I believe that people, generally: don't vote with their money for greater good but rather personal utility, by choice or lack of economical standing (A form of The Tragedy of Commons), poorly understand the long term impact of their choices, people’s choice is swayed by deceitful and psychological trickery of targeted advertisement. I am not sure how free market can address this without outside (generally legal or consumer advocacy) intervention.
Not personal convenience, but personal benefit--people want to be better off after buying something than they were before. That in itself is a perfectly reasonable thing to want.
There are, generally speaking, two potential problems: (1) people might misjudge whether they will actually be better off (through lack of information or lack of understanding or failure to recognize longer term consequences); (2) people might individually be better off but society as a whole could be net worse off due to externalities (costs not borne by the people making the choices and so not considered by them).
It is true that these problems are unavoidable in a free market. However, outside intervention does not, in general, solve them. In fact it almost always makes it worse, because whoever is making the outside intervention has even less at stake in the choices about what to "vote with money" for than the people making those choices.
I think the best we can do is to try to give people the best tools we can for making their own choices, not trying to dictate those choices by outside intervention.
You're right, personal benefit is a factor too, so I replaced "Convenience" with "Utility" which is more apt and covers both Convenience and Benefit.
> It is true that these problems are unavoidable in a free market. However, outside intervention does not, in general, solve them.
Not convinced. For example, in Australia there exists laws that mandates that retailers either exchange or refund when products are "not fit for purpose" or "faulty", this simple law has eliminated a whole heap of bullshit products that doesn't work because people simply return them.
Consider the trade off you're making. Without that law, some retailers will have more generous return policies than others, and the first group will have higher prices (because the policy costs them money). If you prefer that, you patronize one of those retailers, and they don't carry those products because they don't want the returns.
But once you pass the law, the second category of retailers goes away. And they had lower prices, even for the items that weren't garbage.
The completely free market does not work in practice, because people are not rational, perfectly informed actors. They make non-optimal choices and tend to not learn from them, and they're easily swayed by advertising.
Sensible warranty and returns laws exist because businesses have gotten away with providing lousy quality products for far too long. And consider the longer term effect of sensible consumer protection laws. If a product gets returned too frequently due to quality issues, the seller will stop carrying that item, improving the overall quality of his selection of goods on offer. The manufacturer will wise up and either improve quality or go out of business.
In the EU, any online purchase can be returned no questions asked (in like new condition and original packaging) for 14 days after receiving the item, though you do have to pay the return shipping costs. This has markedly improved the quality of items on offer, because the sellers don't want to carry items that get returned too often, ie. crap products. Prices haven't gone up.
I mean, I agree with being being irrational, but I'm not sure that that's the reason that free markets don't work. If you're comparing to government intervention, then you're also comparing to people, after all, and even worse, to people who often make a less-informed decision, because:
1. They're not as personally aware of all the relevant info, since they are removed from the situation.
2. They often care less in general because it doesn't affect them.
3. They often make decisions that tend to stick around long after they are no longer relevant - but unlike biased humans who often don't learn from their mistakes, these actors' mistakes are written into law and can't be changed.
4. They often have different motivations than the irrational people they are supposedly helping.
(Of course, 4 is often the whole point - we as a society have different desires than individual people, and we sometimes want to enshrine those things, even at their expense.)
The only way you're doing better than individual actors is if you're assuming the people creating the laws/regulations are better informed/better educated/smarter or for some other reason can make better decisions (which obviously is sometimes true, but sometimes not).
The main places where "government" provides value, in my opinion, are where there are market failures, or where collective action gives a lot of benefit. And of course, that's assuming a lot of basics are met, like strong rule of law, police force, etc (these could themselves be thought of as collective action).
Unfortunately, even in cases where there is a lot of theoretical benefit to collective action, government intervention rarely, if ever, realizes that benefit--for exactly the reasons #1 through #4 that you give.
I like to use in this context a paraphrase of the old joke about regular expressions: Some people, whenever they see a problem, think "We'll just get the government to fix it." Now they have two problems.
Not so. If a retailer is selling garbage, some people may buy it, but those people will promptly figure that out, stop buying those brands and leave them bad reviews. And the retailer has incentives not to carry bad products even if they don't accept returns because getting burned doesn't make for repeat customers.
