to higher prices later when they are refilled; it's an election year! time to buy votes with taxpayer money. future consequences only matter if you are reelected, right?

 
At 3/29/2012 9:53 AM, Blogger Buddy R Pacifico said...

"So in some cases the government enables incumbent producers like limousine companies to fix prices and in other cases it fines and sends auto suppliers to jail for price-fixing?"

Lumping all governments together, whether local, state or federal, is counterproductive. It would be more productive to single out the gov't body responsible for the cartel. The feds arn't colluding with the limo owners.

Local citezens in Nashville and Cumberland County should be outraged at price fixing for their airport rides. They need to be demanding that politicians in charge of the city and county be accountable for colluding.

When citizens zero in on specific governments, rather than lump-sum government, then change is more likely.

 
At 3/29/2012 10:42 AM, Blogger Jon Murphy said...

When the government price fixes, it is for the good of the people, because that is all the government has in mind.

When companies price fix, its because they are evil, heartless beings who only care about money.

Everybody knows this to be true.

*end sarcasm*

 
At 3/29/2012 10:42 AM, Blogger Larry G said...

I'm curious here. Don't ya'll think these companies lobby/manipulate the govt to protect their business interests?

when we say "government".. some times we act like it's separate from business and depending on the leader... seeks to damage business by it's policies.

But isn't it also true that businesses themselves want the govt to establish policies and laws to protect or advantage their particular business - also?

The taxi's and limousines are but one example.

Where I live in Va... local medical entrepreneurs cannot just set up an MRI or even rehabilitation therapies without a "certificate of need" from the state which, in effect, determines how many MRIs will be licensed in our area - in theory because too many would result in "too many" that, in turn, would "hurt" consumers.

Now, keep in mind they do NOT do this with auto dealers or fuel oil distributors or barber shops... but they DO do this for medical equipment and therapies.

When some doctors wanted to set up another MRI, other operators of MRIs in the area spoke out against the permit and the state then denied the permit.

Isn't this a case where business has co-opted the govt (as opposed to some looney liberals or some other socialist-minded group)?

 
At 3/29/2012 10:50 AM, Blogger Jon Murphy said...

I think everybody here fully agrees with your statement, Larry. That's why we advocate limited government and no interference in the economy. If the government doesn't have the power to control businesses, then businesses will have no interest in the government and they won't lobby for anti-competitive protections.

 
At 3/29/2012 10:51 AM, Blogger Jon Murphy said...

Let me rephrase one bit: change "if the government doesn't have the lower to control businesses" to "if the government has only limited regulatory power."

 
At 3/29/2012 11:22 AM, Blogger Larry G said...

I would posit that quite a bit of "govt" rules and "regulations" are actually ones that businesses want, to advantage them in some way over their competitors.

Most industrialized countries in the world operate this way though.

I notice that Heritage actually has rankings for economic freedom:

http://www.heritage.org/index/ranking

and that the US is NOT in the top group.

however, business freedom is ranked at 91% while govt spending is what seems to hurt the overall ranking - ranks at 47%.

http://www.heritage.org/index/country/unitedstates

so here's my question...

if you look at the Heritage folks categories... which ones would related best to the topic of this thread?

 
At 3/29/2012 12:03 PM, Blogger PeakTrader said...

Larry G says: "I would posit that quite a bit of "govt" rules and "regulations" are actually ones that businesses want, to advantage them in some way over their competitors."

Of course, businesses want advantages over their competitors from government, and they also want to defend themselves from government, or at least offset the government policies against them.

 
At 3/29/2012 12:13 PM, Blogger Ron H. said...

"I would posit that quite a bit of "govt" rules and "regulations" are actually ones that businesses want, to advantage them in some way over their competitors."

That's absolutely correct. Not only existing competitors, but potential competitors who might have the nerve to start a new business.

The Nashville taxi cartel is a perfect example.

Your MRI example is another. Existing MRI operators want to keep the availibility of MRIs low, so prices can be kept high. Competition would threaten that.

A free market in MRIs would quickly establish the correct number of MRIs in your area, rather than allowing existing operators to make that decision.

The role of government should be to promote the "general welfare" for all individual as consumers, instead of some individuals as businesses, at the expense of others as consumers.

This is best accomplished by staying out of the way, so a free market can do what it does best.

As you pointed out, it's really cynical to suggest that without government interference there would be too many MRIs available and that would hurt consumers.

 
At 3/29/2012 12:42 PM, Blogger Benjamin said...

I like the Institute for Justice. When are they going to propose the de-licensing of lawyers?

And why is the most regulated, price-fixed, subsidized sector of the USA economy---agriculture---often cited as the seminal American success story?

 
At 3/29/2012 12:43 PM, Blogger Seth said...

Larry G: Are you expecting disagreement? We understand that business people, like everyone, respond to incentives and if you create an incentive to seek gains through political power, they'll respond to it. That's also one of the very reasons we support limited government, to keep this incentive at bay.

 
At 3/29/2012 12:49 PM, Blogger Jon Murphy said...

so here's my question...

if you look at the Heritage folks categories... which ones would related best to the topic of this thread?


Look at the Heritage categories, I'd say the "regulatory efficiency" category is mostly what we're talking about here.

 
At 3/29/2012 1:25 PM, Blogger Larry G said...

No.. I was not expecting disagreement but it motivated me to find other countries that were better than us on this issue.

It appears that virtually all the industrialized countries rank pretty good on regulatory efficiency... better than a lot of the 3rd world and developing countries.

So I was looking for countries that were "better" at "limited govt".

was that not a good approach?

