orb@whuxl.UUCP (SEVENER) (12/05/84)
> >My Negative Income tax buddy, Greg Kuperberg writes: > >From me (Tim Sevener): > > Rebuttal 2)This great diversion of labor would be a surprise to the > > 7.5% of the American population unemployed. If government > > is employing everyone in sight, why do we have any unemployment? > > There are three factors that increase the cost of labor: > > 1) The "labor tax" which we call income tax. > 2) Unions > 3) Government employment > > The first two increase the unemployment rate, while the third decreases it. > I think that the first two factors outweigh the third. > --- > Greg Kuperberg How come unions are successful in getting wages that are supposedly higher than the market would bear? Do you suppose it might have anything to do with the monopoly power of companies which often control one-third of their market? Free market advocates have to begin dealing with reality: we do *not* have the conditions necessary to meet the efficiency assumptions of a free market. Please remember that a key assumption for free-market efficiency is that the market is composed of many small producers none of which significantly affect the market. This condition *is* met in certain sectors of the economy, such as agriculture where thousands of independent farmers make up the production side of the market. But it is *not* met in such industries as automobiles, steel, oil, etc. in which a few companies control the domestic market. Moreover, the portion of the economy which is controlled by the largest 500 corporations has been remorselessly increasing for the past hundred years. It is now on the order of two thirds of the whole economy. Under conditions of oligopoly prices are constrained. It is no surprise then, that in industries such as steel and autos that one company is often a price leader, deciding what level of production and pricing will maximize their profits. That level is *not* the same as the theoretical point where supply exactly matches demand. Instead it looks like this: | \ / Supply | \ / | .\ / ___ where price is set under oligopoly Price | . \/ ________________ where supply meets demand | . /\ | / \ Demand | / \ | / \ ____________________ Quantity By restricting production, firms with control of the market can increase their prices (hence their marginal revenues), while also producing less. They will (theoretically) do this to the point where their marginal revenues are maximized. Farmers cannot do this themselves--so instead the government does it for them by paying them *not* to grow crops (therefore decreasing quantity, and increasing prices). But companies which control a substantial part of their market can do this. By doing this they also reduce employment, because more labor would have been employed at the quantity where supply meets demand. Before advocating a free market, please consider the assumptions necessary for it to achieve its vaunted efficiency. Why are so many industries controlled by only a few firms? Is it economies of scale? Sheer power? Monopsony power of manufacturers over their suppliers? What will you do about monopoly power? Ignore it? Close your eyes and pretend it is only the "unions" who have any monopoly power? tim sevener whuxl!orb