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mises

Joined: 05 Nov 2007
Location: retired

Posted: Tue Dec 22, 2009 11:30 pm Post subject:

Fox wrote:

mises wrote:

asylum seeker wrote:

There are other examples of state-run companies that have been successful: In Korea KEPCO the national electricity company has done a good job of keeping electricity prices low.

What is their yearly profit before subsidy?

Surely what should really be considered is how much their subsidy is? Low prices + low subsidy could be a good thing for the people of Korea even if the company didn't turn a pre-subsidy profit. Low prices + high subsidy would be bad for the people even if the company somehow eeked out a profit otherwise.

AS claimed that the firm keeps prices low. With a government owned firm, there are two sources of revenue. The users pay a fee and the taxpayers (not necessarily the same people, but can be) pay taxes. So the fee for power can be low and the difference made up by the government extracting revenue via taxes. This hides the cost of production and leads people to say silly things about publicly owned enterprises.

And a utility needs profit. That profit is future investment to meet future demand.

Captain Corea

Joined: 28 Feb 2005
Location: Seoul

Posted: Wed Dec 23, 2009 2:58 am Post subject:

Rusty Shackleford wrote:

Captain Corea wrote:

Rusty Shackleford wrote:

Captain Corea wrote:

Rusty Shackleford wrote:

Captain Corea wrote:

ontheway wrote:

The only legitimate role of government is to protect people and their property from foreign attackers and criminals. All other needs and services should be provided in the private sector.

Mind showing me a country where that works?

The United States before 1913.

http://mises.org/daily/3866

No, sorry, I think you missed the tense of my question... I would looking for something in the present tense, not something from a hundred or more years ago.

How is it not relevant? Nothing in the way an economy fundamentally works has changed during that time.

Really, you honestly don't think that the world has changed that much in 100 years?

The WORLD has changed a lot. The way an ECONOMY works hasn't changed and it will never change. The laws of economics, the same as the laws of nature are immutable. You can't change them.

But we're not just talking about economics, we're talking about an entire country. You said that a "government is to protect people and their property from foreign attackers and criminals. All other needs and services should be provided in the private sector" - and that may be fine in an economics text book, but what populace would actually go for that?

That's why I asked; what country does this actually work in??

Hypothetical talk is cheap, I want to see an actual example, and then I want to know why people aren't flocking to it.

ontheway

Joined: 24 Aug 2005
Location: Somewhere under the rainbow...

Posted: Wed Dec 23, 2009 7:25 am Post subject:

Captain Corea wrote:

Rusty Shackleford wrote:

Captain Corea wrote:

Rusty Shackleford wrote:

Captain Corea wrote:

Rusty Shackleford wrote:

Captain Corea wrote:

ontheway wrote:

The only legitimate role of government is to protect people and their property from foreign attackers and criminals. All other needs and services should be provided in the private sector.

Mind showing me a country where that works?

The United States before 1913.

http://mises.org/daily/3866

No, sorry, I think you missed the tense of my question... I would looking for something in the present tense, not something from a hundred or more years ago.

How is it not relevant? Nothing in the way an economy fundamentally works has changed during that time.

Really, you honestly don't think that the world has changed that much in 100 years?

The WORLD has changed a lot. The way an ECONOMY works hasn't changed and it will never change. The laws of economics, the same as the laws of nature are immutable. You can't change them.

The world has been moving away from various forms of dictatorial rule, and socialism throughout history. A few steps forward, a few steps back.

America suffered from the socialistic system of slavery which violates the fundamental principle of liberty and of free markets until after the Civil War. So, from sometime after that, until 1913, America was fairly free. This was the time of greatest freedom, greatest economic expansion, and greatest improvement in living conditions and working conditions in history anywhere in the world. Economists have calculated that had we continued without all the evil, socialist programs beginning with the Federal Reserve, Federal Income Tax and Social Security, since 1913, the standard of living of the US and the World would be 10 times what it is today and 500 million to 1 billion additional high paid jobs would have been created around the world.

ontheway

Joined: 24 Aug 2005
Location: Somewhere under the rainbow...

Posted: Wed Dec 23, 2009 7:45 am Post subject:

mises wrote:

Fox wrote:

mises wrote:

asylum seeker wrote:

There are other examples of state-run companies that have been successful: In Korea KEPCO the national electricity company has done a good job of keeping electricity prices low.

What is their yearly profit before subsidy?

Korea's subsidized electrical rates and penalty rates comprise a terrible system that has substantially increased indoor and outdoor pollution, contributes to illness and cancer, wastes energy resources and discourages insulation and modernization. It is another socialist mistake and energy prices in Korea, like the rest of the world, would be best left to the free market.

Here's why.

In Korea, individuals and businesses that use electricity at low amounts (kwh per month) pay a subsidized rate. This encourages everyone to use some electricity, and seems like a nice way to help the poor.

