I was gratified, and surprised, by T-Mobile’s announcement a year or so ago that they were planning to offer the sort of plan a consumer would actually want: Cheap, you’re not forced to stay for two years, you don’t keep paying for the same phone forever, you don’t pay fees for going over your data limit . . . . I thought maybe I was dreaming a little, but in fact others thought it was pretty great too.
And now we’re in a full-on price war; AT&T is cutting the cost per line for a smartphone from $40 to $15.
This is how markets are supposed to work: companies compete to find ways to provide more of what consumers want, at a better price.
And the market is only finally working for one reason: Mean old government.
Only a couple of years ago, AT&T was trying to buy T-Mobile. If that deal had gone through, there would be no T-Mobile to start the price war. We’d have the same three companies, offering us the same crappy plans, forever. That’s not a market–that’s a Telephone Authority that happens to be privately owned.
And the deal didn’t go through because the Justice Department decided that it was a violation of antitrust laws.
Why do I bring this up now? Because there’s another big telecom merger in the works: Comcast and Time Warner Cable. This is another terrible idea–so terrible that the best defense I’ve heard is that the companies are already not competing (they leave each other monopolies in different regions), so it hardly matters if they merge. Why try to preserve a market that doesn’t exist?
But at the time of the proposed cell merger, cell service wasn’t a functioning market either—all four carriers happily offered plans that bore very little resemblance to what we wanted, and we bought them because there was no option.
And it was worth preventing that merger–that’s what allowed a functioning market to finally appear (to the degree that it has).
So it’s not necessarily a choice between the merger and the crappy status quo. if we keep Time Warner and Comcast separate, they may actually start competing. Or an upstart may appear to give better service at better prices (which would hardly be difficult; Comcast and Time Warner’s monopolies have made them phenomenally lazy and insolent); any upstart will have an easier time if the companies are separate.
[EDIT: In keeping with my commitment to enlightenment via cartoons, here’s one Jim Benton commenting on his experience with his cable company.]
Yes, right now, in many areas of the country people are so beaten down that the very idea of a cable company offering decent prices and good service seems like whacked-out dreaming. But a couple of years ago, the idea of an affordable cell phone plan that gave us what we actually wanted seemed like the same thing.
This comment is about your Social Security Comic, not this one. Commenting here since I can’t find a place to comment about the SocSec comic.
Michael,
You’re comic on SocSec is superficially correct in form, but entirely misses the deeper, functional points.
FICA taxes for elder & unemployment benefits aren’t necessary for any other policy, or for Corporate Welfare. So they aren’t for SocSec either. Just another regressive policy, reflecting 80 years of cruel, class warfare – all hiding behind political smoke & mirrors. Touted assumptions, as you say in your economix comic.
“I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, THEY’RE STRAIGHT POLITICS.” Franklin D. Roosevelt, 1941
http://www.ssa.gov/history/Gulick.html
The key parts to know and get across in the SocSec comic are that:
1) We’ve had a fully fiat currency system since 1933. Nations, as fiat currency issuers don’t “get” fiat from anywhere. “Fiat” means that all arbitrary constraints on currency creation (various pegs, like to a commodity std OR to a foreign currency valuation std) have been removed. Any transaction that any citizens are trusted and allowed to make … are AUTOMATICALLY denominated in that nation’s currency. That’s what “fiat” means. That all distributed citizens can automatically create & destroy currency units, whenever culturally allowed trasactions (matching credits/debits) are declared. We license banks to track all this accounting.
Why? The benefit is a larger Policy Space (more national options) and increased Policy Agility (whatever we decide to DO for one another, we can start instantly, and pay one another).
http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf
http://fraser.stlouisfed.org/docs/historical/eccles/077_03_0002.pdf
http://www.sltrib.com/sltrib/opinion/51046418-82/eccles-economy-president-federal.html.csp
2) MOST fiat currency created/destroyed by matching credits/debits cancels out, as private currency credits circulate & through products/services, and eventually get used to pay off private debits. The extra amount of fiat currency needed for Public Policy comes ONLY from public spending (net creation of fiat currency) Fiat currency issuers do not GET fiat from taxes. They issue monopoly currency 1st, then claw some of it back as taxes, AFTER citizens have received it from public coffers. What isn’t clawed back as taxes stays as net, private financial savings. Net taxes destroy fiat currency. Net public spending creates net fiat currency. A growing nation always needs net public spending to Right-Size it’s currency supply.
http://www.constitution.org/tax/us-ic/cmt/ruml_obsolete.pdf
http://mises.org/journals/aa/AA1946_VIII_1.pdf
3) Therefore, the upshot of ANY public policy is the same. Fiat currency is ultimately “BACKED” by Public Initiative, a dynamic value that we can’t run out of. The only constraint on fiscal policy is to avoid excessive inflation or deflation.
http://moslereconomics.com/mandatory-readings/
http://www.goodreads.com/author/show/1391145.L_Randall_Wray
http://neweconomicperspectives.org/2013/12/slapping-trillions-obligations-diapers-next-generation.html
4) SocSec (enacted ~1936), just like the DoD, is a public policy. We didn’t even invent the charade of a “Trust Fund” to hold fiat currency for SocSec until sometime in the 1980s. A fiat trust fund, to hold fiat? All smoke and mirrors.
