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Unsustainable monopolies

Monopolies are only sustained by force. Sometimes examples are useful.

In his book The No Breakfast Fallacy, Tim Worstall relates how in 2010 China limited the supply of rare-earth minerals to force the price up. The only problem was that rare-earth minerals are not rare at all, and the increased prices meant that Lynas Corporation and Molycorp were able to raise finances to re-open some mines that had been previously closed due to the previous low prices from China.

Today, Imprimis Pharmaceuticals announced that they are making for $1 an alternative to the drug Daraprim, in direct response to Turing Pharmaceuticals increasing its price from $13 to $750.

Update: Tim Worstall wrote about the Daraprim and rare-earths in Forbes. I hadn’t seen it when I wrote this, honest!

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25 comments to Unsustainable monopolies

  • Paul Marks

    The American “Rare Earths” industry was indeed destroyed by government “environmental” regulations.

    Chief Justice Marshall famously said “the power to tax is the power to destroy” – but the power to “regulate” is also the power to destroy.

    Whether it is gun shops in San Francisco, not totally wiped out by regulations, or the American “Rare Earths” industry – wiped out by the government.

    China did not gain a “monopoly” on “Rare Earths” by some great cleverness, it gained its economic stranglehold because the American government, like so many Western governments, is actively working against the economy.

    A friend recently told me that I should not care that Mrs Clinton may become the next President – because the Federal government (like some State and local governments) is out-of-control just as much under Republicans as under Democrats.

    I wish I had a better response than just being shocked and upset.

    But I do not have a better response.

  • Paul Marks

    By the way – yes the post is correct.

    Increased prices do lead to the opening of “uneconomic” supplies, and the use of technology to “substitute” for the raw material supplies.

    However, government regulations can prevent this.

  • Rob Fisher (Surrey)

    Paul: Tim paints it slightly differently. He said the Chinese benefit from cheap labour and a willingness to foul up their environment. I think you’re both right.

  • Paul Marks

    The denial private property in air and water supplies in China is a bad thing – not a good thing.

    The idea that the alternatives are a destroyed environment or a destroyed economy is false.

    American government regulations (the EPA and so on) are not really about protecting the environment – this really is a conscious and deliberate intention (by the “educated” administrators and so on) to undermine America NOT to protect the environment.

    As for “cheap labour”.

    As you know Rob – what matters is not money per hour, it is money (pay and so on) in relation to what is produced.

    American workers became the highest paid in the world because they were the most PRODUCTIVE in the world (due to capital investment and so on).

    And Chinese wages are vastly higher (not lower) than they used to be.

    When China had very low wages (under Mao) it was an economic basket case.

    Sadly many Americans think that high wages were produced by taxes on imports (Protectionism) – they are mistaken.

  • Paul Marks

    For 19th century America see the works of A.L. Perry – the best selling American economist of the time.

    For early 20th century America see the works of Frank Fetter – who should have been the best selling American economist of the time, but sadly was not.

    Even “free market” mainstream economists stress Irving Fisher – the author of the incredibly harmful fallacy that the expansion of the credit-money supply does not matter as long as prices in the shops (his “scientific” definition of inflation) do not rise.

  • Tim Worstall

    Amazingly, I noted exactly the same connection in Forbes this very morn…..

  • Laird

    Monopolies are only sustained by government force.

    There, fixed that first sentence for you.

    Monopolies cannot exist for long absent government coercion. That is always and the only way they can be sustained. This is why our antitrust laws are economically inefficient and should simply be abolished.

  • PersonFromPorlock

    Paul Marks
    October 23, 2015 at 9:36 am

    Chief Justice Marshall famously said “the power to tax is the power to destroy” – but the power to “regulate” is also the power to destroy.

    Marshall got it backwards: it’s the power to destroy that is the power to tax. Not, maybe, a big practical difference, but one that makes the extortionary nature of taxes a little more obvious.

  • Douglas2

    It strikes me that the FDA approval process for another manufacturer is still a high barrier to entry, and the only reason this alternative is economical is that they are taking advantage of a loophole that “compunded drugs” (in this case a mixture of the active ingredient of Duraprim and another drug) can be dispensed without FDA approval in many US states.