But, as usage increases, rates increase. At the same time, other forms of energy are also subsidized by the government. So again, users are encouraged to use more. Again, this seems like a nice way to help the poor.

However, what this does is encourage waste. Koreans have little incentive to insulate buildings. If you've lived in Korea a while you know that even the newest modern buildings have little, if any, insulation. They are not well designed. They are not airtight. In fact, there is little insulation available on the market. Insulation, which would reduce the need for energy for heating and cooling and thereby reduce the need for any form of energy is a highly taxed import and not available, so not used. Only some really useless, low "r" value styrofoam is available, in limited sizes.

Second, Koreans charge penalty rates for higher electric usage. These penalties cause rates to double and double again. This discourages individuals from using electric heat, and since heating oil is expensive even after being subsidized, many businesses, schools, hogwans, and homes turn to the noxious, poison gas emitting indoor gas heaters that make people sick, cause cancer, are less efficient than electric or natural gas. These heaters are ubiquitous and dangerous. Of course, faced with the smell and poison, Koreans open the windows to vent the fumes, and the heat as well, of course, which means they consume even more energy to heat their uninsulated buildings.

It makes no sense to subsidize use and waste of energy resources that we need to conserve, and that at the very least cause outdoor pollution and in many cases, direct indoor pollution as well, and then to turn around and prevent through tax policies the very design and insualtion of buildings that would obviate the need for such energy use at all. Korea's policies are the wet dream of the world's energy producers. They are a nightmare for the people of Korea. But, of course, the socialists control the governement and the ignorant prattle on about helping the poor.

It is the poor and middle classes that suffer from such evil, fascist-socialist policies.

So, the perverse system of subsidies, taxes and penalties cause indoor and outdoor pollution, cause sickness and cancer, cause waste of energy, prevent energy saving design and insulation and generally reduce the quality of life and living standards of the whole country. This is a good example of the complete failure of socialism.

Socialism always fails. You need to stop to get the facts before making foolish claims of any government program that works. There are none.

Sergio Stefanuto

Joined: 14 May 2009
Location: UK

Posted: Wed Dec 23, 2009 8:36 am Post subject:

asylum seeker wrote:

Look at the reality- the US government loosened regulation on financial markets and the banks responded by almost destroying the entire system in a mad frenzy of greed and corruption.

Here it is again.

Read. Learn.

Quote:

The reason why it was so easy to borrow all this money to buy houses was because of securitization. First it started with Freddie and Fannie. If it wasn't for Freddie Mae and Fannie Mac, Americans couldn't have borrowed all this money to buy all these houses. The only reason they did it was because the US govt was co-signing all their mortgages. And people knew that if you lend someone money to buy a house and they can't pay you back, the govt will pay you back. So people were allowed to borrow a lot more money than a free market would've allowed because the govt was there co-signing it. We had too many people buying houses and credit was cheap.

Unfortunately, all the blame is one the free market, on capitalism - 'it's because there wasn't enough regulation', 'there's too much greed'.

President Bush in one of his speeches said that Wall St got drunk, and he was right, they were drunk. The whole country was drunk. But what he doesn't point out is....where did they get their alcohol? Why were they drunk? Greenspan poured the alcohol, the Fed got everybody drunk and the govt helped out with their moral hazards (all the various ways which they interfered with the free market and removed the necessary balances that would've existed and kept all this from happening).

Normally, when people are greedy, they're also fearful of loss, and people's fear of loss overcomes their greed and checks their behavior. But what the govt did repeatedly was try to remove the fear. They tried to make speculating as riskless as possible. First, they provided us with almost costless money with which to speculate. And then they created the idea that 'whenever's there's a problem, don't worry, the govt will rescue you; the govt's not going to let the stock market go down, the govt's not going to let your bets go bad, so go ahead and keep placing them'. It was nothing that the free market did. In fact, the only entities that needed more regulations were the ones that the govt created. If Freddie and Fannie didn't have a govt guarantee, they wouldn't have needed any regulation because the market would've regulated them. People would've looked at the balance sheet and said 'you don't have any capital. You can't guarantee these mortgages - who are you kidding?'...and they never could've expanded the way they did. It was only because the govt stood behind them that people didn't care. They said 'ah, the govt will never let Freddie and Fannie go bankrupt' - and they were right, they didn't! Once they gave them that guarantee the govt had to regulate them and regulate them heavily, because it was govt money they were dealing with, not their own. For normal lenders we don't need any govt regulations. Freddie and Fannie were also the biggest buyers of subprime mortgages.

