One of my core principles here at theVPO is:
There is no such thing as a “free market”
This is my response to conservatives who natter about how the “free market” will fix anything, from health care costs to poverty to global warming. It might be true in the pages of Ayn Rand, but nowhere else.
I’ll get to my reasoning in a while. But first, a People’s Exhibit to present, courtesy of those pinko fellow-travelers at The Economist.
In the January 23,2016 issue, there’s an article about the effect of low-low oil prices on airfares. The surprising conclusion: don’t expect any bargains in the Unfriendly Skies. This is true despite the fact that domestic carriers are raking in the dough.
On January 19th Delta kicked off the results season for the airlines, announcing record fourth-quarter profits and forecasting that first-quarter margins in 2016 would be twice as high as in 2015. Analysts also expect its rivals to report bumper earnings for the most recent quarter.
Prices went up when oil shot through the roof. Why aren’t they coming down now?
The Economist has a very good explanation. And it has to do with the small number of major competitors and the influence of high-rolling investors: “America’s five biggest fund managers happen to be among the largest shareholders in each of the big four airlines.” (That’s Southwest, American, Delta, and United.)
And there’s evidence to support the inference.
In a paper published in April José Azar, an economist, and two co-authors looked at the data and concluded that this common ownership means ticket prices may be up to 11% higher than they would otherwise be. Mr Azar was the lead author of another study, published this month, which found similar effects from overlapping shareholders in American banks.
Wonderful. The biggest investors wield so much clout that they can keep consumer prices artificially high, which in turn keeps their dividends artificially high.
Contrast this situation with Europe where there are multiple budget carriers keeping prices low and, The Economist reports,
The overlap among institutional shareholders in all these carriers is much smaller than in America.
Let’s hear it for supersized capitalism.
Which gets me back to “no such thing as a free market.”
The fundamental purpose of a business is not to make widgets or sell insurance or crank out burgers. Also, the purpose of a business is NOT to make the best possible product or service. The real purpose of every business is to make money and sustain its existence.
Businesses of all kinds will, with rare exceptions, try to get bigger and try to gain more control of their destiny. This means making a better product or service when possible, but that’s not a sure thing. Which is why it also means muscling out (or buying) the competition. It means seeking monopoly control of a market or portions thereof. It means making deals with competitors to share control and keep prices high. It means limiting one’s exposure to competitive pressures by any means necessary.
There’s the real truth: the business world pays lip service to competition and free markets, but in actual fact every business would kill its competitors and escape the uncertainty of free competition if it had the power. (And it would do everything it could to marshal the power of government in its own interests, which leads to another maxim: “No one really wants small government.” But that’s a story for another day.)
In the case of domestic airlines, it means creating an oligopoly. And it means deep-pocketed investors using their influence to rig the game.
The Vermont Political Observer. 
Go Bernie!
” It means making deals with competitors to share control and keep prices high.”
I agree wholeheartedly here. I have often wondered why, when all the free-market soothsayers tell us that competition will bring prices down, competition never brings prices down, but keeps them more or less the same: high.
“the business world pays lip service to competition and free markets, but in actual fact every business would kill its competitors and escape the uncertainty of free competition if it had the power.”
A while back, I stated that sentiment in the online comments to a business magazine article claiming that government regulation was holding businessmen back from the robust competition that the businessmen all wanted–being good capitalists and all. I can’t tell you how vehement–and usually vicious–the replies were. It was unanimous that I understood nothing about business or economics or capitalism or how to make a living on my own rather than stealing from the hardworking captains of industry who create jobs, wealth, and adorable little puppies.
business would kill its competitors and escape the uncertainty of free competition if it had the power.”
To see how this works, study the history of Standard Oil and what they did to the competition. As for those who said you did not understand how business or economics works, they are the ones who do not understand it and do not want to admit it.
