Reddit mentions of Economics: A Very Short Introduction

> As someone who is economically illiterate, I'd like to know if there is any value whatsoever to what I typically hear for the conservative talking points for helping the economy (aka de-regulation, lower barriers to entry, cut taxes, etc)

Yes. Absolutely, there are. Markets are widely agreed upon to be the most efficient way to allocate most products in a world of unlimited desires and very limited resources. The first chapter of any economics textbook will outline these benefits excellently.

But there are limits to what you can do with these tools since, despite what many people would tell you, it's actually quite difficult to lay the groundwork for a properly functioning market. Listen to the differences in the rhetoric used by mainstream Republicans like Marco Rubio and Mitt Romney and more libertarian-oriented politicians like Rand Paul and Gary Johnson. The former often talks about how praiseworthy American business is and the latter often talks about markets, that might seem like a fine distinction but it matters a lot.

Let me use an extended example to illustrate.

There are certain assumptions that economics relies upon: rational buyers and sellers looking to maximize their utility, with ordered preferences and an understanding of their limitations and needs, both sides have access to the information necessary to make an informed decision, the goods being sold must be rival and excludable.

Most importantly for this example, there must be competing buyers and competing sellers using price to signal their desire for a good or service.

Now, let's take a public utility like electricity. Where I live I only have one option for electricity, a company called AEP. I only have three market option I can exercise: to buy electricity from them, move at tremendous cost to myself or choose to go without electricity, also at tremendous cost to myself. Moving or not getting electricity hurts me a lot more than my lost revenue hurts AEP so they have way more market power than I do in the transaction and since they are my only option, they can set the price at whatever they want.

Now, the only way for me to have true options would be multiple companies building multiple electrical grids and my choosing which one I want to run to my house. Then there would be competition and by and by the competitors would drive the price down on each other. However, while that might be great for me, building an electric grid is very, very expensive. Electric companies build these grids initially at an enormous loss and they wouldn't take that risk if they don't have a reasonable expectation of recouping their investment.

So, let's say company A decides to build an electric grid in my city but any other company could use the grid once it was built and compete for my business. Well, that's no good because company A would be at a huge disadvantage since company B and C aren't in the hole for having built the infrastructure in the first place. Companies B and C could charge way less than company A. So, no company has any incentive to be the first mover - everyone waits for everyone else to build the grid first and, thus, no grid ever gets built.

Thus, you need the government to step in and say, "company A, if you build the electrical grid, you will have a monopoly on this area for X period of time, to guarantee you make your initial investment back." But, since company A is now a monopoly and can charge whatever they want, the government also steps in and regulates the amount charged.

The most efficient outcome is achieved only with government intervention in this case, and cases like this are not at all uncommon.

Now, since there's no real "market" for providing me electricity, I think most economists would agree it's a suitable place for government intervention. However, pro-business politicians will often push to have previously public enterprises (like my electricity) privatized in order to increase "efficiency." However, what they're really doing is providing a monopoly to a company who doesn't even need to make the initial infrastructure investment (since it's already built) and get huge profits simply for lying in the cut and providing no real value-added to their customers. A private company needs to turn a profit, the government doesn't. So, for public utilities you actually often end up paying less when it's run by government or at least through a public corporation than when the same is run by a private firm. Thus, pushing for a business to run such an enterprise isn't embracing the benefits of the market, it's corporate welfare.

Republicans often look to private contracts and business as inherently better and more efficient, almost as an article of faith. But very often, the most efficient outcome requires substantial government intervention. I would say that after 35 years of a broad program to deregulate business, cut taxes and devolve federal authority we have reached a saturation point of the benefits that can be derived that way.