Today I’ll give you a follow up to yesterday’s Money Morning that questioned the usefulness of the Australian Competition & Consumer Commission (ACCC).
If you missed it you can click here to bring yourself up to speed.
Well, it seems as though your editor was wrong.
Based on the feedback Shae’s been getting into the Money Morning mailbag most people seem quite happy to pay higher prices for things.
Not only that but it seems as though your editor is a ‘slave lover’ due to our comments attacking the minimum wage.
So, are we really wrong? Does the ACCC really do a useful job? And is the minimum wage a spiffing idea?
Or, as your editor believes, does the ACCC actually contribute towards less competition which harms businesses and consumers? In fact, could it be argued that the ACCC creates monopolies?
And does the minimum wage actually increase the standard of living? Furthermore would the absence of a minimum wage result in slavery?
Even though I’m fearful of repeating some of what I wrote yesterday I’ll quickly go over those points again, before introducing you to the closest thing we have in Australia to a free market.
As we see it, the ACCC is nothing more than a clever disguise. It’s the front man that exists to give you the impression it’s looking after your interests.
Here’s the bad news, it’s not. The ACCC is the classic example of regulation and bureaucrats being put in charge of managing other regulations and bureaucrats. It’s like hiring a team of people to dig holes and then another team to fill them in again.
If the government hadn’t made business conditions so restrictive in the first place there would be no need for a ‘policeman’ or ‘watchdog’ to keep an eye on things.
The common misconception is that the ACCC ensures competitive markets. That it ensures consumers are not exploited by businesses. Again, this is untrue.
In fact the opposite is the case. Government regulations ensure that markets are uncompetitive.
That’s what governments and regulations do I’m afraid.
Look at almost any industry in the Australian market and you’ll see that regulations have restricted competition. Things may not have reached monopoly status, but there are many instances of duopolies. And even where there is the appearance of ‘competition’ the reality is that red tape prevents real competition from happening.
Yesterday we used the ACCC decision to stop Coles from offering a 40 cent discount as an example of the consumer getting stitched up again.
Many Money Morning readers wrote in to say the ACCC was right. That if Coles had been allowed to offer this deal it could help to put local traders out of business.
However, the argument is flawed. Because it isn’t Coles those readers should be attacking, it’s the regulations that have allowed Coles and Woolworths to reach this level of market dominance.
Coles and Woolworths have merely used the regulations to their advantage.
The result of this decision is that consumers will be charged more and Coles will make a larger profit. That’s not a win for the consumer.
A real win would be if red tape for businesses was reduced that made it easier for new businesses to enter the market. So that rather than having some dopey bureaucrat deciding what is a fair price and what isn’t, the market (you and I) would decide.
Thanks to the ACCCs decision and all the mad regulations that have gone before it, companies such as Coles and Woolworths are effectively told it’s against the law for them to discount prices.
But does that help their competitors. Probably not. The two of them have already achieved close to a duopoly status. They can use their sheer size for their own benefit. The ACCC like other bureaucracies will always provide more benefits to an incumbent business than to a new competitor.
And as for the ACCC creating monopolies, again that’s obvious, of course it does. OK, it doesn’t do it alone, it needs the support of government and the big industry players to help out. But a ‘competition’ regulator will always preside over the reduction of competition.
It’s impossible for it to be any other way.
But what about the minimum wage? That’s a subject no-one wants to talk about. If anyone dares argue against a minimum wage then you’re accused of being a Scrooge or a slavery-lover.
The other side is that the minimum wage guarantees unemployment.
The main beneficiaries of a minimum wage are those that already have a job. Although of course, that doesn’t mean they are completely safe from the side effects of minimum wage foolishness.
As the following example shows…
The facts are simple and beyond question. If you’re an employer with a staff budget of $100 per hour, if the minimum wage per person is $10 per hour then you can employ ten people.
Simple.
But if the minimum wage increases to $11 per hour then that business can only afford to employ nine people.
As I say, it’s simple, we aren’t talking complex economic theory or applied mathematics, we’re talking basic Year 3 maths.
As I’ve written about with other business costs such as higher interest rates and superannuation, the employer has three options, they either reduce their profit, they raise prices to the consumer or… they cut jobs.
Or maybe they do a mixture of the three. Maybe they cut out a member of staff but give the remaining staff an extra 10 cents above the minimum wage as an incentive to increase productivity.
Those nine staff are probably pretty happy at getting a pay rise, but it’s at the expense of their ex-colleague who’s been retrenched.
What does the retrenched worker do? Well, he has to hope that there’s a business willing to pay him $11 per hour because that’s the minimum wage. Even though he may be happy to accept $10.50 or even his old wage of $10 per hour.
