The Free Market vs. The Regulated Market

[WinePusher]

This thread is dedicated to a scholarly examination and discussion of the Free Market and Regulated Market, one liner comments are discouraged.

1) In your mind, what do you consider corporations to be? Are they corrupt and immoral and inherently require government regulation, or are they good and honest institutions that should be left alone.

2) Should there be any intervention by the Government in the Market? And if so, at what level? For example, should the government be able to determine a minimum wage and interfere in Labor, or be able to regulate and control speculations such as Glass-Steagall.

3) Does government intervention destroy competition? Such as TARP?

4) Are there any other sources of Government Revenue other then taxes? Should taxes be inherently low even if the government must spend less and reduce services?

[perfessor]

1) In your mind, what do you consider corporations to be? Are they corrupt and immoral and inherently require government regulation, or are they good and honest institutions that should be left alone.

Oh come on, winepusher. There's a lot of room in between "saint" and "devil".

Corporations are inherently amoral (not "immoral", which implies evil intent), in that they act for their own interests alone. The extent to which a corporation's interests dovetail with the economy as a whole is is a complicated issue. The old mantra from the 1950's that "what is good for GM, is good for the country", is true in part, false when taken to extremes. For example, the government should have the power to prevent monopolies from controlling resources. And yet, a monopoly is exactly what any corporation would love to achieve.

2) Should there be any intervention by the Government in the Market? And if so, at what level? For example, should the government be able to determine a minimum wage and interfere in Labor, or be able to regulate and control speculations such as Glass-Steagall.

I note the use of the loaded term, "interfere". Is it "interference" to proscribe slavery? Payment in scrip? I don't think so.

3) Does government intervention destroy competition? Such as TARP?

The government should have intervened long before TARP became necessary.

4) Are there any other sources of Government Revenue other then taxes? Should taxes be inherently low even if the government must spend less and reduce services?

I'm really not sure what this has to do with the rest of the question.

[LiamOS]

In your mind, what do you consider corporations to be? Are they corrupt and immoral and inherently require government regulation, or are they good and honest institutions that should be left alone.

They are neither. They are merely corporations.
Naturally, corporations are structured(traditionally) in such a way as to allow for greed to become a factor and lead to corruption(Easily observable). Given this, I think regulation is necessary. what degree of regulation? I don't know.
Governments should regulate what can and cannot be done and how it can be done so as to maintain the rights of individuals in a society.

Should there be any intervention by the Government in the Market? And if so, at what level? For example, should the government be able to determine a minimum wage and interfere in Labor, or be able to regulate and control speculations such as Glass-Steagall.

I don't quite know what the second example is in reference to, being Irish, but a government should certainly implement a minimum wage. Absence of minimum wage, while potentially beneficial for corporations and companies, is potentially debilitating for those more vulnerable in society. Other regulations on hygiene, safety and working hours should also be put in place, with possible exceptions made where appropriate.

Does government intervention destroy competition?

Not necessarily. Nationalisation of an entire industry sector would, but not too many governments do that.
Notably, Norway's government controls the sale of spirits entirely. This eliminates competition entirely and allows them to appropriately regulate strong alcoholic beverages.

Are there any other sources of Government Revenue other then taxes? Should taxes be inherently low even if the government must spend less and reduce services?

Taxes should be at whichever rate allows for high-quality health, education and welfare services and well as public services and infrastructure.
I see no reason why they should necessarily be low.

[McCulloch]

Corporations are a legal fiction. Humans, to be successful, must work together at various enterprises. A corporation is a legal person, capable of making contracts and being sued, which was created to protect the investors from liability. The investors are only liable for the actions done on their behalf by the corporation up to the amount that they have invested. History, both recent and not so recent, have shown that unregulated corporatism has not been beneficial. Regulations are necessary to protect investors, customers and society from those people who would use the protections built into corporate structures to line their own pockets.

Of course governments, who's task it is is to protect society's well-being, should intervene in the Market. For example, by setting a minimum wage, governments protect individual workers from being exploited by larger more powerful corporations. It is an implicit recognition that there is a significant power imbalance between employees and employers at the low end of the pay scale.

