Cheaper Solar Cells Coming

[Hogeye]

It is not a priori that markets keep prices down, and this is shown by the counterexamples in our own marketplaces.

It is a priori that free (i.e. uncoerced) markets keep prices down. There are, unfortunately, many examples of intervention in the market. These make markets less efficient than they would otherwise be.

OK, in the Hogeye dictionary "efficient" means "what someone bought." So to say that the marketplace determines the most efficient sources of energy, as he claimed, is simply to say that the marketplace determines what people buy.

Again, the critical idea which the statement above misses is lack of coercion. Also, it looks only at the superficial surface level of end-users and takes existing prices as a given.

The end-users (consumers) and everybody in the chain of production and supplying the factors of production all prefer to pay less than more. If left uncoerced, they tend to do just that. Furthermore, they only need to know their own specialized part. Consumers need not know the cost of wood, rubber and metal used in making a pencil, since all this is reflected in the cost of a pencil. The manufacturers need not know the costs of mining the metal erasure holder, or the costs of rubber farming or silvaculture, only the final cost of these components. Everyone along the line has an incentive to reduce costs, i.e. increase efficiency, at their own particular level with their own specialized knowledge.

Since a market is a finely balanced system, roughly analogous to an ecosystem, perhaps it's easier to discern the efficiency by looking at interventions in the market - those coercive actions which violate its integrity making it less efficent. Since you look at the surface level - end consumers - above, lets start there.

Suppose there is an Anti-Market Mafia (AMM) which coerces consumers in various ways. Suppose there is a relatively free market in bread, but then the AMM announces that it will break the legs of anyone who buys more than two loaves of bread per month. What will happen to bread consumption among consumers? Many people who previously bought more than two loaves of bread per month will cut their consumption to avoid getting their legs broken. Others may furtively buy bread, thus increasing their cost per loaf. In either case, inefficiency is introduced - less bread consumed than is efficient or more costly black-market bread. Of course, in real life this called a "quota," and is generally perpetrated not by an AMM on end-users but by governments against importers.

Suppose the AMM instead announces that for every loaf of bread you buy, you have to pay it 50 cents (or get your legs broken.) Again, we can expect inefficiency in terms of less bread bought than before (since the effective price is higher.) Of course, in real life this is called a duty, tariff, or tax, and is perpetrated by governments rather than AMMs.

Suppose the AMM announces that only the Jones family may bake or sell bread - anyone else who does will have their legs broken. With this protection from competition soon the price of bread will rise, and consequently people will buy less bread than they would otherwise. This inefficiency is called "monopoly" and is generally done by government privilege rather than by AMM threats.

Finally, suppose the AMM announces that it will pay consumers 50 cents for each loaf of bread they buy (perhaps financed by their extortion racket.) Then people would buy more bread than they would otherwise (and bakers would produce more bread than otherwise), again causing an inefficiency since the previously uncoerced market supplied the optimum amount given costs and demand. In real life, this is called a "subsidy" and is usually done by governments for producers rather than AMMs for consumers.

Note that these inefficiencies are fairly easy to identify when you look at specific interventions in the market, whereas efficiency in a free market seems rather esoteric. You don't "see" balance until you fall over!

Back to energy: When governments subsidize petrol through subsidies, they screw up the mechanism for attaining efficiency. The same can be said for ethanol, wind power, and so on. The market is a constant automatic feedback mechanism for determining costs (to the extent that costs are not externalized or coercively shifted). Government intervention in the energy market makes it less efficient, obscures true costs, and in short is bad for people.

[Barbara Fitzpatrick]

There is no such thing as a truly "free" market any more than there is pure democrasy or communism. Market forces are most efficient as long as none of the participants in the market have significantly more money and power than any other participant. Then the baker who makes the best bread (as defined by that particular baker's customers) will have an edge over other bakers - but not by much. Other bakers will still be in business because of location, niche market (Baker A makes fine white bread, but if you want a Russian rye, you go to Baker C), and many other factors. Once a specific company becomes large enough to start out-producing the others, then large enough to open multiple outlets (and large enough to start propaganda/advertising campaigns), and finally large enough to undercut competitor pricing by selling below cost (because they have enough capital to do so until the competitors are driven out of business) - then the market no longer controls the vendor, one vendor controls the market. As close as it is possible to maintain a "free" market is for government to insure no single corporation gains enough power to control the market.

