16: Monopoly, Competition, and a Critique of Interventionism

Play episode
Hosted by
Will Jarvis

In this short episode, we discuss how good-faith policymakers can sometimes make things worse when trying to improve outcomes in many domains. We talk about price gouging, fairness norms, and monopolies.


hey folks my name is will jarvis along with my dad dr david jarvis we record the podcast narratives narratives is a project exploring stories about progress and what ways are we better off now than in the past are there ways that we are worse off what is the ideal future how do we build it join us as we explore these questions with some of the brightest minds in the world

hey folks a bit of a shorter episode this week we had some technical difficulties that prevented us from getting our usual longer episode out we’ll be back to our regular format next week and we’ve got some really interesting guests lined up if you get a chance we’d really appreciate it if you gave us a review subscribe on your preferred platform here’s the tape so we wanted to get started today with a little story about hurricane fran do you remember hurricane fran i do so um i barely remember hurricane fran i remember not being able to watch television which was quite distressing at that age

can you tell us a little bit about fran um one i remember more than anything about fran was lots of water pretty bad everywhere pretty bad for a long time and it did disrupt everything and uh and the other thing i remember about fran were the helicopters going over to rescue people that’s the other thing i remember it’s pretty cool yeah power’s like out for quite a while yeah probably two weeks was it two weeks for us uh anytime it’s over a week it sounds it seems like forever it all runs together because you know the other thing about hurricanes it seems like it’s always hot and humid after a hurricane our mirror was hot i remember being hot so i get the story from mike munger mike munger is an economist at um duke university i believe he’s actually a political scientist but he’s trained as an economist he ran for for lieutenant governor i believe a couple years ago very interesting guy but we have a story today about government interventionism about the government trying to improve outcomes by interfering with the price mechanism so in during hurricane fran there were a couple of enterprising blokes we’ll call them from goldsboro north carolina can you tell us where goldsboro is oh goldsboro’s you would say wilson’s probably 30 minutes south of here and goldsboro is probably 30 minutes south of wilson to the southeast a little bit yeah that’s right and just to note if you so this is in eastern north carolina if you broke up north carolina from 40 from sorry not 40. from raleigh east if you broke that off and made it its own state that would be the poorest state in the united states wow pretty interesting so there was a couple of blokes from goldsboro and they heard that there was no power in raleigh because of hurricane fran so they decided to load up their truck with ice in a big old pickup truck just load it up and they thought there was an arbitrage opportunity right they had a huge amount of ice in goldsboro and they knew there were a lot of people in raleigh that needed ice for all kinds of different things you know they wanted cold drinks it was hot it was just after a hurricane keep insulin cold there’s plenty of essential uses we can think of of ice so they drove to raleigh it’s about what 60 90 miles yeah it took an hour hour and 15 hours probably maybe a little bit longer to gold spur or something yeah it probably would hour and a half yeah so they make it to raleigh and you know they stop in a parking lot and they start selling ice so they’re selling ice for about eleven dollars a bag and how much is a bag of ice usually you know dollar and a half a dollar and a half right so you know pretty significant um difference from usual but it’s a crisis they had to drive from goldsboro and there was people lined along the block to buy the ice everybody wanted the ice for eleven dollars because they were the only people that were able to provide at the time now it’s important to note people are not very happy about paying 11 a uh a bag for a bag of ice which plays into our story a little bit in north carolina it’s actually illegal to do this when there’s a state of emergency and dad can talk a little bit about the specifics specifics of that you can’t charge more than an x premium on any essential good if the governor declares an emergency you can’t charge more than 10 percent for something that you normally then you would normally charge right so this is the same sentiment as people being mad paying for the exorbitant price of ice so they start selling ice and someone decides to call the police right because it’s clearly price gouging the police come they arrest the blokes from goldsboro they put the truck at impound and the rest of the ice melts so a big puddle of water we have a big bowl of water no ice for anyone who needs it to keep their insulin cold for example baby formula cold or cool their beer down or cool their beer most importantly yes let’s not forget that so why is this story important

uh the story’s important about uh concerning uh whether intervention is actually works did that work to shut down so now we have no ice right we have no eyes so you have no ice this is really interesting to me right because if you you and i were in that line we would probably be cheering that the police officer had come and arrested these guys you know these oh man these guys as big as butts trying to take advantage of a bad situation now the real problem here though is that if we don’t allow price gouging if we don’t allow the price mechanism to work there is no ice so the question is is what do we do in this situation do we allow there to be price gouging laws and not have ice in a crisis it’s a great question and and one of the things is as you sort of take a deeper dive in this that you realize is first of all this is a trans situation right it’s only gonna happen for a little bit that’s correct it makes something available you wouldn’t otherwise have right and there are extraordinary measures you have to go to to supply so correct so the the the the specific commodity that you’re talking about is worth more there’s no question that’s true right they’re scarce to you like that so it becomes a question of how much more it’s worth and whether you really want it right so this is this is very interesting to me this is one of my favorite examples of interventionism in the price mechanism interventions in the price mechanism as mises would say because everyone ends up better off if they sell the ice and they buy the ice in free exchange but people are very mad about this we would be very mad you and i were very rational about this i i’m sure i assure the listener we’re very rational we would not be happy with paying 11 bag of ice we’ll be mad about it this kind of reminds me of let’s say you and i were walking down the road and i spot a dollar bill in let’s say in penny so it’s 100 pennies and i snatch it up and we were walking around the same route we saw it about the same time i just bent down and pick it up picked it up imagine if i gave you um one penny of that 100 i picked up how would you feel about that i’d feel cheated feel cheated even though you’re better off than you were 10 seconds ago

