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URL:  https://boards.fool.com/the-best-and-most-effective-absorption-and-24991630.aspx

Subject:  Re: Here's your chance: Balance the Fed budget Date:  1/2/2007  9:47 PM
Author:  capitanfracassa Number:  200213 of 603841


the best and most effective absorption and elimination of resource waste is free competition. The greatest creator of waste is the elimination of competition.

Dave, I certainly have to side with you on this one


This is simply not true. In many industries there are economies of scale that produce huge efficiencies. That is why we have walmart, because a million small grocery stores are ineffficient. That is why we have citibank rather than hundreds of little neighborhood banks. One big retailer can squeeze many efficiencies, centralize many aspects of the business process, etc. Most large corporations are oligopolists. This is a lot more efficient than free competition, which is almost nonexistent in any field were corporations operate. If the retail market were to return to free competition, Walmart's profits would disappear and it would go bankrupt, but consumer prices would rise because of rising inefficiencies.

But the dynamic is more complex.

Competition drives efficiency up.
Efficiencies drive profits down.
The industry consolidates to reduce competition and capture the efficiency premium.
Consolidation drives down income and consumer purchasing power.
The rise in capacity usually exceeds the ability of oligopolies to protect profits.
Overcapacity is a therefore a chronic problem. Without government intervention, the result is a cycle of business collapse, unemployment, unrest, etc.
This cycle happened many times until the Great Depression. Since then, government took the role of protecting profits by a mixture of consuming the excess capacity (mostly through war), redistriuting wealth and pumping credit. The difference between all post WW-II administrations is in the exact mix of these three tools.

So the point that contemporary government is inefficient is beside the point. It is, and so what?

Regards,
Capitanfracassa
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