Tag: competition

The Economic Argument Against Immigration is Pretty Gross

The economic argument against immigration is especially disgusting.

You might think cultural arguments about keeping a country “pure” or safety arguments claiming all immigrants are criminals are more offensive.  But let’s examine what the economic argument against immigration really means.

The idea of forcibly preventing individuals from crossing a border in order to give an economic advantage to those on the other side of the line is barbaric when you ponder it.  Immigration restriction for the purpose of “protecting jobs” really means the violent prevention of people born in certain places from trying to earn a living.

Imagine you want a certain job.  So does your neighbor.  Would you slash his tires to keep him from getting to the interview?  Would you build a wall around his house preventing him from leaving because he might compete with you in the market?  Would you shoot him if he tried to scale it for the chance of landing the job?

If you knew a person living in horrible conditions, whose children may well die of an entirely preventable disease, and they just need a decent job to be able to afford better environs for their family, would you feel proud for sending armed thugs to follow that person around and ensure they never left their crappy neighborhood to apply for jobs elsewhere?  Even if it meant grinding poverty and possible sickness and death for the family?  Would you cheer and say, “Yeah!  I’m protecting my job opportunities!”

If you support immigration restrictions that’s exactly what you’re doing.

Economies are best served with open competition.  No one thinks forcibly shutting down competitors or collaborators is a good move or morally permissible…unless those competitors and collaborators happened to be born in certain places.

Can you think of more blatantly bigoted behavior?  The belief that certain individuals should be violently prevented from even trying to get certain jobs or live in certain places based purely on the piece of land on which they happened to be born is no less reprehensible than Jim Crow, Apartheid, or any of the other universally condemned forms of legal economic oppression.

Leave aside the fact that immigration restrictions are bad for the economy as a whole, and that far more people in the restrictive country are harmed by being unable to hire or buy from vast swaths of humanity.  Even if it were true that immigration restrictions made native born citizens better off they would be no less disturbing and morally bankrupt.

If I paid armed agents to keep every potential competitor for jobs or customers under house arrest you wouldn’t forgive me if I could prove that the practice helped me economically.  You’d call me a cold-hearted psychopath.  Even if border patrols gave you an edge by keeping some potential competition behind barbed wire it wouldn’t make your advocacy of them honorable.  “Hey look, I can get ahead by keeping this poor person from trying!” is not the cry of an honorable person.  “People who weren’t born where I was shouldn’t be allowed to apply for jobs!” isn’t a belief to boast about.

All arguments against the free and peaceful movement of people are bad.  Arguing it’s to protect your economic interests reveals a level of moral bankruptcy that is truly unsettling.

What is College Really All About?

I’ve always found it amusing when someone makes the case that a college degree is not needed for material and career success and a professor responds that college is not about getting a better job or earning more money.  They are offended at such a base standard by which to judge the service they provide, and remind of the wonderful and fulfilling aspects of a liberal education.

The reason it’s amusing is because, whether profs like it or not, the myth that college guarantees a better job is the thing paying the bills at just about every school.  It’s also the thing colleges explicitly, repeatedly market and sell customers.  The belief in the degree as a ticket to a better job is the number one driver of demand for college.  After that probably access to artificially cheap money and overall wealth increases which allow many kids to purchase college as a consumption good; a four year fun time courtesy of other people’s money.  A distant reason for a small number of people is the actual learning they can get from college.  It’s not that the learning isn’t valuable, it’s just that an intellectually curious person has so very many ways to dive in to philosophy or history that it’s a tough case to convince them the only way is to spend tens of thousands and four years.

A lot of people in higher education are so confused about the actual product they sell and so blinded by the trappings of the university that they assume it is a robust, competitive market.  Perhaps compared to government K-12 schools it’s a cornucopia of choice, but it hardly resembles a free market.  Not only is the demand artificially high due to taxpayer grants, subsidies, scholarships, and loans, but a great many careers legally mandate degrees before an individual can even enter.  Law, accounting, just about anything related to health, the growing range of bureaucratic government jobs, and more can get you fined or jailed if you dare practice without a degree.  Laws prohibit employers in other fields from using other measures of ability like IQ tests in hiring.  Add to this the pervasive belief that one simply cannot live a decent life without a degree – a belief more akin to religion than regulation for non-mandated fields – and you’ve got the current higher ed marketplace.

