market failures, tobacco+railroad monopolies+polluting

[trey4sports]

couple days ago in my polysci class we talked about why govt intervention is need in the market and we talked about market failures.

the teacher claimed that had we not regulated cigarrrettes the companys would have continued to sell dangerous products without giving information on its side efffects (which, to his credit the tobacco industry said cigarrettes were perfectly fine for your health for quite some time)

secondly, we talked about the railroad monopolys that occured during the 19th century (i believe)

and lastly we posed the hypothetical question of what happened if the EPA was dissolved? the proffessor argued that polluters would easily be able to heavily pollute because the market cannot account for the consequences of polluting because it would take so long for the effects to come to fruition.

i was hoping someone could shed some light on why these are not market failures or why they are.
Im typically pretty good at debunking and being able to explain why govt int. is bad but at times i come by some cases which i dont really understand.

thanks

[trey4sports]

bump

[nate895]

The tobacco companies committed fraud by not telling their consumers that you get cancer by smoking their product. It is perfectly justifiable for the government to coerce them to not commit fraud.

As far as pollution, significant pollution is a violation of other people's property rights. Besides, markets eliminate pollution ASAP because polluting industry tends to be less efficient than clean ones, and markets are all about finding maximum efficiency.

Edit: Certain railroads were subsidized in the 19th century, so if any monoploy came about it was because of subsidies. That is why the railroad to the west went through the heart of the Rockies, the cheaper and faster route is the Southern route from New Orleans to the Southern Californian coast.

[Grimnir Wotansvolk]

Did people really need to be told that smoking could be dangerous? Really?

[angelatc]

The point that the teacher is missing is that people aren't stupid. They knew full well that smoking caused cancer no matter what the cigarette companies told them.

And the teacher is also not mentioning that the government's research was flawed.

And the teacher isn't noticing that the Constitution doesn't mention anything about the federal government acting like our mommy.

[RSLudlum]

did he explain the difference between political vs. free market entreprenuers during this time? You might want to look up James J. Hill and the Great Northern Railroad. Hill was a hell of a free marketeer that the politically connected railroad barons hated because he was so damn effective. Also, did Lincoln's role as a railroad lawyer/lobbyist come up at all (somehow I believe not).

[/searching]

I found something you might get some good fodder from. These articles by DiLorenzo:
http://mises.org/story/2317

You can find the same info in his book "How Capitalism Saved America".

[trey4sports]

ive also began to somewhat think that some of these issues are relative to their time.....

i mean nobody had a clue about global warming in the early 20th century, and as science progressed we had two options, let the free market provide several regulatory agencys or let gov't step in. Since no choice was really given (gov't just automatically stepped in) they blame the problem on the market.

[acptulsa]

The railroads of the nineteenth century are, indeed, an interesting study. On the one hand, they did 'buy influence' very regularly. On the other hand, there's a valid case for regulation there. The habit they got into was one of cutting rates on competitive routes in an attempt to destroy said competition, and making up for it by gouging those towns where there was only service from one railroad. And the free market did have the last word--most of the worst offenders wound up in the ill-fated Penn Central. But that bit of justice was way too long in coming. On the other hand, that regulation was often worse than the disease.

Certainly some interesting side effects happened as a result. The Southern Pacific and the Santa Fe got into a price war the moment the latter broke "The Octopus'" monopoly on Los Angeles. That sleepy little burgh turned into a city of over 80.000 almost overnight when the transcontinental fare got down to a dollar. Of course, the dark side is the number of people who went broke when the railroad serving their community decided they needed to gouge that town harder in order to survive their latest price war on another route...

As for the term 'subsidies', that is a terribly, terriby inaccurate way to look at the land grants. If someone would like to understand those better, say the word. Otherwise, I'll spare this thread three or four paragraphs.

P.S. And for those who think this is just dry, dusty history and a subject only for academia, let me say that the governmental 'solution' to this problem was the ICC, and the governmental 'solutions' to the problems the ICC itself created were (during WWI) a failed attempt at nationalization and (much more recently) Amtrak.

[tmosley]

The railroads of the nineteenth century are, indeed, an interesting study. On the one hand, they did 'buy influence' very regularly. On the other hand, there's a valid case for regulation there. The habit they got into was one of cutting rates on competitive routes in an attempt to destroy said competition, and making up for it by gouging those towns where there was only service from one railroad. And the free market did have the last word--most of the worst offenders wound up in the ill-fated Penn Central. But that bit of justice was way too long in coming. On the other hand, that regulation was often worse than the disease.

Certainly some interesting side effects happened as a result. The Southern Pacific and the Santa Fe got into a price war the moment the latter broke "The Octopus'" monopoly on Los Angeles. That sleepy little burgh turned into a city of over 80.000 almost overnight when the transcontinental fare got down to a dollar. Of course, the dark side is the number of people who went broke when the railroad serving their community decided they needed to gouge that town harder in order to survive their latest price war on another route...

As for the term 'subsidies', that is a terribly, terriby inaccurate way to look at the land grants. If someone would like to understand those better, say the word. Otherwise, I'll spare this thread three or four paragraphs.

Obviously what was needed was more competition, not more regulation.

[acptulsa]

Obviously what was needed was more competition, not more regulation.

Yes, but it would have been more than the market could bear. The Penn Central collapse was a result of the government through the ICC not allowing the railroads to undo the damage done during the nineteenth century. Railroads did 'invade each others' territories' and serve towns that were formerly at the mercy of another road alone, if the town even might have generated enough shipping to justify the expense. In this way, the free market did create more infrastructure than was truly needed. But by 1968 all that trackage was too expensive to maintain and, in the face of truck competition, a real liability. Doesn't mean the ICC would just let them abandon what they needed to abandon, though...

P.S. One thing I do readily credit Reagan for is getting rid of the ICC! Too bad he was too late to save the private enterprise passenger train.

[tmosley]

If they had to regulate anything, they should have made it so that those owning the rails and those operating the trains were two separate entities. Use of the rails could thus be free to anyone willing to pay a small fee for the lease (enough to maintain the rails and produce some profit for those holding the rails). This is the most open solution for that I can think of for infrastructure type problems like this (ie where space is limited, and competition is nearly impossible). This solution applies to other utilities as well, such as electricity, water, etc. It could also apply to roads in theory (the most divisive of all libertarian subjects of real importance).

[acptulsa]

Interesting. It brings up other problems, though. Most of Amtrak's problems derive from the fact that most of their routes aren't over rail they own. Of course, that's different, as the owners of the rail are, one, trying to move freight over them, and two, still mad about the fact that they can't run their own passenger trains because the government was making them run trains that the government itself wasn't willing to operate (lest they lose money--gasp!). Either that, or they just consider it a distraction, an operating obstacle, and a form of taxation...

Anyway, it doesn't speak to today, when there are entities that can compete without rails.