The cost in forcing returns is that it requires you to buy insurance you may not need, which costs money even if all of the products are functional because people return things for reasons other than defects and the retailer will command a risk premium. If someone buys the wrong product, it costs the retailer money to have to process the original transaction, then the refund, then restock the product at a lower price because it's open box. Someone who knows they won't need to return the product doesn't need that insurance, but you're forcing them to pay a premium to cover it anyway.
Forcing the retailer to accept returns also makes it riskier for them to accept new suppliers into their stores. If the supplier starts providing low quality merchandise, the retailer has to eat the cost of the 10,000 items it has in stock, plus the value of wasted shelf space, plus the cost of processing all the returns -- so they stop buying from upstart suppliers, even if the new supplier would have provided good quality products. Which harms competition and allows the incumbent suppliers to charge higher prices.
> Prices haven't gone up.
There has been inflation rather than deflation, consumer products that used to be 16 ounces are now 10, the percentage share of value that goes to business investors rather than employees or customers (i.e. wealth inequality) has increased, by what metric have prices not gone up?
Yes, but only those people, there is no shortage of new customers to fleece. Online reviews can (and are) bought and sold, even the supposedly trustworthy review sites such as Trustpilot have been caught manipulating scores, and in some cases (Yelp) hiding reviews until the business in question ponies up for a "partner agreement".
The whole point of a mandatory return period is for consumer protection. A product should be fit for purpose and not break shortly after being taken into use. A warranty period of 6 months to a year ensures that products are fit for purpose. It also discourages the production and sale of disposable junk products, which is a better use of resources and more environmentally sound.
I'd add (2a), due to zero-sum games. This is frequent in competitive situations; I buy something (e.g. advertising) to get ahead, and now you have to buy it too just to keep competing. Then you buy more of it, and I have to buy as well. And since effects of each purchase get cancelled out by other party's purchase, everyone is back where they started. In a perfectly abstract way, there's no externality here - though in practice, anything you buy involves some externalities, so you have them here too, in addition to wasting mine and yours and other competitor's money.
It's a trench warfare.
> It is true that these problems are unavoidable in a free market. However, outside intervention does not, in general, solve them. In fact it almost always makes it worse, because whoever is making the outside intervention has even less at stake in the choices about what to "vote with money" for than the people making those choices.
Can't agree with that. Free market by itself is neither willing, nor in a position to, account for externalities. Also, you could group (2), (2a), and couple other similar things under the general label of "coordination problems", i.e. things that look like iterated prisoner's dilemma if you squint. For that, the best solution involves an outside party unilaterally establishing accepted rules of behaviour, forcing cooperation instead of defection.
> I think the best we can do is to try to give people the best tools we can for making their own choices, not trying to dictate those choices by outside intervention.
Again, this is how we get into coordination problems. This solves (1), but really causes (2).
This assumes that there is an outside party that (a) knows what the best rules of behavior are, which means it has to know when cooperation is in fact a net benefit; and (b) will in fact enforce those rules of behavior, and not be co-opted into enforcing other rules instead.
History shows that no such outside party ever actually exists.
But who knows if your theories about people choosing convenience are accurate...
He also says bad rules have led to monopolies as well (through regulatory capture, lobbying, etc.).
So bad things (like monopolies) can happen due to the state or due to lack of the state. Maybe the problem here isn't the state at all.
I think IP laws and patent wars are a lot more salient when it comes to hardware (like Apple, Samsung, Motorola, etc), less so for those 3 examples.
And in any case, many tech giants exist around natural monopolies, either in network effects, either obvious ones, or those from two sided marketplaces or simply economies of scale.
Yes, network effect is a huge part of the problem. So much in tech requires user adoption, and typically users won't adopt until others adopt, thus creating chicken and egg problem. Overcoming the network effect is extremely difficult, as we've seen from competing platforms trying to unseat facebook and twitter (tho network effect is not limited to social networks, but they are the most obvious examples)
In fact, many people in China attributes Tencent's growth to its shameless copying of other people and companies' work and products. If that kind of view is true, than China's monopoly comes out because of lack of IP protection.
I would say it can be, but more importantly, it doesn't have to be:
> Well okay, there's plenty to blame the government about, but the government is the one institution that people can change... the one institution that you can affect without institutional change. That's exactly why all the anger and fear has been directed at the government. The government has a defect - it's potentially democratic. Corporations have no defect - they're pure tyrannies. So therefore you want to keep corporations invisible, and focus all anger on the government.
