Hacker News new | past | comments | ask | show | jobs | submit login
Too Many Companies Drain Value from the Economy (bloomberg.com)
397 points by pseudolus 4 months ago | hide | past | web | favorite | 293 comments



Regulations are a double-edged sword and serve many lords, just like most actions of government. It's possible for the same regulation to vastly decrease the risk of harm to consumers, yet act as a barrier to entry for smaller players. This can happen both intentionally and unintentionally. It also doesn't help that drafting effective regulations requires domain expertise, so the field is vulnerable to infiltration by industry to further their own ends. Then there's the sort of regulations that account to little more than elaborate CYAs, or data collections for some governmental official's pet project.

On the other hand, it's bewildering to think that every area of life has been subject to so much regulatory capture (in dozens of jurisdictions nonetheless) that the year 2000 formed a tipping point of corporate profits in the US. Half of the years have been under administrations more friendly to mergers, so the vertical consolidations in the style of CVS-Aetna or Cigna-Express Scripts could have gone on to become a tool for deep-pocket entrants to enter heavily-regulated markets. Instead, horizontal consolidation mergers like GlaxoSmithKline and Pfizer-Wyeth dominated. Don't forget AOL-Time Warner, Comcast buying AT&T Broadband, or the saga where SBC bought Ameritech and then the remnants of the original AT&T, renamed itself to AT&T, and then bought BellSouth too. Or any number of big bank mergers. Or oil companies.

So, it seems instead of entering new markets during a time of favorable regulatory environment, companies chose to buy out competitors instead, lay off a bunch of newly-redundant staff, and pocket the profit. Hmm.


You mention an excess of mergers over the decades which reminds me of a new problem with the inverse: anti-trust enforcement.

It appears that anti-trust, which was rare to begin with, may now have been politicized.

For example, it's hard to understand why favoritism is shown to ISPs yet effort is put into breaking up large software companies. Especially in light of the difference in campaign contributions in 2018.


"May now have been politicized"? Anti-trust has been politicized for a long time. It just seems like it's politicized now, because it's our companies which are being targeted. When the Obama-era Justice Department prevented the T-Mobile/Sprint merger, that was considered to be a just and fair application of anti-trust law, but somehow when the same scrutiny is applied to Google and Facebook, that's considered "politicization".

To be clear, I'm don't disagree with the Obama Justice Department's blocking of the Sprint/T-Mobile merger. Such a merger would certainly have reduced the competition in wireless markets, and would probably have led to higher prices and poorer service. But it's hard to characterize the decision to pursue telecom companies (while ignoring big tech) or the reverse (pursuing big tech while ignoring telecoms) as anything but political.


> When the Obama-era Justice Department prevented the T-Mobile/Sprint merger

Wasn't it the ATT/T-Mobile merger? Which is a bit different from T-Mobile/Sprint in various aspects.


A fair person would consider that the political leverage possessed by companies like Facebook or Twitter to be an issue irrespective of what political party they supported. Surely the fact that multinational corporations such as these are able to work together with domestic political organisations to serve their own interests while being able to evade enforcement of domestic laws is an issue. The unpopularity of the Trump administration notwithstanding, they have a clear reason to want to push in this direction. I can't imagine the Democratic party being quick to act on this issue for the time being, since ostensibly the overreach of these organisations is working in their favor.


Politisation or polarisation is not the issue. The issue is regulatory capture, which American ISPs have heavily invested in. In other words: corruption.


How on earth could anti-trust ever be non-political? And why would that be desirable? Surely the very action of putting the idea of splitting up a company out there is a political one.


The customer/user POV is not the point.

"Political" means that companies can avoid AT action by buying off politicians with campaign contributions, lobbying, and other forms of plutocratic and anti-democratic influence.

The political question is who gets targeted for action, who doesn't, and why.


Anti-trust enforcement was always going to be a political weapon due to the highly discretionary and interpretive aspect of who is truly a bad actor.


> So, it seems instead of entering new markets during a time of favorable regulatory environment, companies chose to buy out competitors instead, lay off a bunch of newly-redundant staff, and pocket the profit. Hmm.

You say favorable regulatory environment, but favorable to who? If you have a bunch of regulations that make it hard to start a new ISP and compete with the incumbents, but also get rid of the ones that prevent them from buying each other, it's hard to call that "deregulation" rather than regulatory capture.


> You say favorable regulatory environment, but favorable to who? If you have a bunch of regulations that make it hard to start a new ISP and compete with the incumbents, but also get rid of the ones that prevent them from buying each other, it's hard to call that "deregulation" rather than regulatory capture.

Can you point to a non-hypothetical example of the former?


The one that comes to mind is the airline deregulation of the 1970s. It phased out one regulatory body without institution of new powers upon the others.

https://en.m.wikipedia.org/wiki/Airline_Deregulation_Act


I'm not sure what you're talking about. Airline deregulation didn't make it harder to start a new airline--to the contrary, lots of new airlines were started after deregulation.


> Can you point to a non-hypothetical example of the former?

Build-out requirements that prevent small ISPs from forming to serve only a specific neighborhood.


Fair enough, but an odd one to cite in the context of the point above regarding "favorable regulatory environment." I assumed you were talking about something in the federal law. State and municipal law has never been favorable to anything.


Hmm, what about the US prohibition for municipal utilities to provide network service and compete on the micro local level?


First, there are no such prohibitions at the U.S. (i.e. federal) level. Some states have such laws.

Second, that is a poor example of regulations that "make it hard to start a new ISP and compete with the incumbents." Presumably, that's talking about upstart private competition. What you're saying is the opposite. Government entities or government-sanctioned monopolies (like the local power or water utility) don't in any sense "compete" with the private sector. They displace it. If you're a startup ISP, you can't hope to compete with say the local electric utility, which can make large capital investments in network service and recover from captive electricity rate payers.

As an aside, the idea of government entities "competing" is a weird new brand of rhetoric (you also see it with the "public option"). I'm not sure where it comes from, but it makes no sense. If you're a New Deal liberal and believe government would do something better than the private sector, then own that. Don't pretend like private companies can meaningfully compete with an entity that doesn't have to turn a profit to stay in business.


Well, I’m European... and especially with all the commotion about Ajit Pai, excuse me if I conflate the US federal institution with individual states...

Second, in this case I remember reading of private monopolies arguing against municipalities threatening to roll out their own networks, exasperated by the poor service provided by the private sector.

Over here, I enjoy the “Fruits of Socialism” (while they last) where private service providers have to co-own the infra and complain about regulators keeping a relatively open eye on them ;)


I really wish discussions about how regulations protect the consumer didn’t start with the assumption that there was no better option than government regulation to afford that same protection.


> the assumption that there was no better option than government regulation to afford that same protection.

What other options are there? Letting the market "solve it" is not an option because the incentives are not aligned and market actors are not rational.


> and market actors are not rational.

In addition, it is worth understanding that it is not sufficient for most market actors to be rational. Because even if you have a single irrational actor, game theory takes over and everyone starts acting irrationally in an effort to not get crushed.


That doesn't make sense to me. If an "irrational" strategy, applied by an individual, can beat the market, that strategy is in fact rational. What you may be referring to is Brad De Long's "The Economic Consequences of Noise Traders" [1], which seeks to create a model to explain why "the market can remain irrational longer than you can stay solvent". Note, though, even in De Long's paper, it's never a single "irrational" investor driving rational investors out of business. Instead, there are large number of noise traders, whose random trading patterns cause markets to fluctuate wildly, depleting the capital stocks of the rational investors, and driving them from the market. The result is entirely dependent on the rational investors having less capital than the noise traders, which certainly wouldn't be the case in a market full of rational investors, with one noise trader.

[1]: https://www.nber.org/papers/w2395


That only works if you assume that "rational" means "make as much as money as possible in the shortest possible time while ignoring any externalities."

Labelling that kind of behaviour as rational is a neat rhetorical trick. But by any objective standard of ethics - or even realistic expectations of medium-to-long-term survivability - it doesn't meet any of the standards required for rational action, any more than any other hoarding behaviour does.

And there's the post-financial view that the real benchmark for rationality isn't competitive acquisition but maximisation of personal and collective opportunity - which is something that markets consistently fail at. (Although again the stock rhetoric claims otherwise - typically with selective interpretation of the available evidence.)


How can one be a rational trader without an effecient market?


Not to mention information, time, value, and resource asymmetries. Or externalities.


We constantly have a discussion as to the other options.

They just keep failing.


>better option than government regulation to afford that same protection

What do you have in mind?


I think Uber vs the SF taxi commission is one such example.

Regulations on taxis were sold as a public safety measure but the regulators became captured by the industry.

Uber and Lyft sidestepped the regulations and prices went down, service improved dramatically, and there was no reduction in safety. (In fact, it’s likely drunk driving has gone down and improved public safety.)

In this instance, private industry is currently a better regulator than the regulators were.


> Uber and Lyft sidestepped the regulations and prices went down, service improved dramatically

Technically neither of those is a failure of regulation, those are side effects of regulation.

Uber and Lyft removed transparency of costs beyond knowing the cost of your trip for instance which isn't a benefit.

In fact I can't think of much that is related to regulation that they do better beyond being good enough for now by most metrics that people care about. Of course if that changes in the future nothing can be done.

I am fine with Uber and Lyft existing and I do agree that taxis had in some places made themselves into a nuisance but I don't know that those companies did a better job as much as they just ignored all those problems and assumed they weren't important.


> I am fine with Uber and Lyft existing and I do agree that taxis had in some places made themselves into a nuisance but I don't know that those companies did a better job as much as they just ignored all those problems and assumed they weren't important.

Please, the taxi companies have been decimated world wide. Its absolutely clear that people are way happier working and consuming Lyft/Uber services.


I am very happy the Uber were kicked out of where I live. Some governments had the courage to stand up to them.


Against the interests of riders and drivers.


>Uber and Lyft removed transparency of costs beyond knowing the cost of your trip for instance which isn't a benefit.

That's the only cost that matters isn't it? And the cost that taxis wouldn't provide a quote for until service was rendered.


This is a good example, but: have you ever dealt with airport car ride hustlers? This is what the alternative to taxi regulations looked like before smartphones enabled solutions like Uber.

Furthermore: Is there a general principle here that can be applied across a range of situations as a better alternative to government regulations?


And guess what, Uber is just subsiding rides to capture market share. With a monopoly, they'll be worse than the airport ride hustlers.


This is not a particularly compelling article.

First, it shows that corporate profits fluctuate between 5-10% of GDP since 1947? The article paints that as "less for everyone else"--but it seems like a lot for everyone else.

