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
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.
Predation is observed in higher education.
UCLA is both Lott's and my alma mater. It spends $40,000 per student
but charges $6,522 tuition for in-state students. Such below-cost
pricing gives public universities a significant competitive advantage
over private universities. State universities have acquired many
formerly private universities after driving, or threatening to drive,
them out of business. Lott gives examples of George Mason University
School of Law, University of Buffalo, University of Houston and
University of Pittsburgh. In the case of University of Buffalo, the
State University of New York reportedly threatened to open a public
university across the street unless the University of Buffalo joined
the state system.
The U.S. Department of Justice would go after a private business using
similar predatory practices of intimidating its rivals and selling
goods and services below cost. The U.S. Department of Commerce
sanctions foreign companies accused of selling goods in the U.S. below
cost with anti-dumping duties. If selling goods below cost is seen as
unfair in the international arena, why is it not when it's done by
government entities?
Lott's "Crime and Punishment" chapter has a lot of interesting
tidbits. It starts off stating a fundamental principle of economics:
the higher the cost of something, the less people will do of it. To
demonstrate the generality of this principle, Lott says that when the
number of referees were increased from two to three in the Atlantic
Coast Basketball Conference, fouls fell by 34 percent; fouling became
more costly. The American League has more hit batsmen than the
National League, but the difference only appeared after 1973 when the
American League removed its pitchers from the batting lineup in favor
of designated hitters. Not being afraid of being hit themselves,
American League pitchers threw more bean balls; bean balls became
cheaper. The same principle applies to the U.S. crime rate that fell
after the death penalty was reinstated, more prisons were built and
concealed-weapon carry laws were enacted. The higher the cost of a
crime, the less people will do of it.
Walter E. Williams is a professor of economics at George Mason
University. To find out more about Walter E. Williams and read
features by other Creators Syndicate writers and cartoonists, visit
the Creators Syndicate Web page at www.creators. com.
COPYRIGHT 2008 CREATORS SYNDICATE, INC.
http://www.creators .com/opinion/ walter-williams. html
Friday, 22 August 2008
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