The first is that free markets exist, and that they can allocate resources efficiently within society. We don’t have free markets in the UK or anywhere else in the world, to be totally honest, because free markets presume that everybody who competes in the marketplace is of roughly equal size, all of them are price takers, none of them are able to exert power over the marketplace by setting prices independent of what the consumer is willing to pay, and, as a result, it might, in theory operate fairly in the sense that the consumer has the power.
But we know that isn’t true. We know that large companies dominate the market. We know that there are monopolies. We only have to look at the tech companies. We only have to look at our supermarkets.
OK, let’s look at supermarkets.
Back when, around the turn of the millennium, we had, pretty much, four supermarkets. With a great deal less competition than that in many geographic markets. Tesco made 6% net margins on turnover.
In the intervening couple of decades Aldi and Lidl have irrupted into that same market. Tesco now makes 2 to 3% net margins. Not far off the cost of capital in fact – which is another way of saying no economic rent, no excess profits, no market power.
Hmm, OK. Competition works.
But we can go further. The Spud contention is that unless we’ve got a wholly truly free market then it’s not a free market. Steve Keen spends his time proving this as well. He once tried to convince me that as we’ve never got an infinite number of suppliers then no market is free and therefore everything must be analysed – and managed – as an oligopoly.
All of which is to entirely forget that economic models are models. The useful trick being when to apply which one?
We might well have – usefully – applied that oligopoly model to supermarkets back when Tesco was making 6%. Now we’ve more competition and are at cost of capital returns then the free market model looks more appropriate. The outcome is as it would be if the free market model were true, not the oligopoly, so that does seem like the useful model to be using.
Or, as Stevie Boy refuses to even consider, we don’t need that many competitors – perhaps only 6 – to end up with something close enough to a truly free market for us to consider it a free market. Maybe 4 supermarkets – with a lot of geographic concentration greater than that – isn’t enough to be a free market. But the number that makes the free market the appropriate model is a lot less than an infinite number of suppliers.
Of course, the problem with Spud is simply that he’s ignorant of these points but then that’s no surprise.
This also amuses:
We only have to look at the limited number of car manufacturers and realise that there is simply no such thing as a free market anymore.
As on the substack:
So, government is really keen that we all buy into these EVs. The big corporations – sorry, Big Corporations – are all really keen we buy into the EVs. And what happens? Well, if we don’t spend our cash on EVs then we win.
Hmm, OK, so it’s possible to say that on the larger scale we don’t as we all end up murdered in our beds by higher temperatures. But in a battle between what we, as consumers, are willing to spend our money upon and what capitalists and government want us to be doing we win. Why? Because the money is currently in our wallets and they want it to be in their. So, they’ve got to please us to get us to spend it. If they don’t we don’t and we win.
It really isn’t true that a free market – which means we’ve got choices – and capitalist – meaning there’re people richer than us who want our money – society means we’ve no power. Exactly because we’ve choices we do have power. They’ve at least got to fluff us if not fully fellate in order to get our cash.
Ford wants us to buy EVs. We’re not buying EVs. Therefore there’s a free market in whether or not to buy an EV. QED.
Supermarkets – monopolies? Srsly? In my neck of the woods (U.S.) I have anywhere from 4-12 choices depending on the product (boxes & cans versus fresh) & there is pretty vigorous competition for my $ – I get coupons & emails & freebies constantly. Not to mention quite a few small, family-owned roadside stands. Other than that…
Limited # of car manufacturers? Ford, Chevy, Jeep, Chrysler, Toyota, Nissan, Honda, BMW, Saab, Audi, Volvo, Kia, Hyundai – all available pretty close to where I sit.
They’ve at least got to fluff us if not fully fellate in order to get our cash.
Is that why all the adverts on telly feature grinning Congoloids?
It’s relative anyway. We know that monopolies like govt are shite at efficiency.
