You want something. You don't think it's worth the price the supplier is charging. You have some alternatives: a) don't buy it, don't do anything; b) cry "price gouging", "predatory behavior" and get politicians to steal the fruits of someone else's efforts and give to you at supposedly a lower price.
(b) is not just lazy, but it reduces the incentives for, and usually even legal possibility of competitors entering an industry. When competitors do not enter the industry, you get interest groups fighting over some monopoly's surplus, not market forces. We are still living with the repercussions of the regulatory barriers to entry in the telecom industry.
In a different context, for example, in a country where there is a food shortage, people who actually invested in food production, storage, distribution, actually get to make a windfall profit. If they can keep that profit, it gives others an incentive to invest in things like food production, storage, and distribution.
However, in most instances, such as in the case of gas prices in the wake of Sandy, people start crying about "price gouging" and "predatory" behavior, and enlist politicians to steal other people's property by not allowing prices to rise to reflect the shortfall in supply relative to demand. You get low prices on the signs, but no gas in the tank. You get low prices in the grocery stores, but no food to buy.
In the case of the poor country with a food shortage, rich, Western countries not only do not object to the destruction of the profits of productive people in such countries, they actively sabotage them by immediately dumping whatever surplus food, shoes, blankets etc their producers could not sell. Therefore, no one ends up having the incentive to actually make or distribute these things in times.
So, crying about "predatory behavior" and "price gouging" causes people to go without food, without gas etc.
In the case of telecoms, you must ask why these companies seem to be able charge the prices you do not like. Assuming they are making a boatload of economic profit as you seem to imply, why are other competitors not coming in? Why are people not coming up with providing alternative access methods?
There is a simple answer: Barriers to entry in this industry, as in the case of taxicabs, and many other things, are backed by government power. It is not just FCC regulation. Patents, tax structures, etc also stand in the way potential entrants.
So, if you want the telecom market to improve, think about how to bring in more competitors, not another granting another power to government bodies.
I stop listening when I hear people say "price gouging". When I also hear the word "predatory" in conjunction, I realize, the person has no good argument to make, and is not worth wasting time on.
People who use these terms cause perfectly capable poor people in the world to starve. Then, they get shiny desks at some non-profit, directing the dumping of dirt-cheap goods on said countries' markets to further undermine their productive capacity while maximizing tax write-offs for their clients.
Trade always happens between individuals, not nations. As for national security, isn't it better for our adversaries to waste their precious resources by selling us artificially cheap coat hangers and TV sets? That means, thanks to their "cheating", we end up having more stuff than would otherwise have been possible.
Do you think if the DRAM tariffs of the early 80s had been successful, there would have been an Internet revolution?
Cheap components is one of the most important things that made Linux possible (which, in turn, made cheap servers possible). The other main factors that made the Internet revolution possible are 1) IBM's PC design; and 2) Windows. Without these three pillars, there would not have been so much cheap, commodity hardware to run Linux on.
If you do not like Friedman talking about free trade, here is me talking about it:
Sure, trade agreements fail to realize all possible gains from trade. But this article and all the arguments about persistent trade deficits are just as misguided as the concern about your trade deficit with Amazon.
After all, your friendly grocery store never buys anything you make.
Are you assuming that only the FDA is capable of figuring out that something that is being marketed as an EKG device doesn't work as advertised?
And, no, snake oil should not be regulated either.
FDA bureaucrats care only about not accidentally approving something that might be harmful. That means too many things that are useful don't get approved. The loss from the second category of error is usually not visible. The media don't try to find each and every individual because the FDA did not allow something. Dallas Buyers' Club tells the story of one group who were harmed.
This is simple statistical reasoning.
Consumers who care will be served by people who provide that information. Nothing will result in drugs that never have any adverse effects. But, I put more value on people being able to access potentially life-saving treatments than a bureaucrat does. The potential beneficiaries of something he doesn't approve are not visible to him.
This strikes me as an example of the FDA earnestly doing its job.
And, the FDA earnestly doing its job destroys the wealth of the nation as Peltzman showed and as many AIDS patients painfully discovered during the 80s.
And, the the FDA earnestly doing its job enables big pharma to engage in international price discrimination. They should be free to try, but it is inappropriate, to say the least, that the government lends them a hand.
Again, I am pointing out that licensing, certification etc act as barriers to entry, and therefore reduce competition. Just like I am recommending the removal of the FDA from the medical treatment and diagnosis market.
In any industry dominated by a cartel, quantity supplied is less than the quantity that would be supplied in a competitive market. Professional licenses are a way of enforcing cartel power.
The fact that malpractice lawsuits can be very lucrative indicates that doctors probably do make super-normal profits due to their cartel enforcing entry restrictions effectively. If they made zero economic profit as would be the case in a competitive market, they wouldn't be such a lucrative target for another cartel, the bar association.
