31 October 2009

The $10,000 suit

The $10,000 suit. Or why anti-globilization/trade restrictionists are wrong.

09 October 2009

Michael Moore on Capitalism

Ok, I was getting a case of the vapors because at one point early in this Q & A I found myself almost (almost) agreeing with Michael Moore. He starts making some good points, I get my hopes up that he'll see the light and draw the correct and proper conclusions and then...


Gone. He is Michael Moore, after all.

He is right to agree with the student that what we have here is Corporatism as opposed to capitalism and he is right that many of the "capitalists" running some of our larger firms would like nothing more than to monopolize rather than compete. That is their nature. It is government's job to ensure competition (level-playing fields, easy entry and exit from markets, prohibition on market power, acting as a referee). The failure here is of the government.

The government long ago (New Deal) left its moorings and began to get actively involved in a whole bunch of things that it has no right or reason to get involved in. All in the name of equanimity and egalitarianism--also none of its business. His problem is with republicanism and not democracy. We are not a democracy and never have been. There hasn't been a "democratic" system in this country since the town councils of some of the New England colonies in the 17th/18th century. The representatives have become tools of the corporatists, that is not the fault of the corporatists but the failure of the representatives. They are responsible for their actions. Some of the reasons for this may be under-representation. The number of representatives has been 435 since 1911. The population then was ≈ 92 million (about 1 for every 211,000). Current US population is about 300 million and we have the same number of representatives (about 1 for every 689,000). Your representative cannot adequately represent a pool that large. The interest of the district is too diluted. Special interests of all stripes (including the corporatists) like and benefit from a concentrated pool of power brokers.

Another factor is the direct election of senators. The senators are beholden to their constituents directly, or so the story goes. When senators were elected by the state legislators they were much more in tune with that which directly affected their state. Now we have senators who act as if (and seem to believe) they work on behalf of the country. 300 million constituents!

But I digress.

Moore makes the point that things used to be much simpler, and uses college as his example. When he was in school banks didn't give student loans. You got financial aid from the school itself. What he fails to see was it was the governments involvement in education that has led to the runaway costs (completely out of line with inflation as measured by CPI). When the government started to feel as if everyone who wants to should be allowed to go to college, they started Sallie Mae to act as an underwriter to private lenders in an effort to get these lenders to provide loans to young people who have demonstrated exactly no credit worthiness (this being why banks didn't offer loans of their own volition).

This effort to equalize access to higher ed directly led to higher costs. Let's say you run a college. A certain per cent of the population can afford your tuition. If your tuition is too high you limit access to your product. The market works well to let you know what you should charge (supply, demand, price elasticity, substitutes, &c, &c). Then, all of a sudden the demand curve shifts to the right. Extraordinarily so. As did the financial resources of your pool of buyers. When all of your potential customers have lots of money at their disposal, prices tend to rise. I have mentioned here earlier that if Obama's plan to give every college applicant $4000 in return for community service (that he was thinking of making mandatory) there is a possible effect that the world would be a better place and we'd all get along much better. Possible. The definite effect would be that average tuition would go up no less than $4000 over CPI in less than four years. Definite.

Government invlovement in that which is beyond the purview of the government, no matter how well intentioned, always has unintended consequences. These consequences can sometimes be hard to see. Government involvement in healthcare has contributed to its excessive costs (also not allowing free access across state lines, not allowing individuals to deduct their health insurance costs as those who are insured through their employers can, and making portability far too difficult). Responding to the "crisis" of about 3.6% of the population chronically uninsured or uninsurable by socializing an an entire industry, or "competing" with this industry by creating a firm that has no need to concern itself with profits, consumer relations (have you ever called the Social Security Administration?), and that has the force of law behind it doesn't sound like competition to me.

Capitalism is democratic. Outside of monopolies (and perhaps oligarchies which we do have as well), firms must respond to consumers. Much more effectively than their elected ones can. Coke or Pepsi? Bud or Coors? That new car too expensive? Don't buy it. That new dish detergent has a pretty package and is a few cents less than the one you currently use? Buy it. That new McRib sandwich sucks? McDonalds won't be making them for long.

When the firms can get the legislators to enact legislation that makes it tougher for new firms to enter the market, they don't have to respond as efficiently as they would have to otherwise and can allocate their resources differently (say, bigger dividends). The legislators caving and writing and passing the legislation is their failure.

Capitalism is not the problem. Corporatism and the weakened republic is. The republic has been weakened by over-expansion (beyond Article I, Section 8) and under-representation.

I would like the free-market to be tried before we consider it a failure.