Is capitalism good?

[Dave H]

ED-

I think you've miscontrued what I was trying to argue in my post.

My point is not that libertarianism isn't coherent, but that what many people (including many who consider themselves libertarians) think to be libertarianism is not coherent. Similarly, I know full well that no economist alive thinks Smith's theories can be adequately applied without revision to any economic system occurring in reality; but again, there are plenty of laymen (particularly those who style themselves libertarians) who think they can be.

And do you think that the "deregulation" in amarica is a great success? You are saying that the deregulation is in fact a reregulation, that it's most of the time a great flop, and you are saying that deregulation have led to utter chaos? Hmmm which is it? Deregulation or reregulation? You can't say that deregulation gives chaos when you say that in fact it is reregulation. Be consistent.

I was consistent. Apparently you didn't understand that I meant to draw a distinction between "deregulation"--in quotes, meaning the way the term is generally applied--and actual deregulation, which I maintain doesn't exist because it would almost invariably lead to chaos (in the case of any industry sufficiently imperfect to require heavy state control in the first place). Instead I'm pointing out that "deregulation" (in quotes) would better be termed reregulation, both because that better describes what is generally going on, and because it provides a clearer conceptual framework for evaluating such plans.

As for the historical success of "deregulation" (which I would call reregulation) in America and around the world, it's a mixed bag, but generally positive with some notable exceptions and many unforeseen consequences. In general I strongly agree with the notion that introducing some form of the competitive principle makes most systems more efficient. And I strongly disagree with the notion that those industries which have traditionally been highly regulated do not indeed suffer from systematic market imperfections or externalities that require government regulation and other deviations from free-market principles in order to encourage efficiency and the common good.

I think at worst I can be accused of attacking a straw-man libertarianism instead of the one that actually exists. I happen to think my points do apply to much of libertarianism as it actually exists, but admittedly it gets more complicated once one steps away from the espoused ideal of total lack of government interference in the economy, and start dealing instead with something a bit more realistic.

 

[Evildeus]

Elsewhere would have to be another country, wether you could travel that far and gain admittance is far from a certainty. As for agreement, you are living on their property under their terms ... your agreement is a given, you have little choice.

Sure, as today if i want to go elsewhere, or if i need to find a flat. But then they find themselves in a situation where the demand is lower than the supply of house.

But "wether you could travel that far and gain admittance is far from a certainty" it is a certainty. As you have pointed out, you can't stay at this place because it's not yours, then you are being expelled elsewhere, and that elsewhere is where you are accepted.

Finally, it's better to have a choice: to have an house paying that wage or stay out of house, than no choice

 

[Evildeus]

Dave H> Sorry it indeed seems that i have misunderstood what you where saying.

I also think that the nature of the power of the state, the attraction of power and the demand for the use of power means that it's quite hard to find in any country some real tendencies toward more free market.

 

[DemoCoder]

In the California case, the problem with the "deregulation" is that buyers and sellers in the energy market, were in fact, regulated. Yes, power producers were no longer responsible for maintaining the distribution grid, or dealing with consumers. However, long term contracts were prohibited which meant that buyers had to buy power at whatever the daily spot market price was, and it was this fact that allowed the market arbitrators like Enron to take advantage. The right thing to do is to place the infrastructure for the grid in a separate entity from power producers and power consumers. The wrong thing to do was to regulate the contracts between the two.


Let's take a brilliant case for deregulation: Amtrak. In the United States, Boeing does not have to "maintain" the airways and General Motors, Ford, etc don't have to build the highways. Airlines don't have to maintain anything but the planes and their terminals either.

However, Amtrak is in a special situation: not only must they run a consumer passenger service, acquire trains, maintain them, but they also must built the tracks, maintain them, etc.

Amtrak should be split into two entities: One, a private, for profit, passenger liner service, which owns the trains, and Two, a public, government backed and subsidized entity responsible for building the rail infrastructure.

Third, divorced from the expense of maintaining the rails, lots of other carriers can enter the market, buy trains, set up terminals, and reuse the existing public rail infrastructure.


There are clear areas where market mechanisms sometimes fail, mostly where there is a highly centralized extremely capital intensive resource. When it comes to infrastructure: sewage, power, transportation, these things should be public networks built by a central arbiter and utilized by multiple lower level service providers.

It's hard to have competition in sewage or water providing, since we can't allow dozens of competiting companies to keep tearing up the streets laying down pipe. If water could be routed through this network, then neighborhoods of home owner associatiosn could contract with competing "water providers" who don't lay down the pipe, but merely run the pumping stations at the water reservoir. (leaving aside the idea of "owning" an aquifer or river)


In any case, these monopolies arise because fundamentally, for that particular resource, a monopoly is the most efficient mechanism.