Second, it cites a study, but then immediately admits it "should be taken with a grain of salt" because it refers to a hypothetical model without necessarily connecting it to the actual economy or ruling out alternative explanations. But then it proceeds to take the assumption that corporations are "extracting economic rents" as a given.

It cites the decline in labor share of income: https://www.kansascityfed.org/~/media/images/publications/re.... It tries to link that to rent extraction, but the timing is peculiar: https://www.mckinsey.com/featured-insights/employment-and-gr....

Given the narrative of rent extraction, you'd expect the declines in labor share of income to have happened during the long period of deregulation, reduced antitrust enforcement, etc., starting in the 1970s. But labor share of income was 65% in 1950, and 63% in 2000. It's 57% today, and the vast majority of the decline happened in the last two decades.

Most of the decline is the result of a handful of sectors: https://www.mckinsey.com/featured-insights/employment-and-gr.... Half of them are ones where technology has turned workers into commodities, like retail, or where technology enables massive productivity without much labor, like internet or software.


The Tobin Q measurement mentioned in the article is also suspect:

> But in most industries, economists Germán Gutiérrez and Thomas Philippon believe, this process has broken down. In a new paper, they attempted to measure how much new business entry responded to the market opportunity available in an industry. Gutiérrez and Philippon used a measure called Tobin’s Q, which represents the ratio of a company’s market value to the book value of the company's assets. When Q is high, it should mean that new competitors have an opportunity to come in and take some of the profits in that industry, thus reducing existing companies’ price premium and bringing Q down. Indeed, the authors found that this was common up until the late 1990s. But after 2000 -- right around the same time that profits started to rise to unprecedented levels -- the relationship broke down. High Q levels no longer seem to attract new market entrants.

It's the ratio of market value to book value. Hasn't book value become less reliable in the age of software? They mention 2000 as the somewhat mysterious starting point of unprecedented profit levels. Doesn't seem so mysterious if 2000 was when companies starting adopting technology more intensively.


I would guess it has something to do with intangible assets linked to fad usage. There are ten thousand people that could made a usable clone of Instagram in a day but none of them would likely come close to competing.

Untrue if you're entering say the car repair, grocery stores, heavy machinery, food production, etc etc.

So many days business are branded and everything that isn't has had it's margins shrunk to zero. You can't drop in replacements for FAANG or Microsoft or a whole lot of consumer products because they aren't and can't be commodities as they have set themselves up as walled gardens.

Good for business, investors, and valued employees. Bad for consumers.

Lack of interoperability or replacibility is the monopoly of the 21st century and when we get past it we'll be in the beginnings of a post scarcity economy.


They're not just walled gardens - they're choke points on important global data flows, and silos for distilled intelligence that can be abstracted from those flows.

Closed Data - controlled by monopolies, and generated by the enclosure and privatisation of user activity - is far more of an issue than Closed Source ever was.


Yes. Book value does not account correctly for the value of intangible assets. Tobin's Q works if entering the market is about building plants and so on, but not when the moat is an asset that is not measured.


> labor share of income was 65% in 1950, and 63% in 2000. It's 57% today

How much of that is due to robots doing more work? Modern solutions like mostly automated server farms, factories and warehouses generates quite a lot of value. Who enjoys the fruits of robot labor? The people who owns the robots. Robots are not means of production, they don't make people more efficient, they just replaces people.

Example: we replace all cashiers at McDonalds with robots, does that make every other worker more productive? No. The people who own those robots reaps the profits. Can't the workers strike to get better wages now that there is more profits to go around? No, we happen to have a lot of newly unemployed cashiers who would gladly take your job from you!


>Given the narrative of rent extraction, you'd expect the declines in labor share of income to have happened during the long period of deregulation, reduced antitrust enforcement, etc., starting in the 1970s.

The point of this article is to complicate that very narrative by identifying how increased regulations actually serve the interests of concentrated wealth.


That McKinsey article was a great read. Thanks for taking the time to share it.


Observing this American debate from Norway, one of the supposed big government types of countries, I notice an inability to distinguish the size of a government in terms of employees and taxes on one side and the complexity of the legal system and regulations on the other side.

Norway as many other Nordic countries have high taxation levels and many government employees, but this is primarily because education and health care and a lot of child care is run by the government. It does not imply a larger bureaucracy.

However this does not stop us from having efficient and simple government. We have much simpler tax code than the US e.g. Despite health care being public, our health care bureaucracy, regulations and rules are much simpler.

You actually need some regulations to stop complex regulations from creeping in. E.g. we have strict rules regarding political advertisement and campaign contributions which means money is not an important thing in Norwegian politics. Consequently politicians are not bought and we have much less of this business initiated regulations and red tape that the US has.

Yet we have stronger regulations with respect to workers rights, unions, environment etc. But that does not mean it is more complex.

Having a "bigger government" does not necessarily mean a more complex one. In fact it often reduces complexity by setting more common standards.


The US has 60x the population of Norway on 25x the land.

Honest question: given what you know about politics in Norway, do you personally believe Norway’s complexity reduction through agreement on common standards can scale to a country the size of the US?

Could 60 Norways mutually agree on common standards?


The US is a federation of 50 states and in theory is highly liberal. Therefore at most your example should scale at the state level. As most states have fewer inhabitants than Norway then I don't see your point.


People always bring out the population or area size of the US as an excuse against why we can't try to do better.


I think people bring out the population or area size in order to explain where facile comparisons fall down. Scale matters.


This fictional scaling problem makes as much sense as correlating the effect of some public policies on the height of the political leader or average temperature. It's a silly scapegoat that makes no sense at all.


There’s no point for you to see. I asked a question: whether the original poster could see the political climate in Norway realistically scaling.

Maybe they’ve figured out something we in the US haven’t.


The case for this hypothetical scaling problem is baseless and absurd. It's a silly scapegoat. That's it.


Until Citizens United is repealed there is little hope for anything resembling the arrangement which you describe.


> E.g. we have strict rules regarding political advertisement and campaign contributions which means money is not an important thing in Norwegian politics. Consequently politicians are not bought [...]

This is not true if Norway is anything like Germany. A few years ago the German government commissioned a study on the public's influence on policy.[0] It concluded decisively that political decision making aligned the closest with the wants of the wealthiest while there was even a negative trend with regards to the poorest in that policies favored by a majority of them were especially unlikely to be enacted. Europe isn't as insane as the US in that regard but that's not a high standard.

[0]: https://www.bmas.de/SharedDocs/Downloads/DE/PDF-Publikatione...


> Consequently politicians are not bought

There's zero chance of this being true, even despite strict campaign contribution regulations. Arguably, it makes buying politicans more effective because corrupt people can easily skirt the rules "i.e. getting groups of people to donate on your behalf", etc.

Of course corrupt people will always try to skirt the rules and rig the game in their favour, so the harder you can make it the better. And strict campaign contribution rules are definitely better than not having them there, but to suggest that no Norwegian poltiicans are bought is absurd to the point of naivete.


How do you take the money out of politics?


This is the key problem right here:

"They also found that lobbying expenditures in that industry are correlated with increased regulation, higher profits and lower entry. Unsurprisingly, they found that lobbying and regulation tended to keep out smaller companies to the benefit of larger ones."


This is one of those unfortunate situations where the the problem is clear, but the solution isn't, and proposed solutions can always be attacked from either end of the extreme perspectives. So we get stuck with semi-dysfunctional regulatory bodies at best, and captured extensions of corporate interests passing anti-competitive regulations at worst.


The solution is clear.

Regulatory bodies need to take into consideration size, age, and frequency of violation by the regulated in terms of exacting punishment on new entrants.

For instance; BigFin fintech company gets caught violating Anti-Money Laundering regulations. Big fine.

SmallFin fintech gets caught: slap on the wrist, thou shalt make a remediation plan, and here are the milestones you have to meet.

SmallFin continues doing business, but is on the regulators radar.

SmallFin caught again? Fine.

Now. Let's say SmallFin dissolves, but the key players move and incorporate as YetAnotherSmallFin (different Corp, mostly same people). Get caught? Regulators should look at the people who have been dinged before, and should know better, and regulation should be less forgiving based on that.

The fact is, a great deal gets hidden under "the Corporate Veil" that probably shouldn't be so easily divested from by those looking to abuse the system.

A regulator should by and large be a constructive guiding hand; not just ssmern as something to be worked around in the process of finding new and interesting ways to do shady things.

The catch here is you need to be able to attract high quality people to run the regulator, and I really have no solution for that.


In reality:

Little company Uber flaunt the law until it becomes big company Uber that can afford its own lobbiests.


Hate to nitpick (that's a lie), but the word is flout.

I think Uber is interesting in that they actually did offer a superior technological solution to a social problem (driver and rider safety and trust), which is usually doesn't work since social problems are messy. I think this is why their "ask for forgiveness, not permission" strategy paid off in most markets - the people wanted them to win.


The solution to excessive regulation is less regulation, not more. These things tend to backfire.


The fix for bad regulation to poor effect is good regulation to beneficial effect.

"Excessive" and "less" are not synonyms for "bad" and "good".

This isn't about quantity, it's about quality.


Yes, but also no.

One of the big problems is that regulations are immortal. They get passed and never repealed. This causes two problems. First, they don't go away even if they're bad. Second, they accumulate. That's especially problematic for bad regulations, but it's even a problem for good regulations. If you have a boat with five tons of idle carrying capacity and you decree that it carry four tons of the king's freight, all is well and there is a net benefit produced. But if you decree that it carry eight tons of the king's freight, it sinks.

So if you want to add new rules, you need to find some old ones to take back out. And you should be uniquely careful what you add to begin with, because every one has an opportunity cost, and even bad rules are sticky.


We rarely net delete/discard shitty software either. But we could. There's no fundamental reason.


Shitty software can be ignored without being deleted. Hard to ignore shitty laws.


There is such a thing as sunset provisions, though they are not applied as regularly as one might hope. Laws are not of necessity eternal.

https://en.wikipedia.org/wiki/Sunset_provision

Though yes, that is a legitimate issue.


That might actually help if it was the default, e.g. you need a large supermajority or unanimity to pass a law that lasts more than five years.


Right. An alternative might be retroactive reviews or jubilees.

Other forms of legislative garbage collection carry high costs and side effects.


I think everyone understands that regulations are written by the highest bidder. If not at first, then over time.

Some people think that can be fixed, get money out of politics and then good regulation can exist in the long run. Others do not think that's possible, so it's better to remove the power from government altogether, because over time it will always be bought.


I don't think you're describing a solution.

Saying that if something is bad, you should try to make it good is just restating the problem.