Some sort of free competition significantly improves efficiency. The freer the competition the higher the efficiency. Also the more regulated the market the lower the competition.
Hence big corps lobby govt, EU, etc. for more regulations.
“to be totally honest” Ha ha. Is that the long form of “candidly”?
Our grocers: we use Morrisons, M&S, Tesco, Sainsburys, Waitrose, Aldi, the Co-op, and occasionally Lidl and Budgens. We also shop at an exotic Christian outfit that sells organic stuff – some of it awfully good. Plus we use various delis and farmshops and a specialist butcher, cheesemonger, and greengrocer.
I take it that the King of All Spuds would prefer that we use a state monopoly grocer instead. He’s enough of a vegetable to be President of the United States.
I imagine Jim might be along to explain this is why economics is ‘not a science’ shortly – but this is what Murphy does – selective use of evidence, double standards, presenting his own position with the most nuanced view while creating a straw man out of his opponents. He has made a living out of it. You might as well criticise a fly for eating shit. He is fundamentally evil – therefore he argues for evil policies.
Richard Murphy has never, in the past decade and a half, made any reference to “price takers”. And yet here he is, just a few days after Tim Worstall refers to oil companies being price takers, arguing against the very idea.
Who do you read Richard? Is there a quiet fixation you would like to admit to?
I imagine Jim might be along to explain this is why economics is ‘not a science’ shortly
Is this science? The knowledge that if there’s only one person selling what you have to have you’re going to get stiffed. And if there’s several people have to sell you what they have, they’re ripe for stiffing, belongs in that box labelled ” common sense”.
But in a battle between what we, as consumers, are willing to spend our money upon and what capitalists and government want us to be doing we win. Why? Because the money is currently in our wallets and they want it to be in their. So, they’ve got to please us to get us to spend it. If they don’t we don’t and we win.
That might work with capitalists but if we aren’t spending our money on what government wants, then the government has a habit of taking it off us. As we are about to find out from 2TK and his evil handmaiden.
My local Renault dealer is finding out this little lesson the painful way. Renault leapt head first into the EV game. Now they have nothing in their line-up that remotely interests me, so I’m not replacing my existing one. They just lost a sale. But, as they confirmed during our chat, not just me by a long chalk.
As a statistician friend of mine is fond of saying: “all models are wrong, some models are useful”.
Large companies dominate in no small part because of the protection they receive from government – smaller companies can’t devote the budget that large companies can to ‘compliance’.
Like, he’s got a point about large entities eating everything in a completely free market – and then he goes off the rails because reality and Murphy have never met.
Ford doesn’t want to sell us EVs.
Ford wants to sell us cars. Of either type. Ford (and every other general manufacturer) are usually dictated to by the market what sort of car they make – SUVs sell, so they make more SUVs. With a few niche manufacturers for unserviced sectors of the market.
Then along comes the government and says “You’re only allowed to sell EVs after this date and until then, an increasing proportion of EVs.”
Fine, wonderful, brilliant… In theory we’ll replace our fleet with EVs, trebles all round. In practice, since EVs are shit having short range, long refueling times, high repair costs, catastrophic resale values and an unfortunate tendency to self-immolate without warning, the consumer isn’t buying. They still have IC available and can always just hold onto their current vehicle.
This is why motor companies are losing money hand over fist on EVs – there just isn’t the volume in the market to make money. Ford losing north of $65,000 on every EV they sell.
So the companies are now realising that EVs aren’t the money spinning wünderwagens they expected them to be and they’re panicking. Nobody wants the expensive EVs from legacy manufacturers and people who do want EVs are getting cheap Chinese driveway burners (still works out cheaper to buy one of those, replace it and replace your driveway than getting an expensive legacy EV).