But if Google or Walmart becomes a monopoly, IMHO, it is only because they are providing the best service.

 

[Willmeister]

But if Google or Walmart becomes a monopoly, IMHO, it is only because they are providing the best service.

That's crap. IBM is a very good example of a monopoly that DID NOT provide the best equipment or service. Read Big Blue: IBM's Use and Abuse of Power.

 

[DemoCoder]

Please, IBM was brought down, not by the government, but by the market. The consent decree was not reponsible. The antitrust case was dismissed.

As soon as the first BIOS was cloned, and and Intel and Motorola started making CPUs, IBM could no longer be a monopoly. The same way today, Sun is being brought down by Linux and cheap Intel chips.

Anyone can write a book and criticize a company's line of products or service, since it's such an easy target, especially "service" but I can point to IBM's long list of innovations: first disk drive, first removable disk drive, first MR disk, first GMR disk. And in fact, making those work required oodles of other inventions.

People bash Microsoft, say all their software sucks, etc too, and I'm sure some open-source nut could write a similar book about Microsoft. Ask a developer why they use Visual Studio instead of CodeWarrior, Border C++ Builder, or VisualAge C++. It ain't because MS is a monopoly.

 

[Willmeister]

IBM drove RCA's UNIVAC out of the marketplace. It was the first computer to use a keyboard and monitor (Edit: not mouse, sorry) in the mid-1950s, but through various practices drove RCA out of the market so punch cards continued to rule for a least another decade and a half.

IBM's hold was broken by the COURTS, not marketplace mechanisms such as supply and demand. IBM took Compaq to court, and the court rule in favour of Compaq which allowed the advent of PCs everywhere. It was also the courts that essentially prevented IBM from barring Minnesota Mining and Manufacturing, now known as 3M, from the punch card market.

 

[DemoCoder]

You've got it bass-ackwards. Compaq broke IBM. Compaq engineered a clean room BIOS. IBM tried to use GOVERNMENT FORCE to stop them, and the government decided not to get in the way. By government NONACTION, Compaq busted IBM.

The government did not "trust bust" IBM. The marketplace did way more do bust them. And Microsoft drove the final nail in the coffin by killing off OS/2, as did Intel when they killed of MCA.

 

[Evildeus]

IBM's hold was broken by the COURTS, not marketplace mechanisms such as supply and demand.

Well i don't know where you did find that, but IBM never loose any anti-trust lawsuit, so try to figure out how IBM did loose its monopoly...

 

[Willmeister]

Ooops. Forgot that Compaq was licensed the BIOS. It was Pheonix that reverse-engineered the BIOS.

I'm sure IBM did run to Congress, but it was the courts who said that, no, Pheonix properly reverse-engineered the BIOS and therefore did not violate IBMs patents and such. IBM had no legal standing and the case was without merit. At the time, IBM didn't exactly fight tooth and nail over a tiny piece of it's empire. IBM management were like what Xerox became, complacent and rather disjointed from customers actually wanted. Even the team that created the PC didn't exactly have the support of the brass. The brass really didn't like the idea of IBM getting parts from it's computers from outside IBM. The PC was a watershed for IBM. Until the PC, nearly 100% of an IBM machine was manufactured in house. The original PC had a third party floppy, third party power supply, etc. Even some of the semiconductors, like the Intel CPU, were not in-house. But, the BIOS was 100% IBM. Some SE Asian fabs directly copied the BIOS and IBM brought them to court (and won). It wasn't until Pheonix that an IBM BIOS could be made that wasn't IBM in origin.

The only suit that was dismissed was the DOJ's (airtight) case against in the 1980s but the Reagan administration had the DOJ drop it. That case centered around predatory practices IBM used in the 360/370 line of computers.

IBM screwed itself even before Compaq actually. IBM was always on the decline since when one is at the top, the only direction is down. IBM salesmen made next to no commission selling small PCs so what incentive did they have to push them? They continued selling minis and mainframes which had much higher commissions even though the demand for them had been shrinking for a long time. Suddenly, IBM was squeezed between DEC and Data General mostly on the mini computer end, and smaller upstarts at the PC end. Eventually, no organization really wanted mainframes anymore and IBM tried doing what worked for it in the past. Going proprietary. That didn't work because no one wanted to pay for IBM crap and the 'no one gets fired for buying IBM' sales pitch was restarted and was very unsuccessful.

