Can We Just Let the Markets Work?

 

Back around 1980 or 1981, I was working as a staff auditor for Touche Ross & Co (now Deloitte) on my favorite client, Epicure, a stereo speaker manufacturer in Newburyport, MA. This was my second year working on this account. At the end of the job the senior accountant on the job confided in me that he was leaving the firm; he was joining an upstart telecommunications firm, MCI, as their controller. MCI, he told me, was going to be huge. The only hurdle was the break-up of Ma Bell (AT&T), an inevitable outcome in his mind.

The idea that Ma Bell could fall was unimaginable to me. My father had worked for the phone company for 20 years. I had two uncles and an aunt who worked for Western Electric. Break up the phone company? Why? This just seemed wrong.

Boy was I wrong. In 1984 AT&T signed a consent decree to be broken up into several regional telephone companies. AT&T retained its long distance network, Bell Labs and Western Electric, its manufacturing facilities.

What has transpired since then has been incredible. In 1984 there were no wireless telephone systems and there was no internet. Callers, using analog rotary telephones, paid long distance charges to call neighboring towns, not just states, paying some $0.35-$0.40 (just under a buck in today’s dollars) per minute. Interstate calls varied, but could be as much as $1 per minute or more. Forget about international calls.

What do we pay for telephony today? Almost nothing. Our access to telephony is limitless. The economic value that has been created as a result of the digital communications age brought about by this one anti-trust case has been transformational, as important economically as the industrial revolution. How was this transformation achieved? By removing the monopolistic obstruction that was inhibiting innovation and free markets.

Monopolistic obstructionism cannot exist without government collusion. A similar revolutionary change took place in the airline industry. Prior to the deregulation of the airlines during the Carter Administration, interstate routes and fares were controlled by a federal regulatory board. There were no discount airlines in those days, except perhaps Southwest, which served only Texas. Deregulation changed all that and now flying is both inexpensive, competitive and routine. No, it’s no longer a luxury, but it has never been less expensive, more available and more convenient.

Does anyone remember what shipping was like before UPS and FedEx?

So where are today’s opportunities for free market reform? To find these opportunities, look to highly regulated industries and government sponsored monopolies. Energy is a good place to start; suspect government subsidies and related regulatory distortion should be eliminated and industry regulation moderated. The result, lower energy prices, will benefit all. Certainly health care is ripe for deregulation and government divestiture. The biggest obstacles to that revolution are Medicare and employer plans. Only when folks can choose to use their employer or Medicare dollars to purchase private insurance or direct care will that opportunity be realized. A similar opportunity exists in retirement finance. People need to be able to choose to fund their own retirement savings and opt out of the SSI Ponzi scheme.

We also need a robust and liquid public market for corporate equities and debt. It has become far too expensive and difficult to raise money in the public markets. Too many investments are simply derivatives of other investments and arcane bets on short term price movement. The markets and investment products need to be simplified and access to them needs to be cheap and easy. There are also opportunities in education, transportation, and retail. And don’t forget the federal government’s takeover of college and mortgage lending and its push into commercial lending with the SBA and other loan programs and guarantees. Those are troublesome interventions into the free markets.

Ignore the chattering ninnies and push for deregulation, free market reform and an end to government intrusion into free market commerce. It is and has always been that simple.

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  1. Nanda Panjandrum Member
    Nanda Panjandrum
    @

    Bravo, DK!  Did you mean “SSI” aka “Welfare for Gimps” in my day, or Social Security benefits, in general? Minor quibble.  Have you already written about education in this context? Or, more specifically, the burden of student debt?

    • #1
  2. MLH Inactive
    MLH
    @MLH

    I have an acquaintance who worked for the FCC and was instrumental in the AT&T break-up. The only folks who like a monopoly are thems that have it!

    • #2
  3. Doug Kimball Thatcher
    Doug Kimball
    @DougKimball

    Nanda Panjandrum (View Comment):
    Bravo, DK! Did you mean “SSI” aka “Welfare for Gimps” in my day, or Social Security benefits, in general? Minor quibble. Have you already written about education in this context? Or, more specifically, the burden of student debt?

    SSI has two fake funds; one is for disability and the other for retirement.  They are both “funded” by FICA contributions.  They should be segregated and have different funding sources.  My preference is that both be privatized.  So then, what do we do about people born with disabilities?  I don’t see this as a federal issue; State and local governments, in concert with local charities, should be the ones to provide relief for people with disabilities.  This responsibility should never have been abrogated by the feds.  ‘

    If people choose to remain in the SSI retirement option, their “investment” should be subject to ERISA funding requirements and regulation.  No more lock boxes or pay as you go financing.