  • Thailover

    Paul Marks said, “Chief Justice Marshall famously said “the power to tax is the power to destroy” – but the power to “regulate” is also the power to destroy.”

    How anyone but the mediocre stupid or apathetically uninformed can fail to see that this is the motive behind the climate change doomsday eschatology claims blows my mind. The push for governments to “control” our effects on the climate is precisely a push to destroy private enterprise/capitalism via draconian regulatory powers from the state.

  • Thailover

    Paul Marks wrote,

    “China did not gain a “monopoly” on “Rare Earths” by some great cleverness, it gained its economic stranglehold because the American government, like so many Western governments, is actively working against the economy.”

    One of the best books I’ve ever read is The Government Against The Economy, by George Reisman. I highly recommend it. It explains in simple terms the mechanism of HOW capitalism regulates markets and how it favors everyone, and how socializing a market via price controls, etc fucks it up for everyone, including the would be controlers.

  • Thailover

    Paul Marks wrote,

    “Even “free market” mainstream economists stress Irving Fisher – the author of the incredibly harmful fallacy that the expansion of the credit-money supply does not matter as long as prices in the shops (his “scientific” definition of inflation) do not rise.”

    How stupid of them. If, say, an iPhone 6 has a market value of X at a certain time and situation, then devaluating the currency would necessarily, (ceteris paribus), result in a higher numerical price for that same iPhone 6, not to mention how it robs people of part of the value of their property and held earnings. Expansion of the money supply is often called a hidden tax. I disagree with this assessment. Rather I would term it a pseudo-hidden counterfeiting of the currency. (Yes, I realize that more than half the money supply isn’t currency, but even so…).
    I don’t consider it counterfeiting because ‘I don’t like it’, but rather because it has exactly the same effect on the monetary system as counterfeiting does.

  • Thailover

    I wrote,

    “HOW capitalism regulates markets and how it favors everyone…”

    At first glance, that might seem kinda loony. How can a system favor EVERYONE?
    If you favor one, are you not disfavoring another?

    In a word, Nope.

    Capitalism favors everyone because when two parties voluntarily choose to engage in self-interested rational trade, it’s a win-win. Both sides gain from the exchange or they wouldn’t choose to trade. Not only does this “favor” the two involved, but others on the sideline as well. The poor of today profit from the relatively expensive market of yesteryear for common items such as refrigerators, microwave ovens, electric or gas stoves/ovens, cellphones, even the ballpoint pen (which, once upon a time, was an expensive item), just as a few examples. Capitalism increases a nation’s standard of living; that is it “favors” everyone, even one’s competitors.

  • Thailover

    Laird said,

    “This is why our antitrust laws are economically inefficient and should simply be abolished.”

    But they make such wonderful dull weapons for dull people to witchhunt with. They forced Microsoft to hire greasy lobbyists to grease the greasy palms of congressmen, and since then not a frivolous lawsuit against them has hit the headlines. The constant barrage of frivalous lawsuits stopped on a dime. This highlights why and how cronyism is really coercion of government on business and not the other way around. They FORCE corporations into their sleazy payoff system.

  • Thailover

    PersonFromPorlock said, “Marshall got it backwards: it’s the power to destroy that is the power to tax.”

    Well, you know, if you want less of something, you tax it. And if you want more of something, you subsidize it. Examples of things Progs want less of include gas (petrol) usage, cigarette smoking, rich people, Twinkies and fountain sodas, corporations, technology; and example of what the want more of include poverty, slums, “green” boondoggles, broken public schools, cronyism, abortions, terrorists coming from hostile nations and broken national borders.

  • Dom

    This doesn’t always work with pharmaceuticals. I’m on 800 mg of gleevec. Look it up on goodrx. $20,000 a month. A substitute is tasigna, $18,000 a month.

    Gleevec is going generic in July. But every pharmaceutical is saying the price will not come down much.

  • Johnnydub

    Thailover – spot on.

    So now the $69,000 question.

    WHY?