Once you separate the originator of the mortgage from the risk of the mortgage, you've got the moral hazard. These moral hazards got started because of govt and they wouldn't have been able to grow to the extent that they did if it wasn't for govt. Nobody cares what banks do with our money once we put it there, because it's all insured by the govt. People do a lot of research when they go out and buy a plasma TV, but nobody does any research before they put their money in a bank - because the govt has created a moral hazard by guaranteeing the accounts. If the govt did not guarantee bank accounts, then banks would not be doing foolish things with our deposit.

mises

Joined: 05 Nov 2007
Location: retired

Posted: Wed Dec 23, 2009 8:40 am Post subject:

The crisis was caused by low interest rates as set by the central bank, which centrally plans economic activity and price-fixes.

Sergio Stefanuto

Joined: 14 May 2009
Location: UK

Posted: Wed Dec 23, 2009 8:55 am Post subject:

asylum seeker wrote:

The reason why government monopolies are more tolerable is because there can be checks and balances on their operation. Their main goal is to provide a service rather than simply making a profit for shareholders.

Sure. Only private money is corrupting. Better to have it all 'regulated' by a civil service stacked by people who know nothing about business, nothing about economics and no experience of running a company. See the cases of Britain and Sweden in the 70s - doubling prices, more than doubling unemployment, doubling the tax burden. In general, it's better if people have a personal risk, a personal stake in any losses, otherwise you get moral hazards and sheer waste.

asylum seeker

Joined: 22 Jul 2007
Location: On your computer screen.

Posted: Wed Dec 23, 2009 6:43 pm Post subject:

Rusty Shackleford wrote:

asylum seeker wrote:

There are other examples of state-run companies that have been successful: In Korea KEPCO the national electricity company has done a good job of keeping electricity prices low.

I know nothing about KEPCO. Since we are sighting random examples without looking at the bigger picture; how do you square the circle that is the US Postal service? It loses billions a year, yet enjoys a state sponsored monopoly. Opponents of the free market have NO right to complain about monopolies in the private sector until they also oppose far more egregious examples in the public sector.

It looks like there are flaws in the US Postal service. Does that mean that any government involvement in providing services is bad? No, it just means this particular enterprise is badly run. I again refer you back to NZ Post. This state-owned enterprise turns a profit and has very high levels of efficiency. This shows that it is not government per se that is the problem and that it is possible for a government-owned company to be successful. If the US postal service changed it's management and business structure I'm sure it could be successful too.
Your term 'opponents of the free market' is a straw man as well. I don't completely oppose the free market I just believe some services are better provided by governments and that companies need some regulation in order to protect citizens and consumers.

Quote:

There are also plenty of examples of how privatization of countries' natural resources has ended up impoverishing them. But the free market ideologues choose to ignore the reality and focus on their wonderful theories that the market will sort everything out.

Care to give an example? Any example you give I can probably knock down within the hour.

There are many examples in the Shock Doctrine by Naomi Klein.

Quote:

Your ideology might work if all companies behaved ethically, but the problem is they don't- they collude, they cheat consumers, they engage in insider trading and they quash competition. Without any government regulation these tendencies would only worsen.

Companies that act "unethically", as you put it, are usually responding to govt created moral hazard. It's kind of a non-sequiter, anyway, as only people can act unethically.

Fine, people who work at private companies behave unethically.
Moral hazard comes from government? This is laughable. Ajax chemicals decides to spew pollution into the air and the rivers in order to increase their profit margins and this is the government's fault. Please.

Quote:

Look at the reality- the US government loosened regulation on financial markets and the banks responded by almost destroying the entire system in a mad frenzy of greed and corruption.

Bullshit. Once again, corporate entities were only responding to govt created moral hazard. I'm not going to take the time to explain this moral hazard to you, as it has been explained in minute detail by myself and, more ably, by others on this board. If you don't know what I'm referring to by now, you probably never will.

If you're referring to the moral hazard created by bailing out the big banks I agree this was a bad decision, but this happened after the crisis had begun. In 2002 the Bush administration loosened restrictions on banking activity which allowed banks to create all the dodgy financial products which brought the system down.

asylum seeker

Joined: 22 Jul 2007
Location: On your computer screen.

Posted: Wed Dec 23, 2009 7:01 pm Post subject:

Sergio Stefanuto wrote:

asylum seeker wrote:

In New Zealand, people sick of banks (all foreign-owned) charging high fees and interest rates floated the idea of a state-owned bank to compete with them. Of course all the free-market ideologues screamed bloody murder: "it will fail!", "the government has no right to own a bank!" etc.
Well the bank (called Kiwibank) was created and run as a state owned enterprise (government owned but run along the lines of a private company) anyway and now several years later the bank is not only profitable but, by charging lower fees and interest rates than the private banks, it forced the other banks to also drop their fees and interest rates.

All in all Kiwibank has been a huge win for consumers and goes to show that government-owned companies can be successful if run well.
On the other hand, as I mentioned earlier in this thread, Tranzrail which was sold off to a private company turned out to be an unmitigated disaster: the company invested nothing back into the rail infrastructure and were content to rip all the profit out of the country. The NZ government was forced to buy back the company just to ensure there would be some sort of viable rail service in the future.