     

    • #3
  4. Doug Kimball Thatcher
    Doug Kimball
    @DougKimball

    Nanda Panjandrum (View Comment):
    Bravo, DK! Did you mean “SSI” aka “Welfare for Gimps” in my day, or Social Security benefits, in general? Minor quibble. Have you already written about education in this context? Or, more specifically, the burden of student debt?

    I wrote about student debt here.

    • #4
  5. Nanda Panjandrum Member
    Nanda Panjandrum
    @

    Doug Kimball (View Comment):

    Nanda Panjandrum (View Comment):
    Bravo, DK! Did you mean “SSI” aka “Welfare for Gimps” in my day, or Social Security benefits, in general? Minor quibble. Have you already written about education in this context? Or, more specifically, the burden of student debt?

    SSI has two fake funds; one is for disability and the other for retirement. They are both “funded” by FICA contributions. They should be segregated and have different funding sources. My preference is that both be privatized. So then, what do we do about people born with disabilities? I don’t see this as a federal issue; State and local governments, in concert with local charities, should be the ones to provide relief for people with disabilities. This responsibility should never have been abrogated by the feds. ‘

    If people choose to remain in the SSI retirement option, their “investment” should be subject to ERISA funding requirements and regulation. No more lock boxes or pay as you go financing.

    Ah, I learned something; didn’t know that there was a ‘retirement’ portion here…Agree re: privatization and local control/disbursement for those born with disabilities.  (Though my folks, as a one-income family when I arrived, didn’t qualify for a hand-up because – in the words of the caseworker – I was Caucasian, legitimate, and in an intact family. This was some time before the Feds blundered in, but, fancy that.)

    • #5
  6. MLH Inactive
    MLH
    @MLH

    Nanda Panjandrum (View Comment):
    (Though my folks, as a one-income family when I arrived, didn’t qualify for a hand-up because – in the words of the caseworker – I was Caucasian, legitimate, and in an intact family. This was some time before the Feds blundered in, but, fancy that.)

    Fancy that, indeed!

    • #6
  7. Bill Nelson Inactive
    Bill Nelson
    @BillNelson

    Doug Kimball (View Comment):

    what do we do about people born with disabilities? I don’t see this as a federal issue; State and local governments, in concert with local charities, should be the ones to provide relief for people with disabilities.

    There is a responsibility for the family also. In fact, the primary responsibility is on the family.

     

    • #7
  8. Nanda Panjandrum Member
    Nanda Panjandrum
    @

    Bill Nelson (View Comment):

    Doug Kimball (View Comment):

    what do we do about people born with disabilities? I don’t see this as a federal issue; State and local governments, in concert with local charities, should be the ones to provide relief for people with disabilities.

    There is a responsibility for the family also. In fact, the primary responsibility is on the family.

    True enough, Mr. Nelson: No one knows that better than my hardworking folks did…However, especially in situations like mine/theirs – I was the first, not the only child in my family – a hand-up, for a short period, often helps keep a family afloat and intact.

    • #8
  9. Judge Mental Member
    Judge Mental
    @JudgeMental

    I think education is the big opportunity.  Despite the inclusion of computers in the classroom, the basic model of education hasn’t changed since the 1880’s.  Try to think of another industry where that is true.  And then try to imagine the level of change seen in communications applied to education.

    And on the political side, the easiest way to uproot the teacher’s unions and their undue influence is to eliminate brick and mortar education.

    • #9
  10. Doug Kimball Thatcher
    Doug Kimball
    @DougKimball

    Judge Mental (View Comment):
    I think education is the big opportunity. Despite the inclusion of computers in the classroom, the basic model of education hasn’t changed since the 1880’s. Try to think of another industry where that is true. And then try to imagine the level of change seen in communications applied to education.

    And on the political side, the easiest way to uproot the teacher’s unions and their undue influence is to eliminate brick and mortar education.

    As always, wisdom from da judge.

    • #10
  11. PHCheese Inactive
    PHCheese
    @PHCheese

    No more college. Study on line when and what you want for as long as you like. Let your first employer test you for what you are applying. The employer designs and gives the test.

    • #11
  12. Judge Mental Member
    Judge Mental
    @JudgeMental

    PHCheese (View Comment):
    No more college. Study on line when and what you want for as long as you like. Let your first employer test you for what you are applying. The employer designs and gives the test.

