Market Power

Capitalism

Janet Daley:

Those who talk of "overthrowing" capitalism are determined to depict it as a system of government in a precise parallel with socialism, when in reality, capitalism is not a system in the ideological sense.

It is, if anything, an anti-system: the aggregation of human behaviour as it goes about fulfilling particular wants and needs. It can be described in anthropomorphic terms, such as "ruthless" or "benign" but of itself has no motives and no objectives. (Gordon Brown is more than usually fatuous when he insists that markets need to have "values": only people have values, methods of exchange do not.)

It is in the interests of the Left to talk as if capitalism and socialism were precisely analogous because then they can be seen as competitors and in bad times, the command economy as opposed to the market-based one can win the popularity contest. But this fallacious argument into which, I am sorry to say, a great many well-intentioned people are allowing themselves to be drawn is very dangerous: capitalism isn't really an "ism" which is why the term "free market economics" is so much more apt.

Governments, Bailouts, and Fairness

Here's an opinion piece at the WSJ on the American Automobile assemblers and bailouts.  Read the whole thing, but these points struck me:

- Americans working in U.S.-based auto plants owned and operated by foreign companies. These auto makers have also been hit by the recession, and some are laying off American workers or putting their American expansion plans on hold. Still, these car companies generally operate from a more competitive cost structure, and they have been gaining market share because they are building cars that more Americans want to buy at prices we are willing to pay. Why should these workers, who generally receive lower wages than their Big Three counterparts, see their tax dollars go to bail out their competitors?

- American shareholders who have invested in these successful auto companies. When investors buy stock in an enterprise, they do so based on their read of the economic environment. Those who have invested in foreign auto makers have done so on the rational basis that these companies have a competitive model that offers them a chance for profit. How fair is it for the government to come in now, tilt the playing field, and diminish the value of their investments by propping up their less successful competitors?

- The American taxpayer. It's one thing for the government to intervene to prevent a panic from spreading. There's even an argument for providing loans to tide companies over until they have worked out their restructuring, or prepared a plan to enter Chapter 11 in a way that will avoid complete liquidation. The president was right to talk about the contribution America's auto giants have made to a thriving middle class. But should we be bailing out GM and Chrysler because they are an important "emblem of the American spirit"?

Bailing out the American companies is far from being fair (let alone wise).

The answer to the last question in the last paragraph is "no."  Automobiles are not in any way, shape, or form, a "public good," so from a purely economic standpoint, government has no business being actively involved in the provision side of the market.

This is, of course, does not mean that government has no role whatsoever in the automobile industry.  Since automobiles generate external costs (exhaust, road congestion, etc.), government has a role in limiting those externalities, but controlling externalities and providing the good are not the same activity.

Markets in Everything* - Insta-Beer

Just add water.

*With all due respects to Marginal Revolution for the "Markets in Everything" tag.