-- Noam Chomsky
And even if consumers are to be able to "vote with their wallets", if workers are supposed to to have a choice of employer and certain protections, there needs to be some regulation that goes for everybody, and is enforced for everybody. It's not going to happen out of generosity, or consumers researching everything on their own. How would you even make sure the food you eat is not toxic? Not that regulations make it 100% safe, but they can be a lot more efficient and very helpful, just like they can be horrible and backwards.
I really think a major obstacle is that people see government as something that acts on them, instead of something through which they ideally would act together as equals and improve their lot in a way that transcends the scope and lifespan of the individual. Yes, there is a lot of corruption, but the thing is, that's something one can get to work at -- when it comes to (some) corporations, it's too often consumers talking about them amongst each other, "hoping" things will change as they often get worse.
> People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
-- Adam Smith
When drug dealers or street gangs carve up territory, you might call that a form of local monopoly, and it comes from people themselves, no state intervention required. Usurping parts of the government for that purpose is something bigger gangs or corporations may do (also see "War is a Racket"), but it's not technically required I would say.
If something is almost a government, but not quite, and creates a monopoly, that would I suppose technically be a counterexample to the claim that monopolies are all caused by governments. However, while it would demonstrate the claim to be false, it wouldn't demonstrate that it is far from being true.
However, I wouldn't claim that all monopolies are all from government or nearly from government. I probably wouldn't even claim that almost all monopolies are.
Mao gave a very concise yet accurate description of this state of affairs: "political power grows out of the barrel of a gun".
And Mao didn't know shit. Violence is for those who do not have power.
> All political institutions are manifestations and materializations of power; they petrify and decay as soon as the living power of the people ceases to uphold them.
-- Hannah Arendt
Yes, in practice, it's threat of violence rather than actual violence doing the trick most of the time. But the reason why that threat is respected is precisely because the violence behind it is very real, and we all know it.
And this all has nothing to do with majority rule etc. A gang that has most neighborhood residents as its members is still a gang. And when gangs do get formed "for protection of both the group and the individuals", they still need to use violence (or threat of violence) towards that goal, oppressing those that would oppress them otherwise. So you might end up with a "good guy with a gun", but it's still a guy with a gun. Remove them, and government becomes an advisory council, making recommendations rather than laws.
I don't think tried to understand the distinction between power and violence that Arendt makes.
How does potentially getting arrested for breaking a law prove that political power comes from violence?
> Yes, in practice, it's threat of violence rather than actual violence doing the trick most of the time. But the reason why that threat is respected is precisely because the violence behind it is very real, and we all know it.
It can just as well be a mutual and voluntary agreement. It's not like people who don't rape or murder usually all just refrain from that because it's illegal and would be met with violence, so I would argue the opposite is also true, we made certain things illegal so we can deal with it in a structured manner where the laws ideally apply equally to each. Just like children don't just obey or imitate adults out of fear, just like many open source projects are successful without any threats.
The "violence" in "monopoly on violence" isn't any more sinister than the "road safety regulation" in "monopoly on road safety regulation", at least insofar every affected individuum is part of the entity that has said monopoly.
> So you might end up with a "good guy with a gun", but it's still a guy with a gun.
Yes, and? You just keep stating that as if it means something. What is your point, in relation to my original point of government being ours in principle, and being changeable? It's not like that there is no gun if you don't have a "good guy with a gun", that gun is a given, so why even bring it up?
If it were a completely mutual and voluntary agreement, then you wouldn't need a government as such, or laws, or any enforcement thereof. And that would be an anarchist commune, not a state.
Any place that has laws, and penalties for breaking those laws, has an implicit threat of violence against law-breakers - it's really that simple. And if it is making that threat at all, it's because it expects the law to be broken by some.
> The "violence" in "monopoly on violence" isn't any more sinister
I didn't say anything about it being sinister in principle. It's only sinister if it causes more violence than it prevents.
> What is your point, in relation to my original point of government being ours in principle, and being changeable?
I was specifically responding to another person saying that "a gang is a little bit like government", further expanding on that. It was not directed at you or your comment.
(I am currently too much of a statist to really reject the idea of a state being "legitimate" , in a way that probably distinguishes it from gangs in general.)
But what stops an aggregator from offering to put your ad on multiple search engines, so you pay for clicks from Google and whatever other search engines people are using? There may not currently be a lot of extra clicks available that way, but it's more than nothing, and you'd benefit from whatever improved competition might come up, and incidentally give it more resources to improve with and to cut Google's margins to your further benefit.