My goal wasn't to point out a specific regulatory solution.

My goal was to highlight an exceedingly tired and bogus argument.


The sharp dividing line here is between those (A) who think "we just need to get the regulations right the next time", and those (B) who think that is inherently impossible, based on Public Choice theory, experience and/or general cynicism.

To us from school (B), the school (A) thoughts are hopelessly naive, but it's impossible to convince anyone of our wisdom who hasn't found it on their own, and it just comes across as infuriating "you'll understand when you're older" condescension.

And so life goes on :)


Thank you for that, I have said exactly the same thing many times.


The solution to (toothless, deliberately ineffective) regulation (built by lobbying and incumbents) is not less regulation, it's regulation not constructed by vested interests.


That's not a solution, it's just a contrapostive.

The solution is to change/improve the system that is creating the regulations. There will almost definitely be new regulations involved in doing this.

I don't see how a system that creates excessive regulation can be expected to constructively par down that regulation without significant changes to that system.


That may be true (I tend to agree) but it is just as hard to implement. It's not a magic bullet.


Deregulation of the financial sector has caused several major financial crashes.


Seems like the regulatory bodies don’t actually function to protect the consumer, but rather to protect the interests of the corporations that lobby. A good example of this is the telecom industry.


regulatory capture is often just a rational response from a corporation once it gets to a certain size. the value add of $1 dollar of lobbying/capture efforts goes farther than $1 in R&D or whatever after a certain point.

https://en.wikipedia.org/wiki/Regulatory_capture


If that was true, companies wouldn’t spend so much on R&D and so little on lobbying. Boeing is one of the top lobbying companies. Last year it spent $15 million on lobbying. It spent $5 billion on R&D. (It probably spent more on office entertainment, Christmas parties, retirement parties, etc., than lobbying.)


1. I really appreciate when people try reality check claims. Thanks!

2. I have to think that a lot more money and effort is expended trying to influence regulations than what shows up in the formal lobbying accounting.

One thing companies do is make sure to have major employment centers in as many states and congressional districts as possible, in order to get a good base of votes in any matters that may come up. This must cost a fair amount, but would never show up in the lobbying budget. Just as an example.


Diminishing returns. You only need to buy so many legislators, and there's only so much competition.

What stats you got for ROI on aerospace R&D vs. lobbying?


That’s not how economics works. Legislators are a scarce resource. If owning them results in a high ROI, then the price would be bid up.


It's very much how special-interest economics works. Boeing is effectively a monopoly, its counterparty interest is the public at large, who are too diffuse to counter it.

Mancur Olsen, The Logic of Collective Action. Seminal economics text.

https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action

https://www.worldcat.org/title/logic-of-collective-action-pu...


Boeing does a ton of defense contracting. Why is the counter party not Lockheed, Rockwell, etc?

Also, companies don’t need to be direct competitors to have adverse interests. For example, Google lobbied heavily on copyright issues because it wants to commoditize a downstream product input to its own services. That places Google at odds with media companies, even though the companies don’t compete directly.


In civil aviation, Boeing has no domestic competition, though it may oppose competing transport modes such as high-speed rail. (I don't know that it has, though other avaiation interests, famously Southwest Airlines, have.)

In defence, Beoing and other MIC firms are generally better served by fighting for a larger pie, than over their share of it. The fight is over defence vs. nondefence (mostly social services) spending. See for example; https://www.sourcewatch.org/index.php/Boeing

And I'd asked what your data are. Got any, or do you prefer asking to answering questions?


> And I'd asked what your data are. Got any, or do you prefer asking to answering questions?

You're the one supporting the assertion that "the value add of $1 dollar of lobbying/capture efforts goes farther than $1 in R&D or whatever after a certain point." It seems like that's the assertion that requires supporting data. My point simply is that, in the absence of data, we can look at what we would naturally expect to happen if your premise were true--prices would get bid up. The fact that lobbying prices aren't getting bid up suggests your premise is false.

You can add further layers of speculation to explain that unexpected result, but now you're really going out on a limb. I think a simpler explanation is that your premise is simply false. Lobbying has low expected ROI--that's why companies spend so little on it. (In particular, I suspect that lobbying just isn't very effective, so the expected value of a very favorable law or policy, weighted by the incremental increase in probability of that coming to pass through lobbying, is low.) That hypothesis explains the data, without resorting to additional handwaving.


That's an extraordinarily long-winded "no".


Increases in Defense spending are good for all defense contractors. I don't think the lobbies are particular to help Boeing beat Lockheed to a job, but to increase funding for xyz project, that both Boeing and Lockheed have roles in and are making money on.


that's a good point. i should have said that at a certain size it makes sense for a corporation to "invest" in lobbying as a form of increasing profits instead of, say, using that amount to increase R&D.

it may be that the required amount of lobbying money necessary for a larger corp is in relative terms tiny but in absolute terms somewhat large (e.g. $15mil gets you 80% of the way there, whereas $150mil only 85%; but a smaller corp can't chalk up the $15mil required for pareto or whatever distribution)


Books are cooked and I'm sure that Boeing spent more on "lobbying" or "lobbying and backroom deals" than 15 million. Id expect a difference of at least a factor of 10 but it's not easy to prove as they have a vested interest to keep that money out of the public eye.


How is the solution not clear? Clamp down on lobbying. Kill the revolving door between government and board rooms.


It isn't quite as simple as that. Congress needs information to create good legislation. That information has to come from somewhere. Ideally Congress would raise taxes to pay experts to tell them about things they have to regulate. Sadly, people don't necessarily like seeing Congress raise taxes to spend money on itself and this has proven an effective weapon that some politicians, especially Republicans, have used to overthrow incumbents. So at least in the modern era we don't do nearly enough of that and even before our current era of open primaries and ideological partisanship we no longer have that at all and didn't have enough of it, to be honest, even in the day of the office of technology assessment and such.

So we rely on lobbyists now to explain to our legislators when the "system of tubes" metaphor for the Internet breaks down. Hopefully we can get multiple competing groups in the door to prevent the advice from being too one sided but at the same time everyone presenting has an agenda. Which probably costs the taxpayer more than hiring experts would but that cost isn't obvious the way a line-item on the budget would be.

And as bad as the current system is having legislation just based on what representatives know would probably be worse.


Shameless plug because I think they're cool but there is a middle ground to get info to Congress, a nonprofit that provides fellowships to technologists to advise Congresspeople on tech matters, they just opened applications for their new cohort

https://www.techcongress.io/


" Ideally Congress would raise taxes to pay experts to tell them about things they have to regulate. "

You just showed how simple it is to switch the incentives. I'll add that taxpayers pay for the campaigns instead of corporations. Whoever wins at each level of elections gets a larger amount to campaign with. If contributions are allowed outside that, it's only individuals with a cap. It's a felony to violate these rules. Work from there.


This idea has been floated, but the Supreme Court disagrees. Short of amendment or a shocking reversal in precedent, it won't change.


Because lobbying is the right of every free citizen to communicate their wishes to their elected representatives. Get rid of that and we might as well have an unaccountable dictatorship.

The real problem with society is that we try to build static structures (laws) in an attempt to foil dynamic adversaries (humans). This simply does not work.


Rights are pretty useless things if you cannot afford to exercise them, or even if you try, you can be consistently outgunned. Most citizens do not have the time to personally go lobby, they got rent to pay, while a minority can pay teams of professionals in $1000 suits, to go and lobby on their behalf, whilst they are asleep on a nice beach somewhere. I, in no way want to ban citizens from lobbying. I just think that perhaps 'lobbying' could do with a narrower definition and 'criminal interference in the electoral process', a wider one.


It seems abundantly clear there should be a right for a citizen to communicate wishes to their elected representatives.

Corporations do not elect representatives. Lobbying companies do not elect representatives.

Seems clear which needs to be got rid of.


Okay, so if citizens decide to band together to petition their representatives, that isn't allowed?

Also, in the United States, you do not need shareholders to form a corporation. You are already a corporation in and of yourself. If you want to fund your activities via your own money, you do not technically even need any corporate body to conduct in business. Business is an individual right.


Nothing stopping say the CEO of Exxon, solo entrepreneur or self employed window cleaner writing to their local (I'm assuming it's usual to contact your local representative, rather than any and all?) congressman as an elector. Seems reasonable to write to the departments dealing with tax and business too, who will also have input to representatives as part of the machinery of government.

Seems less reasonable to petition as a full time role, and get everyone's representative on board with unduly supporting a particular company or cause, or get undue weight because can throw $10m at the issue. That's not really representing the people any more, even if it is understandable how it happens.

Citizens banding together in a cause? Already happens, and no doubt representatives who receive 500 letters or emails that could be copies of each other are treated as less weighty than 500 individuals writing individual emails on the same cause.


I guess I fail to see the difference between the CEO of Exxon writing and Exxon itself. Of course, the real issue at hand is that of money being spent to lobby. Individuals also have a right to spend their money to lobby. Individuals with more money have an outsized influence, kind of by nature. Corporations of course have more money than individuals, but corporations can simply give their money to officers that they know are going to lobby on behalf of it anyway, so it's all a matter of money shuffling. I prefer things to be transparent rather than obfuscated on purpose.


I favour regulation that tries to minimise that outsize influence. One elector one vote and all that.

Hence trying to limit opportunity for professional and full time lobbyists, the permanent presence near to government constantly trying to influence, create and ruin policy. Sure, the CEO is probably only ever going to sign rather than write, and their money will always bring extra influence. I'd hope to find a balance that keeps it transparent but minimises gaming the system with money.

As is, lobbying is bending most governments around the world badly out of shape, and seems to have got far out of hand. Of course getting a better system, whatever it may be, through the current system is another matter entirely... :)


One is a human being.

The other is not.

I'm still dumbfounded by the idea that corporations should enjoy any kind of right or privilege, let alone that kind of special treatment they enjoy nowadays.


You've worked for a corporation right? They tend to be filled with human beings.


:D That's a silly argument. That doesn't make them human beings. A bottle does not become water if you fill it with with water.


This is a misleading argument. If I operate as a sole trader, I am the legal person responsible. If I am the sole shareholder of a corporation, I and the company are distinct legal entities. An unincorporated association is the individuals it is composed of and has very little recognition in law. An incorporated association? Legally distinct and visible to a court.

The objection is that "it's too hard to define legally". Nonsense. Courts distinguish between natural and artificial legal personality all the time. Corporations are a legislative creature. People aren't.


> If I am the sole shareholder of a corporation, I and the company are distinct legal entities.

Perhaps, but probably not. The ease of corporate veil piercing is inversely proportional to the number of involved parties.