But the final nail in IBM's dominance was the prevalence of cheap PCs, especially manufactured in SE Asia. IBM was late in moving production compared to others. IBM also realized way too late to really do anything about it. And when they tried they came out with some really crappy products (token ring, PC Jr, PS/1, PS/2, etc). We used to have these here at the university. We used to say, and no doubt many other did too, PS stood for Piece of Sh*t.

As for Microsoft, MS-DOS wasn't made by Microsoft. It was actually DEC. Well, MS bought QDOS from Seattle Associates and plopped it on the PC. Anyway, the CEO of DEC sat in court (1982 or 83), popped a few keystrokes before a judge, and lo and behold, a DEC copyright notice popped up. This was the birth of DR-DOS and Microsoft quickly settled.

 

[Evildeus]

IBM screwed itself even before Compaq actually. IBM was always on the decline since when one is at the top, the only direction is down.

So why are you saying that

it's IBM's hold was broken by the COURTS, not marketplace mechanisms such as supply and demand

2 contradictory statements no?

Moreover, i like this bit:

That case centered around predatory practices IBM used in the 360/370 line of computers.

Whereas

the final nail in IBM's dominance was the prevalence of cheap PCs, especially manufactured in SE Asia.

Means predatory prices?

I'm always intrigued when i see the term "predatory prices", i don't know what it means (well i know because i did some industrial economics), if it's predatory, it means lower price, then it benefits the consummers, isn't the anti-trust law supposed to protect the consummers and not the producers?

 

[DemoCoder]

Let's see, the case against IBM was dismissed. IBM ran to the government for PROTECTION and the government did not grant MONOPOLY PROTECTION, therefore, cheap PCs flourished, and we are at the situation we have today.

I fail to see how this sells your case of GOVERNMENT INTERVENTION TO BUST MONOPOLIES.

It appears the greatest victory against one of the world's largest monopolies simply required the government to DO NOTHING.

Your story would make alot more sense if it had been the government which cloned the BIOS, or mandated that IBM give away the source code, or broken IBM into multiple companies, etc, but the government took no such action.

It was the government's decision to NOT INTERFERE IN THE MARKET which allowed cheap PCs to bust IBM.

Edit: To give an analogy. Imagine if Lindows (Linux clone of Windows sold on Walmart PCs) started taking a huge chunk of the Windows market and Microsoft went to the government and asked them to stop Lindows from selling their software. If the government refused, you'd say this was the government trust busting of Microsoft!

 

[Willmeister]

I fail to see how this sells your case of GOVERNMENT INTERVENTION TO BUST MONOPOLIES.

I'm unaware of the Sherman act being used to break IBM, or even recall an real attempt to even do so. It happened to be the courts that set the stage to have IBM's monopolies broken. Case in point was the decision in favour of 3M, which was the first 'success' that prevented IBM from using it's power to distort the marketplace and drive them out. The legislature could have tightened definition and penalties for predatory pricing (it's method of driving RCA and UNIVAC from the market) and price subsidization (the DOJ's case against it concerning pricing in the 360/370 market), but chose not to. This basically left the judiciary the duty of remeding the situation following an extended period that required an injured party to seek remedy. The judiciary prevented IBM from squeezing out 3M. If it wasn't for the judiciary, 3M may not be in existence today.

I really should explain the 3M issue because it's quite revealing. You also have to remember that up until the 1956 Consent Decree, IBM refused to sell computers, only rent. This allowed for two things:

a) no second-hand market, and
b) ability to threaten.

IBM told it's customers that if they were caught using 3M cards, they would be held responsible for breaking any equipment, or even have their computers removed and contracts cancelled. Faced with that, what did CSDs do? They refused to buy 3M products. 3M took them to court and won, and these also became 'embedded' as the first issues addressed in the '56 Consent Decree, IIRC.

It appears the greatest victory against one of the world's largest monopolies simply required the government to DO NOTHING.

The government did nothing, that's absolutely right, but that allowed IBM's practices to drive out competitors from the marketplace. Their inaction literally cost the economy jobs, innovation (UNIVAC, for example), and maybe even economic growth and large sums of money that go with both jobs and innovation. You may be familiar with the concept of oppurtunty cost, no doubt? Monopolies don't really have much financial incentive to innovate. Why bother? Consumers, industry or government may be unable to function without purchasing from that monopoly.

It was the government's decision to NOT INTERFERE IN THE MARKET which allowed cheap PCs to bust IBM.

No, a variety of reasons are responsible for that. The actual being IBM itself for showing up to their own party late. It was with the judiciary that allowed Pheonix Labs the right to sell it's own compatible BIOS which took control of the party away from IBM.

