And third? It is that there is no one answer as to ideal ownership structures. In the real world we need a mixed economy. Some things (natural monopolies like health and education if the benefit is to be universal) have to be state run. Others, such as coffee shops and a vast array of small businesses need no state involvement at all: the only job of the state is to encourage such enterprises. But in between we need to be fluid. Circumstances dictate change over time and we should be honest about that, what is being done, when and why. Doing so would be the sign of a mature government willing to embrace reality. We are not enjoying such a government now, and to be candid we did not in 2008 either.

Dogma has no role in this.

Dogma has no role but education and health care must be nationalised because they’re natural monopolies?

What?

That’s as barking as insisting that coffee shops must be nationalised if all are to gain the benefit of coffee.

35 thoughts on “Wondrous”

  1. Look at the Netherlands for a model in which the State runs almost none of the education system. Very few of the schools are “state” schools, it’s run on a not-for-profit voucher system in all but name, and most schools are run by independent foundations.

    Natural monopoly my arrse…

  2. Whichever of you fuckers is Pilgrim Slight Return, you need to dial it back a little, or he (or Arnald) is going to twig that you’re a piss taker.

  3. I don’t think he means runs. I think he means owns. Its a common mistake made by many, and made deliberately by politicos when I suits them.

  4. One often sees the technical term ‘public goods’ used incorrectly to justify state provision. It’s understandable, if annoying.

    This is honestly the first time I’ve seen ‘natural monpoly’ so abused. Never mind that the existence of a single private hospital or school is sufficient to disprove it.

    Natural monopoly means that the minimum efficient scale is so large comapred the market, due to massive fixed costs, that it precludes any further entry.

    So, in no way like this situation.

  5. “(natural monopolies like health and education if the benefit is to be universal) have to be state run.”

    somebody doesn’t know what a ‘natural monopoly’ is.

    If its a natural monopoly then that means it *doesn’t* need to be state run (or controlled).

    Its only the ‘artificial’ ones that do – mainly because they’re created by government in the first place.

  6. health I might just credit a natural monopoly sort of argument, in so far as a single compulsory nationwide system avoids well know adverse selection problems so there is at least a sensible argument that the largest possible scale is more efficient (although that does not preclude using multiple private health providers to actually deliver it)

    but education?

  7. The various churches provided almost universal primary education for centuries before the state got involved. Of course, that depends on how much you consider churches as part of the state.

  8. In fairness I have it on good authority that this is phase 2 of the Corbyn project (at least in education ) – complete removal of all element of choice in education and nationalisation of all Private schools as well – at least he is up front about it rather than beating about the bush – might not play that well with actual voters obviously (as opposed to the nebulous ‘society’ he alone has an understanding of) but for the likes of Murphy when has what people wanted actually mattered if it does not chime with his view of the world?

    As close to pure evil as anyone i have seen on the blogosphere

  9. The irony is that lefties are the worst at this. Look at libraries – they were once a great idea, when books were expensive. Now, with cheap books? Not so much. Still need them, but probably not as much. Or the BBC. Perhaps a good idea to have a state-run TV when there’s not much competition due to bandwidth. When you have satellite, digital and Internet? Again, not so much.

    Who is dogmatically defending these, again?

  10. So the state should take over all these inefficient little hospices and provide end of life care?
    It will cost them more and do a worse job – thats why people put together hospice services in the first place!
    But no, Murph wants the state to have the monopoly on end of life.

  11. Luis Enrique
    “April 22, 2016 at 12:42 pm

    agammamon

    natural monopolies have to be regulated to minimise rent extraction. state ownership a reasonably sensible option.

    http://economics.mit.edu/files/1180

    No. Natural monopolies, when they try to extract excessive rents, open up opportunities for new entrants into that market – undercutting prices and forcing those rents back down.

    Artificial monopolies need regulation to prevent them from charging excessive rents.

    “a natural monopoly sort of argument, in so far as a single compulsory nationwide system ”

    A *compulsory* system is NOT a natural monopoly.

