2.7.14

THERE'S STILL WORK TO DO.

It's so easy for people with little understanding of market forces, today Ann Robertson and Bill Leumer, to make silly claims about what market forces do.
To begin with, in capitalist society it is much easier to make money if you already have money, and much more difficult if you are poor. So, for example, a rich person can buy up a number of foreclosed houses and rent them out to desperate tenants at ridiculously high rates. Then, each time rent is paid, the landlord becomes richer and the tenant becomes poorer, and inequalities in wealth grow.
There's almost enough material in that passage to set a price theory examination.  Sometimes, though, a counter-example suffices.  According to the logic of Robertson and Leumer, there's plenty of money to be made buying up houses in Detroit for pennies and renting them out to the remaining souls there.  Donald Trump doesn't seem to be interested in doing so.  The Koch Brothers would rather store petroleum coke on the river-front than build houses.  And the owners of the sports franchises in Detroit seem more interested in extracting subsidies for their stadiums than in making bank in distressed real estate.  If those self-styled progressives are as smart as they think they are, why aren't they Detroit real estate moguls?
Capitalism is based on the principle of competition, and businesses must compete with one another in order to survive. Each company, therefore, strives to maximize its profits in order to achieve a competitive advantage. For example, they can use extra profits to offset lowering the price of their product, undersell their opponents, and push them out of the market.
Leave aside, for the moment, that this paragraph vitiates the assertion of the paragraph previously quoted.  Competitive advantage is of no value unless buyers take advantage of it, and lower prices are the most logical way for those advantages to harmonize.  And in that competition, where will businesses get those extra profits in the first place?

Extra credit: I used to explain the principle of sustainability of natural monopoly with a twist on Newton's third law: for every predatory price there is a creamy market to be skimmed.  The most alert entrepreneurs are precisely those who will notice the rents being generated, and compete them away.  (Here, I suspect, some Common Dreams readers and I could make common cause: where established commercial interests use the police power of the state to protect those rents, we have an abuse of government power.)
But in order to maximize profits, businesses must keep productive costs to a minimum. And a major portion of productive costs includes labor. Consequently, as a general rule, in order for a business to survive, it must push labor costs to a minimum. And that is why, of course, so many businesses migrate from the U.S. and relocate in countries like China, Viet Nam, Mexico, and Bangladesh where wages are a mere pittance.
Would that it were so simple.  Numbered in the population of China, India, Brazil, and parts of Mexico are how many United States's worth of middle-class workers, most of them achieving that status in the past quarter century?  Meanwhile, how many displaced industrial workers in the United States continue to subscribe to the cargo-cult of the Welfare State?

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