[micatala]

This thread is dedicated to a scholarly examination and discussion of the Free Market and Regulated Market, one liner comments are discouraged.

1) In your mind, what do you consider corporations to be? Are they corrupt and immoral and inherently require government regulation, or are they good and honest institutions that should be left alone.

As noted by others, the characterization here is a bit of a false dichotomy.

I certainly don't consider corporations inherently evil. However, to the extent the goal of a corporation is typically to maximize profit, the pursuit of that goal can lead to deleterious societal consequences if not regulated. I do think we need regulation. We can discuss the details as we go.

2) Should there be any intervention by the Government in the Market? And if so, at what level? For example, should the government be able to determine a minimum wage and interfere in Labor, or be able to regulate and control speculations such as Glass-Steagall.

Again, I do think we need intervention, at least in the form of regulation and oversight. I agree with the concept of a minimum wage. I agree in regulating the market to acheive ends like honesty and transparency. I also think the effect that corporations may have on the economic well-being of everyone justifies regulation on that basis alone.

3) Does government intervention destroy competition? Such as TARP?

Depends. Government intervention could lead to reduced or even non-existent competition. TARP arguably had this effect, picking winners and losers one might say. However, given the circumstances, TARP was probably necessary for the good of society, and in the end, it does not look like that intervention will cost us much in the way of funds.

Also, I think it is fair to suggest that competition in and of itself is not an unqualified good, and perhaps should not be seen as an end at all but rather as a means. Note that even when the "rules" allow for pretty free competition, the result is often in the end a non-competitive monolopy or cartel. Private enterprise capitalism does not always produce what I would call competition, or at least fair competition.

4) Are there any other sources of Government Revenue other then taxes? Should taxes be inherently low even if the government must spend less and reduce services?

I don't see that one can easily make a case that any certain level of taxation is the "right one." The level should be generally agreed upon through the democratic process. Ideally, before deciding on the level of taxation, we would agree on what responsibilities and tasks etc. we want to assign to government. Then design the tax system to adequately support those endeavors.

Having a debate on the level of taxation without first debating the purposes and role of government seems to me to be putting the cart before the horse. The caveat would be that we cannot ask government to do more than the society can afford. I am not sure, despite our current deficit situation, that we are all that close to that point in the U.S. In my view, we clearly could raise revenue via taxation to pay for the government we now have or even more. I am not saying we must or even that we should, but I am saying there is enough wealth and income in the economy to support our existing ongoing expenditures if we chose to raise taxes.

[nygreenguy]

This thread is dedicated to a scholarly examination and discussion of the Free Market and Regulated Market, one liner comments are discouraged.

1) In your mind, what do you consider corporations to be? Are they corrupt and immoral and inherently require government regulation, or are they good and honest institutions that should be left alone.

They are as good as the people who own/run them.

2) Should there be any intervention by the Government in the Market? And if so, at what level? For example, should the government be able to determine a minimum wage and interfere in Labor, or be able to regulate and control speculations such as Glass-Steagall.

Absolutely. As much as necessary. Minimum wage was necessary, and still is.

3) Does government intervention destroy competition? Such as TARP?

Government intervention CAN destroy competition. TARP is not an example. TARP was required to save the economy.

4) Are there any other sources of Government Revenue other then taxes? Should taxes be inherently low even if the government must spend less and reduce services?

Fines from tickets, crimes, etc.... Taxed have been shown to be the best way for a government to fund itself.

should taxes be low? Depends on what gets cut!

[WinePusher]

2) Should there be any intervention by the Government in the Market? And if so, at what level? For example, should the government be able to determine a minimum wage and interfere in Labor, or be able to regulate and control speculations such as Glass-Steagall.

I note the use of the loaded term, "interfere". Is it "interference" to proscribe slavery? Payment in scrip? I don't think so.

What else do you call it when an outside entity forces you to pay your workers a certain amount of money at the risk of penalties, but if the sole concern here is with semantics please leave it aside.

