This should make you angry. You're paying for it, and will pay perhaps thousands of dollars for it.
You. Personally. And that may be if you're just lucky, since this sort of things screws up civilizations.
http://www.rollingstone.com/politics/news/bank-of-america-too-crooked-to-fail-20120314
Higher taxes. Higher prices. Fewer services. Degraded quality of life.
The bank(s) is(are) half the problem. The essential complicity of our government is the other half.
And more of the same with the so called JOBS bill (Jump-start Our Business Startups) now going through Congress. Investors will have another reason to beware, since it essentially reduces or does away with a lot of pesky disclosure formerly required of companies raising money from the public. Not that that will be a real problem, except to the suckers, er, investors, any company unwilling to disclose is looking for.
Further, there is no reason to invest in an economy that is essentially frozen by excessive rent seeking, and as Matt Taibbi documents, is increasingly run as a Kleptocracy.
And this is the real reason for the decline in IPOs. (IPO is initial public offerings, the stock companies offer when they go public.) After all, disclosure wasn't a problem before Certainly not in the 1990's, when there were hundreds each year, despite the disclosure laws they are now getting rid of.
As far as I can tell, the only difference between Democrats and Republicans is that the Democrats seem to use a little more grease.
"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it." Frederic Bastiat 1801-1850 political economist __________________________________The velvet glove is off the golden fist. _________________________________________________________________________________________ PLUNDERFEST: Def: What the people of the United States can now look forward to.
Wednesday, March 21, 2012
Monday, March 19, 2012
On the Need for Regulation of Oligopoly and Oligopsony
A modern economy relies on a robust distribution of assets. This
distribution of assets is necessary for its distribution of income. It has a certain ‘shape,’ and the distributed
income from these assets is necessary for it to maintain that shape. Where ownership and control of these assets
is narrow, the income from these assets goes to a small portion of the economy,
depleting the rest of the economy of the income it needs to maintain itself Even where there is redistribution, there is
loss of efficiency. While this is
recognized with government redistribution, which is why large private interests
often oppose it, it also happens with private redistribution, which tends to
shortchange vital services which are not easy to extract profit from. The privately powerful also have other interests
in opposing or co-opting government authority, since government is, besides
other private interests, the only counter-weight to their own unbridled power. And this power will not always act in the public
interest. Indeed, there is no reason, once it attains a certain magnitude, to
imagine that it would act in the public interest, and instead that it would see
the public as a source of rent extraction and exploitation.
Our point is that while regulation may be a matter of
justice, it is as importantly a matter of economic stability and efficiency.
There is clearly a need for regulation in monopoly. It is in the interests
of the monopolist to produce less and charge more for what is produced, reaping
an extra normal profit. Extra normal
profit translates into extra normal growth.
This results in an increase in the share of the economy going to the
monopolist. When the monopoly is small,
this is incidental to the economy. Where
large, in proportion to the economy, however, it is insupportable in the long
term.
Just as in monopoly and monopsony, we see a need for
regulation in oligopoly and oligopsony, and their combination oligonomy. (When referring to all or any of them, we’ll
use term oligopy, and similarly oligopist.)
The point is that rational
behavior for the oligopist is not the best outcome for society. The oligopolist
will produce less, and charge higher prices, than at competitive
equilibrium. The oligopsonist will pay
less, and buy less, than at competitive equilibrium. Both will reap extra
normal profits. The continuing transfer of wealth to the oligopist leads to
accumulation and concentration of wealth and power, and a depletion of the wealth
from the rest of society, while at the same time shorting the economy of goods
and services it otherwise desires and even needs.
But this is not even in the long range interest of the
oligopist. For the oligopist, his market
must grow at a rate equal to his own.
But by collecting extra normal profits from his market, his market
cannot grow at that rate. His market grows, if at all, at a slower rate, and this rate limits the
rate at which the oligopist himself can grow.
An oligopsony reduces the revenue available to producers
facing that oligopsony. Producers cannot
sell as much, nor can they get the best prices for what they do sell. They are thus discouraged from
production. Fewer enter the market. Production is less reinvested in, becomes
undercapitalized, and tends towards obsolete methods.
When the oligopsony is in labor markets, (and the
destruction of labor union power has essentially resulted in such an
oligopsony,) it has these effects on the investment in human capital. There is greater unemployment, greater
underemployment, and less investment in education, as the labor force becomes
undercapitalized, and tends towards obsolescence.
An oligopoly, where it is a supplier of factors for other
producers, (and even finished goods may be regarded as factors for labor,) has
the same effect. Because the producer forced to buy his factors from an oligopolist
must pay more for those factors than he would if he could buy his goods in a more
competitive market. His product must either be
more expensive, sell for more and at reduced quantity, or, if priced the same, sell at reduced profit. His revenue is reduced. His ability to capitalize his business is
reduced. Production is less reinvested
in, becomes undercapitalized, and tends towards obsolete methods.