  12. “Alfred Marshall (1890) discusses the role of “increasing returns” in fostering monopoly and oligopoly, though he appears to be skeptical that pure monopolies can endure for very long or profitably charge prices that are significantly above competitive levels without attracting competitive
    entry.”

    From your linked paper.

  13. “When total production costs would rise if two or more firms produced instead of one, the single firm in a market is called a “natural monopoly.”

  14. “Murph wants the state to have the monopoly on end of life.”

    Socialism tends to not only to want to control the end of life but also to accelerate it…….

  15. well I didn’t know about Marshall’s scepticism but otherwise point is that if increasing returns to scale are large enough, once you have become a monopoly you can extract rents and competitors can’t get anywhere near you.

    rather odd to cite back a paper about need to regulate natural monopolies in support of your argument “If its a natural monopoly then that means it *doesn’t* need to be state run (or controlled).”

  16. Bloke in North Dorset

    Its time to start a new on line dictionary of abused terms. I’ll go first:

    Public Good

    A term used by Economists with a clearly defined meaning:

    “A Public Good is a product that one individual can consume without reducing its availability to another individual and from which no one is excluded. Economists refer to public goods as “non-rivalrous” and “non-excludable”. National defense, sewer systems, public parks and basic television and radio broadcasts could all be considered public goods.”

    public good

    A loose term used by leftists to justify spending tax payers’ money on their favourite projects, especially, but not limited to:
    (i) Any project that provides them with a sinecure
    (ii) Any project that provides them with power over the populace
    (ii) Any project that provides them directly or indirectly with Government funding.
    This can be summed up as he Humpty Dumpty definition: When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

  17. “public parks … could … be considered public goods”: a near-tautology there. The interesting question about public parks is whether it’s ever the case that some users make a park a much less pleasant experience for other users, by virtue of their great numbers, or their behaviour. I’d say “yes”, and that you can therefore distinguish the nature of the public park from the nature of broadcasting.

  18. Education is a ‘natural monopoly” (sic) if you want to control it and indoctrinate every child in the country.

  19. What I find intriguing is that Murph does not appear to know of the existence of mobile telephones.

  20. What he means by “natural monopoly” is not the encyclopaedia definition, but “things we would naturally like to be a State monopoly”. but pointing this out would be neoliberal sophistry.

  21. “Luis Enrique
    April 22, 2016 at 2:29 pm
    once you have become a monopoly you can extract rents and competitors can’t get anywhere near you.”

    No. No, no, no, no. No.

    “rather odd to cite back a paper about need to regulate natural monopolies in support of your argument “If its a natural monopoly then that means it *doesn’t* need to be state run (or controlled).”
    Luis Enrique
    April 22, 2016 at 2:30 pm”

    Because the paper itself even points out the standard theory is that natural monopolies are unstable and so do not need any more regulating than the market itself.

    “if you are vulnerable to competition you are not a natural monopoly are you”

    No. No, no, no, no. I don’t think you understand what ‘natural monopoly’ means. It means that a single (or only a tiny number) of businesses provide the optimal ‘cost of production’ and new entrants into the market *increase* that price.

    If a natural monopoly tries to capitalize on its position by raising rents, then the end effect is that it cancels out that increase in cost of production (to the consumer) and opens up the door for a new entrant into the market to undercut prices, dropping the rents back down (even if at the expense of driving the new entrant out of business). But if the NM then tries to increase prices *again*, it opens up an opportunity for a new entrant into the market . . .

    A natural monopoly can only maintain itself as a natural monopoly by *forgoing* the seeking of those excessive rents as the very act of seeking them undermines its position as a monopoly provider.

  22. They’re not natural monopolies as defined by Baumol. But you don’t want Schumpeter’s gale blowing through the hospital that’s treating you or the school that’s educating your children. Which suggests that considerable state involvement is desirable, either by regulation or ownership.

