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Does deregulation work?

Narmer

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Aug 27, 2006
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I was reading an article regarding foreign investment in Russia in the latest issue of the Economist magazine when I aw this line: "Profits are meagre at present but should increase when prices are deregulated."

This lead me to thinking. When governments talk about deregulation, they always promise lower prices. But the outcome is usually the opposite. So what is the advantage to the public regarding deregulation? Or is it simply a way to transfer wealth from the taxpayer to a few individuals.
 

EagleKeeper

Discussion Club Moderator<br>Elite Member
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Oct 30, 2000
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Regulation by the government creates inefficiency and waste because there is an essentially a guaranteed return.

Deregulation allows market forces to come into play. Many times, that causes efficiency and open competition may drive prices lower.


Limited deregulation does the exact opposite of both issues.
 

glenn1

Lifer
Sep 6, 2000
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should increase when prices are deregulated
Sounds like price controls is the more appropriate description, in which case it would make sense that profits will go up after they're lifted.
 

Narmer

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Aug 27, 2006
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Originally posted by: Common Courtesy
Regulation by the government creates inefficiency and waste because there is an essentially a guaranteed return.

Deregulation allows market forces to come into play. Many times, that causes efficiency and open competition may drive prices lower.


Limited deregulation does the exact opposite of both issues.
Can you give a recent example where competition has caused lower prices? The only one I can think of is airlines but the service has gotten much worse.
 

Ozoned

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Mar 22, 2004
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Originally posted by: Narmer
Does deregulation work.
Research The Staggers Rail Act of 1980.

Regulation stifles competiton, innovation, and efficiency. Deregulation tends to have the opposite effect.
 

Narmer

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Aug 27, 2006
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Originally posted by: glenn1
should increase when prices are deregulated
Sounds like price controls is the more appropriate description, in which case it would make sense that profits will go up after they're lifted.
Well, if that's the case then why doesn't the government raise taxes and fix whatever needs to be fixed. In that case, the rise in taxes should be lower than the increase in price when compared to a private corporation since the corporation raison d'etre is to make a profit?
 

glenn1

Lifer
Sep 6, 2000
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Well, if that's the case then why doesn't the government raise taxes and fix whatever needs to be fixed. In that case, the rise in taxes should be lower than the increase in price when compared to a private corporation since the corporation raison d'etre is to make a profit?
I guess it depends on what the government was trying to "fix." Generally, price controls are put in place because the government thinks something costs too much, inflation is a problem, or a situation of "natural monopoly" exists. Taxes could be an answer, but it really depends on what the question is.

Not sure if I understand your second sentence.
 

Jadow

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Feb 12, 2003
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My take, with deregulation, there may be some short term pain, but ultimately, it's the best thing in the long term. Govt, stay the F out of as much as you can and let the market decide.
 

Narmer

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Aug 27, 2006
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Originally posted by: glenn1
Well, if that's the case then why doesn't the government raise taxes and fix whatever needs to be fixed. In that case, the rise in taxes should be lower than the increase in price when compared to a private corporation since the corporation raison d'etre is to make a profit?
I guess it depends on what the government was trying to "fix." Generally, price controls are put in place because the government thinks something costs too much, inflation is a problem, or a situation of "natural monopoly" exists. Taxes could be an answer, but it really depends on what the question is.

Not sure if I understand your second sentence.
Here's the article: http://economist.com/business/....cfm?story_id=10180722

IMHO, isn't it better (and more efficient) for the government to raise taxes to match the cost of fixing whatever problem they're having (if they own the companies that's regulated)? That would be better than putting it in private hands and watching corporations adding their own "profit tax" above cost. If companies are being regulated, then that's better for them since they have no competition but have to provide a certain level of service for having a protected market.
 

Narmer

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Aug 27, 2006
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Originally posted by: Jadow
My take, with deregulation, there may be some short term pain, but ultimately, it's the best thing in the long term. Govt, stay the F out of as much as you can and let the market decide.
Like Enron and the California blackouts?
 

Jadow

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Feb 12, 2003
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Originally posted by: Narmer
Originally posted by: Jadow
My take, with deregulation, there may be some short term pain, but ultimately, it's the best thing in the long term. Govt, stay the F out of as much as you can and let the market decide.
Like Enron and the California blackouts?
yeah, short term, it sucked. But the market worked it out, long term, Cali is a cool place to live and Enron memrobelia is selling on Ebay.
 

EagleKeeper

Discussion Club Moderator<br>Elite Member
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Oct 30, 2000
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Originally posted by: Narmer
Originally posted by: Jadow
My take, with deregulation, there may be some short term pain, but ultimately, it's the best thing in the long term. Govt, stay the F out of as much as you can and let the market decide.
Like Enron and the California blackouts?
The CA blackouts were caused by market forces.
CA chose to control/limit the supply of energy prior to regulation and there is no way that more could be pushed down the lines.

The blackouts would have happened anyhow, they had happened previously; it was the cost that was the issue.

 

glenn1

Lifer
Sep 6, 2000
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IMHO, isn't it better (and more efficient) for the government to raise taxes to match the cost of fixing whatever problem they're having (if they own the companies that's regulated)? That would be better than putting it in private hands and watching corporations adding their own "profit tax" above cost. If companies are being regulated, then that's better for them since they have no competition but have to provide a certain level of service for having a protected market.
Whether it's "better" for a regulated state-owned industry to be kept under state control or privatized is debatable. To paraphrase John Maynard Kenyes, how you answer it will likely depend on the theories of which long-dead economist you most slavishly adhere to.
 