[Doug]

Once a specific company becomes large enough to start out-producing the others, then large enough to open multiple outlets (and large enough to start propaganda/advertising campaigns), and finally large enough to undercut competitor pricing by selling below cost (because they have enough capital to do so until the competitors are driven out of business) - then the market no longer controls the vendor, one vendor controls the market.

DOUG
But enough about Wal-mart...

[Hogeye]

There is no such thing as a truly "free" market any more than there is pure democracy or communism.

Right. It is an ideal, like world peace and ending poverty. It is something to strive for, even though we cannot achieve the pure ideal.

You are correct that there are economies of scale, so up to some point larger firms have an advantage over smaller firms. But then again, there are diseconomies of scale, too - once a firm gets too big it becomes bloated and less efficient. Think of economies of scale as an inverted "U" graph. As you point out, even when there are large firms, the smaller firms can compete on the basis of location, service, and niche market. Thus the market still works, and there are natural constraints on the bigger firms. If they fail to satisfy customers, they can easily lose market share and even go under. Remember that invincible retail giant Sears-Roebuck, Doug? A guy with a dime store in Bentonville overtook it. Just as Wal-Mart will lose out if it falters (and as other firms catch up with it's innovative supply chain technologies.)

One point you made, Barbara, is largely myth: The notion that a big firm can sell below cost to break competitors. In real life this almost never happens. The big firm is hemorrhaging money, with its larger market share, while the little guy either stays in business and lets the big one bleed, or temporarily stops production. And of course as soon as the big firm raises prices again, new competitors enter the field. Vanderbilt made several fortunes in the steamship business by this make a startup when the big guys raise prices strategy.

The other thing I disagree with you about is your claim:

As close as it is possible to maintain a "free" market is for government to insure no single corporation gains enough power to control the market.

In fact, the opposite applies: most monopolies (and mega-corporations) are creatures of State, caused and/or maintained by government policies favoring bigness or cronies. The net result of government intervention is violation and perversion of the market. To the extent government intervenes, the market is less free.

A classic example of this is railroads. Before the massive Lincolnian subsidies for the transcontinental railroads, railroading was a relatively free market. Most people back then correctly realized that monopoly was government granted - from wool monopolies in England to the Hudson Bay Company fur monopoly to the East India spice monopoly. Lincoln's railroad subsidies put the transcontinental railroad into a position without competition, where they had a natural monopoly. Authoritarian politicians spun this, not as a temporary result of govt intervention, but as an excuse to regulate railroads. When competition in the form of trucking emerged, instead of dropping the regulations, they expanded the intervention into the new area! Government violence tends to mushroom like that.

Now there are volumes of regulation and an FTC bureacracy, and people like you that mistakenly think all this coercion is necessary. Government is the great monopolizer; in absense of govt intervention monopoly tends to be temporary, lasting only until substitute products are developed or other firms catch up in technology.

[Barbara Fitzpatrick]

Wal-Mart is an awfully big example for Hogeye to overlook, but apparently "there are none so blind..."

[Hogeye]

The myth is that a firm can successfully sell below cost, kill the competition, and then raise to monopoly prices. Since Wal-Mart maintains "everyday low prices", they don't seem to satisfy the myth.

There is no doubt that Wal-Mart has put competitors out of business with extreme efficiency, low markups, and lower costs due to superior supply chain technology and buying directly from manufacturers cutting out the wholesale middleman. This, of course, is different from selling below cost.

Now I'm sure that sometime, somewhere Wal-Mart has priced something below cost, but I have to wonder where they have run someone out of business using the strategy in question. Barbara, can you give any examples of Wal-Mart doing this, or are you just talking out your ass?

[Barbara Fitzpatrick]

They were shut down in Canada and in Germany for doing it - they finally gave up and left Germany. As to specifics in America, I used to, but they fell to the wayside in one of my moves umpty years back. I don't know if they still indulge in the practice here, but considering the party in power is the greatest overlooker of corporate illegalities, they probably are. They only have to do it for a short period of time you know. Just long enough to drive the competition under. Then they raise their prices to make up for it. The raising of prices after driving competition under I know of from friends living in small (relatively speaking) towns in Texas where it happened.

[Hogeye]

So far your claims are still vague and unsubstantiated. Somewhere in Germany, somewhere in Canada, somewhere in Texas, all with no specific products or prices. Frankly, it sounds like urban legend to me.

I've no doubt inefficient local monopoly "mom and pop" stores have been driven out of business; the question is whether Wal-Mart sold under (their) cost to do it, and whether they subsequently raised prices to monopoly levels.

