Thursday, December 31, 2009

We Lose

A few months back I posted about the de-regulation of the cable industry and, like all Republican ideas about de-regulation, fail miserably. Now I bring to you the latest proof on how consumers lose when industries aren't watched. For those of us forced with monopolized Time Warner (which is always the result of de-regulation, monopolies) we are about to lose all our Fox broadcasts (while I don't mind losing Fox News since I don't watch that garbage I do watch other networks from them) because they are arguing over fees. So as always the consumer is getting screwed cause even when they resolve their differences we will either be without Fox or get higher fees. Republicans de-regulation will never work and I have examples that prove I'm right more then you do.


Robert E Wilson said...

The answer is simple. Call up one of the competing cable companies and sign up with them.

Oh that's right; There are no competing cable companies because the cable industry made a sweetheart deal with the federal government that assigns areas to ONE specific company. What the hell do you mean deregulation? The cable industry is ridiculously regulated.

Your argument is ludicrous. Monopolies, high prices, and poor service are a result of regulation, not the other way around.

Tom Michael said...

Without going too much into the briar patch that the cable industry in America represents, I want to address Robert's gut-instinct reaction to blame monopolies, high prices, and poor service on regulation. Erik's argument is not "ludicrous" on the face of it. Conservatives like to point out one side of the issue while conveniently ignoring the flip side.

Two easy ways to cause monopolies (or cartels, which represent a monopolistic conspiracy) are unwise regulation OR high deregulation. One can create a monopoly through regulation simply by declaring one; it's how European royalty raised revenue for centuries, and also partially how the cable mess came to be in the first place - Robert is partially correct on that point, though it oversimplifies a very complex history.

But, the math of economics points out that in a highly deregulated market, the winners gain increasing influence over the market, and are able to manipulate conditions to benefit themselves and hurt honest competition. The end result is either a monopoly or a cartel that controls a market that is neither free nor fair.

Free markets are a hypothetical construct that exist only in imagination; all markets must have rules - i.e. regulations - and winners inexorably gain influence over the rules and the rule-making. Business schools teach strategies for doing this as "gaming the system."

Removal of rules from a market, and the emergence of new markets before they can be regulated, present even more opportunities for gaming the system. Indeed, the previous sentence is a fair summation of Enron's business plan, and I would hope we all remember how well that worked out for the energy market in California. (And also remember how those criminals financially supported every Republican pushing for deregulation that they could in order to spur opportunities to take over new markets; a plan that collapsed as people got tired of being robbed and started to pay attention to what was happening. Many of the Republicans they supported, though, were rewarded with promotions or reelection by conservatives who only see what they choose to see economically.)

Deregulation also allowed a few financial firms to control mortgage-backed derivatives in a way that made them a lot of money in route to creating a bubble that nearly took down the entire world's financial system when it burst. To be fair, that deregulation was championed by conservatives but backed by Bill Clinton and the Democratic Leadership Council, who allowed greed and political expediancy to triumph over sound economics.

So, while Robert is to a great extent correct that the cable monopolies were created by unwise regulation, Erik is also correct that deregulation has made the situation much worse; Erik's statement is far from "ludicrous." Regulated monopolies do have advantages, as those of us who remember what phone service cost and how good phone customer service was before the AT&T monopoly was broken up and deregulated know. They also have many disadvantages. But deregulation is far from the magic bullet conservatives would like to believe it is.

Regulation is necessary. But, it must be applied to create competitive fair markets. A fair market is the last thing the winners in any industry want, as we've seen in the current health care debate from insurers - they'll lobby like crazy to keep a fair market from happening; they naturally want to keep all the advantages they've won in the market, even the ones logic and common sense dictate that they should not have. But a fair market guaranteeing competition and a regulated way for newcomers to freely enter and compete is best for consumers, and ultimately better for the companies than Adam Smith's "invisible hand" of the theoretical free market - that's what the hard math of economics proves, and John Nash won a Nobel Prize for doing the math and proving.

Robert E Wilson said...


I don't think we're that far apart. I am in favor of preventing collusion and controlling environmental impact, but that should be the extent of regulation of businesses. The federal government has no business in setting prices or assigning areas where a company is allowed to operate (within the U.S. at least).

"Regulated monopolies do have advantages"

That is never the case. Your own example of AT&T shows this. Companies like MCI and Sprint were able to perform better services at lower prices once the government filed divorce from AT&T. Now, years later, MCI is gone and AT&T is a strong company again and competing fiercely with Verizon. They are happy and we, as consumers are happy. This is not the case in the cable television industry. I want it de-regulated so I can make a choice. I should be able to choose from the big boys (Charter, Time-Warner) or the spunky little company trying to make headway by offering better services at lower prices.