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Originally posted by Dupz Radical you are, but there is definately some method in your madness.. Now, a government is definately needed for the two points I've just quoted from you (which you could generalise into saying that the government is required for law and order) but their role in society has a slightly broader scope. Other than law and order (which includes national defense), the government should be one to correct market failures.. even if these market failures are a result of a pure market economy.. I'll use the following quote to explain: Not all... actually... hardly any monopolies are created through voluntary transactions between free individuals. Most monopolies are indeed natural monopolies, in that the market cannot sustain a perfectly competitive market.. not through the wit and cunning of any particular entity, but through natural forces. The best example of such occurances are utilities like water/gas/electricty industries. Such markets arise basically because set-up costs (in terms of setting up networks and infrastructure) are infeasible. Now why should society suffer from this natural occurance when the entire society can benefit from a simple intervention that can create competitive / near-competitive environments? In the end, everyone is better off.. including consumers AND those natural monopoly companies who are now more efficient progressive (yes, the government is actually doing them a favour). It's a win-win. So basically, a government exists for more reasons than just to maintain law and order, but to also counter the effects of natural market failures... and that's it..

Thanks for the reply. You raise some good points about natural monopolies...I'll need to think about it a while and see if I can counter it with anything. My immediate thought is that most utilities are state/private hybrids already. The government controls and subsidizes energy prices in most states, and this alone guarantees a natural monopoly in the industry. When a single company is tied to the government and carrying all the political clout, it becomes nearly impossible for other players to join the game. Obviously I'd suggest eliminating the role of government in that industry and to dramatically reduce the barriers to new enterprises being formed. Once the red tape is slashed, more investors will see the energy business as a lucrative opportunity, and over time this should result in more choices available for consumers (coal, gas, electric, etc).

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Originally posted by Capitalizt Thanks for the reply. You raise some good points about natural monopolies...I'll need to think about it a while and see if I can counter it with anything. My immediate thought is that most utilities are state/private hybrids already. The government controls and subsidizes energy prices in most states, and this alone guarantees a natural monopoly in the industry. When a single company is tied to the government and carrying all the political clout, it becomes nearly impossible for other players to join the game. Obviously I'd suggest eliminating the role of government in that industry and to dramatically reduce the barriers to new enterprises being formed. Once the red tape is slashed, more investors will see the energy business as a lucrative opportunity, and over time this should result in more choices available for consumers (coal, gas, electric, etc).

Aside from natural monopolies what's your opinion on monopolies like Microsoft? You say that firms who can work their way into a monopolistic environment should be rewarded with the supernormal profits that monopolies make. The computer market is definately not a natural monopoly and Microsoft was definately one of the pioneers in the computing industry. On the other hand though, their heavy handed tactics have proved to be a barrier-to-entry for wouldbe competitors. Should Microsoft be allowed to control the business environment, as it has for the last 2 decades, or should the market be forced to become more competitive?

(Personally, I would welcome the more competitive industry.. hopefully it would make Microsoft produce an operating system that isnt as fukn shithouse as XP )

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Originally posted by Dupz So basically, a government exists for more reasons than just to maintain law and order, but to also counter the effects of natural market failures... and that's it..

Just to add to your point slightly, market failures encompass far more than simple natural monopolies, although that's probably the best example to use. Other easy examples include the need for regulatory agencies to ensure good corporate governance, meeting fiduciary responsiblities, and ensuring fair and equal access to information, or in other words, prohibiting profit taking from insider information.

This example was kinda raised before but in general, another market failure are public goods or commodities that are nonrival in consumption. These are namely goods that from which one person consumes, it does not prevent anyone else from doing so as well. You can use a defense force as an easy example, however, there are a multitude of other such public goods such parks, sanitation services, roads, education, etc. Social efficiency is maximized with the existence of these goods, however, these goods fail to materialize in free markets due to problems of freeriding.

Another good example of a market failure are negative externalities. They usually appear as a consequence of the failure to establish property rights. Let's use a river for example. Nobody owns a river, or the function of the river, but suppose a factory owner upstream pollutes in the river which affects the livlihood of a fisherman downstream. While the factory owner should pay a price that reflects the river's value as a scarce resource that can be used for other activities, he instead pays 0 price. If one person owned the entire river, they could attain the social optimum of balancing the cost fo pollution with the the other utilities wrought from the river, however, since noone owns the water or the air within which we breath these costs cannot be leveraged. As such, private markets need not produce the socially efficient output level.

Anyway, I loved public finance .

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Retro ...