    Or allow non educational organizations to do accreditation.  Pass a series of tests, and you get the degree.  Make it standard across methodologies, so that people going to traditional colleges take the same tests as those who study online.  That would make it a true meritocracy, as opposed to the system we have now where the reputation of the college determines the weight of its worth.  But many colleges shouldn’t have the credibility that they do.  At this point, if you get into Harvard and show up to class, you’ll graduate, because of rampant grade inflation.  Under my system, the most effective teachers win, however they do it.

    • #12
  13. PHCheese Inactive
    PHCheese
    @PHCheese

    Judge Mental (View Comment):

    PHCheese (View Comment):
    No more college. Study on line when and what you want for as long as you like. Let your first employer test you for what you are applying. The employer designs and gives the test.

    Or allow non educational organizations to do accreditation. Pass a series of tests, and you get the degree. Make it standard across methodologies, so that people going to traditional colleges take the same tests as those who study online. That would make it a true meritocracy, as opposed to the system we have now where the reputation of the college determines the weight of its worth. But many colleges shouldn’t have the credibility that they do. At this point, if you get into Harvard and show up to class, you’ll graduate, because of rampant grade inflation. Under my system, the most effective teachers win, however they do it.

    It wouldn’t be a degree the first employer would worry about. It would be knowledge, the kind of knowledge the employer would be looking for not what an accreditation board would cook up. Did you know it is illegal to  administer an IQ test to a prospective employee? There are ways but this is crazy. Traditional college is dying. The business model doesn’t work for the middle class any longer.

    • #13
  14. Judge Mental Member
    Judge Mental
    @JudgeMental

    PHCheese (View Comment):

    Judge Mental (View Comment):

    PHCheese (View Comment):
    No more college. Study on line when and what you want for as long as you like. Let your first employer test you for what you are applying. The employer designs and gives the test.

    Or allow non educational organizations to do accreditation. Pass a series of tests, and you get the degree. Make it standard across methodologies, so that people going to traditional colleges take the same tests as those who study online. That would make it a true meritocracy, as opposed to the system we have now where the reputation of the college determines the weight of its worth. But many colleges shouldn’t have the credibility that they do. At this point, if you get into Harvard and show up to class, you’ll graduate, because of rampant grade inflation. Under my system, the most effective teachers win, however they do it.

    It wouldn’t be a degree the first employer would worry about. It would be knowledge, the kind of knowledge the employer would be looking for not what an accreditation board would cook up. Did you know it is illegal to administer an IQ test to a prospective employee? There are ways but this is crazy. Traditional college is dying. The business model doesn’t work for the middle class any longer.

    I’m just saying the testing idea is more effective if you can hire someone else to do the testing.

    • #14
  15. Bigfoot Inactive
    Bigfoot
    @Bigfoot

    Doug Kimball: Prior to the deregulation of the airlines during the Reagan Administration, interstate routes and fares were controlled by the FAA.

    Minor correction: Airline deregulation was enacted in 1978 under Carter

    • #15
  16. RushBabe49 Thatcher
    RushBabe49
    @RushBabe49

    Doug, you missed a big one, Agriculture.  No more government price-fixing, quotas,  purchases of “excess” commodities, or import/export restrictions.  Let every farmer make his or her own alliances and business decisions.  Maybe even privatize food/commodity inspection-require it and let the market provide expert inspectors.

    And another big one-Information.  Have the private sector provide labor statistics and every other kind of market information.  Big companies already do that so the infrastructure is already there.

    • #16
  17. Nanda Panjandrum Member
    Nanda Panjandrum
    @

    RushBabe49 (View Comment):
    Doug, you missed a big one, Agriculture. No more government price-fixing, quotas, purchases of “excess” commodities, or import/export restrictions. Let every farmer make his or her own alliances and business decisions. Maybe even privatize food/commodity inspection-require it and let the market provide expert inspectors.

    And another big one-Information. Have the private sector provide labor statistics and every other kind of market information. Big companies already do that so the infrastructure is already there.

    That just means more posts, RB…Method at work here, methinks; patience, ma’am. :-)

    • #17
  18. RufusRJones Member
    RufusRJones
    @RufusRJones

    What you guys are leaving out is, our system is based on statist-inflationism.  We have been doing this since Woodrow Wilson. Now technology and globalized labor is creating massive wage deflation and more efficient  utilization of resources. Deflation. Well, there are a million things propped up by the presumption of inflation and endless debt growth. Taxes end up getting funded by printed money, ultimately. The government. The political system. People’s homes. The financial system. The insane overhead and graft in education. The medical system.

