The Freedom Files

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The Freedom Files

"Laissez-faire, laissez-passer, le monde va de lui-meme."

DIY since 2001…

Hello Freedomphiles! For two weeks, my favorite Sunday show, The McLaughlin Group, was pre-empted by some self-help wannabe Stuart Smalley human opiate – or something – I wasn’t really paying close attention because incoherent rage affects my ability to process information. Really, all I know is that he seemed upbeat (the first clue that he wasn’t McLaughlin) and he was talking to a large group of positive, smiling people (the second clue) in an empowering, positive way.

Anyway, this Sunday, the grumpy lug was back. Imagine my delight (for help, imagine Bill Clinton’s face when he gets the new College Girls Gone Wild tape) to see the cantankerous crew back in action. I lit a cigarette, kicked my feet up, gave the cats a dirty look, and prepared for the festivities.

Everything was going great. They were talking foreign policy, who will replace Arafat, discussed with panel member Pat Buchanan about the probability that he is Deep Throat (no, seriously), and then moved on to the subject of Amtrak.

Amtrak is in seriously bad shape right now. By right now, I mean the last few decades. They haven’t made a profit in years, and for decades now, the only way they’ve been able to stay in business is by augmenting their operating capital with money the government stole from you and I in the form of taxes. And despite all of this, the train keeps a rollin’.

Well, the inimitable host and his four panelists all agreed on this issue (a rarity on that show) and, in true bipartisan fashion, came to the horribly misguided conclusion that it is in the nation’s best interest to keep Amtrak on life support.

I say pull the plug – let the fucker die.

And whether you realize it or not, you’ve cast your vote on this issue as well – by not riding Amtrak, you have made it clear that you want it put out of its misery, too.

Unfortunately, our leaders have shown time and again that they don’t care what we want – our choices mean nothing to them.

We tell them, “I don’t want to ride Amtrak – there are a lot more practical and quick and convenient ways to get where I need to go, so I am not going to spend my hard-earned money on something I don’t want or need.”

And the government says, “Silly subject, don’t you know that it doesn’t matter whether or not you actually use Amtrak, you’re still going to pay for it?”

To be quite honest, I’m not sure who’s smarter – people who pay for the service and never use it, or people who pay twice to use it once.

You see, Amtrak is a monopoly. In fact, it is the only kind of monopoly that can exist in this country – the dreaded government-supported monopoly. Any other type of monopoly is short-lived and destroyed by market forces, but the government has something that a private company does not: a monopoly on force. Everything that the government does is backed up by the power of compulsion.

The government can compel you to support one of its business ventures, but a private company cannot. In a free-market economy, the only time a transaction takes place is when both parties benefit from it. You see, the only reason you buy something is because the value of that item to you is greater than the value of the money you trade for it, and the only reason someone sells something is when the money that is offered in trade is worth more to them than the object they want to trade.

But this is not true with a government-enforced monopoly. You give them money that you don’t want to give for services you don’t use, and you do it at gunpoint. (To see the gun, simply stop paying your taxes.)

And while the government is propping up monopolies like Amtrak and the Postal Service, they tear down successful businesses like Microsoft. To give you a clue into the crux of their case, let me give you a headline from the October 21, 2001 addition of The Washington Post: “It Takes Over a Village? By Meeting Users Every Need, Microsoft’s New Windows Unfairly Shuts Out Competition.”

What? My every need? Those…bastards!

Really, isn’t that the whole point? Businesses compete to best fill your needs, and nothing else. As brilliant Austrian economist Ludwig von Mises put it: “What made some enterprises develop into ‘big business’ was precisely their success in filling best the demand of the masses.” It is only by service to the public that a business can flourish. Those that are better at making you happy earn for themselves a larger market share than those that make you less happy, and those that make you less happy have no right to a percentage of that market share. They have to earn it by providing you with something you value more than what the other company is trying to sell you.

So, once again, you voted – you made your choice for Microsoft over PCTools, Netscape, Linux, OS2, and others, making Microsoft the biggest software developer in the world.

But market share is a difficult thing to maintain. It is far from automatic. For examples, all you need do is look to two of this biggest companies around: IBM and Ford.

IBM

In the early days of personal computers, IBM was king. If computers were presidents, IBM would be Taft – huge. It was considered a status symbol if you had the IBM logo on your computer – you were said to be true blue. People were very loyal, and they had reason to be – nobody did it better than IBM.

Fast forward to now and take a look at the computer you are reading this on. Does it have the IBM logo on it? I didn’t think so. That is because of a little something that IBM called the PS2 (not Playstation 2). It was the big new thing. People anticipated it hitting the market like the sequel to The Matrix or the second coming of Christ.

But it didn’t take long before people noticed something peculiar about the PS2. It was impossible to upgrade anything on that computer with anything but IBM parts. Even the true blue IBM users didn’t like that, and as a result, IBM no longer even makes personal computers. We now buy them from (dude, you’re getting a) Dell, Gateway, Acer, or a host of others.

FORD

In the early days of automobiles, Ford was king. Henry Ford and his Model T were like Hitler and stupid tiny little square mustaches – nearly synonymous. But the Model T, like stupid tiny little square mustaches, went out of vogue. People wanted more. They wanted a car with a roof, for starters. And a self-starting engine would be nice. How about an easier gear shift and a Blaupunkt ten disk changer in the trunk? Well, they hadn’t even invented the eight track yet, so the CD player was out, but the other three were completely doable. Still, Ford did not supply the customers what they wanted.