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Originally posted by occrider Just to add to your point slightly, market failures encompass far more than simple natural monopolies, although that's probably the best example to use. Other easy examples include the need for regulatory agencies to ensure good corporate governance, meeting fiduciary responsiblities, and ensuring fair and equal access to information, or in other words, prohibiting profit taking from insider information. This example was kinda raised before but in general, another market failure are public goods or commodities that are nonrival in consumption. These are namely goods that from which one person consumes, it does not prevent anyone else from doing so as well. You can use a defense force as an easy example, however, there are a multitude of other such public goods such parks, sanitation services, roads, education, etc. Social efficiency is maximized with the existence of these goods, however, these goods fail to materialize in free markets due to problems of freeriding. Another good example of a market failure are negative externalities. They usually appear as a consequence of the failure to establish property rights. Let's use a river for example. Nobody owns a river, or the function of the river, but suppose a factory owner upstream pollutes in the river which affects the livlihood of a fisherman downstream. While the factory owner should pay a price that reflects the river's value as a scarce resource that can be used for other activities, he instead pays 0 price. If one person owned the entire river, they could attain the social optimum of balancing the cost fo pollution with the the other utilities wrought from the river, however, since noone owns the water or the air within which we breath these costs cannot be leveraged. As such, private markets need not produce the socially efficient output level. Anyway, I loved public finance .

To further your point on externalities public goods actually encompass positive externalities, and that's why they're underproduced..
lol, I aced public finance too btw

Anyway, i generalised externalities to fall under the concept of market failure, so I conviniently left them out so as to not get too techinical.

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Originally posted by Dupz Aside from natural monopolies what's your opinion on monopolies like Microsoft? You say that firms who can work their way into a monopolistic environment should be rewarded with the supernormal profits that monopolies make. The computer market is definately not a natural monopoly and Microsoft was definately one of the pioneers in the computing industry. On the other hand though, their heavy handed tactics have proved to be a barrier-to-entry for wouldbe competitors. Should Microsoft be allowed to control the business environment, as it has for the last 2 decades, or should the market be forced to become more competitive? (Personally, I would welcome the more competitive industry.. hopefully it would make Microsoft produce an operating system that isnt as fukn shithouse as XP )

Well I actually like XP, but I can understand how some worry about Microsoft. I really don't think they are in as dominant a position as most people think. They are facing stiff competition from IBM and Sun Microsystems on the server side of things...and as far as operating systems go, Apple is gaining ground with their new cheaper Macs and Linux is becoming more popular by the day, especially for corporate networks where 100% uptime is critical. We know that IE has already lost 20% of the browser market to Firefox, and I honestly wouldn't be surprised if we had complete open source (free) operating systems within the next ten years competing heavily with Microsoft for market share. There are new alternatives to Windows appearing daily and it seems to me the market is plenty competitive as it is. Microsoft will evolve or die. There is no need for government to get involved.

Occ, is this how you feel whenever I start gettin' deep into evolutionary biology?

Feels like a fucking Econ course in here for Christ's sake! Damn econ whores.....

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Whence September dusk grows crisper still,
with leaves all crimson conquered,
I yearn to shout,
and dance about,
and stick pickles in my honker...

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Originally posted by MisterOpus1 Occ, is this how you feel whenever I start gettin' deep into evolutionary biology? Feels like a fucking Econ course in here for Christ's sake! Damn econ whores.....

Pretty much. Although I think if I tried to emulate your dedication I would have gone into Pareto principles, Pigovian taxes, etc., and posted all the graphical analyses that illustrate the shifting economic effects such as this:

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Retro ...

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Originally posted by Dupz Not all... actually... hardly any monopolies are created through voluntary transactions between free individuals. Most monopolies are indeed natural monopolies, in that the market cannot sustain a perfectly competitive market.. not through the wit and cunning of any particular entity, but through natural forces. The best example of such occurances are utilities like water/gas/electricty industries. Such markets arise basically because set-up costs (in terms of setting up networks and infrastructure) are infeasible. Now why should society suffer from this natural occurance when the entire society can benefit from a simple intervention that can create competitive / near-competitive environments? In the end, everyone is better off.. including consumers AND those natural monopoly companies who are now more efficient progressive (yes, the government is actually doing them a favour). It's a win-win. So basically, a government exists for more reasons than just to maintain law and order, but to also counter the effects of natural market failures... and that's it..

Actually, most natural monopolies arise because the total market size is less than the minimum efficient scale of production. Increasing the number of firms would reduce output/firm and result in higher long-run average costs, and potentially higher prices.

Edit: I don't mean to pick on your posts...

By the way Renegade, I never got the chance to let you know that I appreciate the response. Although I don't agree with your point of view entirely, you did a good job of clarifying most of the points which seemed lacking in your original post. I do agree with you that true laissez-faire capitalism is sub-optimal in many departments. I don't agree entirely regarding the role of government, but that topic is quite a behemoth itself and is somewhat tangental to this thread. Perhaps we can discuss that issue in more detail at some point in the future.