    Prior to the invention of modern central banking, human beings always lived under slightly deflationary conditions, instead of asset bubbles and the supposed 2% inflation rate.  It’s not normal.

    People want Trump and Bernie for good reason.

    This will end the hard way.

    Get David Stockman’s book.

    The Truth 

     

    • #18
  19. RufusRJones Member
    RufusRJones
    @RufusRJones

    In other words, if we did all the right things there would be a massive global depression.

    • #19
  20. I Walton Member
    I Walton
    @IWalton

    If people don’t understand markets and what they do it seems impossible to make arguments or policy proposals that require them.  I think we, especially economists, don’t do a lot to help.  And of course real understanding is not in the interest of politicians or organized interests on K street.   Our side put greed at the top evolving from utility maximization which was adopted to be able to use calculus.  Then we learned that we could just maximize  binary choice, which is basically how we all go about life whether in markets or anything else.  Get out of bed don’t get out of bed, eat breakfast don’t, eat this I have or that, go out.  That’s just the way all life works.  It’s not complex and it doesn’t need math or models to understand or greed, or even self interest, just stumbling through life not maximizing anything works just fine.  Dr. Sowell and a few others have written really good basic books, but the folks who need to read them don’t read, at least not that sort of thing.   We need more cartoon characters making points and people telling real stories to compete with the false world progressives put out there.  We all understand about the holocaust because survivors, decedents, witnesses told the story.  Where are the stories about  life in Cuba  the Soviet union,  China, Cambodia, Venezuela?   We need  true stories about our own government, instead of the constant propaganda where our caring politicians and officials are heroic super competent, normal people really dumb, business all evil.   There are some like Yes Mr. Minister,  but it seems most folks who write fiction tell different kinds of fantasies.  Even House of Cards while showing real evil, put forth a view that really smart people can control impossibly complex events.  They can’t.  That’s the point.

    • #20
  21. Songwriter Inactive
    Songwriter
    @user_19450

    I Walton (View Comment):
    Even House of Cards while showing real evil, put forth a view that really smart people can control impossibly complex events. They can’t. That’s the point.

    A huge point, thank you. A really huge point.

    I think it was Thomas Sowell who said that the smartest person in the world isn’t as smart as the cumulative wisdom of the people.

    • #21
  22. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    The health care reform “biggest obstacles to that revolution are Medicare and employer plans”- not, as an SNL character would say.  Emphatically not.  The obstacles are the cost of care- which is propped up by government.

    Government limits competition in drug sales via the FDA even where the chemical entity is no longer under any patent limitation whatever, it protects hospitals from competition via the “certificate of need” process, and it limits low cost care by the state medical licensing processes.  In each case, regulatory capture is a major factor.   The GOP-dominated “Doctors Caucus” is as shameful a group of rent-seekers as there is around Congress and state legislatures.  Finally, yes, it props up the prices by its schedules of fee-for-service prices paid by government, despite the easy replacement of much of diagnostics by information technologies.

    Health care will not be affordable till government goes broke paying for it.

    • #22
  23. Steven Seward Member
    Steven Seward
    @StevenSeward

    I Walton (View Comment):
    If people don’t understand markets and what they do it seems impossible to make arguments or policy proposals that require them. I think we, especially economists, don’t do a lot to help. And of course real understanding is not in the interest of politicians or organized interests on K street. Our side put greed at the top evolving from utility maximization which was adopted to be able to use calculus. Then we learned that we could just maximize binary choice, which is basically how we all go about life whether in markets or anything else. Get out of bed don’t get out of bed, eat breakfast don’t, eat this I have or that, go out. That’s just the way all life works. It’s not complex and it doesn’t need math or models to understand or greed, or even self interest, just stumbling through life not maximizing anything works just fine.

    What a wonderful post!  I didn’t understand a thing you said, but it looks good!

     

    • #23
  24. Doug Kimball Thatcher
    Doug Kimball
    @DougKimball

    RushBabe49 (View Comment):
    Doug, you missed a big one, Agriculture. No more government price-fixing, quotas, purchases of “excess” commodities, or import/export restrictions. Let every farmer make his or her own alliances and business decisions. Maybe even privatize food/commodity inspection-require it and let the market provide expert inspectors.

    And another big one-Information. Have the private sector provide labor statistics and every other kind of market information. Big companies already do that so the infrastructure is already there.

    Nice catch!