The oligopist, because of his power, finds himself in a
situation where he must sacrifice the long range good of society, and thus his
own long term interests, for the short run interests of his oligopy. Putting
it the other way, if he were to seek to better serve his society, he must put
his firm at disadvantage. The only other option is to cooperate with his fellow
oligopists in producing, or buying. to competitive equilibrium, in price and quantity. But this would entail
sacrificing their extra normal profits, and worse, losing market share in the
event any of the other oligopists defected, and ceased to cooperate. (Of course, they could always cooperate to
enhance their extra normal profits, to society’s detriment.) The preservation
of his society is simply not seen in his best interests. This is a situation he
would not be in with more perfect competition, when his interests would be more
closely aligned with that of the economy at large.
And it is a situation of composition. Where oligopy is a relatively small portion
of the economy, the economy can endure the distortions brought about by the
abnormal profits of the oligopy. The
rent collected is not so exorbitant that it cannot be compensated for, at least
to some degree, by the other operations of the economy.
It is worse when
oligopy is pervasive. Suppose the economy consists, somewhat evenly divided, of
oligopy and its market. Then the oligopist is in a quandary. What can he do with his extra normal
profits? It is pointless to invest in
the oligopy’s market, which, limited in profit from facing the oligopy, is
restricted in growth. And it is pointless to invest further in the oligopy,
which, because its market is restricted in growth, itself is restricted in
growth. Since there is no profitable
investment in the real economy, he seeks to invest in the financial economy. But the financial economy is also limited by
the real economy. Financial assets must
eventually be redeemed for real assets, but since the growth in real assets is
arrested by the extra normal profits of oligopy, there is no growth in the real
assets for any growth in the financial assets to be redeemed for. The result is a surplus of money for
investment, with no real profitable opportunity.
This is the important point.
Unregulated oligopy, with its extra normal profits, when it becomes
extensive, arrests the growth of the entire economy. Indeed, the situation is actually worse,
because by continuing to purge the rest of the economy of its normal income, it
can cause the rest of the economy’s revenue to be less than its expenses. Thus, the remainder of the economy, the
oligopist’s market, may actually be forced into contraction. But this is bad for the oligopist as well. For
an oligopolist, it will shift the demand curve left and/or down, thus reducing
the optimum quantity, or the price, or both, depending. In any case, the revenue will be reduced.
With a straight demand curve, shifting it left, down, or
left and down, are all equivalent. With
a kinked, or curved, demand curve, these each result in different diagrams, so
we have to figure what factors will reduce the price, but not the quantity
demanded, and which will reduce the quantity demanded, but not the price, and
which both. We must follow the kink, since
that is where the price and quantity will become fixed at.
If money were taken out of the market for food, say, a good with
a relatively inelastic demand, the quantity demanded would probably not change,
but the price would decline. The demand curve would shift downward, and pa would decline. In the food market it would be price
deflationary. In the more elastic market for luxury goods, the quantity demanded would probably change, but maybe not so much
the price. qa would
shift to the left, but pa
would not change so much. For goods or
services in intermediate elasticity, the demand curve would probably shift down
and to the left, and both pa and
qa
would change.
(And similarly for increases in the demand curve. The demand curve would shift up for inelastic, right for elastic, or both,
depending on the price elasticity of the good or service demanded.)
In analyzing the situation, reducing the economy to just an
oligopy and the rest of the economy, the situation then reduces to the producer-consumer
problem, with the oligopist in the position of the producer. But of course, the
oligopist attains his advantage, and his extra normal profits, not by doing
more, but by doing less, and charging more, and paying less. Rather than contributing his ‘fair
share’ for the economy, of ‘pulling his weight,’ he slacks off, and uses oligopistic power to demand more money for what he does contribute, and to pay less for what others contribute. That is, compared to the rest of the economy,
he becomes a net consumer, the consumer of the purchases of his extra normal
profits. So really, it is more
accurately described as the strong sector vs. weak sector economy, with the strong
sector extracting its rents from the weak sector. See: http://anamecon.blogspot.com/2011/11/morality-and-debt.html
We see here, with oligopy, Adam Smith's invisible hand, rather than acting to the benefit of society, acts to its detriment.
So now that we have established the need, the issue becomes
what techniques can most efficiently counter the redistributionist tendencies
of oligopy.
Labels:
competition,
consumer,
economy,
labor,
oligopoly,
oligopsony,
producer,
profits,
regulation
Thursday, March 1, 2012
Link to Michael Hudson on How Banks Plan
Another gem from Michael Hudson:
“…Everything over subsistence, they’ll want as a loan…”
“…Once the entire surplus is paid to the banks, there’s
nothing (left) over for rising living
standards, there’s nothing over for new capital investment, there’s nothing
over for long term research and development…”
Further, once growth is arrested, so is growth of the bank's
investments. It becomes a fixed income
stream on a fixed asset. Optimum is for
the banks to aim for optimum real growth rate.
But banks can’t do this.
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