A monopoly is the exclusive control of the supply of a product, a service, or a commodity. Consumers do not have a choice if they decide to buy that product, service or commodity, they will have to deal with the monopoly and accept its terms.
How can a firm secure a monopoly? One way to do that is to buy all of its competitors, but this is easier said than done because that assumes the availability of enough credit for that company to buy all of its competitors and the acceptance of these competitors to be purchased. Another way is for the firm to compete hard on price and quality of service so it expands its market share and drives its competitors out of the market. Once the firm achieves market control it cannot arbitrary raise prices and abuse customers as many people may think, the reason is that if other investors see a good opportunity to make gains in that market they will enter the market and compete with that firm. The only way then for a natural monopoly to maintain its market dominance is to run an efficient business with an acceptable profit margin that does not encourage other investors to enter the market.
A Trust or Cartel is a group of producers who band together to control the market for a certain product, commodity, or service. Many people believe that a cartel can raise prices arbitrarily without a check, but in a free market new competitors will enter the market and challenge the cartel’s dominance if they see a good profit margin so the cartel cannot have total dominance on their market.
The free market protects the consumer by default because the producer will have to provide the best service in the most efficient manner to prevent either existing competitors or new competitors from taking that producer’s market share. In other words, the producers do not have a total pricing power over the consumers because competitors can always enter the market and provide a better price.
There is then no economic need for laws or regulations to control monopolies, trusts, or cartels but all countries have some form of Anti-Trust laws that regulate mergers and acquisitions. The main reason for the existence of these laws is to protect inefficient producers who fear being driven out of the market by more efficient producers. They run to the politicians and demand government protection to prevent market consolidation. They usually invoke protecting customers as one of the excuses for the intervention. Customers care about having access to good products with acceptable prices and having efficient producers in the market achieves that. Looking at the case of Standard Oil in the early twentieth century; we see that the price of oil products has dropped consistently every year of standard oil’s alleged monopoly and the consumers access to high-quality products increased. Breaking down Standard Oil only managed to serve the existing inefficient producers not consumers.
The only way a monopoly or a cartel can achieve total dominance is by restricting market entry and this can only be achieved through government power. Government created monopolies of utilities such as electricity and cable delayed the development of these fields and left the consumers without access to high-quality alternatives.
The existence of Anti-Trust laws is an example of how the government manages to create a problem while claiming to solve such problem.
Recently, I read a great book by Thomas Sowell called A Conflict of Visions. Sowell makes the case that one of the main reasons for ideological differences is a conflict between two visions of human nature. The first vision is the constrained vision. In this vision, humans have constraints on their moral and logical abilities and people are motivated by self-interest. The second vision is the unconstrained vision. In this vision, there are no limits on the moral and logical abilities of humans hence some people develop more such abilities and should have more power over the whole society.
Believing in different visions impact the different fields of public life. The constrained vision believers prefer a constitutional form of government with limits on the powers of different individuals and branches while the unconstrained vision believers prefer giving more power to the elites and the experts to plan the society.
After reading this book I realized how close are the neoconservatives and the progressives to each other. Progressives believe that the federal government experts can organize the lives of people in the United States while the neoconservatives believe that the American government can organize the affairs of the entire world. Believing in the power of experts doesn’t limit itself to the domestic or the international domains and hence we see that progressives and neoconservatives behave in the same way.
Neoconservatives believe that they have the superior moral and logical abilities to organize the entire world so when they face a domestic issue they are more likely to support a statist solution. The only reason they don’t agree 100% with the progressives is that they court the conservative voters and they have to appease them with a glimpse of liberty or free market every now and then.
Progressives believe that the government has the expertise and the moral authority to organize the lives of millions of people domestically. When they face an international situation they are as likely to interfere with it as the neoconservatives may do because they have the same blind belief in their superiority.
Historically, the neoconservative thinkers started as left-wing progressives who broke with the democratic party over that party’s abandonment of the Vietnam war in the late sixties and early seventies. They had to make their interventionist ideas acceptable to traditional conservatives, so took advantage of the cold war and branded their ideas as favoring a strong defense. But spreading the United States military all over the world to intervene in civil wars and regional conflicts that don’t threaten the United States has nothing to do with defense.
