Liberalism VS. Monopoly

There has been much terminology bandied about over the last few years and I feel compelled to point out one particular thing. Despite what folks in the conservative media tell you, there is nothing wrong with liberalism (in the definition of large government solutions to problems).

Our country operates in the capitalist system. Now, as anyone who has ever taken an economics course will tell you, left to its own devices, a capitalist system will always end in monopoly in one fashion or the other. Liberalism and Conservatism are the idealistic forces that pull against corporate monopoly and state monopoly respectively. In most cases, a free market has a natural tendency to drift towards corporate monopoly. In fact, this was one of the major problems with the American economy in the late 19th and early 20th century and took liberal actions from people like Theodore Roosevelt and other fair minded individuals to pull the economy away from this morass. Organized labor was another factor that helped break up the power of corporate monopolies.

Unfortunately, leftward monopoly (stateism) is equally harmful. Franklin Roosevelt was able to use the crisis of the Great Depression to try and make the government the largest producer of jobs and capital (spend our way back to health). This didn’t work either (with the exception of the TVA) and only increased demand brought on by World War II kick started the economy back up and gave corporations some of their power back.

One of the main reason that the 1950’s and early 60’s were so good for people was that market forces operated in a good balance. Labor was strong but not overwhelming management with frivolous power grabs and demands. The government offered security nets to low income and the elderly in the early forms of Medicare, Medicaid, Social Security, and Welfare. These programs worked because they existed solely as safety valves. Competition kept prices low so that most people didn’t need these programs, keeping government expenditures low, while the Social Security eligible population was also very small and did not stay on the public dole for long as the lifespan of these people was shorter than it is now.

Then things went south under Johnson and continued during Nixon. Johnson expanded all these programs, assuming more state control over the economy as prices rose. Nixon exacerbated the problem by introducing price controls and adding more bloat to the government as they offered more nanny-state services to people. When the price controls were lifted, inflation skyrocketed as market equilibrium returned, forcing further government seizure to protect the people as businesses went under due to the whiplash.

Steadily, government agencies have sought to absorb more and more power, reducing competition and making problems worse as prices always rise in the face of monopoly, with bloat (corporate or government) reducing the efficiency of services provided. Some of this is philosophically driven (believing that the state can control things better than market forces), while some is people trying to improve things in the short term and making things worse in the long.

We are now approaching the point where total state control is possible for certain industries. We are currently watching to see if the government will assume the majority stake in the mortgage market and since the early 1990’s, there has been a movement to nationalize the health care industry.

Health care is a special case as excessive malpractice awards by juries have spiked the insurance premiums paid by doctors and more complicated development of drugs has led to higher medication costs. To survive these price spikes, doctors clump together in the form of mini-corporations (HMOs), further reducing competition. However, this also allows insurance companies to spike premiums even higher as the collective wealth of an HMO allows for even higher malpractice awards (i.e. you’ll get much more money by suing Coke that you would by suing a local drink firm like Faygo). What’s more, with fewer doctors available to recommend their new drugs to, drug companies waste extra money on advertizing and convincing doctors to use their product. This extra capital is then made up by jacking the price of the drug another couple of bucks a pill. Nationalizing health care would take insurance out of the equation and give a single source seller for drug companies, but it would introduce all the problems of monopoly and it is unlikely that costs would decrease. Instead, the costs would be shared by everyone and many people would take advantage to make sure they are “getting their fair share,” increasing overall costs and driving up price. Greater competition, a cap on malpractice awards, and the elimination of drug company solicitation would go a long way to bringing prices down and making health care affordable to all.

Parsing all this together, it is my belief that government sponsored solutions are important and even necessary, especially to protect those who would have no other resource. However, total state control is just as bad as total corporate control. Competition is the only thing that keeps prices low and allows people the luxury of creating higher demand, which in turn creates greater profits and higher wages. We would do better to push back against the recent stateist tendencies and return to a more balanced mix of free market with government safety nets for the downtrodden.