Let's look at the minimum wage. What the conventional thought amoung neoclassicists is that the minimum wage increases unemployment because the cost of labor becomes disproportionate to the output. Companies only employ a worker if their efficiency and output exceed the cost of employment, also known as the marginal cost of labor (whether it be wages, healthcare or benefits). A government imposed minimum wage messes with the marginal cost of labor and leads to less employment. For example, let's say the minimum wage is $5. If I wanted my house painted, I have the choice of hiring 5 painters and paying each $1. But the government won't allow me to do that so I can only hire one painter and pay him $5, meaning that 4 other people don't have a job and my oppurtunity cost has been denied, a clear overeach of government.

3) Does government intervention destroy competition? Such as TARP?

The government should have intervened long before TARP became necessary.

That's not the point. I don't care about whether TARP was efficent or not. If I set up a pizza shop right next to Joe Pizza, what we do is compete. Let's say Joe Pizza makes some bad decisions and loses customers and therefore is making no profits. Well, he's gotta close down and lay off his cook and cashier. However I have made good decisions and my shop is prospering. Is it fair for the government to bail out and subsidize Joe Pizza's inefficent store even though he crashed and burned because by his own fault? Should there be a corporate safety net?

[nygreenguy]

What else do you call it when an outside entity forces you to pay your workers a certain amount of money at the risk of penalties, but if the sole concern here is with semantics please leave it aside.

Let's look at the minimum wage. What the conventional thought amoung neoclassicists is that the minimum wage increases unemployment because the cost of labor becomes disproportionate to the output. Companies only employ a worker if their efficiency and output exceed the cost of employment, also known as the marginal cost of labor (whether it be wages, healthcare or benefits). A government imposed minimum wage messes with the marginal cost of labor and leads to less employment.

Really? despite min. wage increases, we have not seen a correlating decrease in hiring.

For example, let's say the minimum wage is $5. If I wanted my house painted, I have the choice of hiring 5 painters and paying each $1. But the government won't allow me to do that so I can only hire one painter and pay him $5, meaning that 4 other people don't have a job and my oppurtunity cost has been denied, a clear overeach of government.

Sure, if you think people being employed for 1$ an hour is a good thing. Have you read into the history of this country BEFORE the minimum wage? I would suggest reading Peoples History of the United States for a good look into what it was like pre-min wage.

Sure, you could hire more people, which would be good for you but not for the workers. Its not in the best interest of anyone in the country for you to pay $1/hour. How would people live? How would people purchase stuff and give back? Before the minimum wage, unless you were born into wealth, there was little to no movement among economic classes.

Heres a good article from the EPI:

Everyone should have the opportunity to earn a decent wage. No American should be compelled to work at a rate that, assuming full-time labor, every weekday, all year long, amounts to the $10,712 that the current minimum wage provides. This is equally as true for a middle-class youth working to raise money for college as it is for a single mother supporting a family. The minimum wage is not just about helping the impoverished. It is about fairness, the value of work, and the opportunities that work provides.

Furthermore, no employer should be allowed to unreasonably profit by exploiting the lack of negotiating power of low-wage workers. The free market fails to set a fair price when one side holds all the bargaining chips. In another context, this is why laws exist against monopolies. If only one supplier supplies a good, it can charge more than the good is worth because the purchaser is powerless to obtain it elsewhere. Low-wage workers are in the opposite position of the monopolist. They lack the skills that command higher wages, but, because they need to work to survive, they cannot withhold their labor from the market. The monopolist can set the price at almost whatever level it wants, while the low-wage worker must take almost whatever is offered for his or her labor. Minimum wages exist for the same reason that laws against monopolies existthey deal with situations in which the market fails to set fair prices.

But beyond the principle of valuing work and the economic rationale of correcting for market failures, the minimum wage provides a concrete benefit. Not surprisingly, low-wage workers tend to live in low-income households. Thus, raising the minimum wage provides income support to families in need. While it is important to understand that the minimum wage should not be judged solely on its efficiency at targeting low-income families, research shows that it performs well at doing just that.
.

http://www.epi.org/publications/entry/issuebrief201/

That's not the point. I don't care about whether TARP was efficent or not. If I set up a pizza shop right next to Joe Pizza, what we do is compete. Let's say Joe Pizza makes some bad decisions and loses customers and therefore is making no profits. Well, he's gotta close down and lay off his cook and cashier. However I have made good decisions and my shop is prospering. Is it fair for the government to bail out and subsidize Joe Pizza's inefficent store even though he crashed and burned because by his own fault? Should there be a corporate safety net?