    A natural monopoly can only maintain itself as a natural monopoly by *forgoing* the seeking of those excessive rents as the very act of seeking them undermines its position as a monopoly provider.

    A natural monopoly can seek rents to the extend of its advantage in production costs. Which might well be far in excess of a fair return.

  23. matt – sure, why I said something like a natural monopoly. not one and same thing.

    aggamemon it isn’t very hard to see that the gap between the average cost of a natural monopolist operating at scale, and a price sufficiently high to induce entry, can be large leaving plenty of room for enjoying a flow or rents whilst deterring entry. anyway, don’t take my word for it, go argue with just about every other economist ever.

  24. @ Luis Enrique
    You are postulating the absence of international trade and price-inelastic demand.
    The gap between between the average cost of a natural monopolist operating at scale and a price sufficiently high to induce entry is very low in the absence of trade barriers (the marginal cost to a, say, German producer plus transport costs can be close to the average cost plus lower local transport costs for a British producer).

  25. “you don’t want Schumpeter’s gale blowing through the hospital that’s treating you or the school that’s educating your children”: around here, that’s just what has been needed.

  26. So Much For Subtlety

    Social Justice Warrior – “But you don’t want Schumpeter’s gale blowing through the hospital that’s treating you or the school that’s educating your children.”

    What do you want instead? A slowly ossifying corrupt system run by the teachers and Unions for their own benefit? It is precisely in the hospitals and schools we want some creative destruction. The alternative is a slowly rotting, unaccountable, bureaucracy

  27. Luis Enrique
    April 22, 2016 at 7:04 pm

    aggamemon it isn’t very hard to see that the gap between the average cost of a natural monopolist operating at scale, and a price sufficiently high to induce entry, can be large leaving plenty of room for enjoying a flow or rents whilst deterring entry. anyway, don’t take my word for it, go argue with just about every other economist ever.”

    Yes, and? That’s how every business works. You charge what the market will bear, not one penny more, not one penny less.

    That rate that’s juuuuuuust under what would be necessary to open up a gap for a competitor to arise – that’s the ‘fair’ rate.

    Because if it was any higher there would be a competitor to Drive it back down. And if it was any lower that would be *charity* on the part of the business owner.

    What you’re basically saying is that a natural monopoly may be able to charge rents higher *than you think is ‘fair’ and so we must empower government to force them to lower their prices to what YOU think is fair*.

    ‘Rule by Top. Men’, as we say over here.

    Which is not the same thing at all.

  28. “luis enrique
    April 22, 2016 at 10:44 pm

    John77

    Not many natural monopolies in tradeable goods”

    Absolutely right – which is why almost all monopolies are government created.

  29. “Social Justice Warrior
    April 22, 2016 at 6:21 pm

    They’re not natural monopolies as defined by Baumol. But you don’t want Schumpeter’s gale blowing through the hospital that’s treating you or the school that’s educating your children. Which suggests that considerable state involvement is desirable, either by regulation or ownership.”

    Uh, wat?

    Have you *seen* how good the NHS is? The American VA? Our public school system? Cuba, China, North Korea?

    You’re damn right I want those winds blowing through my local hospital and schools.

  30. Well the thing is, a lot of people think that the NHS is the best healthcare system in the world. There’s several reports that back that up too. They’re all flawed in some way, and Tim has posted about many of them, but to the majority that doesn’t matter. They’re the ones you need to convince.

  31. Matthew – my father in law, aged 84, has been in hospital almost 8 weeks. He went in for a week and besides a fall a few weeks ago has been medically fit most of past 7 weeks. Except they are really slow in getting him out.
    Now they are insisting on physio – which they haven’t done in 8 weeks. Every time they move him within ward or to different wards he has a new physio assessment. 11 assessments by 10 different staff in 8 weeks for the same things such as abiility to walk – same as previous assessments – and ability to climb hospital stairs – same again. Add in staff bullying….
    No sympathy for NHS now.

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