 
At 3/29/2012 1:30 PM, Blogger morganovich said...

"And why is the most regulated, price-fixed, subsidized sector of the USA economy---agriculture---often cited as the seminal American success story?"

agriculture as the seminal success story of the US? where on earth are you getting that? perhaps in 1760, but i have not heard anyone claim that in the last century.

the success of farming in the us lies in how few of us need to do it anymore.

i'm not disagreeing the the subsidies etc are absurd and unwarranted, but this notion of farming as a seminal us success story sound awfully pre 1900's to me.

 
At 3/29/2012 1:54 PM, Blogger Mike said...

"agriculture as the seminal success story of the US? where on earth are you getting that?"

I think many believe the amount of food we produce and the consumer prices being what they are constitute a success....problem is, few really know what we're paying for our food.

 
At 3/29/2012 2:00 PM, Blogger Jon Murphy said...

I think many believe the amount of food we produce and the consumer prices being what they are constitute a success....problem is, few really know what we're paying for our food.

We could produce a lot more food, too. I read a study that said if all the US farmland (that's land currently devoted to farming) was used to its full potential, the US alone could produce enough food to feed the world.

 
At 3/29/2012 2:18 PM, Blogger Mike said...

"the US alone could produce enough food to feed the world."

We should get on it! Maybe we could create multiple food-aid-despots in each developing country and they could just fight each other :)

 
At 3/29/2012 2:27 PM, Blogger Jon Murphy said...

We should get on it! Maybe we could create multiple food-aid-despots in each developing country and they could just fight each other :)

The ultimate Hunger Games.

Oh man...I am going right to Hell for that one.

 
At 3/29/2012 2:43 PM, Blogger Larry G said...

the problem is that the parts of the world that need the food ...cannot afford to pay us the actual cost of what it costs to produce it.

They might be able to pay us the subsidized cost but would we really benefit from that?

 
At 3/29/2012 2:54 PM, Blogger Jon Murphy said...

the problem is that the parts of the world that need the food ...cannot afford to pay us the actual cost of what it costs to produce it.

They might be able to pay us the subsidized cost but would we really benefit from that?


Don't forget that our food prices are kept artificially high. If we let our prices operate normally, then I think it would be less of an issue.

Regardless, I do see your point, Larry. My point wasn't so much "it makes sense to do this" but rather "look what we could do."

 
At 3/29/2012 3:08 PM, Blogger Larry G said...

part of what got me thinking was the way we deal with sugar prices by restricting imports and having a higher domestic price than the world market price.

I think...... correct me if I'm wrong.

At any rate... I know we sell wheat and corn overseas.

do we sell corn and wheat for the same price domestically that we do overseas?

if we are selling for the same price overseas and these things are domestically subsidized... then the more we sell overseas, the more we pay in domestic subsidies?

 
At 3/29/2012 3:09 PM, Blogger Ron H. said...

"Oh man...I am going right to Hell for that one."

Wait! Wait!

Never volunteer. Wait 'til you're called. :)

 
At 3/29/2012 5:23 PM, Blogger Benjamin said...

The most regulated, price-fixed, output-controlled, subsidized and molly-coddled industry in the entire USA is farmers. And they are the best in the world, hands down.

Economic Overview

U.S. agriculture is a complex system that simultaneously produces unprecedented bounty and unparalleled social concerns. Can the unique institution of the American family farm survive the economic realities of the 21st century? Can the United States continue to have the most abundant and the safest food system in the world? These questions and the unfolding answers will have impacts that will be felt for generations to come. What we know for certain is that:

The U.S. farmer is the most productive in the history of the world.

Food is more affordable in the United States than in any other developed country in the world.

There is a definite trend toward fewer farms producing an increasing share of agricultural products in this country.
In spite of many challenges, U.S. agriculture is uniquely positioned to provide for the food and fiber needs of a growing world community.

What does this say about free enterprise, if a subsidized and controlled system performs so well, and is deeply revered by the GOP?

--30--


BTW, it is illegal to grow nonwhite cotton in California and to grow more wheat than the USDA tell you to, anywhere in the USA. The GOP loves it.

 
At 3/29/2012 5:26 PM, Blogger juandos said...

"do we sell corn and wheat for the same price domestically that we do overseas?"...

Well there's two (was two different?) answers to that question larry g...

At one time (about 8 to 10 years ago or so) taxpayer subsidized wheat and corn via the USAID was going for about 20% or so less than the actual sell price to countries like Peru, Bolivia, and Columbia... That's what the NGOs were paying in 'most but not all' cases...

The price on the open market was different and much depended on weather conditions in other wheat and corn producing countries like Argentina or Russia for instance...

 
At 3/29/2012 7:07 PM, Blogger Larry G said...

I would think corn/wheat sold by USAID is doubly subsidized.

Once in the US where it is grown ...and again..when we sell it at bargain rates .... to those we are trying to "help".

Bottom Line - I wonder how much corn/wheat we sell on the world market for world market prices.

I'm still skeptical that (like many other products) that our price of production is any more (or less) competitive than say manufacturing...

Farming can be risky business but I thought I read somewhere than the AVERAGE "real" producing farm was at least a 250k annual operation.

 
At 3/30/2012 1:51 AM, Blogger Ron H. said...

"I would think corn/wheat sold by USAID is doubly subsidized."

It is, and we as taxpayers are paying the subsidies.

Free and low cost stuff to 3rd world countries causes another problem for farmers in those 3rd world countries, by competing with them. Rather than buying US grown grain, NGOs would better serve those they think they are helping, by buying grown in the 3rd world.

 

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