    • #24
  25. Doug Kimball Thatcher
    Doug Kimball
    @DougKimball

    Duane Oyen (View Comment):
    The health care reform “biggest obstacles to that revolution are Medicare and employer plans”- not, as an SNL character would say. Emphatically not. The obstacles are the cost of care- which is propped up by government.

    Government limits competition in drug sales via the FDA even where the chemical entity is no longer under any patent limitation whatever, it protects hospitals from competition via the “certificate of need” process, and it limits low cost care by the state medical licensing processes. In each case, regulatory capture is a major factor. The GOP-dominated “Doctors Caucus” is as shameful a group of rent-seekers as there is around Congress and state legislatures. Finally, yes, it props up the prices by its schedules of fee-for-service prices paid by government, despite the easy replacement of much of diagnostics by information technologies.

    Health care will not be affordable till government goes broke paying for it.

    I disagree.  There is much to deregulate here, but until people make their own economic decisions, that is control the purse strings, there can be no real market.

    • #25
  26. Chris Gregerson Member
    Chris Gregerson
    @ChrisGregerson

    Yeah!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    • #26
  27. I Walton Member
    I Walton
    @IWalton

    Steven Seward (View Comment):

    I Walton (View Comment):
    If people don’t understand markets and what they do it seems impossible to make arguments or policy proposals that require them. I think we, especially economists, don’t do a lot to help. And of course real understanding is not in the interest of politicians or organized interests on K street. Our side put greed at the top evolving from utility maximization which was adopted to be able to use calculus. Then we learned that we could just maximize binary choice, which is basically how we all go about life whether in markets or anything else. Get out of bed don’t get out of bed, eat breakfast don’t, eat this I have or that, go out. That’s just the way all life works. It’s not complex and it doesn’t need math or models to understand or greed, or even self interest, just stumbling through life not maximizing anything works just fine.

    What a wonderful post! I didn’t understand a thing you said, but it looks good!

    I guess that’s part of the point all the models stuff, and math and calculus to maximize doesn’t really lead to understanding.

    • #27
  28. RushBabe49 Thatcher
    RushBabe49
    @RushBabe49

    Basically, those who run the government and get the government involved in all these areas do not trust the people to make their own decisions in any area of their lives.  Government always knows better, and denigrates the intelligence and abilities of the People.  The Left is the worst at this Elite vs Peons game.

    • #28
  29. RightAngles Member
    RightAngles
    @RightAngles

    PHCheese (View Comment):

    Judge Mental (View Comment):

    PHCheese (View Comment):
    No more college. Study on line when and what you want for as long as you like. Let your first employer test you for what you are applying. The employer designs and gives the test.

    Or allow non educational organizations to do accreditation. Pass a series of tests, and you get the degree. Make it standard across methodologies, so that people going to traditional colleges take the same tests as those who study online. That would make it a true meritocracy, as opposed to the system we have now where the reputation of the college determines the weight of its worth. But many colleges shouldn’t have the credibility that they do. At this point, if you get into Harvard and show up to class, you’ll graduate, because of rampant grade inflation. Under my system, the most effective teachers win, however they do it.

    It wouldn’t be a degree the first employer would worry about. It would be knowledge, the kind of knowledge the employer would be looking for not what an accreditation board would cook up. Did you know it is illegal to administer an IQ test to a prospective employee? There are ways but this is crazy. Traditional college is dying. The business model doesn’t work for the middle class any longer.

    I read of this in The Bell Curve. It’s incomprehensible to me. Let companies have whatever hiring criteria they please.

    • #29
  30. I Walton Member
    I Walton
    @IWalton

    RightAngles (View Comment):

    PHCheese (View Comment):

    Judge Mental (View Comment):

    PHCheese (View Comment)

    Econ talk had an interview on learning by doing last year, Besson in think.   What we learn on the job, or in summer jobs, or in internships is what actually adds value to employees.  The Japanese don’t even want their new employees to have learned much in college.  They want them to have bonded with their peers so that they’ll have contacts throughout key public and private bureaucracies.  What matters is that they did well in their SAT’s from hell.  They’ll learn what matters on the job.   The best lecturers in the world are and can continue to be made available on line.   Who knows what some clever people will come up with in an age when continuing education is essential.    What’s clear is that most universities no longer add much value that can’t be made available for a tiny fraction of the price.  The signaling role elite Universities perform should be easy to replicate at a fraction of the cost.   Like every thing else just get  governments out of the wary and it will happen.  We just can’t be sure exactly how.

    • #30
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