Free market cheered

FROM TOWNHALL.COM

HEAD: Economic Myths
by Walter E. Williams

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.
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The Free Market, the only rational economic system extant.

Dionysus
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