You need to realize we do not live in the free-market fantasy land. This wasnt about little pizza shops. If these companies failed, millions of americans would have been affected. Countless numbers of retirements, investments, mortgages, etc.... were all tied up in this. If only the companies would be affected, no one would have cared but thats NOT what happened. Thats why we had the term "too big to fail". If they failed, we all would have been screwed.

[WinePusher]

Really? despite min. wage increases, we have not seen a correlating decrease in hiring.

Here is a study outlining my argument. In this case, the "follow the statistics" reasoning doesn't fully apply. It is an economic maxim that if the marginal cost of a worker exceeds his marginal productivity, the businees will not hire because it will not generate profit. The fact is, a minimum wage sounds good on its surface but entails much more then simply being a just and compassionate policy for low skilled laborers:

A high minimum wage for unskilled labor positions would force companies to hire less, thus decreasing the labor demand and decreasing the services or goods that the company provides. When Marginal Revnue Productivity is less then the Wage (In this case, the Minimum Wage), you get unemployment. Either you keep the minimum wage low, or completely abolish it if you want growth in Labor Markets. Also, abolishing the minimum wage doesn't mean that I am for maltreating low skilled workers.

For example, let's say the minimum wage is $5. If I wanted my house painted, I have the choice of hiring 5 painters and paying each $1. But the government won't allow me to do that so I can only hire one painter and pay him $5, meaning that 4 other people don't have a job and my oppurtunity cost has been denied, a clear overeach of government.

Sure, if you think people being employed for 1$ an hour is a good thing.

That's the problem. And in this case you have to choose between the lesser of two evils.

Sure, you could hire more people, which would be good for you but not for the workers. Its not in the best interest of anyone in the country for you to pay $1/hour. How would people live? How would people purchase stuff and give back? Before the minimum wage, unless you were born into wealth, there was little to no movement among economic classes.

In theory, I would rather hire more people to do a job and give them a subtantially low pay check then only hiring one person and paying him a high sum of money while leaving the others with nothing. Also, I think its wrong to think that if the minimum wage were abolished, it would therefore mean that busineeses would not pay their workers their fair share.

[nygreenguy]

Here is a study outlining my argument. In this case, the "follow the statistics" reasoning doesn't fully apply. It is an economic maxim that if the marginal cost of a worker exceeds his marginal productivity, the businees will not hire because it will not generate profit. The fact is, a minimum wage sounds good on its surface but entails much more then simply being a just and compassionate policy for low skilled laborers:

Did you read the whole page for my link? It contradicts everything your study says.

I also looked through your paper and they try to say there is a correlation between increasing min. wage and unemployment but they fail to show their methodology, p-values or any real statistics. I wonder how academic this study even was.....

A high minimum wage for unskilled labor positions would force companies to hire less, thus decreasing the labor demand and decreasing the services or goods that the company provides. When Marginal Revnue Productivity is less then the Wage (In this case, the Minimum Wage), you get unemployment. Either you keep the minimum wage low, or completely abolish it if you want growth in Labor Markets. Also, abolishing the minimum wage doesn't mean that I am for maltreating low skilled workers.

But we have never seen this. What you have is a hypothesis, and there is no evidence to support it.

As for the bolded part, we have seen this. This is what it was like BEFORE the min. wage. Free-market people like to say that the competing marketplace would naturally keep wages competitive, but the facts of history show the opposite.

Look at the sweatshops in third world countries for evidence that the market is a failure.

In theory, I would rather hire more people to do a job and give them a subtantially low pay check then only hiring one person and paying him a high sum of money while leaving the others with nothing. Also, I think its wrong to think that if the minimum wage were abolished, it would therefore mean that busineeses would not pay their workers their fair share.

What this does is gives all the rights and privileges to the employer. Many people think workers have a right to minimum standards for employment. I really think we have it so good in this country now, people forgot the reason we have these laws in place and what life was like before them. Sometimes I think a reversion to the squalor and unsafe work conditions, slave wages, 100 hour work weeks, and child labor would do us some good and help us appreciate where we came from.