Comment by brc | Hacker News Reader

Comment by brc | Hacker News Reader

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The challenge for most people is to understand that less regulation results in less rent seeking. Only a large and powerful state can implement the required blocks to form monopolies. Only a powerful state can entrench the class divide between the ruled and the rulers.

The solution, then, is to reduce the size of the state and allow for less central planning and involvement.

Further to this: the size of the state and those who run it seek to gain more power. Power is delivered through votes. Thus much that passes for political debate is not based on reason, but rather emotions and feelings - people finding and leveraging biases, beliefs and BS. Virtually no modern policy making is done using reason and simple analysis - instead it is done by emotionally trying to sway the argument - the 'think of the children' model.

A triumph of reason over emotion and reduction in the size o f the state. This creates the environment where those rent-seeking cannot fool those using reason, and they lack the all-powerful controls to enforce the monopolies.

"Only a large and powerful state can implement the required blocks to form monopolies." - now that is decidedly false; if there are any entry barriers (such as capital investments required to start), then free market naturally tends to consolidate (as it's more profitable) towards monopolies or oligopolies, which coincidentally means the end of free market in that industry. Only a powerful state can PREVENT monopolies and keep the free market economy as defined, with many suppliers and buyers setting the prices in a market instead of a monopolistic ultimatum.

For real life examples, see the classic USA situations of railway and oil magnates in 19th century - these monopolies weren't caused by the state and regulations, but by lack of it.

Of course, states can also create bad monopolies, but the solution is to change government actions, not to "disarm" the state - since in that case the bad monopolies will stay anyway, and even more monopolies will arise.

> For real life examples, see the classic USA situations of railway and oil magnates in 19th century - these monopolies weren't caused by the state and regulations, but by lack of it.

In the case of Standard Oil, the consumers benefited greatly from the practices of Rockefeller. Despite controlling 90% of the market at one point, its output quadrupled in a single decade (1880-1890) and prices of kerosene dropped by threefold over the same time period. Standard Oil was simply the best at what it did and succeeded as a result. During the early 1900s, the market shifted away from kerosene to gasoline (thanks to Ford) and there was a large amount of competition entering that market. Its market share in oil production fell from 1898 to 1906 from 34% to 11%. Yet it was only in 1911 that Standard Oil was broken up by the Sherman Anti-Trust Act (which, funnily enough, was passed in 1890: at the end of the decade of massive increases in production and decreases in price by Standard Oil). The fact is that, in this case, the market function properly in spite of government interference, not thanks to it.

Funny that you mention the railroads as well. The biggest threat to competition was not the companies in the free market, but instead railroad companies in control of the ICC, created in 1887. It was this government entity which allowed railroad companies, through law, to eliminate competition and screw the consumer by raising rates in a collusive manner.

All companies would eventually collude, given the opportunity to do so without punishments. For more recent examples, see the DRAM cartel some decades ago and the current global diamond market.

Or Apple and the Big Six book publishers -- five of who colluded.

Yeah, you can see how this would happen if you look at Internet access in the US. Remember how, when Google announced they'd launch Google Fiber in Austin, AT&T announced an equally fast fiber rollout there. Now imagine if that first fiber rollout was being done by a company that actually needed to show profitability on its investment - there's no way that they could compete with AT&T, they'd fold before they made enough money to expand and that'd be the end of them. Which is why, until Google got interested, the US was stuck with the incumbent telecom and cable operators.

> first fiber rollout was being done by a company that actually needed to show profitability on its investment

I don't follow your point. Do you think Google has done the investment not expecting to make a profit?

This example shows the point that it is virtually impossible to maintain a monopoly in a free market. So if one company had a monopoly on internet access, and then Google successfully enters that market, it's not a monopoly.

Short run market dominance and monopolies seem to be often conflated, but they aren't the same thing.

If it is decidedly false, name one monopoly that exists without a state backing it up. I am genuinely interested because I have thought long and hard for an example, and I have never found one. It's hard enough to find a real monopoly [as oppposed to a company enjoying current market dominance], and to me, impossible to find one that exists without the help of the state.