But no, that would be against the law. Because it’s not only illegal for an employer to offer a job below the minimum wage but it’s against the law for someone to offer to work for below the minimum wage.
How does that make any sense?
“Ah,” minimum wage fans say, “If there wasn’t a minimum wage it would lead to slavery.”
Is that a fair argument? The argument is that if there was no minimum wage then wages would be continually driven down to zero, or at least barely to subsistence levels.
Again, while this sounds like a genuine concern, the argument is nothing short of nonsense.
In a free market where employers and employees play on a level playing field there would be no need for a minimum wage. Employers and employees would be subject to contracts of employment agreed upon between the two parties.
Employers quite naturally would try to secure the best worker for the least pay, while the worker would try to secure the easiest job for the most pay.
Naturally there’s nothing wrong with that. Who wants to do a tough job for little money? No-one. We’d all rather put in the least possible effort for the most amount of money.
With no minimum wage, pay rates would be set according to what employers and employees are willing to agree to. If an employer doesn’t pay enough then he/she will either end up with no workers or he/she will only attract the least productive workers.
A competing business on the other hand that is prepared to pay more would attract a more productive worker. That’s because the employer would know he is paying more and therefore would expect more from his workers than those who work for the less generous firm.
And think about it this way. In a free society there can’t be slavery. Why would you work for someone if they aren’t paying you? You wouldn’t.
So the whole “no minimum wage equals slavery” argument is ridiculous and irrelevant.
Abolition of the minimum wage and adherence to a genuine free market is the only way to move towards more employment. The minimum wages guarantees that Australia will have unemployment forever.
But what about that mythical free market I mentioned above. “That’s not possible” I hear many people say.
Well it is…
Let me introduce you to it. It’s a perfect example of buyers and sellers meeting. It’s where there is no monopoly or duopoly interests (although arguably, this particular market is a form of monopoly in itself). And it’s where the consumer gets to pay as much or as little for a product as they choose.
Of course, if they don’t pay enough then they may not get the product. And if the seller demands too much then they may not sell it. That’s why it’s a market.
If you haven’t guessed already, I’m talking about Ebay.
While it isn’t a perfect market, it is as close as we are likely to get to a free market. But it’s exactly how other markets should operate. Merchants from across Australia and across the world can sell their products online to millions of people.
They can choose to sell their products for as much as they like. However, if they have too high a price other merchants recognize the opportunity to undercut them and still make a profit.
Buyers can bid prices as high as they want. If they want to pay top dollar they can. If you don’t want to pay top dollar you don’t have to. You can wait. And chances are if you look hard enough you’ll find something for a price you’re willing to pay.
Funnily enough, we haven’t heard too many stories about monopolies or price gouging or uncompetitive discounts or cartel activity on Ebay.
Why is that? Is it because the government and ACCC have legislated to ensure a perfectly competitive market place? Or is it really because there is very little involvement from regulators and government which has allowed the free market to work exactly as it is supposed to work?
We think, actually we know the latter is the case.
Other Stuff on the Markets
The S&P/ASX200 closed at 4,846.20 up by 53 points, while overnight on Wall Street the Dow Jones Industrial Average was down by 50 points to 10,041.48. In Europe the FTSE100 finished at 5,243.40, down by 0.72% and the CAC40 dipped at 0.54%.
The price of gold in Australian dollars is trading at $1,143.55, while in US Dollars it is trading at $1,056.64. And the price of silver in Aussie dollars is $18.97 and in US Dollars it is $17.52.
The Aussie dollar gained a little versus the US dollar, trading at USD$0.9231, and improved against the Japanese Yen JPY83.87.
Crude oil closed overnight at USD$79.12
For the biggest movers on the market yesterday click here…
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k – Well said. In a perfect world we would not need a police force, but only a fool would suggest that we dispense with it.
It has been an intersting discussion and am enjoying it very much.
But I have to agree with PuntPal that you drawing the link between agreeing with the ACCC decision to stop the 40c discount and that ACCC is doing a good job is too disingenuous for words.
And saying that agreeing with the minimum wage means you agree to higher prices is also disingenuous. From my point of view all I want is the vulnerable employees, particularly the lower skilled or those not able to negotiate for themselves, are protected. Lower skilled workers will take jobs that do not pay them what they believe that they deserve to be paid just to survive or because they have some sort of social or financial committment.
I notice that despite all your missives not once have you taken on the issue of employers not spending money on training their staff but instead complaining that there is a “skills shortage” and lobbying governments to be allowed to bring in skilled and non skilled workers so they can undercut Australian workers or because they are too lazy or disinterested in skilling up their workers which they should be doing. Of course there is a skills shortage if employers won’t train their employees. Incidentally one could argue that employers would be more likely to retain their employees if they did!
