There are, without doubt, certain conditions that must exist before any market can operate, even imperfectly. The first condition is that there have to be willing buyers for the products. Without such buyers there is no chance of selling products, let alone at a profit. Second, if abuse is to be avoided as a result of monopoly profits being made there has to be competition in the marketplace. If there were, for example, to be only one commercial supplier of an essential service, such as healthcare, then the opportunity for price abuse would be enormous. This is especially true when purchases of healthcare frequently arise in situations of high stress when the opportunity for finding an alternative supplier is limited (or to put it another way, the purchaser is almost invariably at a disadvantage to the supplier at the point when they must buy because they are in pain and far from being able to make an objective decision). Only competition and informed decision-making can, to some extent, limit that opportunity for abuse of the consumer and even then only if what is called oligopolistic behaviour can be avoided.
Because monopoly is bad therefore we must have a monopoly.
Genius, eh? But there\’s more!
However, this means that to be effective competition is dependent upon all market participants always working at less than full capacity, which means that competitive markets must always (whatever the theoreticians may say) be inherently inefficient in practice because all participants in the market must be underutilising the resources that are available to them if the consumer is to get the choice that they desire.
He seems to miss the implication of this. Which is that if competition is inevitably efficient (and there\’s no reason at all in his logic why such applies only to health care) then we should obviously do away with competition altogether.
However, we actually have evidence that, over time, competition is not inefficient. We in fact have very good evidence that competition is efficient in fact. And what is that evidence called?
The 20 th century.
Take as our example the non market economies versus the market economies. Efficiency is an increase in total factor productivity (yes, this is what efficiency means). As Paul Krugman points out, the decidedly non-market economy of the Soviet Union managed not to increase total factor productivity at all during its entire ghastly existence. All growth came from the consumption of more resources.
During the same century some 80% of growth in the market economies came from tfp improvements, only 20% from increased resource use.
The largest natural experiment in economics therefore shows that markets are not inefficient. Quite the contrary, they are efficient, much more so than monopolies.
The Murphmeister is therefore spouting nonsense. Again. And it\’s for the same old reason. He\’s trying to do all this economics stuff without knowing what other people have done before him in this economics stuff. He doesn\’t realise, for he\’s ignorant of the subject, that his arguments have been considered, then rejected, already.
Or, if you want it simply put, in 1963 Trabant introduced the 601. About the same time that BMW introduced the 3200 CS. By 1991 the Trabant was still the 601. BMW had moved on just a tad to to the E36.
I\’m sure we\’d all love to have such a stunning rate of innovation in health care as well, wouldn\’t we? State planned monopoly as in the Trabbi, competitive markets as with the BMW?