there’s something something about fairness that’s kind of internal to people and this is why i don’t blame people for for being um let’s say pro the kinds of interventions we just talked about like anti-price gouging it makes sense right there’s a morally we have a moral intuition that that’s wrong but it does make us worse off at the end of the day there’s all kinds of stories like that we tell ourselves where things are bad when in reality we end up better off at the end of the day it has a i think that it speaks a lot to what we expect of government and we expect them to react to our emotional outburst that’s right which is not a great way to go about things that’s what sells things i mean at the end of the day yeah because the the lack of logic then means you actually get along worse that’s right that’s right at the end of the day because if you think about if the guys from goldsboro had been allowed to sell the ice for 11 a bag and guys from kinston that’s found out about it hey we’ll go we’ll sell it for ten dollars a bag tomorrow that’s right and then the next day guys from wilson or wherever it’s available said you know they sold it for 10 we can do it for nine within about three days you’re gonna have it back to maybe i don’t know if even if you were paying three dollars a bag you would think that was acceptable that’s right absolutely so very quickly the market would adjust that’s exactly right and i do want to note here that this is a special case this applies to commodities and it’s perfect competition um this is very easy to model right most things do not fall on the lines of either extreme perfect competition strawberries for example they’re all the same you know they’ll try to tell you some are different but they’re essentially all the same and so all the profits get competed away versus something that’s very unique a monopoly like business like google right so google’s a monopoly they have 80 some percent of the search market and they’ll tell you all kinds of different things about why they’re not a monopoly that’s another thing from peter thiel it’s like you know if you’re a monopoly you want to disguise that you’re a monopoly and if you’re not a monopoly you want to tell everybody you’re a monopoly because all the good businesses are monopolies so do you want to dive into interventionism and monopolies or right so this is interesting um there’s a lot of different ways to think about this and we could spend hours and hours talking about um monopolies and government interventionism into them you know there’s some cases monopolies where the so this let’s just back up and say the standard in the united states is that um it’s it’s around customer welfare so if the customer is made worse off by a monopoly then um they’ll break them up like they have license to break up the the the company um for example if you and i decided um to go and buy up all of the chicken processing plants and farms in the united states we had unlimited capital we just buy them all um and we raised chicken prices by 25 funny enough there’s this whole there’s a question about whether or not the chicken companies collude there’s a lawsuit the people i know the chicken industry swear this doesn’t happen there’s a we we can discuss that later it’s but it’s interesting so let’s say we’re selling chickens um so the customer is worse off at the end of the day they’re getting the same quality chicken they’re paying 25 more under that case it’s very likely the sec would come and break us up there are other monopolies though that seem to give us plenty of advantages right so let’s say um google for example there’s a concept um in slate slate star codex post about this recently it’s about it’s called slack so slack is something let’s imagine something with intense competitive pressure so that would be like fitness for um organisms you know millions of years ago so there’s intense competition for a limited amount of resources food or sunlight energy how in the heck would you ever develop eyes think about that think about how complicated an eye is so you need some something to pull back on you know evolutionary pressure to allow something complex to develop so that’s one sense in which monopolies like monopoly would give you some respite from competition to actually build something because if you’re competing all the time all the profits are getting competed away it’s very difficult to ever really move the needle on innovation things like that nature so that’s a more complicated case of monopoly right um so you know we we talk of these polarities because it’s easy you know we have the the customers

satisfaction experience standard where things are a lot it’s a lot worse for the customer we know that’s bad it’s clearly bad it’s easy to work with what about amazon okay amazon is becoming is clearly kind of a monopoly it depends about how you look at it right so their marketplace and they sell goods in that marketplace that’s kind of a problem you know some people say that’s a problem well the customer is better off at the end of the day they’re paying less the question is that is that a good thing is that standard still enough or is there a problem with it so is it going to depend on how many compliant people complain whether we break up amazon that’s right i think that’s a that’s a big factor in that right i think the customer standard customer welfare standard excuse me is probably enough i think that makes intuitively that makes sense to me i do understand why you know there’s plenty of small businesses that um that hate this right so if you sell a piece of luggage you and i will and and david’s you know you know luggage company we’re selling luggage it’s awesome it’s pretty good price you know people love it on amazon amazon looks at and they go hmm that would make a great amazon basics item then they start producing it they outsource it to china you know they’re making it for a tenth of what we could ever imagine making it for they’ve got almost unlimited capital to do so compared to us and they outcompete us and we go out of business and our products gone now that’s that sounds pretty bad right now for the customer it could be better they could you know charge you know three-quarters of the price we charge they save money they get the same item it’s a toss-up right you know it’s a great question it leads me to to ponder a lot what are the driving forces that force monopoly like structures to be um compelled to stop doing what they’re doing because people made the same complaints about walmart because they put so many small businesses right out of business right yeah it’s a problem right so yes so so we go back to so walmart you know famously destroyed all the small town you know downtown stores which funny enough i don’t know if you’ve driven through small towns recently i don’t know how this well this holds up with covet anymore but surprising resurgence right of all these small downtowns goldsboro funny enough it’s kind of it’s cute fountain north carolina there’s even stores anywhere you go um this kind of reorganization has been happening but it’s all boutique stores it’s all unique angles they survive to the extent that they’re actually unique

at the end of the day walmart provides very low prices the in consumer so they benefit with that but there are trade-offs on the other end as well and something important to think about that and maybe that’s the natural evolution of economics is that you know the big box like walmart comes in a lot of places go out of business but then people find special things that they need that walmart doesn’t supply right and so businesses start to supply the things back in the same spaces sometimes where small businesses fail new small businesses come along and succeed because they can do something different that walmart can’t do that’s

right okay i think i think i intervened enough in that one that’s good awesome well thanks we look forward to seeing you guys next week that’s our show for today i’m will jarvis and i’m will’s dad join us next week for more narratives

Join the discussion

More from this show