> An incorporated association? Legally distinct and visible to a court.

which means that it is easier to sue as an entity.

> The objection is that "it's too hard to define legally". Nonsense.

I never made that argument. Stop with the strawmanning. I said that there is no way to limit the ability of companies to petition the government without simultaneously limiting the ability of individuals to do so as well. The previous regulations we had were easily bypassed.


> I never made that argument. Stop with the strawmanning.

What you said was:

> Okay, so if citizens decide to band together to petition their representatives, that isn't allowed?

Implying that these were inseparable. They are not. That enforcement is difficult and imperfect is different from whether it is possible or desirable.


Can that band not have some reasonable restrictions? Some random examples: the band must be a nonprofit, it may not be funded by corporations, limits on the type and amount of spending, they're required to publish sources and destination of income, etc, etc.


> the band must be a nonprofit

Sure! So, I'll start a software company, let's call it Maxisoft. Then, I'll start a non-profit, "the Maxisoft benefactor's mutual benefit corporation" (A non-profit producing body) who just happens to share officers with Maxisoft (after all, since we're all in business together, it makes sense that we're all friends, right).

> limits on the type and amount of spending

Why? Don't individuauls have an unlimited right to spend as much as they want seeking redress of grievances? Board members could just vote officers a higher salary and then the officers can simply use the corporation's assets (now their own via the magic of payroll) to do the same lobbying, and certainly, you cannot be against the right of an individual (in this case an officer of the corporation) from asking his/her representative for change?

> they're required to publish sources and destination of income

I fail to see how this isn't a massive breach of an individual's right to privacy, but either way, for the most part, donations to a political campaign are public.

Ultimately, IMO, your regulations fall flat, because they all get in the way of an individual right to seek redress. In every case, there is a straightforwards way around the regulation, and there is no way to stop what you are trying to stop without stripping some people of their individual right to petition their government. Thus, we ought to reject all the regulation as an unnecessary overreach.


I don't think that the degree to which an individual has a right to reek redress of grievances is determined by the amount of money they can spend.

I agree that no restriction will be perfect; however, I think that it's likely that restrictions could be crafted that are better than what we have now. For example, maybe something like:

- A non-profit can spend as much as they want on politics as long as the money comes from individuals.

- There is a restriction on how much an individual can give to any given non-profit. Or perhaps there would be restrictions on what percent of the PACs spending comes from any one person. It is illegal for non-profits to collaborate to bypass these rules (in the similar way to how it is illegal for corporations to collaborate to fix prices).

That being said, what's your solution if you are opposed to campaign finance regulations?


> I don't think that the degree to which an individual has a right to reek redress of grievances is determined by the amount of money they can spend.

I mean, I agree, but money is going to buy influence whether you believe in some sense of noble politics or not. Without severely and arbitrary restricting even more rights it's impossible to get around this. Those with more money can make friends with influencers, buy advertising space, produce media, etc, at far greater rates. Even without direct lobbying, they're going to be more influential

> There is a restriction on how much an individual can give to any given non-profit. Or perhaps there would be restrictions on what percent of the PACs spending comes from any one person. It is illegal for non-profits to collaborate to bypass these rules (in the similar way to how it is illegal for corporations to collaborate to fix prices).

No there isn't. There's just taxes on contributions if you give more.

> - A non-profit can spend as much as they want on politics as long as the money comes from individuals.

I already gave a few ways around this legislation above.


I think that I explained myself poorly. I was trying to describe a starting point for a system that would be less easy to work around. We're never going to be able to eliminate every abuse of the law, but I think a valid strategy might be to try to make it so that the abuse doesn't scale.

So for instance, a corporation could still have their executives donate to PACs and they could create dozens of PACs in order to be able to donate more overall. However, there is a limit to how many executives and PACs they can juggle so it at least doesn't scale the way the current abuses do.


> So for instance, a corporation could still have their executives donate to PACs and they could create dozens of PACs in order to be able to donate more overall. However, there is a limit to how many executives and PACs they can juggle so it at least doesn't scale the way the current abuses do.

Nah, someone will just offer a service to those executives to manage their PAC contributions. But, I mean, job creation is great, so I guess that makes sense.


You might not be aware, but for some politicians, they won’t give you an audience if you don’t donate and spend to lobbying them. Unlimited spending means citizen's voices aren’t heard.

It’s a real problem, so let’s work on some solutions. Mercenary sock puppets should be limited, no?


This is true, but the problem was not nearly as bad before Citizens United (which basically freed corporations up to throw massive amounts of money into politics).

If lobbying was actually limited to citizens or small groups of citizens the negative impact could be reduced. Many other countries aren't impacted by regulatory capture as bad as the US.


That’s a weird conclusion given that the overriding trend of the last 50 years is Europe following the deregulatory approaches pioneered by the US. The 1996 telecom act, for example, was highly influential abroad. Likewise, most Western European countries regulate electricity markets in ways very similar to the US.


I never said other countries weren't following our lead, just that it got worse here sooner


In turn, I think that the reason that we have to make tons of laws is that we have setup a society where corporations answer only to their shareholders. If corps are expected to do anything to make money as long as it isn't technically illegal, then it follows that we would be forced to make more and more laws to constrain them.


Don't corporations also answer to employees? Employees will quit if they're dissatisfied enough, or just never apply in the first place.

Don't corporations also answer to customers? Customers will stop buying from a corporation if prices are too high or service is too poor.

The people who really need protection are the third parties who can get stuck with externalities from activities they had nothing to do with.


Try getting a meeting with some of your reps as a normal citizen is very difficult however it doesn't seem like large companies have much trouble at all...


Rhetoric like that is actually indicative of how difficult those suggestions are to implement. Your suggestions are non-specific, which means that any practical measures suggested on the basis of them will be attacked by everyone for being too weak, too strong, too narrow or too broad.


government: here's this new thing, we should create a license for it

enthusiast building company around that new thing: hey wait that doesn't make sense, this is supposed to be for everyone

that enthusiast is now lobbying. is there a specific other situation you were hoping to clamp down on that doesn't rope in the enthusiast?


The solution is clear; ban lobbying. Why are you allowed to fund individuals running for office? That's called bribing, and it's illegal. BigCompanyX literally gives these people money in expectation of regulatory loopholes, and favoritism. Make a date prior to the election cycle where you have to register to run for office. From that date forward, allow no 'donations' or whatever they call it to come from individuals or corporations. Allow these people to run based on merits, not capital. Why are some of the great minds of our days not running for office?


I can think of a fix that would have a massive impact:

Get rid of congressional elections, move to a method of selecting representatives that selects a representative sample of the population such as a lottery among registered voters.


I have an expression to describe problems that are only still problems because of the politics and incentives of fixing them.

"solving the problem is half the problem"


The problem, in the US, is that the party which hates big businesses is the same party that loves to use regulations to fix things.


Clearly this problem transcends party politics.


And countries.


I wouldn't say so.

Lobbying and legal bribery are far more prevalent in the US than in Europe.


Looking at Russia bankrolling politicians and parties across EU legal vs not legal does not appear to matter much.


Brit here, so I don't really understand lobbying in the US, and how such huge sums of money can be involved without blatant corruption - googling reveals ~3.4 billion USD spent on lobbying during 2018.

Let's say I'm Boeing and I pay a lobbying firm 15M USD - what happens next? Where does the money go?


At the federal level, the money funds both staff — usually registered lobbyists, communications staff and administrative support — and outside consultants. Boeing spent $3 million on 16 different consulting firms. The other $12 million went to in-house staff and “lobbying-related expenses” incurred by staff. None of this money goes to politicians or to political campaigns — that is a completely different beast — and it does not include advertising or PR campaigns that obliquely influence policy makers.

The team of in-house and outside lobbyists do a number of things including monitoring legislation, writing internal position papers laying out the company’s arguments for and against legislation, briefing execs on changing rules, organizing visits from execs, and participating in strategy sessions with trade associations.

Most importantly they try to exert influence. The most direct way is through meeting with congressional staff and regulators. These meetings are fairly easy to come by — anyone can call a Congressional office and request a meeting on an issue(and more citizens should!), but in most instances you will get shunted to a low level staffer who politely listens to your plea and takes notes. But, in the case of Big Business, that $3 million you spend in consultants brings with it some very deep rolodexes. They can get meetings with Chiefs of Staff, Chief Counsels, and sometimes directly with members of Congress so you can go to a Senate office and have a deep discussion about a specific piece of legislation. You can articulate how the legislation will impact your business, the economy at large, or the Senator’s constituents. You can propose new legislative language. Your team of lawyers can show the underpaid, overworked staffer all the loopholes he’s unknowingly introducing. You can propose a “carve out” to protect some special group (e.g. “Companies that spend $X in R&D should be exempt from provision Y”).

There are many other ways in which lobbyists try to get the ear of Congress, but the above encapsulates a significant portion of the spend you see in lobbying disclosure reports.


Thanks, this is a really insightful response!

> They can get meetings with Chiefs of Staff, Chief Counsels, and sometimes directly with members of Congress so you can go to a Senate office

But how? Is it simply that the lobbyists make plain who they are representing and the government people involved know a lot of tax dollars are potentially at stake, or is it something more skullduggerous?

$15M is a lot of money, so Boeing obviously feels it's worth it; maybe I'm being too cynical, but I just can't see how unless there is something underhand afoot.


I think a good example of lobbying that we should avoid is that done by TransparentBusiness and those they hired. They sponsored similarly written legislation in almost half the state legislatures of the US this year. The legislation was written in such a way that the only software that could fulfill the requirements was the companies' own.

https://statescoop.com/nationwide-lobbying-push-for-contract...


The money goes to making PowerPoint presentations and white papers. $3.4 billion sounds like a lot, but you have to understand just how huge the US economy is. The US legal services industry generated $260 billion in revenue in 2018. That’s just money for paying lawyers. That’s 10% the GDP of the UK (but only 1.4% of the GDP of the US).

Lobbying is very similar to legal work, and often is done by lawyers. Highly trained professionals take often very complicated domain issues and distill them into terms politicians and their staff can understand. (Typically, the politician, as a matter of ideology, already supports the position the company is espousing. The purpose of the lobbying then is to arm the politician with data and legal arguments to support that position and counter the data and arguments offered by the opposition.) Producing a single document can cost tens if not hundreds of thousands of dollars.


Think of lobbying firm like hiring a consultant.

You might pay them $1M to do research on a particular policy that is beneficial/detrimental to your business. That same firm will then put together a polish presentation or proposed language for legislation and get it in front of politicians where it makes a difference.

It's certainly not "Google hired this firm for $1M and they have $900K in donations to a politicians election fund". That's illegal.

