Monthly Archives: November 2013

Libertarian View on Monopolies

There was a recent article on Mises.org by Brian LaSorsa about creating a monopoly.  The author, in a sarcastic tone, presents “the five best ways to create a monopoly and to ensure you never have to compete again.”  The five things are as follows:

  1. Regulations
  2. Subsidies
  3. Nationalization
  4. Tariffs
  5. Intellectual property
The main point to take away from the article is that for anyone complaining about monopolies and how the government must be used to stop or break up monopolies, it is actually government that usually enables monopolies in the first place.
I always think back to Microsoft and Bill Gates and the treatment given by the Clinton administration.  Some people were saying that Microsoft was a monopoly and we therefore needed the government to step in and regulate things.
Of course, Microsoft, while suffering at the hands of the government regulators, was and has been a beneficiary of government protection, particularly when it comes to intellectual property.
But it turns out that Microsoft wasn’t a monopoly, even with the government protection it had.  Look at what Apple has done to Microsoft.  It hasn’t put it out of business by any means, but I think it is hard for anyone to now say that Microsoft is a monopoly, and it isn’t because the government put a stop to it.  It was competition in the marketplace that led people to buy other products.
I am not one to say that a monopoly is an impossible thing in a completely free market environment.  If someone owns a particular Picasso painting and charges people a fee to view the painting, then that person has a monopoly with respect to this particular painting that he owns.
There are even situations where it makes sense to have a monopoly in a free market where others could try to compete.  In the case of Microsoft, it has made sense for millions of people to all use the same programs that are compatible with each other.  As long as there are no government barriers to entry or competition, then a company that sells 100% of a particular product or service must be satisfying the customers.
Another interesting aspect about monopolies is that companies can lose market share to other companies with similar products.  They don’t necessarily need to be the same products.  For example, if Coke started charging a lot more for their drinks, then some people might switch to Pepsi on the basis of price, even if they still prefer the taste of Coke products.
You can also see examples of government created monopolies that have been broken up by the free market, despite the barriers.  Telephone companies and cable companies given monopolies in certain local areas now have to compete with cell phones, satellite television, and even the internet.  Again, you don’t need an identical product to compete.
Regardless of your thoughts on whether monopolies are good or bad and whether they are even possible in a free market, libertarians should agree that government should never be used to control a company on the basis of monopoly.  Most monopolies are created because of government.  If a company can keep all competitors away on the basis of consumer satisfaction, then why would we want to change that?  If consumers are happy with the quality, price, and other factors, then it is unnecessary to force changes on that company, as long as everything is voluntary.
The worst monopoly is government.  It has a monopoly on the use of legalized violence over a given area.  That is one monopoly we should be trying to break up.

Are We In Another Real Estate Bubble?

There was a short article written by Charles Hugh Smith and published at LewRockwell.com about another real estate bubble.  The author says “it’s painfully obvious that real estate valuations are once again at asset-bubble extremes, one that’s even bigger than the last RE bubble that popped in 2008 with devastating consequences to the global economy.”

There is a lot of debate right now about real estate, even amongst libertarians.  I think most libertarians will agree that the housing market has certainly been distorted by government and Federal Reserve policies.

While I think that real estate prices are higher than they would be if the Fed weren’t buying long-term government debt and mortgage-backed securities, I also think that it is kind of absurd to say that we are in a bigger real estate bubble now than what just popped a few years ago.

The chart shown in the article is misleading when used in reference to a possible housing bubble.  This is a chart of REITs, or real estate investment trusts.  These are investments in real estate.  Many of them are highly leveraged.  It should be no surprise that investors who bought a few years ago when housing prices were at the bottom are now doing quite well with their investments.  The profitability of REITs is quite different from actual housing prices.

The median price of a single-family residence in the U.S. is still well below the peak median price from about 6 years ago.  And you have to consider that we have had 6 years of inflation since then too, so in real terms the prices are even lower.

Of course, all real estate is local and some areas do have higher price points than what was seen at the peak of the housing bubble.  But on average in the U.S., prices are still lower, in both real terms and nominal terms.

Perhaps what we have now is the start of a new real estate bubble that will one day pop again.  But to say that it’s bigger than 2008 at this point is just not accurate.  There are still a lot of people out there who are underwater on their mortgage.  If we were in another major bubble right now, then these people would have positive equity, which simply still isn’t the case for millions of homeowners.

I can’t say for certain one way or the other if real estate it going up or down or if we are in another bubble.  But at this point, there is no way that it is as bad as it was in 2007.