Edit: To give an analogy. Imagine if Lindows (Linux clone of Windows sold on Walmart PCs) started taking a huge chunk of the Windows market and Microsoft went to the government and asked them to stop Lindows from selling their software. If the government refused, you'd say this was the government trust busting of Microsoft!

First of all, the probability of that occuring is next to infinitessimal. The body of Microsoft software is just too entrenched for people to bother with changing over in any significant sense. This is both a boon and a curse for Microsoft.

Again, innovation should not be held hostage to the whims of a monopoly.

Lindows sucks BTW. Won't run any of the software I *need* to run.

 

[DemoCoder]

Don't you see the ludicrous position you have here? Court gave Phoenix the right to sell their BIOS? By DEFAULT they have that right. The court does not grant anyone the right to sell anything. They grant injuctions. The court refused to intervene on behalf of IBM and prop up a monopoly.

IBM didn't innovate enough, and the market (clones) killed them.


IBM's position in the computer business was altered as a result of their failure to innovate and because their crying to the government for protection fell on deaf ears. In no way was the government responsible for activity destroying IBM's monopoly.

Likewise, Apple had a similar downfall when they pinned their entire hopes on success on a "Look and Feel" lawsuit that they thought they could win against MS. Good thing the government didn't bite. If they had spent the years and money they spent on this court case INSTEAD on a new multitasking, memory protected operating system, they wouldn't have lost so many billions to MS. Luckily, they got smart and bought NeXTStep and turned it around in time.


And let's not forget Netscape, who went crying to the government when their shitty Netscape3 codebase couldn't be upgraded to deal with DHTML, incremental reflow, XML, CSS, and when they got killed by IE4, they had to run to big daddy government for an attempted bailout. No one knew the whole story until after Netscape went bust and they released the Netscape4 codebase source, and the world saw what a spaghetti coded nightmare it was. It took years and a complete rewrite (Mozilla) to get where Microsoft was with IE4 in terms of rendering. Which is no wonder, because according to Netscape's story, they wrote the browser in only 3 months after they got funding, and everything else from Netscape1.0 forward was patches on top of patches.

 

[Willmeister]

Don't you see the ludicrous position you have here? Court gave Phoenix the right to sell their BIOS? By DEFAULT they have that right. The court does not grant anyone the right to sell anything. They grant injuctions. The court refused to intervene on behalf of IBM and prop up a monopoly.

Yeah, and the courts saw fit to throw out IBM's suit. What if they hadn't? Could we have expected remedy, the ability for others to innovate free from fear of IBM's business practices? Given the legislature's history dealing with IBM, I don't think it would have happened. We might not even be here typing. Lord only knows what the industry, or any industry shaped by modern computing would look like today. What if the courts had ruled against 3M and in favour of IBM? How much more money would industry would have had to spend on IBM punch cards?

Pheonix had that right, provided they broke no laws, which IBM attempted to prove. Where exactly did I say they did not have that right?

 

[DemoCoder]

Look, if the government had not even existed, Phoenix would have sold their BIOS and IBM would be busted. You cannot parlay a case of the government doing nothing into support of your position that IBM's monopoly was toppled by government power: it wasn't. IBM was toppled by the market.

You're saying "hey, the government could have did X and could have did Y to hurt Phoenix, and decided not to, ergo, they decided to bust IBM" Fact is, by your own admission, IBM was busted in the PC market anyway, regardless of Phoenix, because of their failure to innovate.

The litmus test in this situation is to imagine what would happen in a totally free market without the government: Phoenix would have sold their BIOS and no one could have stopped them. Therefore, the government could not have been credited with the downfall of IBM.

Even if they wanted to cause the downfall of IBM in such an indirect manner, no one foresaw the PC revolution and how cheap commodity standards based hardware would displace proprietary mainframes and minicomputers. Even today, Sun Microsystems is still in denial, even though Linux has already killed off proprietary enterprise systems from SGI, HP, SCO, Compaq, and all other Unix server vendors.


IBM is a monopoly that was busted because they failed to innovate. It is not a great example of government salvation, you'd do better to pick on Standard Oil or Ma Bell.

 

[Willmeister]

Look, if the government had not even existed, Phoenix would have sold their BIOS and IBM would be busted.

If there were no government, they're wouldn't be very much. Rule by force and fear would be the order of the day. If we were subject to a 'jungle', which governance was basically created to prevent, having Pheonix's product, or many other products that require a level of civilization, would have been impossible to even create.

