Tuesday, November 25, 2008

Siggy gets a follow up question

In a comment to zis post, vell, it's the za next-to-last post, so you can just scroll down, boys and girls, za Tommy asks zis:

Siggy, it seems to me that when a corporation is allowed to become "too big to fail," the Feds were ignoring anti-trust laws.

Ach! Zat Tommy! First he wants za Siggy to be za astronomer, zen za economist, and now za anti-trust lawyer. But Ziggy will give it a zhot.

Zere have been za attempts to break up za companies as monopolies for just being big.

But it zemes to Siggy zat za dominant view is zat being big alone does not make za company a monopolist. Zere are zome tings no company is supposed to do (price fixing with other companies, for example), and zere is a bigger list of za no-nos for a company that ist dominant (zere's zat word again) in it industry.

*  *  *

Spot here. Siggy is tired, so he asked ordinary Spot to finish up.

Being a dominant player in an industry does not make you a monopolist, per se; it obviously makes it is easier for you to act like one. But both IBM and Microsoft maintained vehemently that they didn't violate the Sherman Act just by getting - make that being - really, really big. And they're almost certainly right.

The more interesting question to Spot, and it's a policy matter, not a legal one, is where laissez faire capitalism is headed. When even free-market evangelicals like Alan Greenspan, Hank Paulson, and Ben Bernanke head for the government hills, you know something is afoot.

When one looks around the world today, you can see a rise of sovereign wealth funds, state trading companies, government-controlled commodity markets (think of the wheat regimes in Canada and Australia, for example), oil cartels, and state capitalism, among other forms of mercantilism. And in some cases, the US has been pretty handily out maneuvered.

Kevin Phillips, to whom Spot has referred often, says that the US may have decided that the financial sector was going to be its bread and butter, where our economy would shine; consequently we didn't pay much attention as the nation's industrial base eroded over the last couple of decades. And a lot of foreigners - banks, pension funds, etc. - as well as the locals did buy a lot of fancy financial products from that "industry."

Now, of course, everybody - including the aforesaid foreigners - is/are a little leery now of what the US financial "industry" has to sell.

So, back to the main point. If US policy was a form of financial mercantilism, as Kevin Phillips suggests, it has come a cropper, which is too bad, because financial services are now a quarter of the economy. We're just starting to wake up to the fact that we are not nearly as wealthy as a nation as we thought we were.

It is becoming more clear that there are some issues that laissez faire capitalism may not be up to solving: energy independence and global climate change are just a couple that come to mind. Market responses are just too slow, too weak, and too late. Planning ahead is what is needed, as is investment with a payout much too slow for a financial market. That means involving the dad gum gummint, but we don't have a lot of choice; that's Spot's opinion, anyway.

The "creative destruction" that Milton Friedman, may peace be upon him, David Strom, and Craig Westover seem so fond of, can be, and is, if the stakes are high enough, just destruction. It seems like lunacy to Spot to rely entirely on a Holy Spirit called the Invisible Hand, dreamed up by an eighteenth-century Scotsman. It reeks of religious fervor, but that's a subject for another day.

Spot says that we have to start seeing the federal government as something other than a target of blood sucking and plunder, but that is going to be difficult, given the abuse that conservatives have heaped on elected officials, the civil service, and the entire notion of the public good.

There are a lot of dogs smarter than Spot who think we're in for a really rough patch. Perhaps that's the only way these lessons can be learned.

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