Some education could immunize us from common economic myths

The State Journal (Springfield, Illinois) ^ | Aug 20, 2008 | Walter Williams

[JohnRLott]

By taking a couple of courses in economic theory, we could immunize ourselves from nonsense spouted by politicians and pundits, but in the meantime check out professor John R. Lott’s “Freedomnomics: Why the Free Market Works.”

His first chapter is “Are You Being Ripped Off?” It addresses myths about predation where it’s sometimes alleged that corporations will charge below-cost prices to bankrupt their rivals and then charge unconscionable prices. There’s little or no evidence that corporations would choose predation as strategy; there are too many pitfalls. A major one is that in order to recoup losses from charging low prices to bankrupt rivals, the predator would later have to charge higher-than-normal prices. That would attract new rivals who might have purchased the bankrupt assets of the predator’s prey and be able to undercut the predator’s prices.

A far more successful means to monopoly wealth is for businesses to enlist the aid of congressmen to form a collusion. Classic examples are the dairy industry, which uses the U.S. Department of Agriculture’s Federal Milk Marketing Orders to set statutory minimum prices, or the Gasoline Retailers Association using state law to do the same or the sugar industry using Congress to establish quotas on foreign sugar imports.

Professor Lott’s chapter “Government as Nirvana” highlights examples of government predation. When the U.S. Postal Service raised the price of first-class mail in 1999, it reduced its price for domestic overnight express mail from $15 to $13.70, even though it was losing money at $15. The Postal Service was facing stiff competition from FedEx and UPS overnight services and wanted to keep its market share.

During the 1980s, private meteorology firms saw a chance to make money . . .

[steve-b]

During the 1980s, private meteorology firms saw a chance to make money by selling television stations specialized forecasts that weren’t provided by the National Weather Service. The National Weather Service started providing television stations the same services for free, thus driving private forecasting companies out of business.

Did these "private meteorology firms" launch their own private satellites? I don't think so.

In fact, these firms were hoping to carve a "crony capitalism" sinecure by having the taxpayers pay their information-gathering costs and then sell the results to the taxpayers, double-charging them. Cutting out the parasitic middleman was the proper response.

[tcostell]

I don't kow all the details, but on the surface of it I disagree with that view. It sounds like they were trying to sell their analysis. If they were enhancing the information in some way that added value, then there was certainly a market for it until government decided to provide that service on a taxpayer funded basis. If a "middle man" really is parasitic, then the market will be better at "cutting them out" than the government.

The government's involvement in economic decision making can only cause problems... not solve them. that is to say ... it will make things less efficient, not more.

If you think a "middle man" is a parasite then don't buy their product. No one is going to hold a gun to your head.

[steve-b]

Not really. This was one of the bits of petty corruption Rick Santorum got caught committing — he tried to give AccuWeather a monopoly on a large chunk of National Weather Service data.

[Alberta's Child]

TCostell is right. The fact that the U.S. government collects data in the form of satellite weather imagery and provides it "free" to anyone who wants access to it doesn't preclude anyone from using it to provide value-added services or products afterwards.

There is an entire industry built up around the use of U.S. Census data and other similar information to provide detailed demographic reporting and forecasting for marketing purposes.