A good example (that another poster mentioned) are organizations like the ACLU. They raise money and use it to lobby the government to get pro-ACLU laws written.


Lobbying is legalized corruption. Corporations are considered people. People have freedom of speech and rights to influence public policy. Only thing we are missing is a death penalty for corporations like that exists for normal people.


Corporations can be disbanded by court order. Stop with the lies: https://info.legalzoom.com/happens-shareholder-dissolved-cor...


What's the rate at which such penalties are imposed?


A good lobbyist will help drafting laws or regulations and bring them in front of lawmakers. A lot of laws are written directly by lobbyists.

They may also start a PR campaign for your case.


In many instances spending on PR campaigns does not necessarily need to be disclosed as a lobbying expense. Money spent on influencing policy greatly exceeds what’s reported on lobbying disclosure reports.


The language we use tends to shape our views, having that in mind "good lobbyist" is an oxymoron, is like saying "good mass murderer", it's better say "effective lobbyist" or similar wording that can't be confused with a moral judgement.


So, I've donated money to the Nature Conservancy and the ACLU both with the intent that they would engage in lobbying on my behalf, both of which I consider to be "good lobbying".


Nah, is good only in a very narrow specific sense but is still damaging in the big scheme of things; by perpetuating the "lobbying-based-democracy" instead of trying to achieve actual democracy (as in vote for nature conservancy, vote for better education, etc)


And over 1 billion of that was pharmaceutical companies. Wonder if that has any side effects?


> I don't really understand lobbying in the US, and how such huge sums of money can be involved without blatant corruption.

At best, lobbying is bribery with a facade of conversation. At worst it's extortion. The corruption is baked in either way.


The US has a much larger population and is the largest economy in the world. It would be unusual if lobbying there wasn't much larger.


Very interesting. From the second to last paragraph:

> They found that the higher the volume of new regulation in an industry -- measured by analyzing the text of the Code of Federal Regulation -- the less new entry is driven by high Q.

Where Q "represents the ratio of a company’s market value to the book value of the company's assets."


Did the authors not consider the common causal variable?

Many industries become more capital intensive as they grow, and higher capital thresholds for effective market entry make market entry harder. Additionally, as industries grow, the scale of their externalities grows, requiring regulation.

The aggregation of capital in public capital markets supports this (Value of equities up, # of market participants down).

The fact that the legislature has been gridlocked for years also doesn't support the hypothesis that regulatory action is the causal root of the lack of competition in the 2000s.


> Many industries become more capital intensive as they grow, and higher capital thresholds for effective market entry make market entry harder. Additionally, as industries grow, the scale of their externalities grows, requiring regulation.

None of that stuff is actually strongly correlated. Whether an industry's capital costs increase disproportionately with scale has little to do with whether that industry has significant externalities requiring more regulation as it grows. You can find major examples of every combination of those things.

Moreover, if the increased capital costs are a result of increased regulatory compliance costs, that's not actually disproving the original point either.

> The aggregation of capital in public capital markets supports this (Value of equities up, # of market participants down).

That would be expected regardless because the lower amount of competition would be expected to result in higher profits and higher valuations regardless of the cause.

> The fact that the legislature has been gridlocked for years also doesn't support the hypothesis that regulatory action is the causal root of the lack of competition in the 2000s

Whatever gridlock existed hasn't stopped them adding some 40,000 plus new pages to the CFR in that time.


Federal legislator being locked has no relationship to state legislators nor the executive branch.

California has been legislating significantly without issue during all of the federal gridlock.


The causation could easily be reversed. High margin businesses get regulated, and lobbying ramps up to fight those regulations.

You're seeing this happen before your very eyes with companies like Google and Facebook. Their lobbying expenditures have exploded as a response to increased treats of regulation.


And as they get regulated, they also become government monopolies, because the regulations effectively mean smaller competitors can no longer even enter the market.


Does it really matter whose fault it is if the effect (entrenched companies collecting economic rents) is the same?


Understanding causation is useful because it helps you understand how to change the system. If the pressures for increased regulation aren't coming from the companies themselves, where do they come from? What do we do about that?


I've pondered about it in Indian context. India has amazing number of rules and regulations. The problem is that just about all of them are used as rails to collect money through corruption. Only those who can't pay the bribe end up getting punished.

Interestingly each new rule (e.g., a new road traffic regulation) only acts as yet another avenue to collect money.

I suppose lobbying is a legalised form of bribe so the passage you quoted makes perfect sense.


Bingo! One reason why Campaign Finance Reform is so important. But even that’s probably not enough.


I think with Campaign Finance Reform and the abolition of FPP voting in favor of a ranked system (to end the two party system) would be enough if done together... American still need a decade or two to work the corporate politicians out of it's system though.


I think it needs to be more radical. Paid lobbying is bribery, period. It's illegal to bribe a judge or a juror. It should be similarly illegal to bribe legislators. Outlaw the entire practice.


Imagine how outraged we’d be if we found out Federal Judges were going out to dinner with lobbyists and then having those lobbyists draft their judicial opinions for the Judge to just sign their name on without even reading it first. I don’t understand why it’s not equally outrageous that Congress does this on a daily basis.

Equally nuts is the special interest group that Upcodes is battling. They draft regulations and then _charge_ the public to access the regulations that they’ve lobbied lawmakers to adopt claiming some sort of IP right over the law.


One might also be outraged if a Supreme Court justice was married to a lobbyist who was paid to advocate for positions relevant to matters on the court.

https://www.opensecrets.org/news/2019/06/virginia-thomas-ext...


You are so off track it is frightening. First off the term " Campaign Finance Reform" is so loaded that it means different things to different people. Usually, shut down people they don't like. Far too many see Citizen United as an affront because they don't understand how bad it would be for everyone if the ruling had been the other way and they don't understand the 1st Amendment.

In the US, two political parties control nearly all activity down to the county and city level. If you are in politics already you pretty much have to have permission to seek higher offices. If you are not you have to get past both parties even the one you wish to be part of. There is a reason why at the Congressional level reelection is almost a sure thing with most people losing their seat from retirement!

So lets look at the national level, where CU and CFR bells are rung the most. Incumbent politicians have unlimited access to the media and to a point even use of the postal service. That is one hell of an advantage to an outsider to surmount. Then thrown in all the PACs they have friends and family in, all of which are protected by wonderfully named laws to protect the integrity of elections but really do only two things, protect incumbents and provide a legal means to make their friends and families rich.

So lets drop back to CU and the 1A. The 1A says nothing about whose speech rights may not be infringed, it says speech may not be infringed. The CU ruling made it clear that it wasn't some fictional body having freedom of speech, it was the right of the people in any organizational form they choose will always have the right to free speech wherever they go.

That is why you must resist all attempts to reform campaign financing. The established parties already have it all wrapped up and are merely feeding you nice market tested lies to prevent anyone from breaking their duopoly.

Open the door to silencing one voluntary grouping of the public from entering politics by any means and you allow for any future grouping which is a threat to the established parties to be blocked as well.


Sorry I've tried to reread your comment several times but I don't understand the point you're making.

Why should people be okay with unlimited expenditures by corporations and special interest groups?

Having your government's influence be heavily skewed towards companies or even any non inclusive group of individuals seems like a huge problem. I understand that there is a balance to be struck but the current one seems way off to me.

> Then thrown in all the PACs they have friends and family in, all of which are protected by wonderfully named laws to protect the integrity of elections but really do only two things, protect incumbents and provide a legal means to make their friends and families rich.

Isn't the ability of PACs to hand out so much money a consequence of Citizens United?


A lot of lobbying kills regulation in its tracks. I think there's two kinds of regulation, and it's valuable to distiguish them: regulation that places onerous barriers to entry to entrench existing players (the type you mention), but also: regulation that prevents a truly free market. For example, Medicare being unable to negotiate drug prices, by law. The latter is a regulation that does nothing to deter new companies from entering the pharmaceutical industry, but we all suffer through higher federal expenditures, and ultimately, higher taxes.


> For example, Medicare being unable to negotiate drug prices, by law.

This isn't a very good example because the health insurance market is dysfunctional for reasons independent of this and Medicare is the government, so "negotiating prices" really just means dictating prices.

We already see this with Medicare in areas other than prescription drugs, where Medicare will set payouts below cost. Then many providers won't accept it (harming patients by reducing choice) and others, not wanting to turn away sick patients, will see them at a loss but then have to recover the money by charging more to patients with private insurance or paying out of pocket (harming them and reducing access to care due to higher prices).

> The latter is a regulation that does nothing to deter new companies from entering the pharmaceutical industry

Even if all it did was exactly what you expect it to (cause lower prescription drug prices), low margins are exactly what will deter new companies from entering a market. They can't recover their startup costs (which incumbents paid years ago), so they don't bother. With price controls that lower amount of competition may not raise prices, but you would certainly expect it to impact the amount of new R&D happening.


Dictating prices is better done from a government panel than a corporate board. Medicare sometimes sets payouts below "cost", but sometimes costs are out of control. The article below touches on this and goes through some data, and concludes that some segments of over-cost hospitals should maybe come down in price, while also suggesting that primary care physicians are underpaid via Medicare. Regardless of the over/under, that's a better discussion to have in the open publically, than behind closed negotiating doors - leading to systemic over costs (comparing between the US and other nations).

http://voices.washingtonpost.com/ezra-klein/2009/07/does_med...


The issue is that prices shouldn't be dictated at all.

The way health insurance should ideally work for non-emergency care is that the insurance pays the amount charged by the lowest cost provider, but the patient can choose any provider they like and pay the difference themselves.

Then if one provider has bigger rooms or is less of a commute or has better ratings on some ratings service, the patient is the one deciding whether or not the benefit is worth the additional cost, instead of some functionary who is neither the patient nor the recipient of the bill.


This assumes that the health insurance plans are an effective check on cost, that there is any sort of shoppable market for medical services, and that the patient has the knowledge to shop with at the level of sophistication of medical professionals.

None of that happens in the current healthcare market where we pay over double all other modern nations, nor does it happen in the many other nations that effectively control medical costs via setting a schedule of prices for drugs and medical procedures.


> This assumes that the health insurance plans are an effective check on cost, that there is any sort of shoppable market for medical services, and that the patient has the knowledge to shop with at the level of sophistication of medical professionals.

The check on cost in this case would be the patient, because outside of any other reason to choose one provider over the other, they would choose the least expensive one and save money. Which gives every provider the incentive to either be the least expensive one or provide tangibly more benefit to justify a higher price.

Yes, for it to work it would have to be combined with some functioning price transparency, but so let's do that then.