It’s competitive in a sense.  Imagine if every city had a handful of DMV offices, and the offices had budgets partly determined by how many customers came to their particular office to get a license.  This would incentivize marketing and enhancements to the experience as competition between offices emerged.  You might have entertainment while waiting in line, or nicer lobbies to sit in, or food and drink (the price of which would just get added on to your license fee, which could be deferred and paid out over 20 years with subsidies from taxpayers), etc.  Over time, the nicer buildings and other in-line offerings might distract from the actual reason customers were there in the first place.  They had to get the legally mandated license to drive.  Or, to make a closer comparison, maybe only half the people in line legally needed a license, and the other half could drive legally without one but their parents and friends would be ashamed of them and constantly tell them that they’d be better drivers if they got one.

To understand anything about higher education today we have to understand what the actual product is in this distorted, unfree market.  Aside from those purchasing college as a consumption good and some small number purchasing college purely for the learning or “human capital” enhancements, the customer is buying the credential because it is legally or socially mandated.  Object all you want, but it’s not hard to prove.  Colleges themselves sell the degree-as-job-catcher angle harder than any other, and that’s the number one reason given by students for attending.  Besides, even the consumption good and human capital aspects of the product could be easily had for free if you just moved to a college town and took classes without registering.  The reason people don’t is because of the belief – sometimes true due to legal strictures – that they can’t make a decent living without a degree.

The discussion about problems in higher ed is not a discussion about learning or ideas or a liberal education.  It’s phony to respond to a criticism of college with a defense of philosophy.  It’s missing the point to respond to critiques of college with defenses of classroom style learning or other educational methods.  To do so implies that learning valuable ideas is only possible through the arbitrary four year debt-fueled system.  That is an intellectual arrogance of the highest order and a conflation of education and school that is dangerous for the former.

Good ideas are too important to be anchored to the current university system and its jobs focused mythos.  Good careers need a lot more than a prefabricated four-year bureaucratically managed prep process.  Separate the classroom from the credential and both will improve.

The Final Enforcer of Contracts?

Think about construction projects.  Which projects have the highest likelihood of being over budget, under expectation, and past schedule?  If you’ve ever built or remodeled a house you might say all of them, but there is one organization that consistently sees cost overruns, quality problems, and time delays more than any other.  Government.

Government projects are notorious for shady contracts in the first place, broken promises during the project, and lackluster results after, including continuous repair and maintenance far exceeding what was originally planned.  Government is a bad general contractor and project manager.

This is particularly interesting when you consider one of the major justifications given for the existence of coercive states.  We need, the argument goes, some entity with complete monopoly power to be the final arbiter and enforcer of contracts.  Yet we have this entity right now and it is consistently worse at making and enforcing contracts for its own projects than almost any private company or individual.

When will we stop believing that the incentives magically improve in the absence of competitive pressure?  When will we look around and notice that all the order we see and experience every day is being maintained by a complex web of emergent beliefs, norms, and institutions within a constant give and take marketplace?

Why I Love Las Vegas

I don’t play slots or gamble outside of house card games with a few buddies.  I don’t really enjoy the nightlife party and drinking scene.  I don’t do strip clubs.  I’m not a fan of musicals and shows.  Yet I love Vegas.

The first time I visited Las Vegas for a conference I was blown away by how much I loved the atmosphere.  Yes, it’s cheesy and ridiculous and lewd and in your face.  But it has in extreme measure that thing you find more in most American cities than just about any country in the world: customer service.  America has a deep and strong culture of entrepreneurship, hard work, and (partially) free-markets.  This results in a relentless drive and competition to please customers.  “The customer is always right” is a powerful adage that drives business, whether the owners like it or not.