You cannot parlay a case of the government doing nothing into support of your position that IBM's monopoly was toppled by government power: it wasn't. IBM was toppled by the market.

If it wasn't for the judiciary to bar IBM's practice vis-a-vis 3M, the marketplace couldn't have done anything now could it? It's pretty hard for a product barred from the marketplace to do much of anything don't you agree? Whether by injunction or shady or illegal business practices doesn't ultimately matter right now; it doesn't matter how it's sale is prevented. The argument that IBM would have been unable to ask for an injunction if government didn't exist fails to recognize that IBM had other tools at it's disposal to maintain it's domination that was FREE from government control. It had deep pockets, and historically used predatory pricing and especially price subsidization to accomplish it. Any laws concerning price subsidization were largely reinforced by Congress as a direct result of IBM's manner by which it dominated the mainframe market.

The litmus test in this situation is to imagine what would happen in a totally free market without the government: Phoenix would have sold their BIOS and no one could have stopped them.

In an ideal world with a perfect marketplace, with a fully informed consumer that may very well be true. In fact, the monopoly wouldn't have even been allowed to exist. In an perfect marketplace, economic profit is always zero. There are no barriers to entry, but there is no chance for economic profit either. (BTW, economic profit is NOT accounting profit! You can have accounting profit in perfectly competitive market.) In this little world of a 'free market without the government', everything would be functioning properly in perfect harmony. We'd have infinite number of products for all buyers and sellers. Marketplace efficiency would be nearing 100% and quality would be uniform across all competing products. There would be no poverty. No want. Just bliss for everyone.

Now, back to reality.

In the case of IBM's industry at the time, economic profit was never zero, since there were always people willing to break from the IBM fold. Positive economic profit will always attract new providers providing there were those who wished to purchase this new product. Again, 3M is a stellar example of this since they saw economic oppurtunities to provide a product customers were very willing to buy. But IBM used it's unique position with regards to it's practice of renting computer equipment and using it's signed contracts users of IBM equipment signed. IBM used FUD and subtle threats to keep 3M out. 3M didn't take it sitting down.

Therefore, the government could not have been credited with the downfall of IBM.

They opened the ballpark to new players; they took IBMs padlock away. Those who wanted to profit by undercutting IBM just had to step up to the plate.

 

[DemoCoder]

Puh-lease, you can't credit the disallowance of bundling in the mainframe and card reader markets to be the reason that IBM fell in the PC era. The two are totally different phenomena.

Companies go out of business all the time because they fail to respond to disruptive new technologies. You act as if IBM manufacturered horse and buggies, it could prevent Ford introducing cars successfully. IBM's tunnel vision is what done it in. No amount of bundling in the enterprise market could have protected them from the commodification of hardware.

IBM failed because it got too big, and it is impossible for a large company to be focused on all markets simultaneously. IBM was four years late to the party when it introduced the original PC compared to the Apple II and there were already several other CPU manufacturers at that point, which lead to the natural commodification of computing hardware.


I'm sorry, but the consent decree was really a slap on the wrist. I expect that if Microsoft loses its status years from now, you will claim it is because they were forced at one point to remove the Internet Explorer icon from the desktop, and to stop their ISP licensing policies. Really missing the big picture.

 

[Willmeister]

Puh-lease, you can't credit the disallowance of bundling in the mainframe and card reader markets to be the reason that IBM fell in the PC era. The two are totally different phenomena.

and

Companies go out of business all the time because they fail to respond to disruptive new technologies.

That is utterly self-evident and no contesting that.

If a monopoly manages to bar a competing product from the marketplace, then how can that product go on to dethrone anyone if it isn't allowed to even compete?

 

[DemoCoder]

Point is, a monopoly can't always bar a competing product. IBM had no way of baring new technologies from disrupting the market place and dethroning it. Period. Their monopoly power could not stop new technology. Hence, government power is not the only way for monopolies to disperse. Ergo, monopolies are not inevitable and invariant barring government interference.

You would like to argue, I understand, because of your liberal leanings, that big old government needs to step into the market and pick winners. But winners can become losers overnight and the winners that the government wants to pick (e.g. Netscape) aren't always best for the consumer either. Ironic, since Netscape started with a 90+% marketshare, and was arguably a monopoly, yet they lost that position overnight. At one time, Nvidia arguably was considered the top, six months later, they look like they are on the ropes.

The government is a big stick wielded by vested interests to beat over people over the head with, monopolies aren't a priori bad, and moreover, they aren't neccessarily the end result of any market process, unless you cherry pick your starting and ending points.