Re: California

[phillp2@xxxxxxxxxxxxxxx]

Leigh,
The problem is that in theory natural monopolies must either be
publicly owned with a requirement to average cost price (or
marginal cost price with a public subsidy), or, if privately owned, be
publicly regulated to do so (and the regulator must not be subject
to becoming captive to the private company). (This model and its
policy implications were developed by Pigou long before Keynes.)
Since economists are, for the most part, ideolgically (and
irrationally) opposed to public ownership and/or regulation they are
forced to either ignore (or deny the existence of) natural monopoly
or argue for duopolistic (or oligopolistic) competition which, to
survive, must adopt economically inefficient monopoly type
prices/practices. We have just gone through this in Canada with
the bankruptcy of our second largest airline at great loss to the
workers and to the shareholders as a result of deregulation and
privatization of the largest airline, Air Canada.  But the economists
in the competition bureau can't see beyond their ideological
blinders and are demanding, as a sollution, not re-regulation but --
would you believe it? -- more competition.

Paul Phillips,
Economics,
University of Manitoba
Send reply to:  	"Leigh Harkness"
<Leigh@xxxxxxxxxxxxxxxxxxxx>
From:           	"Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx>
To:             	"Sven R Larson" <slarson@xxxxxxxxxxxx>, <pkt@xxxxxxxxxxxxxxxx>
Subject:        	Re: California
Date sent:      	Tue, 22 Oct 2002 22:16:31 +1000

> Sven
>
> You wrote:
>
> > This theory already exists. Every 100-level micro student learns it.
>
> My frustration is not so much with the students, but the practicioners.  Its
> good to hear that students are learning their economic theory.  But how long
> before practicing economist put these theories into practice.
>
> Ricardo developed the theory of comparative advantage nearly 200 years ago.
> Yet today we still have the IMF and World Bank advising countries to impose
> policies based upon the theory of absolute advantage.  They tell countries
> to cut costs to improve their trade performance.
>
> Similarly, Keynes explained how balance of payments problems were caused by
> excess demand yet there are economists advising countries that it is a price
> or exchange rate problem.
>
> And now we have theories that tell us that monopolies can be optimal
> entities to provide certain services but people claiming to be economists
> telling us that we need to create competition in those industries.
>
> It is no wonder that in this world of so much economic enlightenment,
> enlightened economies are amongst the badly performing.
> Regards
>
> Leigh
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