[Dardedar]

California leads the way again:



AN INCENTIVE-DRIVEN VENTURE Dan Bolden installing solar panels in a subdivision in Rocklin, Calif. A new law requires the panels to be a standard option for buyers of new homes by 2012.

From the New York Times:

***
SACRAMENTO — In the Rocky Mountain States and the fast-growing desert Southwest, more than 20 power plants, designed to burn coal that is plentiful and cheap, are on the drawing boards. Much of the power, their owners expected, would be destined for the people of California.

But such plants would also be among the country’s most potent producers of carbon dioxide, the king of gases linked to global warming. So California has just delivered a new message to these energy suppliers: If you cannot produce power with the lowest possible emissions of these greenhouse gases, we are not interested.

“When your biggest customer says, ‘I ain’t buying,’ you rethink,” said Hal Harvey, the environment program director at the William and Flora Hewlett Foundation, in Menlo Park, Calif. “When you have 38 million customers you don’t have access to, you rethink. Selling to Phoenix is nice. Las Vegas is nice. But they aren’t California.”

California’s decision to impose stringent demands on suppliers even outside its borders, broadened by the Legislature on Aug. 31 and awaiting the governor’s signature, is but one example of the state’s wide-ranging effort to remake its energy future.

The Democratic-controlled legislature and the Republican governor also agreed at that time on legislation to reduce industrial carbon dioxide emissions by 25 percent by 2020, a measure that affects not only power plants but also other large producers of carbon dioxide, including oil refineries and cement plants.

The state’s aim is to reduce emissions of climate-changing gases produced by burning coal, oil and gas. Other states, particularly New York, are moving in some of the same directions, but no state is moving as aggressively on as many fronts. No state has been at it longer. No state is putting more at risk.

Whether all this is visionary or deluded depends on one’s perspective. This is the state that in the early 1970’s jump-started the worldwide adoption of catalytic converters, the devices that neutralize most smog-forming chemicals emitted by tailpipes. This is the state whose per capita energy consumption has been almost flat for 30 years, even as per capita consumption has risen 50 percent nationally.

Taking on global warming is a tougher challenge. Though California was second in the nation only to Texas in emissions of carbon dioxide in 2001, and 12th in the world, it produced just 2.5 percent of the world’s total. At best, business leaders asked in a legislative hearing, what difference could California’s cuts make? And at what cost?

California, in fact, is making a huge bet: that it can reduce emissions without wrecking its economy, and therefore inspire other states — and countries — to follow its example on slowing climate change.

Initiatives addressing climate change are everywhere in California, pushed by legislators, by regulators, by cities, by foundations, by businesses and by investors.

Four years ago, California became the first state to seek to regulate emissions of carbon dioxide from automobile tailpipes. Car dealers and carmakers are challenging the law in federal court.

In late August, Gov. Arnold Schwarzenegger signed a measure requiring builders to offer home buyers roofs with tiles that convert sunlight into electricity. Homeowners in some communities are already choosing them to reduce their electric bills.

California, which has for decades required that refrigerators, air conditioners, water heaters and other appliances become more energy efficient, just added to the list: first, chargers for cellphones or computers; second, set-top boxes and other remote-controlled devices. Those categories consume up to 10 percent of a home’s power.

Last fall, California regulators barred major investor-owned electrical utilities from signing long-term contracts to buy energy unless the seller’s greenhouse-gas emissions meet a stringent standard.

“We are dealing with it across the board,” said Michael R. Peevey, the president of the Public Utilities Commission. By contrast, the Bush administration has been averse to any legislative assault on climate change.

Opponents say California may hurt its own residents with its clean-energy mandate. Scott Segal, a lawyer for Bracewell & Giuliani who represents electric utilities, summarized California’s policy as: “All electrons are not created equal. We’re going to discriminate against some of them, and create artificial barriers in the marketplace for electricity.” California consumers could end up paying more for their energy and struggling to find enough, Mr. Segal said.

four more pages

California energy usage:

[Barbara Fitzpatrick]

You note Mr. Segal doesn't mention the higher prices and scarcity under the Enron scams that none of the cities using municipal power suffered from - and directed resulted resulted in Gray Davis being recalled and the Gropenator becoming the gov of CA. Nor that the "rolling blackouts" were from an artificially created shortage of that highly polluting electricity Enron was selling. Municipal providers have known for long years that conservation (user efficiency) is more cost-effective than building new plants - unless you make your money running scams.