Ludwig von Mises described the situation of producers in a capitalist economy well:

“Descriptive terms which people use are often quite misleading. In talking about modern captains of industry and leaders of big business, for instance, they call a man a “chocolate king” or a “cotton king” or an “automobile king.” Their use of such terminology implies that they see practically no difference between the modern heads of industry and those feudal kings, dukes or lords of earlier days. But the difference is in fact very great, for a chocolate king does not rule at all; he serves. He does not reign over conquered territory, independent of the market, independent of his customers. The chocolate king — or the steel king or the automobile king or any other king of modern industry — depends on the industry he operates and on the customers he serves. This “king” must stay in the good graces of his subjects, the consumers; he loses his “kingdom” as soon as he is no longer in a position to give his customers better service and provide it at lower cost than others with whom he must compete.”

In other words, the customer is not only right, the customer is king.  The businesses are the subjects, always vying the for approval and happiness of their Kings and Queens.  The truth, of course, is that the producers are also themselves consumers.  Those who work in the hotel, or mall, or diner, or factory are also consumers who patronize businesses.  We’re all serving each other.

In the case of Vegas, the notion of customer service reaches new heights.  It borders on customer worship.  From the minute you step out of the concourse your eyes are dazzled with light, sound, and a flurry of activity intended to delight and amaze.  Every square inch of the famous strip is covered with people and signs and sights begging to make you happy.  The chubby middle-aged guy from the Midwest wearing a cheap Wisconsin Badgers sweatshirt is courted and complimented by beauty and talent all around.  The question that seems to be always on the mind of the businesses there is, “What can we do to make you happy?  How can we exhilarate you?”

You may call it tacky, but there are few places in the world where the commonest of people are treated like royalty 24/7.  There is something magical about it.  That’s what I love about Vegas.

If You Don’t Like Profit, Advocate Free Markets

I don’t find anything at all distasteful about profit.  Profit seeking behavior is as natural and inescapable in humans as breathing, and deserves no moral censure.  When placed in an open and voluntary institutional setting profit is an indicator of value created for others.  Still, a great many people find profit disturbing and wish to curb it.  If that is you, you have no practical choice but the full-fledged support of free-markets.

Competition exerts a relentless downward pressure on profit.  Open markets invite competition and power positions in the market are never secure.  It is for this reason that those in the temporary position of high profit-earners are most likely to be the ones lobbying for new rules and regulations.  They don’t want to compete, they want to monopolize.

The only true monopoly is government monopoly.  All other applications of the term are illusory and not to be feared.  Peter Thiel has famously advocated for monopoly, but he uses the word to represent a business that creates a product so unique it is all but impossible to be replicated by competitors for a long period of time.  That is not the same as the textbook description of monopoly with all of its attendant dangers.  The only true and dangerous form is government monopoly.  It eliminates not only present competition, but potential competition.

Unlike competition, monopoly exerts no downward pressure on profit.  Indeed, its sole purpose is to suppress competition so that profit can balloon, without any corresponding increase in value creation.  In this sense, the critique that, “There is too much profit in X industry”, or, “The profit motive corrupts Y good or service”, is correct.  In a truly monopolized industry, the profit motive is terrible.  Again, not because of the motive itself, which is ever-present in all humans, but because of the institutional setting which prevents all of the incentives to curb and corral profit motive towards value creation and away from plunder.

In monopolized industries the profit motive is very destructive.  Do not be fooled by tax designations or accounting terminology.  Governments and “non-profits” are also profit driven.  It is here where profit is the most dangerous and often deadly.  The justice and law enforcement industry is all-but entirely monopolized by the state.  Because it faces no real competition there is no downward pressure on profits.  It is therefore one of the most profit-driven enterprise imaginable, only it needn’t create value to profit.

An ever growing number of laws and regulations ensure that more and more people are guilty of crimes.  This is a highly profitable state of affairs for the justice system.  Law enforcement routinely harass and abuse and give out tickets for violations of no practical importance.  They find or plant illegal substances for the sole purpose of seizing assets of the accused.  Prosecutors, medical examiners, judges and law enforcement regularly lie, exaggerate, and falsely convict.  The profit motive is what drives them.  They have a monopoly on the administration of justice, so they invent whatever means they can of increasing the profitability of the enterprise.  The greater the number of crimes, the greater the receipts.  Indeed, the origin of government monopolized police and courts attest to the revenue-enhancing motive at their core.

