Hedonism: HSL's April 2013 Intellectual Discussion

[logicx24]

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One involves the ignorance of property rights, or the ability of an individual to own and exercise control over scarce resources. If these aren’t respected by everyone, then self-interested behavior will lead to the accrual of resources into the hands of those with more power, increasing their power while leaving the weak even weaker and without a course for ever becoming strong. This basically can be said about all things that we ordinarily call “rights”, and what makes political science so important (because this distribution of power between people is what defines the subject). To protect rights, self-interest must be controlled through a system of positive and negative incentives called the legal system that makes the infringement of rights undesirable to the self-interested person.

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<p>Well, yes. That is what I assumed in saying “unregulated;” that rights would be respected. I meant that the government would not artificially interfere with market forces, thus creating a laissez-faire system. I should have clarified; I suppose all markets are regulated in this manner to a certain extent.</p>

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Then there are externalities, the impact of one person’s actions on an innocent bystander. One example of an externality is pollution - a perfect example of how working in your own interest can hurt others, since pollution can reduce your health. Self-interested companies would pump debris into our air and water supply without restraint if it weren’t for the legal system altering the incentives to make doing so undesirable.

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<p>The legal system still hasn’t effectively combated pollution, mainly because it is nigh on impossible to find a “true cost” for the effect an individual actor has upon pollution, due to all the secondary effects pollution can have. Governments have attempted to create taxes, following Arthur Pigou’s idea, but, taxes on pollution have to be individual in order to ensure each business pays fairly, and that larger contributors are taxed more, creating incentives for them to cut pollution. But I digress.</p>

<p>Yes, such external costs are a market failure because the results of these costs are not seen. These costs aren’t reflected in market prices because the actor doesn’t have to face the social costs of its actions. But we still can’t effectively combat these, even with regulation.</p>

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Then there is the unequal distribution of market power, or the ability of a single economic actor to have a substantial influence on market prices. For example, if everyone in town needs water but there is only one well. The owner of the well gets to charge lots of money to use it since water is a necessity and there are no other well owners to compete for customers. Because of this set-up, the self-interested guy can basically extort customers for loads of money that could instead be used for economic development.

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<p>So, basically, a monopoly? </p>

<p>In your example, another person could see the higher returns, and make an investment to dig another well to capitalize on the profits. If he did not individually have enough money, he could ask each townsperson for a certain amount, and then use all of the money to create a well, distributing profits proportionally and competing against the monopolist. Profits would still remain high for both of these producers, attracting more competitors to enter until the price is driven to the margin price.</p>

<p>Monopolies cannot last as long as there are no barriers to entering the market, like initial expenses or governmental policies. As long as any firm has the ability to freely enter a market, a monopoly will be forced to remain efficient and keep prices low due to the fear of attracting competition.</p>

<p>There are markets, like phones for example, where the barriers to entry make monopolies more cost efficient. Due to the immense cost of creating a telephone network, other firms cannot enter and compete against a well established firm. However, if the telephone monopolist charges too much, he may make it profitable for a prospective competitor to enter, so, he has to ensure a certain degree of efficiency in his procedures to keep a viable market price.</p>