This leaves a paradox: The amendments seem to have harmed their intended consumer beneficiaries. Unlike other regulation which restricts output, there is no partly offsetting transfer to producers. If their effect is then essentially a deadweight loss, one is tempted to question the amendments' political viability. However, there appears to be no imminent reduction in the political demand for either the amendments or for similarly structured consumer legislation. Clearly, the sources of this political demand require examination.
10 years after he wrote that understated conclusion, the FDA actively prevented people with a very limited time to live from experimenting with therapies for themselves so that, instead, big pharma could experiment on them (see Dallas Buyers Club).
If you liked that, you'll definitely enjoy Obamacare's regulatory controls ;-)
I started writing and it got too long for just a comment. So, I expanded on it on my blog.
But, basically, it is one thing to talk about the difficulties of reducing the value of all goods and services produced in the economy to a single number. I agree, GDP is an imperfect measure.
It is a whole other thing to convert the individual states of well-being of three hundred million or a billion people to a single number and base decisions on whether that single number goes up or down.
Such a quantification is the ultimate certification of the desire accept the destruction of the individual in service of the state.
Having taught Intro Stats for a good many years, let me assure you that being good at algebra, or being able to solve a line integral are not sufficient to make heads or tails out of statistics. However, not having the capacity for some abstract reasoning required by algebra is an extreme impediment to actually understanding statistics.
Most people do not and cannot understand statistics. That includes almost everyone in academia as well, and I am pretty sure political scientists who can actually understand what a significance test means can be counted on the toes on a cat's paw. They cannot and will not come to grips with Stats because understanding it would lead to an honest evaluation of the importance of their work.
I am sorry, I just don't get the notion that one can somehow understand understand anything that requires quantitative and abstract reasoning without not being intimidated by simple mechanics. That doesn't mean never ever using a calculator. That means being able to do simple things like solving a single equation with a single unknown.
I recently wrote:
A primer on polls for those comfortable with a little algebra
I used to begin my lectures on probability in Intro Stats with the following slide:
Probability is a normalized denumerably additive measure defined over a sigma algebra of subsets of an abstract space.
If I remember correctly, that's a direct quotation from Kolmogorov, but I can't find the chapter and verse right now.
Following it was a flurry of note-taking activity despite the fact that my slides were available on the course web site (and apparently widely disseminated through a bunch of sites in complete violation of my copyrights). Why do people start writing stuff down if they don't understand it? Every time I put that slide up, I hoped someone would yell "Well, what on earth does that mean?" instead of writing it down, but I was regularly disappointed.
The real lesson here is that there's never an incumbent that isn't at risk of being unseated, no matter how widespread the adoption of their product or service
That is essentially true in the marketplace. In fact, the bigger the profits a company is milking by exploiting its size and dominance, the greater the incentive for others to come up with a replacement, or close enough substitute.
The one exception to this are incumbents that are "regulated" by a government. In most cases, this means they have the government given right to be the sole provider of something in return for oversight by politicians or bureaucrats with regard to price and service levels.
In all cases, this leads to inflated prices, and bad service as the "regulated" firm uses the police powers of the state to keep competitors out, and establishes prices by bargaining with said politicians and bureaucrats then in response to competition and consumer choice.
LEGAL NOTICE: This programme is now the subject of legal proceedings for defamation and malicious falsehood brought by Tesla Motors Ltd and Tesla Motors Inc against the BBC.
Jeremy said "we've worked out that on our track it would run out after 55 miles."
It is amazing that withing the span of about 120 years, we've come from being confined to within a few miles of where you were born or completely abandoning your family and friends to people intent on preventing you from staying in close touch with family if you choose to immigrate. Why do these people hate my grandmother?
Those of us old enough to remember the Napster non-sense are still baffled by how many billions of dollars the entertainment industry was willing to give up to be able to stick with their old business models.
When Napster first came on the scene, they could have moved ahead and co-opted it for mere pennies. They could have shut it down later if things did not work out. Of course, now we know things would have worked out and worked out very well indeed, for one simple reason: While the marginal cost of allowing one more person to download an MP3 is close to nothing, people are willing to pay at least a dollar for a genuine, high quality audio file.
Nooooo, it would have been heresy for a bunch of lawyers to settle for a win-win solution. No sir! We must win and customers must lose even though what we win is but a miniscule portion of the dough Apple made with iTunes. Coincidentally, the inventor of the intarwebs was available to lend a sympathetic ear, and the stupid DMCA was passed with one significant "loophole" that allowed more win-win solutions to be developed: Safe harbors.
Now, we are at a crossroads again. There is a win-win solution: The large content publishers with their stockpiles of cash can take chances on innovative startups and find new ways of making even more money. But, nah, the lawyer mentality balks at that. Someone must always lose. There can't be win-win.
Therefore, we get SOPA (which actually means "stick" in Turkish ;-)