AFAIK this isn't happening, but why? Is there another moat I don't know of?
Well, Adsense / Analytics is another. Google can track you across the internet, and offer that information to search query bidders. If you don't want to bother spending money advertising to people who read HN, it's achievable. Less so for say, Bing or Yahoo. Being able to target better than other platforms alters your willingness to pay to advertise there vs elsewhere.
I suspect they also have a better grasp of the value of traffic acquisition. They pay a lot of web related tech firms to use their search engine over competitor's. We know the only time they lost a bid for Firefox's search placement was when a former Google executive was working for a competitor. It's not clear whether Marissa brought Yahoo some better insight into the value, or if she just needed to accept a higher risk of overpaying for traffic.
* Apple is able to charge a premium on iPhones relative to the best non-Apple alternatives because a lot of people are willing to pay it. (Do they have a monopoly on smartphones? Definitely not; there are loads of companies selling good phones. But they have a monopoly on their smartphones.)
* Fast food joints are forced into heated low-margin competition with each other because they're pretty interchangeable. If McDonald's starts charging too much, people will just shrug and buy basically the same food from Burger King.
* Classic monopolies are extreme cases. At one point if you wanted telephone service in the US you either paid whatever AT&T was charging or you didn't get telephone service.
When people hear Thiel's comments they tend to think of classic monopolies, but most of the examples he gives are of companies that have plenty of competitors -- and a durable advantage that they can use to maintain decent profits margins without customers jumping ship.
Sure you could use one of the alternatives, but then you won't get the content/people/apps/audience/... that are on those large platforms, which makes them basically useless.
Energy, agriculture, transportation - all built on the unintuitive building blocks of physics, and our approximate understanding of the universe. The clean abstraction layers and separation of concerns in IT is unparalleled, with powerful positive feedback begetting further innovations.
Applying advances to other fields also grew economies of scale rapidly, supporting innovation while barriers to entry were low. We're now approaching the end to low-hanging fruit and maturing into the consolidation phase, as further innovation requires greater capital and time commitment.
I spotted this (IMO badly mistaken) view of his when he first came out with it quite a while back:
Pay to drive the premium roads when you’re in a rush, or take the discount lanes with advertising printed along the roadway.
We could have quiet, porous asphalt with better water absorbtion. So many fantasies, I digress.
Also that which stringent free-marketers and ancaps consider a 'free market' probably can't exist at all.
Though one could argue that IP monopolies (like Microsoft) could only form through government help - in the form of IP enforcement.
I'm not sure how your examples limit competition.
Let alone in actual societies where anything like laws exist. So I think what comes more through in that quote is more Friedman's ideology around Government intervention than any actual practical economics.
Corporate lobbyists tend to cite an academic case for deregulation that has not been made. As the article rightly points out Adam Smith is frequently trotted out as an advocate of deregulated free markets, when in fact he was very clear that a free market must be regulated.
Why would that be true? Once a company becomes big enough, it has resources to squash competition in various ways.
Notice how most of the squashing methods are government based: Patents, litigation cost of unmeritorious litigation, government-enforced contracts that should not be enforced under any reasonable antitrust rules, regulatory capture, etc.
The main non-governmental one is economies of scale, but that has a hard limit. The monopolist can't extract more from the market than the efficiency it creates by being a monopoly, or it would make it viable for competitors to enter. In an industry with low fixed costs, that doesn't buy you much.
The place where you would actually expect to see monopolies is the "natural monopoly" industries that are dominated by fixed costs. But even there, there's a limit to what the monopoly can do before competitors appear when there aren't government restrictions on entering the market. Starting a neighborhood ISP isn't cheap, but if the incumbent is offering slow service for high prices, it's what would happen, because paying (or even borrowing) $10,000 to invest in a new fast ISP that serves your own home is cheaper than paying more than that amount over time for worse service from the incumbent. But not if the incumbent has laws passed to make that purposely uneconomical or outright prohibited.
For anyone interested, this concept is called https://en.m.wikipedia.org/wiki/Socially_optimal_firm_size
The thing that works is to have a coercive force which is primarily used to quell other large coercive forces. So you have a police force that prevents violence etc.
But it needs to be limited in scope, because it has no natural predators. It's always tempting to use the coercive force for <thing> where <thing> is literally anything. Laws are molasses. They have benefits, but they also have costs, and the fact that the costs and benefits apply to separate people makes it much too easy to do net-negative things.