We cannot wish away the profit motive, or hope to elect or appoint people who magically do not possess it. (How would they win an election or appointment without it?)  We can, however, realize the danger of granting monopoly status to any profit-seeking enterprise, including governments.  If it is profit that is driving the corruption and abuse among police, courts, and other sectors, the surest way to suppress the ability to generate more profit is to open it up to competition.

Monopoly Is Everywhere; Monopoly Is Impossible

Concern over the power of “monopoly” is often given as justification for government intervention in the economy. It shouldn’t be. There is no logically consistent definition of monopoly that warrants interference in market. Furthermore, government efforts to disperse market power tend rather to concentrate it, particularly among those best at playing politics, rather than helping consumers.

What is this monopoly thing that is so feared?

Monopoly is often described as two-pronged: complete control over a unique resource, and the ability to be a “price maker”. (“Price maker” means to set the price you want to sell at rather than responding to market conditions and being a “price taker”). Once you define monopoly, you realize what a meaningless concept it is. One of the two prongs is inevitable; the other is impossible.

If monopoly means control over a unique resource that no competitors can sell, everything is a monopoly. Every single product is unique. I have a complete monopoly on the product “public appearances by Isaac Morehouse”. No one else can offer it. What kind of power does this give me?

Sadly, I cannot charge whatever I want for public appearances simply because I have a monopoly. I’ve tried, and so far no one has been willing to pay $50,000 for this unique good over which I have sole control. (Email me if you’re interested.) In other words, I (and everyone and everything else) satisfy the first prong of the definition of monopoly, but that doesn’t help me with the second prong. I’m not a price maker.

In fact, no one is a price maker. OK, I suppose anyone can make any price they want to, but in order to actually sell something – no matter how valuable – they’re constrained. Think of a product that you need badly and can’t really live modern life without. How about gasoline. Why doesn’t Exxon start charging $20, $100, $1 million per gallon at the pump? What would happen?

Life would change pretty dramatically for some people, maybe just at the margin for others, but almost no one would pay that price. Even if all the oil in the world were controlled by one company (a scenario almost impossible to imagine absent government intervention), they still would not be a price maker.

Even complete control over a resource that people really need does not a price maker make. The firm faces substitute goods as a very real form of competition. McDonald’s burgers are not competing only against Wendy’s burgers. They are competing against Subway’s subs, mom’s PB&J, or going without lunch altogether. Firms are held in check not just by substitute goods, but by potential competition. If gas is too costly, new or old technologies become more profitable. Bicycles and solar cars both take a chunk of consumers.

So the first prong of monopoly, control over a unique resource, is everywhere. The other prong, the ability to be a price-maker, is impossible. In reality, firms and consumers are constantly moving up and down to varying degrees on being price takers and makers. There is no complete maker or taker. The market is a process of discovery, and if we want the best outcomes, we need to worry about keeping the process free and unencumbered, rather than the particular distribution of resources among firms at any given snapshot in time.

Efforts to fight the myth of monopoly and make the market look more like make-believe “perfect competition” make things worse. They often result in the one kind of monopoly that is dangerous; the one maintained by force. Forced monopoly, or forced price floors or ceilings, or the breakup of firms or the prevention of mergers, or any other intervention creates artificial markets. They shift entrepreneurial activity away from innovation to serve consumers and towards efforts to ensure regulation benefits me and harms my competitors.

We’re all monopolists, yet none of us are price makers. Stop worrying about it.

Senseless Census Ads

I have a short article in the Freeman Online today about the stupid U.S. Census ads claiming they need data to make decisions about how many buses or hospital beds a community needs.  The two main points are:

1) In a market, you don’t need a census to tell you how many goods to provide.

2) Without a market, you won’t know how many goods to provide even with a census.  From the article,

“Has the grocer ever run ads claiming that without your household survey, he won’t know how much food to stock?”

And,

“They cannot know how many hospital beds or buses to provide without population data.  The dirty little secret is that they cannot know how many hospital beds or buses to provide with population data either.”

Read the rest here.