In true free-market fashion, when a need arises that no one is filling, someone comes around and fills it. This time it was Chevrolet and Overland. And they put Henry Ford out of business, made him close down the whole place, until he could adapt to the market.

Microsoft is under that same pressure. They have to constantly innovate and improve their products or they will suffer the same fate as IBM or Ford. D.T. Armentano, Professor of Economics at the University of Hartford and author of Antitrust and Monopoly tells us that big businesses “earn this high share by being more efficient than their rivals, by rapid and risky innovation, and by maximizing the overall subjective welfare of their customers. Yet it makes no sense (from a consumer perspective) to employ antitrust law and attack the very firms that currently maximize consumer welfare!”

In other words, “By meeting users’ every need, Microsoft’s new Windows has unfairly shut out the competition, so lets get ‘em!” Heaven forbid the competition actually try to compete.

When you attack the successful on behalf of the unsuccessful, what does that do to our quality of life? It is an action that says, loud and clear, “We do not respect the choices of the American people, and instead choose ourselves to change the rules and make sure that every American will each have an equally mediocre product.”

Microsoft does not put a gun to your head and make you do business with them, but Amtrak, through the coercive power of the government, does. Yet Microsoft is called a monopoly, and Amtrak is not. Yet Microsoft is making money hand over fist, and Amtrak is losing money like a blind man in Vegas.

Another way they say Microsoft is a monopoly is by buying out all the competition. Would that they were, because starting businesses for Bill Gates to buy out would become the largest growth industry in America. Clearly, that is a self-destructive business model that will ensure a prospective monopolist nothing but failure. The market wins again.

So, suppose that a company lowers its prices so much that their less-efficient rivals cannot compete. Well, that’s the idea. You lower your price as much as you can and still make a profit – if others cannot match this, then you will have won the market. Because once again, you have added more to consumer welfare than the next guy. But according to the Sherman Antitrust Act, that is predatory business practice. That’s being too competitive. They want you to be competitive, they just don’t want you to win. With no clear lines, the law is arbitrary and meaningless. Laws have to be clear and concise so that you can completely understand and not be at the mercy of one person’s interpretation after the fact, but this is a minefield businesses creep cautiously through every day.

Okay, but suppose the company lowers its price so much that they actually take a short-term loss, with the hope that they’ll drive out the competition and benefit in the long run.

Well, it is doubtful that, without government subsidies, one would be able to do this long enough to destroy the competition without destroying themselves in the process. But in that case, let a company give you part of a product for free.

Even if they were able to manage it and created a successful monopoly, what then? Is it now time for them to twist their greasy black mustaches and gouge customers? Well, I wish them luck trying.

Pretend you are the prospective monopolist, and you make flying cars. (Weren’t we supposed to have those by now?) And say with the costs of rent, labor, and materials, you can build one flying car for $10,000. Since you have no competitors, you can charge anything you want for the Aeromobile 3000. So you charge $20,000 for your cars because you figure a 100% markup is a pretty good profit. Then you sit back and wait for the money to roll in.

And it sure does…for all of about twenty seconds. Other potential businesspeople see your huge profits and say, “Holy crap! There’s gold in them thar hills!” Suddenly there is a rush on to put out flying cars like yours. But they do something a little different. They think, hey, if they sell theirs for, say, $18,000, they can undercut you and steal your market share. They’re right. So you drop your price to $17,000, and a new startup comes along selling theirs for $16,000 and so on until you reach what economists call market equilibrium.

Well, that’s no way to run a monopoly. So, what can you do now? Well, there is only one way to raise prices and not encourage competition: the heavy hand of government. It is currently illegal to compete with Amtrak and the Post Office. So what can we as consumers do when Amtrak or the Post Office raise prices? Really only one thing:

Bend over.

Fortunately, the market is a powerful thing. If they don’t have to, people won’t pay over the fair market price for anything. That is why people use UPS and FedEx to ship packages, pay their bills online, send online greeting cards, and use email. That is why people fly, drive, take cabs, take busses, and carpool.

Private businesses also try to utilize the strong arm of the government to remove competition – that is why cable TV, railroads, phone service, over the road trucking, and electricity providers were monopolies. They got government to restrict entry into the market, either by banning new enterprises outright or by subsidizing so heavily that no one could possibly compete.

Meanwhile, companies that are unable to compete pressure the government to break-up successful companies like Microsoft to try and hijack some of their market share. Armentano says that most of the antitrust cases historically were “against firms that were expanding output and lowering prices.”

So basically, the official policy of our government is: “Let’s ignore and prop up real monopolies that are not accountable to their customers and destroy anyone who competes too well on the open market, and we’ll knock off all the competition in the name of…well, competition.”

And what of consumer choice? I think Dean Russell, economist formerly of the Institute for Economic Education put it best: “We will lose the most effective and beneficial control ever devised – our right to determine with our purchases which company shall grow large and which will fail…. And that, of course, is the opposite of freedom.”

Until next time, make every day a good one,

-Rick

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