Ozoned

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Mar 22, 2004
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imported_Lothar

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Aug 10, 2006
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Why don't you ask the people of Texas?
Texans are paying 19-25% more for electricity than the national average and the price of electricity is expected to rise by 24% this time next year.
Power costs have climbed more than 80 percent since the retail electricity market was deregulated in 2002 by Gov. Rick Perry.


Why don't you ask the people of Baltimore, MD who almost got a 72% rate hike in Summer '06 from BGE?
 

miketheidiot

Lifer
Sep 3, 2004
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Originally posted by: Common Courtesy
Regulation by the government creates inefficiency and waste because there is an essentially a guaranteed return.

Deregulation allows market forces to come into play. Many times, that causes efficiency and open competition may drive prices lower.


Limited deregulation does the exact opposite of both issues.
deregulation is norally a horrably corrupt and is a process that lets people get monopolies which are probably even worse for consumers than before.
 

1prophet

Diamond Member
Aug 17, 2005
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Deregulation is like taking the referees and umpires out of the game because the players say it hinders their performance and aren't necessary because everyone will abide by the honor system.
 

miketheidiot

Lifer
Sep 3, 2004
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in natural monopiles, where the cost of entrance to a market is extremely high (think cable, electricity, water, internet) You will often see prices rise dramatically after deregulation, since there will always be only one direct company in the long run
 

First

Lifer
Jun 3, 2002
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Common Courtesy hit the nail on the head. Essentially, gov't regulation can lead to price ceilings (like rent control), which is contrary to a healthy, competitive marketplace. You want your supply and demand to be in as much equilibrium as possible, and gov't regulation via price controls usually isn't going to get you there versus the superior open market alternative.
 

First

Lifer
Jun 3, 2002
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Two examples:

1) Farm subsidies increasing prices on bread, wheat, et al. No sane economist can make the argument that farm subsidies are economically sound.
2) Price per airline flight has gone down since the deregulation, great for customers. Southwest has emerged via the open market as a short-distance alternative to the big boys (American Airlines).

And no, the disastrous state of some airlines does not mean deregulation has failed. You're talking about a very recent, short-term trend.
 

Narmer

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Aug 27, 2006
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Originally posted by: Evan Lieb
Common Courtesy hit the nail on the head. Essentially, gov't regulation can lead to price ceilings (like rent control), which is contrary to a healthy, competitive marketplace. You want your supply and demand to be in as much equilibrium as possible, and gov't regulation via price controls usually isn't going to get you there versus the superior open market alternative.
Oh please. Please explain why price rises when the government exits the market? It always rises. I ask Common Courtesy for a counterexample and he couldn't give me any. Can you?
 

First

Lifer
Jun 3, 2002
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Originally posted by: Narmer
Originally posted by: Evan Lieb
Common Courtesy hit the nail on the head. Essentially, gov't regulation can lead to price ceilings (like rent control), which is contrary to a healthy, competitive marketplace. You want your supply and demand to be in as much equilibrium as possible, and gov't regulation via price controls usually isn't going to get you there versus the superior open market alternative.
Oh please. Please explain why price rises when the government exits the market? It always rises. I ask Common Courtesy for a counterexample and he couldn't give me any. Can you?
Why would I explain why price rises when gov't regulation leaves a market when the reality is just the opposite? Look up causation versus correlation and get back to me.
 

JD50

Lifer
Sep 4, 2005
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Originally posted by: Lothar
Why don't you ask the people of Texas?
Texans are paying 19-25% more for electricity than the national average and the price of electricity is expected to rise by 24% this time next year.
Power costs have climbed more than 80 percent since the retail electricity market was deregulated in 2002 by Gov. Rick Perry.


Why don't you ask the people of Baltimore, MD who almost got a 72% rate hike in Summer '06 from BGE?
Since I am from MD I can answer your second question, which is very dishonest to say the least. BGE customers are now paying market rates, the price was held down well below market rates for about 10 years due to the regulation and the ineptitude of the Maryland legislature.
 

glenn1

Lifer
Sep 6, 2000
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Common Courtesy hit the nail on the head. Essentially, gov't regulation can lead to price ceilings (like rent control), which is contrary to a healthy, competitive marketplace. You want your supply and demand to be in as much equilibrium as possible, and gov't regulation via price controls usually isn't going to get you there versus the superior open market alternative.
While this is true, it also ignores that economic issues aren't mere abstractions and can have real impacts to market participants. It's easy to point out the shortcomings of environments where price controls are in place, namely that it delays discovery of marginal utility such that price signals won't be able to reliably indicate shortages, surpluses, or consumer preferences. However, economics is worthless without a moral component - you can't feed a starving child by proudly pointing to a supply/demand equilibrium undistorted by a central-planning authority.
 

Narmer

Diamond Member
Aug 27, 2006
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Originally posted by: JD50
Originally posted by: Lothar
Why don't you ask the people of Texas?
Texans are paying 19-25% more for electricity than the national average and the price of electricity is expected to rise by 24% this time next year.
Power costs have climbed more than 80 percent since the retail electricity market was deregulated in 2002 by Gov. Rick Perry.


Why don't you ask the people of Baltimore, MD who almost got a 72% rate hike in Summer '06 from BGE?
Since I am from MD I can answer your second question, which is very dishonest to say the least. BGE customers are now paying market rates, the price was held down well below market rates for about 10 years due to the regulation and the ineptitude of the Maryland legislature.
And you have a problem with that?
 

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