5) And no, don’t worry about any deficit in fiat. The only worry is national capabilities, full employment, and inflation/deflation.
“Almost everybody talks about budget deficits. Almost everybody seems in principle to be against them. And almost no one, literally, knows what [they are] talking about.” Robert Eisner, The Misunderstood Economy, p.90;
http://mikenormaneconomics.blogspot.com/2014/01/five-appalling-lies-you-should-swallow.html
I never really understood the nuances of free trade until I came across this. One of the best economic articles I have ever read, and very true. The drawings were excellent and funny.
Great to see someone tackling this issue and making it intelligible. We definitely need more of this kind of thing. Unfortunately, the logic here cascades dramatically from “this free trade agreement is problematic because it’s details have been kept secret” to “free trade serves self-destructive corporate interests.”
One major problem here is that there is no central theory of economics as a counter-point. Ok, certain free trade agreements may disproportionately benefit investors, but that does not necessarily undermine the basic logic of trade agreements. Let’s reverse the process in the opposite direction: reducing free trade. At an extreme, this is obviously destructive because there are few shared standards and efficient trade is almost impossible. This was the story of what is now modern Germany but which was previously an agglomeration of competing sovereignties. Certain middle- and upper-class interests drove integration in the 19th century, but in the long run, all Germans have benefitted from a single market. Similarly, Americans vacillated between protection and integration before the depression and raised trade walls in the 1930s. Catastrophic mistake.
There are also political motivations that drive many of these agreements. The European Union is a case-in-point. The EU has some serious challenges, but the point is that integration was driven by political as much or more than economic goals. The TPP, for instance, is as much a balancing coalition against China as it is a sandbox for cigar-chomping stock brokers.
Your account also raises concerns about governments handing over sovereignty to institutions like the World Trade Organization. That’s a concern, but despite the technicalities of legal theory, most governments find that surrendering marginal questions of sovereignty (like tariffs on steel or cigarette packaging) worth the sense that international trade can be fairly routinized and predictable.
Similarly, your mention of governments that have restricted open trade in order to develop (such as South Korea and even Japan in previous generations) is important, but these states relied upon someone else–the US–maintaining and protecting the concept of free trade! They have increasingly opened up their economies as they have grown more competitive.
Another minor point: international competition can just as easily drive up the quality of our consumer products as it can undermine them. Anyone driving a Honda or Toyota as opposed to a Ford sedan over the last 20 years recognizes this. Just as importantly, most jobs are lost to innovation and automation, not trade. The image of Uncle Sam trying to woo the suited capitalist with one foot over the border is only partially accurate.
In other words, international trade agreements are not necessarily destructive.
There are other concerns here, such as the effects of when and how a state modernizes its economy relative to others, but the larger point is that free trade is neither so malign nor so beneficent as critics and supporters claim. I will say this, though: absolute wealth has improved for all humans over the last century. Capitalism and free trade are not a magic wand here, but they have beat out all competitors on that score. Consider modern China: since it began opening up its economy in the late 1970s, it has seen more human beings exit poverty than at any time or place in history. I don’t mean to sound triumphalist or like some reflexive supporter of free trade, but the record is far more positive than your commentary suggests.
I’m looking forward to more from Economix. Since you raise the power of psychological theory (a la Kahneman), though, I hope you’ll resist another tendency of the human mind: confirmation bias.
I like your approach here, but I have to say
a) That’s all talking only about a very narrow band of economic achievement: considering finite resources and global warming, the fact that capitalism may have made it so that we now have a very serious battle on our hands to have survivability because some (mostly white) people threw a party is species-ending
b) No one wants to explore other alternatives or better balances, so the idea that capitalism is the best we’ve got is not really that compelling
c) Pretty much everyone agrees that mixed economies of some kind are actually the ones that succeed: plenty of economies that were forced open are in horrible straits
Cigarette packaging is far from a “marginal question of sovereignty”. A ton of countries are fighting it right now because it saves lives. This is sort of the problem: The big, glowing conversation that we have about “wealth” and “growth” all sounds nice until you have to defend blackened lungs. Maybe it’d be worth having an economy that only grew at .1% per year but didn’t pollute, distributed those gains evenly, had leisure time available, kept everyone gainfully employed and proud of their contributions to society, etc. You know, an economy for human beings.
Google. Google is going to try to break the backbones of the telecom monopolies. People forget that monopolies as big as Time Warner and Comcast even hurt other businesses, and not Mom-and-Pops but some of the most beloved businesses on the planet. And when people hate you as much as they hate Comcast, they will switch to any competitor under the solemn promise, “We’re not Comcast. We swear”.