  • Laird

    Dom, there may be exceptions, but that doesn’t invalidate the general rule. I use two different types of eyedrops for glaucoma. A few years, when both were still under patent, it cost me roughly $135 per month. Now they’re both generic and it’s $22. Total. If permitted to do so, sooner or later the market always clears. Without exception. The “later” might not be quick enough to suit your taste, but in the long run it’s far better than any alternative method.

  • Richard Thomas

    Paul, on the bright side, there is a fight for the heart of the right going on. Admittedly at the moment, it is an effort to move from being terribly shitty to merely being awfully shitty but the fight is there.

  • Richard Thomas

    I will also say that I think there will be improvement on the right when they abandon the “Christian coalition” stuff and get on board with some of the social issues for which the argument is effectively over (drug [specifically marijuana] legalization, gay acceptance being the most obvious). It’ll be a hard-fought battle but it would knock the wind from the left.

  • Rich Rostrom

    Shkreli’s Daraprim scam works because it hits a small target. The “barrier to entry” is the testing and certification required to show a new source of drug is safe and bioequivalent – a reasonable precaution. It’s not hugely expensive, compared with the cost of injuries or deaths from bad drugs. But the cost of the testing is pretty much fixed, which makes it a cost barrier for a drug with a small end market.

    One could achieve a similar “monopoly” of say a rare metal by owning the one operating mine that produces it cheaply. A potential competitor would face the outlay required to open a new mine. The “monopoly” lasts only as long as the extracted rents are less than the costs to create a new supply, and if demand is limited, that caps the rents.

    In short, this sort of thing is a niche effect, not something with general consequence.

  • Thailover

    Richard Thomas (John-Boy?) wrote,

    “I will also say that I think there will be improvement on the right when they abandon the “Christian coalition” stuff and get on board with some of the social issues for which the argument is effectively over (drug [specifically marijuana] legalization, gay acceptance being the most obvious). It’ll be a hard-fought battle but it would knock the wind from the left.”

    I agree to some limited extent. But the leftists largely rely on lying, so the right wing getting rid of some of their irrational hang-ups won’t help much IMO. Examples include the “war on women”, which is a complete lie. Much of the previous example is based on the “gender wage gap” claim in which two professionals identical in every way except for gender has about a 30% wage discrepancy, another lie. (Even a semi-free market for employees would destroy such a pay gap). “Republicans are racists” is another lie. White republicans FREED the slaves from the democrats, founded more than half dozen “black” colleges and created the NAACP. Republicans forced through the 13th, 14th and 15th amendments to the US constitution, freeing the slaves, recognizing blacks as citizens with the right to vote, and so on. The “Southern Strategy” wasn’t about gaining southern racist votes, but rather southern christian votes. If to be christian is to be racist against minorities, then how is it that American blacks and Hispanics are the most christian demographics in America? A few “Dixiecrats” became republican in order to keep a job, which was in jeopardy because being a racist, as many southern democrats were, was becoming increasingly unpopular. So why, pray-tell, would the republican party suddenly decide to be racist? Once again, the leftist narrative makes no sense.

    “Climate change” is another largely leftist-driven bucket of lies, though much more sophisticated in that they’ve managed to co-opt and subvert many in the scientific community and the grey area between science and academia. (And academia was co-opted by the left more than 60yrs ago).

    There are a few positions that continues to confuse me, like many American Jews continue to love the political left, even though leftists are no friend of Israel (that’s an understatement), and consider “Palestinians” to be a modern day equivalent of native Americans. Another is that gays and trans support the left when the left, in reality, are not less bigoted and the political left has done NOTHING for the gay and trans “community”.

  • Thailover

    JohnnyDub wrote,

    “Thailover – spot on. So now the $69,000 question. WHY?”

    I guess that depends on which of my posts you were referring to, though I would like to think they’re all spot-on. 😉

  • Julie near Chicago

    Well, Thailove, on October 24, 2015 at 4:27 am you were sure spot-on!

  • Nicholas (Andy.royd) Gray

    There is one form of Monopoly that we do support- the Monopoly of land ownership. Private property owners should have the legal monopoly over their land. In my minarchist ideals, this means that local councils can regulate or licence what happens on the public property called ‘roads’, etc. That should be it.