And the last isn't actually required. If patients can discern no meaningful difference between providers then they'll just choose the least expensive one, leading to price competition as intended. Though you can imagine that repeat patients will still have good knowledge of how big the patient rooms are, how soft the beds are, how much time they find themselves spending in the waiting room, how far the office is from their house, etc.

> None of that happens in the current healthcare market where we pay over double all other modern nations, nor does it happen in the many other nations that effectively control medical costs via setting a schedule of prices for drugs and medical procedures.

Nobody thinks the current US healthcare market is cost efficient. The existing regulatory environment is bad and promotes a lack of competition. But why is the only solution price controls, instead of fixing the bad rules that impair competition?


I think what you're failing to consider (in the particular case of pharma) is the case where government doesn't dictate prices, but limits patents to reasonable maximum terms and only offers reimbursement for the cheapest market alternative.

The limitation in patent durations would disallow corporations milking old inventions and would incentivise them to keep innovating. It would also allow more competition, because the formulas end up in the public domain quicker, enabling actual market efficiency through improving production processes and so on. Parallels could be drawn to the entertainment and software sectors.

Stimulating the lowest market price would counteract predatory tenfold price hikes by allowing competitors to produce a generic variant at reasonable prices and outcompeting the bad behaviour.

The current regulatory framework incentivises big conglomarates to be anti-consumer because that's where the money lies. At the end of the day, we're talking about people's health.


The medical community always whines about this, but they still accept Medicare. They do walk away from Medicaid in many cases.

The problem with Medicare is that they don’t pay for ineffective treatment. This makes it slightly more difficult for medical networks to charge for higher margin procedures.


"where Medicare will set payouts below cost."

I think the data on what hospitals, insurance companies, and drug companies call the "cost" shows it's over-inflated BS. If they're lying and price-gouging, then whoever is charging them should demand payouts below their "costs" if they can't force them to do a reasonable profit above actual costs. Quick article off the top of Google with examples of the "costs" at hospitals:

https://www.foxbusiness.com/features/outrageous-e-r-hospital...


The list prices for US medicine are completely fictitious. It doesn't cost them $30 for an aspirin, what it costs them is millions of dollars to staff and supply an emergency room with the capacity to handle a bus accident even though most of the time there isn't a bus accident. Which they then try to recover with higher margins on ordinary commodities when they can.

It's certainly the case that some of the underlying costs are higher than they ought to be. The problem is you can't fix that by lowering payouts across the board -- if certain medical devices are too expensive because of a lack of competition, the hospital can't lower the price the other company charges (or they'd have done it regardless). Nor can they reduce regulatory compliance costs when they still have to comply with the same regulations. So they have to cut something else instead. Which isn't what you want when the something else was a cost effective method of improving patient outcomes.

There isn't a "make it cost less" button that can magically lower prices across the board. Some things already have reasonable margins. To reduce costs without killing people you have to specifically target the waste (and its causes, which in many cases are high compliance costs, barriers to entry and a lack of competition).


Regulation tends to exist because the market wasn't regulating itself and abuse was rampant. So there seems to be an underlying cause of dysregulation common to these markets.


Sometimes the opposite is true. Jaywalking is a great example. Rich assholes didn’t like their new cars having dents because they wouldn’t stop for pedestrians. So they made it illegal to be a pedestrian by enacting jaywalking laws.


There is a cycle in a 'free' economy that runs in the long term, typically over decades. That cycle is in many senses, related to technical developments: Something emerges that fundamentally changes the way we live and work (steam power, electricity, gasoline engines, mainframe computers, mini-computers, micro-computers, smart phones, ...).

At each emergence, new enterprises are born and start an arc of relevance. Amplitudes and periods vary greatly, but companies like Sears & Roebuck have their days of high growth, maximum employment, then stagnation and decline as successor WalMart transpires through its cycle and takes the reins for a while.

These companies pay varying amount of taxes, but can't get away from paying wages. Consider how many families are supported by MacDonald's or Bank of America. They contribute to society by employing people and enabling them to pay income taxes much more than their employers pay through corporate tax payments.

Society gets into trouble when a pair of declining and ascending firms create a discontinuity for employees. If an employee of WalMart loses their position because WalMart has lost market share to Amazon, that employee is not likely able to move their employment to Amazon. Distribution centers are not in the same places as WalMart retail stores, and, the skills they need are not the same. Both are selling the same items to the same customers, but due to the different business models, the employees of one do not map onto the needs of the other and you have a discontinuity.

On the one hand, Amazon is more efficient than WalMart and delivers more goods dollars for the same wage dollar (revenue per employee). So fewer workers are needed and there will be workers left unemployed or underemployed during the transition. On the other hand, Amazon should, over all, be therefore able to charge lower prices, benefiting all consumers.

My point is that getting to the bottom of the question about how much and what type of value an enterprise delivers to society is a deeply complex question. Bloomberg's opinion seems superficial.


> [corporations] contribute to society by employing people and enabling them to pay income taxes more than their employers pay through corporate tax payments.

I can't let this point go undebated.

The taxes paid by workers cannot be counted as the corporation's contribution to society, because this tax would've been paid regardless of the employer - it is a contribution from the worker to society.

A corp that does not pay enough corp taxes is a corp that doesn't contribute. Providing employment is not a form of contribution, since the employment makes profit. Unless the corp employs people at a loss (in which case, it can be called a contribution - provided they do not reclaim tax credits to offset the cost).


> The taxes paid by workers cannot be counted as the corporation's contribution to society, because this tax would've been paid regardless of the employer

This only makes sense if you're assuming the total number jobs, salaries, or GDP can't change. If you decrease the number and/or size of businesses, income tax collected will absolutely go down. That's what happens in a recession.

Whether you consider income tax to be a worker's contribution or their employer's contribution is a meaningless distinction. Any policy that attacks either side (causing fewer or lower paid workers, or fewer or worse paying employers) will reduce the amount of income tax collected.


It seems like it would be hard to tell whether Amazon or WalMart are more efficient? They don't do quite the same thing.


I thought the goal of companies is to return value to shareholders, not necessarily add value to the economy. I don't mean to sound cynical, but it's a fair statement with regards to how things are today.


Traditionally this wasn't so. The dominance of this idea that that companies are chimeric organisms whose only utility function is to return value to shareholders is actually mostly an artifact of the last 50~ years.[1] We have various defenders of leveraged buyouts and activist investor techniques to thank for it. Traditionally, corporations had an embedded duty toward the societies they formed in and their employees equal or above profit.[2]

[1] https://corpgov.law.harvard.edu/2012/06/26/the-shareholder-v... [2] https://en.wikipedia.org/wiki/Water_board_(Netherlands)#Hist...


Whose goal?

The goal of the people who own these companies is to make money with it, or carry out whatever other purpose it has.

The goal of the government in providing a legal framework which allows these companies to exist as legal entities is to benefit society in some way.

If the latter isn’t working out then maybe it needs to be adjusted.


Wealth-weighted-peoples' goal.

The economic notion of "value" -- the quantity the economy optimizes -- is weighted according to wealth. "Value creation," as referred to in economic circles, is not about doing what people want, it's about doing what wealth-weighted people want. That really is the crux of it.


The idea is that "wealth-weighted" is weighted by what people want, because people get wealthy by doing what lots of people want (and are willing to pay lots for).


No, people get wealthy by doing what lots of wealth-weighted people want, who in turn got wealthy by doing what lots of wealth-weighted people want... the weight enters at every step, and that's how the system runs away from itself.

You can gauge its progress by looking at the wealth distribution. In a flat distribution, the economic notion of value coincides very closely with the colloquial notion of value. In a heavily skewed distribution, it doesn't correspond at all. Masses of starving poor people are of no concern to a system that assigns them 0 weight. Feeding them produces no value. In stark contrast, those with great weight can command the economy to devote great energy to highly counterproductive tasks such as consolidating and perpetuating their own power. This is an intrinsic problem of skewed distributions -- and the reason why "who's goals" is exactly the right question to ask.

Of course, you can't hammer the wealth distribution completely flat without eliminating the economy's ability to incentivize, because being on the advantaged side of an uneven distribution is the reward. You have to strike a balance. That shouldn't be controversial, but on account of the great energies mentioned above, it is.

By confusing the two notions of value, one can make the argument that you just did, and with that one subtle alteration the tendency of the system to run away is hidden. Note that the system you described could be obtained from the system I described by pressing a "reset" button and hammering the wealth distribution flat between each transaction. I'm sure that wasn't your intent, but it's a dramatic demonstration of how attaching the word "value" to the economic concept of wealth-weighted-value hides the problem from view.


The "the colloquial notion of value" is philosophically groundless. The reason economics uses a particular notion of value is because it's actually grounded in relatively consistent theory.

The economic notion is basically saying a mass of poor people have no value to anybody else if they're not able to do anything anybody else wants or each other want enough to pay for.


"Only shareholders matter" has been gospel for about a generation. And I do think that attitude is responsible for a lot that is wrong with the US.

But it is, I think, fair to note that corporations are not responsible for making sure the rules under which they function work for everyone. That particular failure belongs to government, or in the alternative, all of us for allowing such a shitty government.


Corporations spend a lot on lobbying to make sure those government rules work only for them. They should absolutely not get to avoid blame for corrupting the government with the tired excuse that government is supposed to be incorruptible.


Since money is free speech (via anonymous PACs), I don't know if it's fair to hold all Americans equally responsible for what has happened to our economic system. Money provides access to your government and wide influence on the laws that get passed.

https://www.youtube.com/watch?v=5tu32CCA_Ig


Corporations as they exist in the US are a legal fiction. Just because you have the right to associate with people does not mean you have a right to be shielded from the ramifications of what your association does. However this is not the current law as it exists in the US with the corporate veil.

Because corporations as they exist are completely fictional, you bet your ass we can take those completely made up protections away from them once they stop being a net benefit to society.

If that were done, corporations would do an absolute shit job of returning value to shareholders.


Within the paradigm of the neoclassical synthesis [1], economic rent exists only in the short term, and as such creating value for shareholders by and large coincides with adding value to the economy.

Unfortunately, reality is a bit more complex than that.

However, economists have made big progress coming to grips with that complexity, and many proponents of small government and laissez-faire are actually acolytes of what James Kwack calls "Economism" [2], an adherence to Economics 101 that's simultaneously dogmatic, hugely selective, and pro business & anti regulation.

"Real" economists (including the frequently maligned "The Economist" magazine) are quite in favour of sensible regulation, government intervention, and progressive policies, more so than corporate lackeys and the Republican caricature of conservatism.