What a bunch of rubbish you spew. But as a leftist, one should expect you to skew everything – for eg. economics – along the lines of your myopic and selfish political ideology. To illustrate your idiocy, you put forth an excellent example.
The free market (and yes, there is such a thing even if you wish to fashion yourself as a free-market-denier) would allow jet fuel prices to decrease as it did with the case of gasoline. The article you cite actually has a different conclusion that the one you claim it does. Right at the top, it states, “A lack of competition means high air fares.”
The US airline industry has become an oligopoly in which the 4 big airlines control 70% of the market. The presence of an oligopoly or even a monopoly does not mean that a free market does not or cannot exist. Congratulations for arriving at one of the most ridiculously baseless conclusions ever regarding economics. I doubt you know this but the United States does not have a pure free market economy, rather a mixed one. As Investopedia defines it (btw a good resource to check out before you type out future garbage on economic issues): “a mixed economic system has elements of both free markets and planned economic control by government.”
Ironically, in the case of the airline industry in Europe, (which is otherwise in the throes of death by socialism and its various spectacularly failed political manifestations; see Greece, Portugal, Ireland, Spain, Cyprus, Italy), smaller businesses such as RyanAir are not being prevented from participating in the free market and therefore, capitalism has brought the overall prices down.
Your logic is riddled with obvious inconsistencies. You are hating on the American free market, which in this case has been perverted by socialistic tendencies that advocate for concentrating power in the state or in institutions that emulate the state such as oligopolies, by discussing an example of a freer market in Europe. Wow. You are an idiot.
“The fundamental purpose of a business is not to make widgets or sell insurance or crank out burgers. Also, the purpose of a business is NOT to make the best possible product or service. The real purpose of every business is to make money and sustain its existence.”
Finally, with regards to your deceitful and grandiose claims on what businesses, i.e. all businesses, endeavor to achieve – you are plain wrong. To quote some real data:
“In 2011, according to U.S. Census Bureau data, there were 5.68 million employer firms in the United States. Firms with fewer than 500 workers accounted for 99.7 percent of those businesses, and businesses with less than 20 workers made up 89.8 percent.”
Whaddya know! Small businesses form pretty much ALL of the American business landscape. Clearly, these Americans are not megalomaniacs scheming to keep the small guy out of the market. They are the small guy. And, these are consensual economic transactions between businesses and consumers. Who gave you the right to negatively judge the value of consensual financial relationships?
Your Marxist, “Blame America First” fascist rhetoric is not only intellectually dishonest but also purposefully deceptive. Keep up the good work. Mussolini would have been proud.
(By the way, I’ll be very surprised if you don’t delete this response from your site. After all, Leftist bullies are not known to tolerate anyone who dares challenge their faulty paradigm).
Ooh, nasty. And wrong.
I could go point-by-point, but I’ll stick with this one: There is momentum in every market toward monopoly or oligopoly. Businesses use their power to limit or block competition whenever they can. Or they buy out their competitors. The closest thing America has ever had to a “free market” was in the late 19th Century. Government sat back and let business do whatever they wanted. And what businesses wanted was to crowd out competition and establish cartels.
The only force that can slow or block this process is government regulation. Because absent that, the big boys will use their power to dominate their markets and obliterate or co-opt the competition. And now, we see in American air carriers and in banking, the high-rolling investors are using their clout to rig the game.
I’ll say one other thing. I am not a Marxist. I’m not a fascist either — if it’s even possible to be both. (Was Mussolini a Marxist? Hahaha.) I believe in a blended economy — and yes, I know what that means. Heck, I believe in the profit motive. I believe, very strongly, in entrepreneurism.
And hey, this “leftist bully” is happy to post your screed. It does your cause no credit.