Strong defense comes from both a strong and well-trained military that can be easily deployed to defend the homeland or important trade routes and a well-functioning economy that can support waging a large scale war if needed. The experience of the United States in both world wars demonstrate that in both cases, the United States didn’t enter either war with a large military. But in both cases, it used its massive economy and human capital to mobilize and deploy huge armies under the leadership of the existing well-trained officer corps.
The absurdity of the interventionist policies was demonstrated by the failure of the experts in shaping the societies of Vietnam, Afghanistan, and Iraq after wasting thousands of American lives and trillions of dollars in each of these wars. If we added to that the failed interventions in places like Syria, Libya, and Yemen we can see the limits of the abilities of experts to shape the events.
The true conservative position is to recognize the limits of the abilities of the government and return it to the few areas listed in the constitution. I understand that fixing the errors of more than a century of domestic and international intervention is not easy but any difference we can make is a step in the right direction. We need to speak up against every government program, every intervention, and every unnecessary war. We should not let partisan biases put us in a position to accept something we know is wrong, Republicans are as responsible for the current situation as Democrats.
These days many people talk about free trade. In this essay, I will cover some background about free trade and show how government introduces many problems into free trade.
Free Market is the free flow of goods and services between different people in the society. Free trade is the free flow of goods between political jurisdictions. The free market benefits the consumer because it makes multiple producers compete to offer goods and services offering the consumer the best possible price. Free trade expands the market to include foreign producers as well as the domestic ones. Free market benefits the consumers and the efficient producers and punishes the inefficient producers. Producers who don’t offer good value end up shutting down and freeing their resources such as capital and labor for other uses in the economy and this creative destruction ensures the proper distribution of resources.
On the long run countries in a free trade system will specialize in certain products that they produce more efficiently. The same way individuals specialize in the areas of production they are the best fit for according to their comparative advantage. On the short run, there may be a trade imbalance between different countries but on the long run, any trade imbalances will be resolved through currency relative prices. For example, if country A exports less than it imports that means that its trading partners will end up with a surplus of country A currency. This surplus can be used by the trading partners either to invest in country A assets, keep the currency as a reserve, or they will trade that currency out. If the trade partners sold their access country A currency, this would push the currency relative price down and the raise the price of imports for country A which will on the long run forces it to consume less imported goods and create a trade balance.
Free trade works like the free market when we let the market process work and respect the outcomes. The role of government in the market should be limited to protecting property rights and resolving disputes between private parties. Problems arise when the government expands its role and select winners and losers.
The first problem is that the inefficient producers don’t go down quietly, instead, they use the political system to gain protection. They ask for tariffs and restrictions on imports to protect them against the foreign competition. This is similar to anti-trust laws on the national level that mainly protect the inefficient producers and penalize efficient ones. These laws end up creating inefficiencies in the market and protecting the well-connected companies and sectors and leaving other sectors out.
The second problem is that free trade exposes the problems with each country’s economic, legal and regulatory systems. If these systems impose extra costs on some or all areas of the economy these areas will be at a disadvantage against foreign competition from countries that don’t have similar costs. If country A has regulations that cause cars to be 25% more expensive, then equivalent foreign cars that don’t suffer the same regulation cost will be cheaper as long as they are priced less than the domestic producer even if they are not cheaper without the regulation overhead. These producers will have several options:
- Work for a political solution to reduce government-imposed overhead through tax, regulation, and legal reform.
- Join the inefficient producers and lobby the government for protection.
- Relocate their production to foreign countries and import their products afterward to their home country.
The third problem is the whole notion of a trade agreement. Governments pretend that the only way to have free trade is through complicated agreements that include 2 or more countries. Free trade doesn’t require complicated agreements, a commitment to remove tariffs or reduce them to the same level on all products should be enough. By looking at NAFTA or TPP as examples, we can see that all of these trade agreements come with thousands of pages of tariff schedules, exceptions, procurement rules, and regulation mandates. These agreements are examples of corporate welfare where connected firms get their products access to foreign markets or prevent foreign competition through exceptions and quotas.
Free trade, like the free market, has a very limited role for government and any deviation from this role cause imbalances and negatively affect the whole market. Government overreach cannot be solved without citizens holding the politicians accountable and vote them out of office for crossing the boundaries. We have made the mistake of relying on electing free market advocates to government and hoping to make a change. The better approach is to work on spreading true economic knowledge and expand the liberty movement to more people and only then we can hold the politicians accountable and turn the country around.