Monday, December 29, 1997

Obstacles to capitalism

There are, as I see it, two obstacles to the perfect capitalism—that is, where quality wins. First is lack of access and open information. This creates situations where low quality wins, merely because people don't know about, or can't get access to (often because the low-quality businesses have tried to block that access & information, or override it with noise) higher quality products.
Second is the shortsightedness of man. This is why Standard Oil did so well; even though people must have known what could happen, they didn't believe it would, or didn't think they could make a difference, and went to the cheaper place and let the older places go out of business. There are other effects, as well, but mostly along these lines. This is primarily a cultural thing.

Update: 7/9/2007: I’m not really going through my journal entries to comment on them at the moment; I’m just republishing them on my blog. But I can’t let this one sit. I wrote this long before I had an Economics education, and it’s not bad. The first part I definitely still agree with; information access is a major economic problem creating many disequilibria. But I’m not so sure about the second. The problem that was obviously foremost in my thoughts when I wrote this was the Apple/Microsoft problem. But first, that may not be as big an economic problem as I had thought, however I may dislike the outcome. Peter Klein has some interesting insights on this subject. Second, the Standard Oil case I refer to—where Standard would come into a small town across from a local gas station, drop their prices, drive the local station out of business, and then hike up their prices higher than the local station’s ever were—is apparently apocryphal. So much for high school History class. Third, I now think that the other major obstacle to a properly working capitalism (besides artificial constraints imposed by government) is externality problems (a topic that deserves its own long post, so I won’t elaborate here).

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