In other words, people who participate in voluntary transactions are inherently evil and greedy. In this way, you attribute morality to an economic system (rather than to individuals) in order to make socialists, such as yourself, feel morally superior. Americans who want to make money are bad and only government (which is made up of people too but these folks are apparently divine beings) can correct this horrible wrong by using force, i.e putting a gun to the heads of citizens, to make them behave in ways that it deems appropriate. I’m sorry to say but such apotheosizing of government is the mark of a true Marxist. Advocating for the use of external force to determine how others should or should not lead their lives is the essence of socialism.
The fact remains that a system cannot be judged on the basis of intentions but on the actual outcomes it produces. So, while proponents of so called social justice will always be attracted to the utopian promise of socialism, in truth it always leads to horrible results. Why? Because power corrupts and absolute power corrupts absolutely. See modern global history for examples. Or just look around you in New Sweden aka Vermont.
(In case you start thinking of Scandinavia a la Bernie, I should point out that Sweden got rich as a result of a capitalist system from the 1870s. The switch to socialism in the 1970s has led to economic stagnation. Moreover, in the past decade, there has been a significant scaling back of the enormous welfare state system because it is bankrupting the country and unsustainable).
In short, the premise that people are essentially evil and that government is the greatest weapon of force with which the evils of society, as it alleges, will be fixed is nothing but a narcissistic delusion of grandeur.
By the way, if you really wanted to present an honest critique of the airline industry, you would have talked about the current challenges and need to apply anti-trust laws (that still use the language of the Gilded Age) to new technologies and dynamic industries of the 21st century. These measures level the market by ensuring that monopolies or oligopolies do not concentrate and abuse power and thus turn into socialist-style states. Instead, you talk rot about how free markets don’t exist and twist facts in order to present yourself as the morally superior, wonderful citizen who knows better than the misguided bourgeoisie.
Lastly, that you don’t know how European fascism (yes, that means Mussolini) and Marxism together form the ideological basis of your leftist politics showcases your ignorance yet again. So, the joke really is on you. Hahaha.
Did I say profit was “inherently evil”? I think I said the exact opposite. I am in favor of fair competition. I am not in favor of using one’s influence to rig the game.
But hey, I’m not convincing you. Indeed, my very presence seems to mortally offend you. Maybe you should just go back to Fox News and Rush and company and stop reading this blog, unless your doctor has suggested exercising to raise your heart rate and reading ignorant hateful fascist communists does the trick.
“The US airline industry has become an oligopoly in which the 4 big airlines control 70% of the market.”
It should be noted here that the process toward this oligopoly began with the de-regulation of the airlines on the theory that competition would bring down prices and allow more airline companies to come into the mix. Now this is what you have because of this free market competition.
OK, Mindy S., let’s just say, for argument’s sake, that there never were two Princeton researchers who in 2015 published findings that demonstrated conclusively that, of the 1880 public policy initiatives they reviewed going back decades, every single one explicitly and directly benefited some institutional concentration of wealth and power, and only incidental of this fact, the public at large. Yeah, no, in MindySWorld, that never happened, because Free Markets! and Small Business!
Yeah, and the credit default swap crimes (See the Federal Financial Disclosure Act) that led to the Crash of 2008 was a “consensual financial relationship”? When those perpetrators stole billions of dollars as a result of their demonstrably criminal activity–said criminal activity causing millions of average workers to lose their savings, their homes, and their jobs–and the institutions we charge to protect us looked the other way, or rolled over, because the “free market” sure was working overtime. That’s “intellectually dishonest”? No, THAT’S WHAT ACTUALLY HAPPENED. Too damn bad those inescapable facts don’t align with your claptrap idiot ideology that’s mIxed from a quarter of swamp juice, a quarter of Rush squealfest, and the remainder pure old fashioned parochial small-minded selfishness.
Right. Do you even know what Marxism is?
Ah, the art of the swindle. Goes deep, back to the plutocrats of the 19th century. They rigged the entire commons– public education, medicine, energy, food, and now the genome–to eliminate any competing alternatives and be the last resort standing for the suckers to go to. Capitalism, in a word.