The free market does not tend towards monopoly or oligopoly. If any one player is gaining market power and capturing a lot of consumer surplus, then competition will eventually find a route around that and supply an alternative with better value. This has been proven time and time again.

Even coming up with a situation where you need a large capital investment to get started, given a compelling enough market (which is what is created when an individual firm tends towards monopoly) then the capital formation is possible to organise.

Your solution 'change government actions' is hopelessly unworkable, this is what the original post is all about. All the while the opportunity to rent-seek is available, people with the desire to do so are going to exploit it.

The countries with the worst monopolies are those with the largest share of the income owned and distributed by the state. These monopolies harm consumers and rivals and only exist because the state is there to back them up. This goes all the way up to the very worst monopoly of them all, which is where the state is the economy, such as in soviet russia.

Reduce the size and reach of the state, and you make it impossible for rent-seeking behaviour to occur, because there is no structure to support it.

"The free market does not tend towards monopoly or oligopoly. If any one player is gaining market power and capturing a lot of consumer surplus, then competition will eventually find a route around that and supply an alternative with better value. This has been proven time and time again."

I don't think I could disagree with that specific statement more than I do (even though I agree with some of your others, and your opening line). In order to accept those words I would have to ignore the existence of monarchies, dictators, cartels, and simple things like the phrase "the rich get richer." Our society and economies are structures imposed on the true mathematical and physical chaos of space and organic chemistry.

I agree with some of what you say ("Reduce the size and reach of the state, and you make it impossible for rent-seeking behaviour to occur, because there is no structure to support it."), but I would note that there are some things that individuals simply cannot do alone, the most important of which is holding the power of monopolies/oligopolies accountable. I would rather not call that government, simply a group action, but it still amounts to a common banner. Unfortunately, any organized power will only continue to claw for more power. Government won't limit itself. In that sense, I agree that it seems necessary to withdraw that power substantially and regularly from government, but I also see the renewal of that power as inevitable in order to prevent abuse in some other area. ("The price of freedom is eternal vigilance.")

Unfortunately we have a disadvantageously simple language of left vs right, all or none, (leading to extreme communism or extreme capitalism - for example, Ayn Rand vs Marx - both of which lead to the same totalitarianism), rather than focusing on the philosophical middle and economic nursery conditions where growth is possible, fair, and competitive. It is constantly necessary to destroy our last great success in order to make room for the next one (to focus on beneficial endevours). It is also our choice how long we avoid that renewal, and how big an undertaking it must be to move forward.

> The free market does not tend towards monopoly or oligopoly. If any one player is gaining market power and capturing a lot of consumer surplus, then competition will eventually find a route around that and supply an alternative with better value.

This is true under the usual simplifying first-week-of-Econ 101 assumptions (which exclude economies of scale, barriers to entry, irrationality -- including imperfect consumer information about the utilities realized in purchases, interaction between markets [note that the last two interact in an important way, in that enough money derived from one market and applied to the information market can drive imperfect consumer information in a particular direction], etc., etc., etc., ad nauseum, ad infinitum), which are useful for pedagogical purposes at that stage but tend not to exist in the real world in the markets for a wide variety of goods.

This has been proven time and time again.

Can you please provide an example of where a monopoly has formed with no state power involved? I am interested in this area and want to find any real world examples.

If we could run everything on "reason", yes, that would be great. I don't disagree, it would produce good results. The problem is, humans show time and time again they cannot be counted upon to act reasonably or rationally.

Suppose I were to argue that all our problems would go away if we had free energy. "Yes, of course" you might say. "That would solve many many problems. But we don't have free energy, and we probably never will." This is how I feel about your position.

How is this true online?

On the internet, monopolies are natural for social networking, online auctions, classified ads, and search. Each of these require the user to go to the site with the most ads, friends, bidders or sellers, or results.

How do you think the government created an E-Bay, Google, Facebook, or Craigslist?

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