Free Market
There's been a lot of talk lately about the economy. That should come as no surprise, by every common metric it's in the dumper; accordingly, it's a common subject on the news. You can't get away from it and, at least for this post, I won't either...
It should come as no surprise to readers of this blog that I’m not terribly impressed by American news media. They generally do a terrible job of identifying relevant issues in their stories and reporting the relevant facts necessary to draw helpful conclusions.
Fortunately for you, I’m here to help.
As most people know, several large companies have approached the Federal government via the United States Congress seeking bridge loans, bailout, hand-outs, or just large sacks of unmarked tens and twenties.
Without naming names, among such organizations are companies identified as “too big to fail”.
That a loaded term: “too big to fail”. In good times it means organizations so large that they cannot fail. In bad times it means organizations so large that we cannot allow them to fail for fear of the consequences.
The ironic fact here, the one that the above referenced news media sources have failed to report upon is that these same organizations that are “too big to fail” often resort to calls to allow the free market to control their activities.
The free market is by definition an atomistic market. Players in the market so big that they are “too big to fail” are, by definition, players with huge market share. Such a market is NOT a free market.
For sake of example let’s consider the US automobile market. If we estimate that at least 95% of the US auto market is controlled by Chrysler, GM, Ford, Honda, and Toyota, then the Herfindahl-Hirschman Index (HHI) for the US auto market is AT LEAST 1805; that’s a concentrated market by definition. http://www.usdoj.gov/atr/public/testimony/hhi.htm
According to such estimates, markets involving the above auto maker organizations are not free markets; they are concentrated. The players may be considered trusts by some definitions. Attempts to preserve such trust organizations should be illegal under the Sherman Act. Offering money to preserve trusts should be a non-starter.
It’s sad that US antitrust regulation has been so lax that the US in a situation where it’s confronted with trusts demanding preservation in order to preserve the US economy as a whole. One of the fundamental ideas of antitrust law is to avoid allowing a small number of companies to hold our economy hostage by their threatened failure; if their success is that critical to our economy as a whole, and the nation's welfare as a result, that they cannot be allowed to fail, then the nation should have voice in their actions if not their very existance. Preserving such organization in the short term may be a necessary evil but preserving them in the long term will perpetuate the problem.
I submit that organizations presently asking for bail-out style monies because they are "too big to fail" should be subject to antitrust proceedings in the near future in which they should be subject to a strong presumption that they are trusts and subject to break-up accordingly.
It should come as no surprise to readers of this blog that I’m not terribly impressed by American news media. They generally do a terrible job of identifying relevant issues in their stories and reporting the relevant facts necessary to draw helpful conclusions.
Fortunately for you, I’m here to help.
As most people know, several large companies have approached the Federal government via the United States Congress seeking bridge loans, bailout, hand-outs, or just large sacks of unmarked tens and twenties.
Without naming names, among such organizations are companies identified as “too big to fail”.
That a loaded term: “too big to fail”. In good times it means organizations so large that they cannot fail. In bad times it means organizations so large that we cannot allow them to fail for fear of the consequences.
The ironic fact here, the one that the above referenced news media sources have failed to report upon is that these same organizations that are “too big to fail” often resort to calls to allow the free market to control their activities.
The free market is by definition an atomistic market. Players in the market so big that they are “too big to fail” are, by definition, players with huge market share. Such a market is NOT a free market.
For sake of example let’s consider the US automobile market. If we estimate that at least 95% of the US auto market is controlled by Chrysler, GM, Ford, Honda, and Toyota, then the Herfindahl-Hirschman Index (HHI) for the US auto market is AT LEAST 1805; that’s a concentrated market by definition. http://www.usdoj.gov/atr/public/testimony/hhi.htm
According to such estimates, markets involving the above auto maker organizations are not free markets; they are concentrated. The players may be considered trusts by some definitions. Attempts to preserve such trust organizations should be illegal under the Sherman Act. Offering money to preserve trusts should be a non-starter.
It’s sad that US antitrust regulation has been so lax that the US in a situation where it’s confronted with trusts demanding preservation in order to preserve the US economy as a whole. One of the fundamental ideas of antitrust law is to avoid allowing a small number of companies to hold our economy hostage by their threatened failure; if their success is that critical to our economy as a whole, and the nation's welfare as a result, that they cannot be allowed to fail, then the nation should have voice in their actions if not their very existance. Preserving such organization in the short term may be a necessary evil but preserving them in the long term will perpetuate the problem.
I submit that organizations presently asking for bail-out style monies because they are "too big to fail" should be subject to antitrust proceedings in the near future in which they should be subject to a strong presumption that they are trusts and subject to break-up accordingly.
posted by Minotaur at 8:21 PM
1 comments