Then someone would assume that power. Anarchy is not stable.
> Big companies could hire mercenaries to enforce their contracts
In the absence of any other government, any “company” is a government unto itself. And any that raises an army, by whatever means, pretty quickly makes that even more clear.
When a company has unreasonably high prices this enables competitors to come in and gain marketshare easily by offering lower prices. And you're definitely right that the company can do things like try to buy out the smaller company, perhaps put pressure on their suppliers, etc. But this is a never ending game since for instance the smaller competitor could then even begin to develop their own supply chain, etc. And a small company getting bought out for some fat paycheck before they even really hit their stride is hardly discouraging to other would-be competitors! So long as the pie and the end of the tunnel is large enough, there will be an incentive to compete against the monopoly.
There is also the innovation issue. Coercive monopolies do not often innovate. Their focus is on profit whereas innovation tends to be focused on competition. This lack of innovation once again offers a big gap in the market for competitors. The aerospace industry vs SpaceX are the best example here. Boeing/Lockheed had a partially government enforced coercive monopoly in a field with greater barriers to entry than practically any 'material' industry. Yet a guy with 'nothing' but a few hundred million and the understanding that something worth on the order of let's say $20 million of material costs should not cost $500 million to build and launch, was able to enter the field and rapidly rise to dominance by working on nothing but innovation and non-monopolistic prices. Boeing/Lockheed by contrast were still so stuck in the past with their MBA style executive leadership that now, many years after the 'threat' of SpaceX has become self evident, that they've still been unable to effectively react.
So to avoid retro-fitting the past to fit a narrative, I expect in the future we'll be able to spin an exact tale of the telecoms industry. Once again another [heavily government enabled] monopoly that's completely failed to innovate and charges unreasonably high prices. Something like the proposed SpaceX constellation of LEO satellites for the purpose of low-cost high-stability internet stands to leave them completely taking over that industry. Of course the failure of Google fiber is an argument to the contrary, but that gets into an entirely different tangent and I think there were many reasons for that failure that lay squarely with Google.
Scale effects and negotiation power means large companies are able to reach structurally lower costs per unit than small ones, which creates an incentive to grow big. This also makes them slow to respond to change, so normally upstarts push them aside. But in the modern VC-backed ecosystem competitors are bought out without having a say in it. The upstart becomes part of the big player.
Even if companies thread that needle and grow big, shareholders love mergers (for reasons I still don’t understand), so over time you get fewer and fewer big players. The regulatory capture is just icing on the cake, but I think you would get market concentration anyway, unless the government took a stronger stance against mergers and acquisitions.
Computing seems to facilitate this particular kind of monopoly more easily than physical systems.
Perhaps Friedman's theory remains completely true, while in reality the separation between the two players has blurred over time. Cui bono?
[1] funnily, reminds me of MS
It is absolutely sure that monopolies are most pervasive through the state.
Markets only exist in the first place because of "government help": without government creating and enforcing property law contract law, and numerous other laws, there would be no markets.
So, like most of what Milton Friedman said, it's a dumb, wrong, and misleading statement.
And of course, monopolies exist quite happily in the libertarian fantasy of version of a free market, because economies of scale and network effects exist.
Trade can happen with any two or more people who have different things (and the things need not even be physical).
Stable markets, on the other hand, require a stable government of some sort to maintain them. And that's what you really need for the economic side of what we would think of as civilization.
Trade cannot happen without the threat of violent attack against those who would otherwise freely use particular land or possessions, aka rules, aka law enforcement, aka government.
Also, what's your basis for claiming that "government" is the only way to protect people/possessions from violent attack?
We have archaeological evidence that trading networks (and over fairly long distances, at that) existed long before anything we'd recognize as formal contract law was around, and certainly long before anything like international laws and regulations.
Likewise, one of the first things that develops when a government collapses (or, conversely, becomes overly restrictive) is a robust black market.
Contracts can be (and are) made in the absence of government-enforced contract law all the time. The parties to the contract simply develop their own mechanisms for enforcement (which can range from social pressure to outright violence).
Surely you're not trying to argue that drug dealers are likely to sue each other in court when one of them breaks the deal?
Agreed, but monopolies are also not uncommon under such conditions. Drug dealers have "turf", for example.
Not sure how true this is, but seems worth evaluating.