Anyway, the point being the car market is controlled by the consumer. Car manufacturers are going to have to move to parts supply if they want to stay here. Unless the government changes course… (Stop laughing)
LR – Renault, like other European manufacturers, is caught between unworkable EU environmental diktats and low cost Chinese competition:
Stephen Reitman of Bernstein, a broker, describes Renault as a card player that has not been dealt the strongest hand but is squeezing every point out of it. Its turnaround has positioned it well to take on the Chinese carmakers that are starting to export cheap evs to Europe, despite its costlier French labour. When the Renault 5 goes on sale later this year it will have a starting price of €25,000, making it competitive with Chinese imports. The Twingo, a smaller ev Renault plans to release in 2025, will sell for under €20,000.
All this may explain why Mr de Meo seems unruffled by the threat from Chinese carmakers. They are “not unbeatable”, he says, adding that “it is not a time to panic.” The carmaker has partnered with a Chinese engineering company to develop the new Twingo. It hopes to replicate the dynamism of Chinese carmakers by slashing development times for new models. Tariffs on Chinese evs imposed from July will buy carmakers such as Renault some time. It does not intend to waste it.
The Economist is somewhat bullish on Renault’s future, but not only is Chinese labour much cheaper, but the cost of electricity is about a third of what they pay in France. So that tariff wall will need to be massive.
Another worry for the firm, and European carmakers more generally, is the European Union’s emission targets, which tighten considerably next year. To comply, around 16% of the cars Renault sells in Europe will have to be fully electric, by ubs’s calculations, up from nearly 12% in the first half of this year. Although the Renault 5 will boost that figure, it may not be enough to avoid fines. The firm could be forced to sell fewer ice cars, which are more profitable, to meet the targets.
Next up: why have all our manufacturing jobs gone to China, and why is Brexit to blame?
“we don’t need that many competitors – perhaps only 6 – to end up with something close enough to a truly free market for us to consider it a free market.”
You’ve obviously never had to deal with the bunch of shysters that constitute the ‘business market’ for utilities in the UK then. There’s plenty more than 6 of them, and they are all money grabbing arseholes who treat their customers like shit, and magically all charge the same as all their ‘competitors’, unless you’re a massive consumer, like Tesco or Amazon, in which case they’ll probably fellate you under the table to get your business.
A quick Google suggests there are over 60 car manufacturers that could be considered international. And any number of small national firms.
There are 17 national supermarket chains in the UK. With dozens of local chains.
Spud spouts lies to support his arguments, relying on his viewers WANTING what he says to be true and being even dumber than him.
Jim:
“There’s plenty more than 6 of them”. Are there really more than 6 competing for any given potential customer?
Or is it like internet in Canada, where there’s two companies (Bell and Rogers) who own actual cables, and a bunch of resellers? Which means that in a service interruption they can point fingers at each other.
More to the point, for cable TV/internet there used to be two companies, but they had a monopoly in their respective geographical areas (Rogers in the east and Shaw in the west). And then the government approved a merger.
I suspect your “competitors” are one company that owns the power lines and a bunch of resellers.
In Canada we have some of the highest rates for internet in the world, and it’s mostly due to the completely uncompetitive environment. No one actually offers lower rates; they just offer higher monthly data caps for the same money as their “competition”.
Additional point: when you go to buy onions in the market, at least with grocery stores you don’t have a government-mandated setup so there’s one firm that buys all the onions, and then both resells them directly and also sells them in bulk to a bunch of other firms that sells them retail.
Oh, yes. We have that in Canada too. Milk Marketing Board anyone? I’m guessing that’s pretty much the setup in the EU, and that has either infected you Brits, or you Brits infected them with it. Hard to tell really.
“I suspect your “competitors” are one company that owns the power lines and a bunch of resellers.”
In the water markets they are indeed just resellers. But not one of them manages to offer decent customer service and treat their customers like human beings. They all act like complete c*nts. Presumably because thats cheaper than providing decent service and as everyone does the same there’s no effect on profits. We all need water after all.
In the energy market there are at least 6 actual generating suppliers. Plus a myriad of resellers. And they all act like c*nts too.