Thoughtless privatization often creates more problems than it solves, but I'm afraid that the people in this thread are so blinded by ideology however they will never be able to admit that this could be the case.

Rusty Shackleford

Joined: 08 May 2008

Posted: Wed Dec 23, 2009 7:40 pm Post subject:

asylum seeker wrote:

Thoughtless privatization often creates more problems than it solves, but I'm afraid that the people in this thread are so blinded by ideology however they will never be able to admit that this could be the case.

I will get to Kiwibank in a second, though it is difficult to find good info on. It cost $120 mil to set up. That is a big subsidy.

Govt ownership of infrastructure causes infinitely worse outcomes. You are picking a few examples, without looking at the big picture. Sure, there are examples where the quality of service went down after privatization but at infinitely lower cost to the tax payer as they weren't propping it up anymore.

It still stands that the net benefit from govt engaging in market activities is negative. You can cite as many isolated examples as you please, this fact still stands.

Rusty Shackleford

Joined: 08 May 2008

Posted: Wed Dec 23, 2009 7:50 pm Post subject:

KIWIBANK. I can find literally no analysis of Kiwibank. It's balance sheet, what (if any) subsidies it receives. I did hear mention that it is cross subsidised by NZPOST, but can't find definitive info on this. Even if Kiwibank is a huge success that makes millions a year with no govt help it proves exactly nothing. It is one win amongst a history of consistent failure. Even a broken clock is right twice a day. EDIT: KB doesn't have to pay for its govt deposit insurance. That is a subsidy. I will probably add these as I find them. The fact is, though, KB does not stand on its own two feet. If it goes bust the govt will bail it out. The other banks can't rely on that. Last edited by Rusty Shackleford on Wed Dec 23, 2009 7:59 pm; edited 1 time in total

mises

Joined: 05 Nov 2007
Location: retired

Posted: Wed Dec 23, 2009 7:58 pm Post subject:

Quote:

There are many examples in the Shock Doctrine by Naomi Klein.

You might want to read this:

http://www.cato.org/pubs/bp/html/bp102/bp102index.html

Quote:

Surely you know it was Clinton with Summers (and the rest of Obama's current economic team) who did this and not the Bush clan.

http://en.wikipedia.org/wiki/Lawrence_Summers#Service_in_the_Clinton_Administration

Sergio Stefanuto

Joined: 14 May 2009
Location: UK

Posted: Sat Dec 26, 2009 3:30 am Post subject:

Asylum Seeker wrote:

In 2002 the Bush administration loosened restrictions on banking activity which allowed banks to create all the dodgy financial products which brought the system down.

This statement suggests you ignored the lengthy statement from Peter Schiff I posted. The biggest buyer of subprime mortgages was Fannie and Freddie, and....

Quote:

....Fannie Mae and Freddie Mac were essentially the long arm of the government to carry-out these programs and were given a direct line of credit into the US Treasury.

http://www.adamsmith.org/blog/tax-and-economy/one-year-after-lehman%27s-collapse-200909154119/

Captain Corea

Joined: 28 Feb 2005
Location: Seoul

Posted: Sun Dec 27, 2009 12:44 am Post subject:

ontheway wrote:

Captain Corea wrote:

Hypothetical talk is cheap, I want to see an actual example, and then I want to know why people aren't flocking to it.

So, you're unable to find an actual example ... and all that you have are hypotheticals or 100 year old guesswork.

Got it.

Why didn't you say so in the first place?

There is no country on the planet that the governemtn is hands off.... oh, wait, maybe there is. Would not Somolia qualify?

Rusty Shackleford

Joined: 08 May 2008

Posted: Sun Dec 27, 2009 3:48 am Post subject:

Captain Corea wrote:

ontheway wrote:

Captain Corea wrote:

Hypothetical talk is cheap, I want to see an actual example, and then I want to know why people aren't flocking to it.

The success the US has had in this century, and the last, is based on the principles that were codified in the first century of the Republic. these principles were slowly eroded from day one but were finally killed in 1913. Federal Reserve banking makes it impossible for a free market to exist as no unimpeachable store of value exists. The USD has been devalued by 97% since 1913. In a free market prices tend towards zero (though, of course most goods don't reach zero, but very close.) Under the federal reserve system, inflation is built into the system.

This is why no free market systems exist today. The most important part of the system, a reliable medium of exchange, is outlawed.

The Somalia example is boring and annoying. It has been set up and knocked down countless times, here. The basic necessities for a functioning market do not exist. These are the respect for property rights and the absence of govt coercion. These things simply do not exist in Somalia. The first 3 lines in the Wiki article on free markets would tell you this but it is obvious that your education in this area doesn't even extend that far.

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