Lastly, that shareholder value maximisation should be the only goal of companies is a sensible result, yes, but only for a specific and narrow theoretical question (the principal-agent problem, embedded in a neoclassical framework). What the actual goal of actual corporations in the real world should be is up to us (subject to real world constraints, obviously).

[1] https://en.wikipedia.org/wiki/Neoclassical_economics

[2] https://economism.net


I think that the key difference here is the function/purpose of individual companies vs the sector/industry in aggregate. So yes individual companies should be working to maximize profit, but at the systems level of abstraction they should be adding value to the economy.

When you see one without the other it indicates that the system is not functioning properly.


The goal of an individual corporation is to return value to its shareholders, but blah blah invisible hand blah blah, in aggregate this is supposed to add value to the economy and deliver social benefit.

What we are seeing is this may not always be the case.


The strongly pro-capitalist portion of America is really of two minds on this topic - half believe what you stated above (which I think is a correct interpretation), the other half believe that companies should be patriotic and providing social benefits through charity or other forms of their own volition. I think that half-n-half mind settling is the source of a number of our ills. In a correctly running society: Companies are in it for themselves - the government is in it for the people. To that proper regulation can support the growth of the economy while regulatory capture is slowly choking out small business ventures.

I think the less pro-capitalist portion of America is mostly aligned with viewing companies as being driven by profit, with varying amounts of support - judging, indifferent, endorsing - for their pursuit of profit depending on where that individual falls on the spectrum. The economic and political situation is getting pretty dire IMO.


It is difficult to fight back against anti competitive regulations, because most are viewed as important safety precautions. As always, the pharmaceutical industry is the best example of these conflicts and breakdowns relating to monopolies


Blames free markets. Describes non-free markets.


"Free Market" is a terrible term, the freedom of the market needs to be defined. Does the market a business exists in give you the freedom to not be burgled? Does it give you the freedom to not have to pay for healthcare for your employees? Does it provide some level of free training to those employees? If you're a fisherman and there's another fisherman does the market ensure that other fisherman won't exhaust the ecosystem?


At this point I think "free market" is mostly a term of propaganda. It's too loose and wide-ranging to be useful for productive discussion, and meanwhile "free" is always good, right, so who would want a non free market? Monsters, surely.


No, it is an economics term describing a type of market, as an opposution to regulated one, as often sugar industry is, for example. Maybe you mean the fact that there are regulations and therefore no one has a free market? If that's so - c'mon, let's be a bit reasonable. It's as if you were saying that people are not free, cause they cannot do everything they want. As someone else wrote here, the role of the government is to make sure that everything is working to benefit the society, and definitely to protect the people.

Free market without any regulations will work as long as people are simply decent. But we are human, poor man wanna be rich, rich man wanna be king etc. So some regulations are needed. But not so many of the lobbied ones, as the corporate interests should not be the primary concern of the government. IMHO etc.


> > At this point I think "free market" is mostly a term of propaganda.

> No, it is an economics term describing a type of market.

It's both; it's an economics term describing an idealized abstraction which does not (and arguably cannot) exist in the real world, and a propaganda term applied to real markets which, without exception, diverge radically from the idealized abstraction.


Markets as we know them are products of regulation. That's why "free market" is such a useless term. It can mean anything one likes, including "no" regulation (for certain values of "no"—now let's have fun figuring out what that means). It can mean markets regulated to make them "more free"—greater information transparency and standardization, for example. Depends entirely on your perspective.

"Regulation" is another term that's been abused to the point of meaninglessness, for that matter. It's largely just a synonym for "thing I don't like" now.

[EDIT] it's a bit like "right", which is mostly a term of propaganda, too. Declaring something's a right is propaganda. Declaring something's definitely not a right is propaganda. It may be useful in that role, but it's not especially useful in deciding policy. And yes I'm familiar with from-first-principles attempts to distinguish "natural" rights from everything else. I've even read the Second Treatise. It's all just-so stories, not some law of reality.


The problem is that governments are made of people too, with the same sort of self interest as everybody else.


Free market typically means a market in a system where the government provides some guarantee of protection over fundamental negative rights to (for example) life, liberty and property. In that frameworks the answer to your questions:

> Does the market a business exists in give you the freedom to not be burgled

Yes, to an extent, freedom of property guarantees that anyone who burgles you will be punished

> Does it give you the freedom to not have to pay for healthcare for your employees

Yes. In a free market, there is no employee. Employees are simply one-man/woman businesses that you exchange money for in exchange for labor or time or a task (in the case of salaried employees). There is no reason why someone paying a business should have to explicitly pay for that business's healthcare. The employed business, even if a single person, should charge enough to pay for their health insurance.

> Does it provide some level of free training to those employees?

No. Nowhere in a negative right to life, liberty, or property is there a promise of free education.

> If you're a fisherman and there's another fisherman does the market ensure that other fisherman won't exhaust the ecosystem?

No, the ecosystem exists independent of the market (it preceded it), and there is again no right to ecosystem partitioning in the right to life, liberty, and property.


That is just one definition though, the "free market" that America has right now reads as "Yes, No, Yes, Yes" in particular though I'd disagree with the last point - a fair free market would incorporate things that tend to be cost externalities into the true costs of goods - leveling a mountain to mine coal or fishing a bank to extinction are costs that society cares about and are things that should be incorporated into the cost.

To reinforce the point a bit - if, for instance, over fishing is unpunished, regulated or otherwise incorporated into costs then failing to over fish will result in a competitive disadvantage that the market will punish. In this case acting in a way that ensures a long term benefit to society is being actively punished by society's rules - and the system is illogical.


Exactly, free markets do not exist in a vacuum.

To simply exist, free markets require a ton of government-backed regulations, the most obvious one being the right to private property.

There's this dichotomy between the Good free markets and the Bad big government. They're actually two sides of the same coin : they need each other to exist.

Radical advocates of free markets (and anarchists) always seem to forget the violent nature of humans.


> To simply exist, free markets require a ton of government-backed regulations, the most obvious one being the right to private property.

Actually, that's pretty much the only one.


Realistically, if you stop there you're gonna have information asymmetry problems so damaging that if you don't fix them the torches and pitchforks will come out.


> Radical advocates of free markets (and anarchists) always seem to forget the violent nature of humans.

Radical advocates of free markets are often libertarian, and they rarely forget the violent nature of humans, which is why libertarians explicitly call for the existence of a government, limited in scope to defending a few enumerated rights, such as private property.


> free markets require a ton of government-backed regulations

What’s this “ton of government-backed regulations” you’re referring to?

> Radical advocates of free markets... always seem to forget the violent nature of humans.

What kind of “radical” are you talking about here? Anarchists?


Economists generally don't use the term "free markets". They describe different kinds of market: purely competitive, purely monopolistic, monopolistic-competitive and oligopolistic. Each of these markets show different quite characteristics, even though each is "free" insofar as the participants make their own decisions as they see fit.

In theory the perfectly competitive market is most effective at maximising net utility for all participants. But in general, very few markets are close to that end of the spectrum. Most fall somewhere in the other categories.


Purely competitive, purely monopolistic, monopolistic-competitive, and oligopolistic are terms to describe how a market behaves, not the regulatory environment the market exists within. A "free market" is a regulatory environment and not a market behavior.


Economists still typically don't use the term "free market," because it's loaded and often inaccurate.

"Unregulated" would be preferable, I think.


That's pretty much my point, yes.


> "Free Market" is a terrible term, the freedom of the market needs to be defined.

Free market: A market that is free from government interference, prices rising and falling in accordance with supply and demand.

https://www.oxfordreference.com/view/10.1093/oi/authority.20...

> Does the market a business exists in give you the freedom to not be burgled?

Yes, it gives you that freedom.

> Does it give you the freedom to not have to pay for healthcare for your employees?

Yes, it gives you that freedom.

> Does it provide some level of free training to those employees?

Are horses brown? Depends on the horse. Does that mean “horse” is a “terrible term”? No.

> If you're a fisherman and there's another fisherman does the market ensure that other fisherman won't exhaust the ecosystem?

No, because the lack of property rights in that situation creates a tragedy of the commons.


Setting a minimum baseline standard, such as mandated employment conditions, is not an interference with price mechanisms.

(Dismissing for now the qyuestion of what goods and services can be effectively delivered via markets, and in what circumstances.)


If such conditions change the price of labour, for example, they are by definition an interference with price mechanisms. The magnitude of the interference will depend on the magnitude of this change. For example, setting a price floor for labour at $0.03/hr will have a smaller effect than setting that price floor at $30/hr.


A free market is one in which, once uniform or standard rules or requirements are established, price and quantity are determined by market mechanisms, rather than by some central planning mechanism.

Even within a so-called free market, numerous market failures may exist: externalities, imperfect or asymmetric information, monopoly/monopsony, coercion, power imbalances, fraud and misrepresentation, rent-seeking and rents, public goods, principle-agent problems, capital concentration, systemic risk, capture and corruption, Gresham's Law dynamics, unpriced ecological inputs, and numerous parties unable to participate in wholly market-based transactions, among them.

Establishing a minimum wage, or employer of last resort, addresses a well-known conflict in the tendencies of the prices of wages and rents -- see Smith and Ricardo.

What you're describing is neither free market nor even remotely viable.


> A free market is one in which, once uniform or standard rules or requirements are established

This is not correct. A free market is a market that is free from government interference. Such rules or requirements can constitute government interference. Ergo, they can fail to yield a free market.

To see the absurdity of the claim that "uniform or standard rules or requirements" always yield a free market, consider the "uniform rule" given by the price floor I described above.

> Even within a so-called free market, numerous market failures may exist

This is irrelevant to a discussion about whether the term "free market" is meaningful. It's moving the goalposts.

> coercion, fraud and misrepresentation, capital concentration, systemic risk, capture and corruption, numerous parties unable to participate in wholly market-based transactions (?)

These are not "market failures", and many of the failures you described are really the same (Gresham's Law and information asymmetry). That aside, one must take into account whether the alternatives are worse: in other words, government failure. For example, on your point about "rent-seeking and rents":

Alexander Hamilton of the World Bank Institute argued in 2013 that rent extraction positively correlates with government size even in stable democracies with high income, robust rule of law mechanisms, transparency, and media freedom. [1]

> What you're describing

What am I describing?

[1] Small Is Beautiful, at Least in High-Income Democracies: The Distribution of Policy-Making Responsibility, Electoral Accountability, and Incentives for Rent Extraction. Alexander Hamilton. http://documents.worldbank.org/curated/en/195551468332410332...


