A few weeks ago on The Daily Show, host Jon Stewart sat down with the newbie senator from Kentucky, Rand Paul. The two discussed the budget, running deficits and the Tea Party. It all seemed so genuine, however, the most striking segment of the conversation surrounded federal regulations and the right place for the government in the marketplace.
Sen. Paul eagerly iterated the points made in F.A. Hayek’s “The Road to Serfdom,” and other points furthered by economists with a libertarian streak. Stewart defended not all, but certainly most, of the regulations the government had in place, most notably the Clean Air Act. Where Sen. Paul said the government was cumbersome and its rules would hurt business, Stewart argued it made us safer.
The discussion was interesting and a perfect example of the continuing debate among policymakers. It was the choice between the heavy hand of government and the invisible hand of the market. Absent from the debate, however, was the role businesses play in the marketplace and how that old board game we used to play, Monopoly, is sometimes a reality.
In 1890, the company Standard Oil controlled over 88 percent of the oil flowing into the United States; it had in effect won the game by the Parker Brothers. We all know what happened next; in 1909, the “trustbuster” President Theodore Roosevelt and the U.S. Justice Department sued the company under the Sherman Antitrust Act, effectively breaking the monolith up into 34 pieces.
We have the same conundrum today, instead of government discouraging business like some would allege, it’s big business that has become the greatest impediment to the market. According to The Economist, a monopoly is: when the production of a good or service with no close substitutes is carried out by a single firm with the market power to decide the price of its output.
Sounds a lot like the practices of Blue Cross Blue Shield, albeit the insurance company is also a nonprofit, it dominates 85 percent of the market share in the state of Michigan. And that is exactly why the U.S. Justice Department rightfully filed an antitrust suit against the organization last October.
Michigan also hosts another group of large companies, whose dominance for a long time has been unmatched, an economist would call the group an oligopoly, but we know them as the Big Three. An oligopoly, according to The Economist is: when a few firms dominate a market. Often they can together behave as if they were a single monopoly, perhaps by forming a cartel.
Only recently has the market share of the three automakers waned to be below 50 percent, and most of the loss can be attributed to the recent financial crisis. And the financial crisis wasn’t brought on by government, but rather a few behemoths wreaking havoc on the stock market. A recent report released by an independent commission tasked with inquiring into the recent doomsday on Wall Street found, largely, the crisis was caused by a few large firms.
If any institutions should have been broken up, it was those very few large firms like Citigroup, Bank of America and JP Morgan Chase. Simon Johnson, an economist and former chief of the IMF wrote, “there is simply no evidence – and I mean absolutely none – that society gains from banks having a balance sheet larger than $100 billion. And JP Morgan Chase is roughly a $2 trillion bank, on its way to $3 trillion.”
In short, all of these examples are provided to show our problem isn’t a burdensome government, and it wasn’t Fannie Mae or Freddie Mac that caused the housing crisis, it’s business that is stopping other businesses from correctly engaging in the marketplace. The only role the government has played is being complicit in allowing behemoths like Citigroup to grow with tentacles in every section of life.
I often find it humorous when I hear politicians or businessmen complaining about the red-regulatory-tape the government has plastered up, yet they never pause to identify the particular regulations that are supposedly hindering them. Well, I can name plenty of businesses that are hindering capitalism: Exxon Mobil, Visa, General Motors, Ford, Chrysler, BP, Citigroup, JP Morgan Chase, AIG and Bank of America to name a few.