Having said that I would have to agree that on the whole Government Departments, at all levels, do a crap job and a lot of the time do more harm then good. There is too much regulation. The tax system is way too complex and it causes bubbles such as the housing bubble (negative gearing, never understood why you would want to go about deliberately losing money to avoid paying tax) and franked dividends and it could be easily simplified by taking on the Norfolk Island system of taxing bank deposits. All efforts should be made to reduce as much red tape as humanly possible.
But, because some people will take advantage of others they perceive as being weaker than themselves protection of the vulnerable is a must. Some protections are good and must remain, even if prices that we pay are increased as a result (which I do not necessarily accept). I
In any case the counter to your argument is that employers will employ enough people for the work that they need to do and no more and will only increase employees, no matter what they cost, when the amount of work available increases. Further, if employees wages are cut then they will spend less. This means that employers sell less and then cut employees or reduce their working hours and then they have less to spend and so on.
Pf – I do think they are clever. I also think my brother is clever and I think Steve Keen is clever. I think you are clever too.
Its werid because on reflection, I am actually starting to come around to Kris and his take on this…Libertarian arguments always seem hard to swallow at first, but when you play things out, you start to see that freedom isnt so bad after all ; )
I have come around due to the following reason – If we decide that regulator intervention is needed to stop anti-competiitve conduct, where do we draw the line and WHO decides to draw that line?
I have seen many examples of anti-competitive conduct that the ACCC let go through to the keeper – in the end, they always sorted themselves out and the market, suppliers and consumers all survive and life goes on. Some businesses fail due to the rough and tumble of business, but this is not something to prevent. This is what makes the free market so effective at producing efficient goods and services.
The main thing we need is for consumers and citizens to be highly educated and informed of their rights (or access to advice/justice).
A free economic market is the only way to go – but on other issues I say goodbye to the DR crew and go my own way…the third way
k – the disempowerment of the American people simply amazes me. I don’t know how it is done, but it seems to me that the elite are able to rob the good people blind, and seemingly without consequence. The so-called land of the free, is only free for the connected and the powerful. It is nothing less than heart breaking to see the people reduced to serfdom in what is supposed to have been the greatest democracy of modern times.
PuntPal – Fair enough. Sorry I was probably being a bit harsh, and also I’m not that clever. Just ask my wife, but thanks anyway.
You raise some interesting points. But consider this. Kim had this to say in an earlier similar thread – “I was an employer in England many years ago (before they brought in a minimum wage). When I ran ads to hire my first employee, I quoted a lowish salary. I got no takers. It wasn’t until I increased my pay offer that the phone started to ring, and I eventually hired someone. Although I was hoping to pay less, the market said otherwise”
Now I don’t want to quarrel with Kim, starting a new business and had a go at getting half priced labour. Anyone who has started a business understands that it is a worrying time. However from Kims experience we can see that Kim had to pay what the market dictated because labour was clearly scarce. To summarise, a scrooge of an employer has to up the ante until they get the position filled. So far so good.
But what about in an economic downturn when there are many out of work who will be tempted to take jobs at below realistic wages because they have mouths to feed. So then employers are able to reduce wages to cut costs. In that enviroment even good employers have to also reduce their wage costs to compete with others who are paying a sustenance wage. To spell that out, if you were baking loaves of bread but you could reduce your labour cost by .50 cents per loaf to sell more bread, every other baker in town would have to reduce their wages cost as well, even if it went against their principals. It is either that or bankruptcy.
Won’t the same laws of economics and human behaviour be just as effective on the downside? Just a thought for you to consider.
Sorry PF – I have failed to grasp your point (I dont mean to sound cheeky – I am serious, I am not sure what you mean).
I think you might be saying that when the economy worsens, letting the market sort things out is a dangerous process, because it involves a race to the bottom in terms of wages and the most vulnerable will be first to suffer (and suffer the most).
If this is your argument, then I totally agree and thats why I havent discussed minimum wage policy etc…
I have been only talking about competition law and regulatory intervention aimed at stopping supposed ‘anti-competitive conduct’
Sorry if I missed your point -it was not intentional
PuntPal – that was my point. I’m good with minimal government interference, but I’m realist enough to accept that some is required.
Perhaps we have agreed on this one.
LOL
you are CRAZY if you think that ebay is a free market
They put more rules and regulations on what you can and can’t do, the terms you can offer and the methods of payment you can accept than anything the government will do to you
it’s also worth noting that the ACCC has had a history of policing ebay extremely vigorously too, particularly in recent years
sites like Flippa and Clickbank are probably better examples of a free marketplace, though they both have their regulations too.
we have agreed indeed PF – we agree more than you think
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