> In a healthy economy, competition should get rid of rents, because new companies will enter the market and vie for a slice of that pie, offering lower prices and higher wages until the rents mostly disappear. In some industries, like semiconductors, this still happens.

Not proprietary semiconductors from a single vendor, only maybe decades-old commodity parts that are drop-in substitutable, either due to numerous implementations of the same signaling, or outright licensing of the original IP to many vendors.

The entry barrier to competing with a silicon vendor that has a complex, well established proprietary product stack is extremely difficult.

(Which is not to say it constitutes economic rent.)

Silicon vendors don't want to offer lower prices; they want to produce something differentiated from the rest, and then charge as much as they can get away with.

(BTW, good luck offering lower prices and higher wages at the same time. That is only possible if it can be made up for in volume.)


The graph that shows the percentage of corporate profits versus GDP seems like it shows nothing. GDP goes up, profit goes up at the same rate, so profit as a percentage remains static.

The comparison to the S&P500 is confusing. Why would GDP be linked to the S&P500? GDP is a static measure of what the economy is producing, where the S&P500 is a measure of expected future profits. You wouldn't expect them to track the same.


> The graph that shows the percentage of corporate profits versus GDP seems like it shows nothing. GDP goes up, profit goes up at the same rate, so profit as a percentage remains static.

Assume you're referring to the second graph. That graph starts in July 2009, which is just the very-rightmost section of the first graph, which starts all the way back in ~1947. And while corp profits as a percentage of GDP hasn't changed much since 2009, this percentage is much higher than post-war average right up until the Great Recession.

Regarding S&P not tracking to the GDP, while yes you would except them not to line up 1-1, long term equity valuations can't grow faster than GDP without some other fundamental economic change,e.g. a permanent reduction in the risk-free rate (and rates over the past ~30 years are significantly lower - remains to be seen how permanent this ends up being). For more info google Buffett ratio.


With markets, "free" is orthogonal to "competitive". Yet all the political rhetoric is about free or not, regulated or not. What we really need to be talking about is how competitive a market is and whether regulations make it more or less competitive.

Free and uncompetitive: social networks

Free and competitive: breakfast cereal

Unfree and competitive: stock markets

Unfree and uncompetitive: comcast, san francisco landlords, NFL


It sometimes feels that more and more economic activity (in the USK is totally pointless, or zero sum like advertising. Suppose this is true, heterodox as it may be. Certainly as a programmer consultant it seems that so much technology work is pointless searching for a profit and problem, never meeting a pre-existing demand.

In such a low stakes weird economy, it's really hard to compete because nobody needs anything. For your corporate desk worker, keeping the existing deal is inertia while changing it is work and career risk. So rather than effort ~ dMoney, effort ~ d^2Money. That's alread explanes so much even before saying deals are corrupt steak dinner affairs or whatever.

The right is correct in saying that the things people really need, housing food and healthcare, are super regulated. But the left right in that land use and especially ealthcare are totally unsuited for a free market anyways. (Though LVT is more powerful and magical than any healthcare rule.)


The Tobin Q ratio is market value / replacement cost of assets. The problem is, what is the replacement cost of an Twitter or Uber of Amazon? The cost of the software itself is trivial, and yet it would be near impossible to replace either. The whole notion of valuing new-era (or whatever you want to call it) companies using "replacement cost" doesn't make sense. The proponents of Q say that ultimately the profit margins will be so juicy that somebody will start to compete for those dollars. Maybe. There's no evidence of that yet.


Interestingly, the article doesn't look at its own chart carefully. When economy is booming, everyone becomes an expert in everything. Companies which have no business existing or entering certain segments do anyways because - why not? They need to earn yields above and beyond the market normal.

When there is a recession, many companies are wiped out and/or acquired, thereby reducing the overall tax numbers.

Honestly, all these articles bemoaning current state of the market tell me that we might be nearing a high.


another issue is companies that profit from exploiting the commons and push their costs to the general population e.g. shale gas and oil as well as other mining operations. https://www.theguardian.com/environment/2013/dec/11/taxpayer...


Also nuclear power. Run a profitable fleet of nuclear reactors and when the reactors get too old to operate you decommission them and then eventually the company goes bust...leaving the government to fund the never ending legacy costs of depleted fuel storage/containment.


One of the comments in the article was "They found that redistribution from workers to shareholders accounted for 54% of increased stock wealth."

I wonder if the same premise still applies with employee-owned companies? or does that turn the article's premise upside down?


You've gotta be skeptical of an article in the financial press that hearteningly acknowledges the blindingly obvious macroeconomic problems and proceeds to suggest the solution is some kind of reduction of regulation. They didn't even offer a single convincing mechanism by way of example.

I am 100% on board with the idea that large companies have captured key agencies. You don't need a scientific study to note the antics of Ajit Pai or the hostile takeover of the CPFB by a guy that just showed up and just sat in an office there until people started doing what he said. However, the idea that somehow cutting regulations will cause monopolies to be less monopolistic is laughable.

Look at Uber, the poster child for dysregulation. They openly and actively thwart any kind of rule of law that would constrain them, and they can fund their operations at shocking losses in the mere hope that they can corner the market permanently. Look at the arms manufacturers that openly lament that there isn't enough of a left wing ruckus to scare people into buying more guns. Look at the right wing rebellion in Oregon over a nothing cap-and-trade bill that called for armed militia to protect the interests of oil.

When you have money, the fewer constraints you have, the more you can do. It's the golden rule.


Look at the arms manufacturers that openly lament that there isn't enough of a left wing ruckus to scare people into buying more guns. Look at the right wing rebellion in Oregon over a nothing cap-and-trade bill that called for armed militia to protect the interests of oil.

What do either of these examples have to do with monopolies?


Mainly that there are players that are big enough, with enough concentrated power to care about politics and influence it. When such large industries lament that prices are falling because there's not enough fear, the logical question to ask is "What are they thinking of doing in response?" I don't think there's a constituency of ordinary people that's willing to go to war over cap-and-trade by itself (they will defend right wing politicians though), but what interests would be willing to push their puppets to take such drastic action? The energy companies of course.


Could it also be consumers are less cost sensitive and more brand sensitive?


Game of Mates gave a detailed explanation of how this process happened in Australia.

https://gameofmates.com/



it sounds like they didn't take into account strategies like Amazon selling books for below cost to starve competitors and then getting an effective monopoly as a result


Or companies like Adobe creating PDF format to allow anyone to sell their book on their website or give it away for free direct to the consumer.


I didn't understand what the article wanted to say. I feel than rather than explaining what a source wanted to say, it namedropped 4 papers (and 1 with conflicting results with one of those 4 for intellectual honesty), and tried to fit some narrative to it, which I didn't understand very well.

I did understand that the title means "A great number of companies drain value from the economy", rather than "Having too many companies drains value from the economy".

Did anyone understand the message the article wanted to communicate aside from the title? What was it? Is it a valid message based on the sources it linked?


> Did anyone understand the message the article wanted to communicate aside from the title? What was it? Is it a valid message based on the sources it linked?

The phenomenon:

"in recent years, stock valuations have increased faster than either profits or the economy itself"

The explanation:

"They found that redistribution from workers to shareholders accounted for 54% of increased stock wealth. Falling interest rates, rising investor appetites for risk and economic growth comprised the remaining 46%."

Additional information/context:

"But their finding is consistent with evidence by economists Loukas Karabarbounis and Brent Neiman showing that labor’s share of income has declined all over the world. It’s also consistent with work by economist Simcha Barkai, who found that business profits have increased much faster than the value of the capital they own."

The previous theory:

"But this leaves the question of how shareholders have managed to extract increasing rent from the economy. In a healthy economy, competition should get rid of rents, because new companies will enter the market and vie for a slice of that pie, offering lower prices and higher wages until the rents mostly disappear."

Evidence that previous theory is wrong:

"But Gutiérrez and Philippon estimate that increasing returns to scale aren’t correlated with the breakdown of the relationship between Q and new business entry, casting doubt on this explanation. Instead, the authors point the finger at increasing regulation. They found that the higher the volume of new regulation in an industry -- measured by analyzing the text of the Code of Federal Regulation -- the less new entry is driven by high Q. "

To summarize, stock valuations have increased. Several studies support the idea this is due to an increase in the proportion of profits going towards shareholders instead of laborers. Previously people might have thought that in a free market new competition would appear which prevents this from happening but other studies suggest this isn't happening because of increasing regulation, possibly due to increased lobbying.


According to information in the article, some economists found that increased regulation reduces number of market participants and increases power of incumbents, who improve their fortunes through lobbying. Rather than let the narrative be what the data says, the author injected a somewhat BS interpretation about how the data agrees with Bernie - when it points to the opposite of what Bernie wants, namely that we need less regulation, not more. This was possibly done for clickbaity purposes.


I don't think it's any coincidence that one large market with essentially zero regulation, software development, has pushed prices to literally $0.


I agree that corporations taking bigger share of GDP is a good point (possibly because of technology / automation / information economy?), but “stock valuations have increased faster than either profits or the economy” is a red herring.

The fair value of a company is the net present value of future profits. To calculate NPV, you take some profit in the future, and discount it to the present by dividing it with the discount rate (usually inflation or risk-free rate), and repeat. Due to FED’s quantitative easing, the discount rate has been historically low for the past decade!


This is true, but there were runups like this before the Federal Reserve. Quite a few, as it happens.

What, for example, is the NPV of a tulip bulb? Or a share in the South Sea Company?


I don't understand the second graph. If corporate after-tax profits are only 10% of GDP, how come they have the same number in the second graph?


If the economy had to completely take negative environmental externalities into account, would any company add value?


Let the Great Depression of 2019 begin! Caused by an overvalued stock marked compared to the underlying economy.


Not that you're suggesting this, but I fail to see how a stock market correction could improve things for the common worker. I think some people cheer on the idea to buy stocks at a discount -- that ignores quite a bit of pain caused to people. There's real, tangible consequences. Workers lose jobs. Most don't, but some do. In fact, the '08 crisis helped the investment class scoop up working class wealth at bargain real estate prices, when people couldn't hold on.


not only do workers loose jobs, but people turn to hard drugs, families break up, kids grow up with out a stable family, generational wealth declines, social mobility is hurt... for millions of people. then you get the “populist” politicians with “easy answers” like blame the immigrants etc and more political instability...

economic downturns are looked at like they are just numbers on a chart, but they have real visceral and sociological results for millions of people and can be felt for a generation or more


So who decides which company stays and which goes? Merge them all? This is a classic example of Hayek’s “The Fatal Conceit”. There is no way any government or person would know everything or be able to see the future so as to manage such economy of monopolies.


Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | Legal | Apply to YC | Contact

Search: