*** The Official CUCKposting thread ***

[MadMojoMonkey]

Fair enough.

[BananaStand]

Ok well I'm going to admit something that hurts my argument somewhat, but it only applies to water and certainly not energy.

That's probably wrong. Depends on what you mean by "energy". There's a difference between Exxon and your electric company, even though both provide "energy".

Water isn't too expensive here. They don't overcharge, probably because of exactly what you just said... government regulations

Oversight is a better word.

Personally, I'm against regulations when it comes to the majority of things, but not when it comes to things like natural monopolies, even if I'm the only one who accepts that term.

I'll concede I know what you mean when you say "natural monopolies". Now you gotta meet me halfway and promise me you understand the difference between regulation, and oversight.

The regulations you speak of are anti-capitalist measures

,
Not even close.

they are anti-competetive policies

A complete falsehood.

it is essentially doing exactly what I'm asking for... government control of critical infrastructure.

Oversight.

The measures are not anti capitalist. When a utility company generates and delivers electricity for a profit....that's capitalism. And the government oversight is not anti-competitive. The nature of the business itself is anti-competitive. There's ultimately nothing preventing you outright from burning some fuel, boiling some water, spinning a turbine, generating energy, and then selling it. The real hurdle though, is delivering that energy. For that you need infrastructure, like power lines. The capital and red tape required to build an infrastructure that can deliver energy at a level competitive with the existing electric company is a massive, practically insurmountable barrier to entry.

What government oversight does, is a countermeasure to this anti-competitive atmosphere. It doesn't allow the existing players to leverage large barriers to entry in a way that exploits the consumer.

And let's be clear. The government exercises very little "control", if any, over these companies.

But energy is definitely too expensive, although that might well be an effort to force people to use less

The first part sounds like a personal problem. The second part makes no sense. The energy company prefers to sell more energy.

Still, energy companies are making an absolute fucking fortune thanks to people's need for electricity.

I know I've explained this several times, so it baffles me how the concept still eludes you. They are not making "an absolute fucking fortune". They are making a return commensurate with the market, their risk, and their amount of invested capital. That's what the government oversight ensures.

Is that being invested in research and development for renewable energy sources? Of course not. We can probably already do that, but there's just too much money in fossil fuels. Renewable energy remains out of reach for most people.

Why is it the responsibility of the energy company to find alternative energy sources? It's up to YOU, the consumer, to demand alternatives if that's what you really want. Create a need in the marketplace, and capitalism will provide. That's how it works.

One way to do that, is to buy less energy. Exxon knows this. They see people buying hyrbid cars. They know that gasoline isn't going to work forever. Therefore they invest tons of capital into alternatives and remain on the cutting edge of the industry.

Another way to do that is to exercise democracy. If you don't like XYZ energy company burning fossil fuels because it pollutes, then you have a strong case for government action. Pollution is bad, and it affects entire communities, therefore it's totally within the government's purview to regulate/prevent it. Pass a law forcing XYZ company to pollute less, and they will be forced to find alternatives.

Remember I was telling you how valuable cowshit is? In Vermont, where cows outnumber people, the electric company buys cowshit, and burns it to generate electricity. It's really hard to get energy much cleaner than that.

They probably don't have this where you live because it's a shithole country with like 6 sunny days a year. But here in paradise, if you install solar panels at your house, and you use less energy than you produce....then there is a law requiring the public utility companies to BUY that extra energy from you. Even cleaner that cowshit!

Trains are too expensive too.

When was the last time you tried to buy a car?

The problem with state owned services is always the state itself, its incompetence or corruption, not the fact it is state owned. That incompetence and corruption can exist in a private company too. The difference is that an incompetent business goes bust, while an incompetent government loses power (or at least they should). Both have incentive.

So.....wouldn't you then prefer that these enterprises be run by private companies....since the consequences of incompetence and corruption are so much higher??

Yet, early you said...

exactly what I'm asking for... government control of critical infrastructure.

Does not compute

[MadMojoMonkey]

Oversight without regulation seems pointless. Can you clarify?
I mean, gov't oversight which isn't backed up by legal consequences isn't likely to change any business practices, IMO.

Maybe you mean this:
Oversight would amount to an agency (3rd party or otherwise) whose primary objective was communication between the producers and consumers, but the oversight agency has no regulatory authority, only the consumers do.

Is that it?

[BananaStand]

Oversight without regulation seems pointless. Can you clarify?
I mean, gov't oversight which isn't backed up by legal consequences isn't likely to change any business practices, IMO.

You're not wrong, but you're really splitting hairs. There are consequences. The word "regulation" isn't entirely irrelevant.

The distinction is mostly for Ong's benefit. He seems to be advocating for total government control of these enterprises and is describing that as "regulation"

[wufwugy]

Sorry been busy preparing to move house, plus work.

The second question, I'll answer that quickly... no.

The first one... what makes a natural monopoly? In my opinion (I'm not pretending to be an economist) it's a service that is both essential and comes from a single source, where the consumer has very little (not necessarily zero) choice but to use.

A natural monopoly is a business model where direct competition doesn't exist, and profit is essentially guaranteed by the need of the people to use the service.

I understand your point about bottled water and tap water being in competition with one another, but it's indirect and the tap water company needs to be performing particularly badly before a significant shift of custom moves to bottled water. So ok tap water companies can't literally charge what they like, but they can still overcharge while being "competetive" enough so people don't start bathing with bottled water.

So tap water is a natural monopoly, at least I believe so. People need it, and there is only one source.

Energy is another. I know savy seems to think that you can literally choose to use a different power plant, but you don't phone the plant and ask them for quotes. The "competition" here is an illusion... you're buying the same power from different middle men who charge different prices. What's the need for this competition? So the consumer has to figure out which one is taking the piss the least?

The only real competition enegery companies have is people investing in renewables, but for most people it's prohibitively expensive and therefore the energy companies are providing an essential service that the consumer has very little real choice on. Another natural monopoly.

You can't not make these things a monopoly. That's why they're natural.

Thanks for the response. I'll think about that.


What economists call natural monopoly derives from two elements: (1) fixed costs, and (2) economies of scale.

(1) is that the higher the fixed costs, the higher the natural monopoly. Example: if the fixed costs to start a business are $10, just about anybody can do it and the monopoly level is low, so to speak. If the fixed costs to start are $10M, a significantly smaller number of people can do it; therefore the market has a higher monopoly level, roughly speaking.

(2) is gains to efficiency made by scale increases. This is like how if you are the sole worker of your business, you do everything, and on average you might be able to produce $20/hr while costing $10/hr. But if you have ten workers, you each specialize at your comparative advantages, and could produce greater value at lower cost than you by yourself can. Equipment also factors in, which is also a fixed cost element.


Also, most markets are considered monopolistic. Monopolistic competition to be exact. What makes something monopolistic is having product differentiation. Economists don't view "need" or the like into what makes something monopolistic or natural monopoly; that is instead mainly captured by elasticity of demand, which means that for some things with high inelasticity of demand, like water might be (I don't know if it is), consumers will put up with higher price changes associated with lower quantity changes (the demand curve is very steep). For things with high elasticity, like a type of soda in a competitive soda market probably is, consumer response to price increases is to demand significantly less of the product.


Neat to note on (1) from above, this is why I said earlier how having more rich people and rich companies is an effective measure against natural monopolies. That makes higher fixed costs less costly to a larger number of potential competitors. On (2) from above, economies of scale creates an incumbent disadvantage to the firm too. Large structures can be less capable of adapting and more slow moving. One area we see an incumbent disadvantage is in Walmart not being able to compete with Amazon with internet/delivery services since any success for Walmart in that realm would detract from Walmart's bread and butter brick and mortar model. In this case, Walmart suffers from its own success. In perhaps an ironic way, monopolistic elements are necessary for growth of quality of goods and services in the first place. This is because to stand out to the consumer and for the producer to profit, product differentiation is key.

[BananaStand]

Maybe you mean this:
Oversight would amount to an agency (3rd party or otherwise) whose primary objective was communication between the producers and consumers, but the oversight agency has no regulatory authority, only the consumers do.

Is that it?

No, it's more like the oversight acts as a replacement for market forces in situations where those market forces are absent.

[wufwugy]

The measures are not anti capitalist. When a utility company generates and delivers electricity for a profit....that's capitalism. And the government oversight is not anti-competitive. The nature of the business itself is anti-competitive. There's ultimately nothing preventing you outright from burning some fuel, boiling some water, spinning a turbine, generating energy, and then selling it. The real hurdle though, is delivering that energy. For that you need infrastructure, like power lines. The capital and red tape required to build an infrastructure that can deliver energy at a level competitive with the existing electric company is a massive, practically insurmountable barrier to entry.

You mentioned two ways monopolies develop, (1) fixed costs, (2) government regulation.

In practice, we have seen that government regulation is a remarkable deterrent to competition. The high fixed cost component, well, it's tough to say if the data show that it's much of a deterrent to competition. It's a deterrent to having a lot of competitors, but quantity of competitors doesn't equal competition. Some markets are highly competitive even with only two firms.

What government oversight does, is a countermeasure to this anti-competitive atmosphere. It doesn't allow the existing players to leverage large barriers to entry in a way that exploits the consumer.

What are these barriers to entry the firms are leveraging that aren't instead the government making them?

Here's how a firm with market power (the power to set market price, essentially a monopoly) can leverage in free market: it can set price where marginal cost equals demand whenever another firm tries to enter the market, thereby reducing the entering firm's incentive to enter. Then when the entering firm backs off, the monopoly can go back to setting the price where marginal cost equals marginal revenue, which is a higher price and lower quantity than the market demand would prefer while higher profits for the monopoly.

In theory, that is what can happen. In practice, it doesn't seem to have much of an effect on firm entry. Given my study of other elements of economics, it is my view that the monopoly model's deterrent on firm entry that I presented is flawed enough that it's near worthless. Firms are unlikely to want to enter a market based on current price/profits under a monopoly regime, and instead are likely to want to enter a market based on expected future price/profits in a market after the newly entered firm is established.

Perhaps the best example of all of the above is ISP. Incumbent ISPs are trying to use their market power to deter entry from companies like Google. It's not working. The only real active barriers to entry in the market are government regulations. Those barriers have been quite successful so far.

[wufwugy]

No, it's more like the oversight acts as a replacement for market forces in situations where those market forces are absent.

This assumes market forces are absent in those situations.

[BananaStand]

This assumes market forces are absent in those situations.

they are absent. Using the same example of the electric company....there is no competition.

If you're gonna say that light bulbs are competing with candles, just GTFO. There's ONE electric company and it controls the only existing infrastructure to deliver electricity.

Without competition, and without a better way to get electricity, power is removed from the consumers and given to the electric company. Maybe they don't do anything with it. But maybe they do. Maybe they decide that people are gonna just buy the electricity no matter what, so why not charge double??

Competition is a market force that would prevent that. It's missing. So the government restores the balance of power through oversight/regulation.

[wufwugy]

they are absent. Using the same example of the electric company....there is no competition.

If you're gonna say that light bulbs are competing with candles, just GTFO. There's ONE electric company and it controls the only existing infrastructure to deliver electricity.

Without competition, and without a better way to get electricity, power is removed from the consumers and given to the electric company. Maybe they don't do anything with it. But maybe they do. Maybe they decide that people are gonna just buy the electricity no matter what, so why not charge double??

Competition is a market force that would prevent that. It's missing. So the government restores the balance of power through oversight/regulation.

The existence of a direct competitor is not a necessary condition for the market forces to be working. Indeed a market might function best with only one firm in it all the while market forces would be working.

Why doesn't the electric company just charge double? I answered this in two different ways on my post above yours and the one a couple days ago about roads and trains. There are a bunch of market forces in play if a monopoly doubles its price.

The typical effect of oversight by government is to reduce those market forces due to the unintended consequence of the oversight reducing profit expectations for potential entrants, increasing cost, and criminalizing innovation.

[BananaStand]

The existence of a direct competitor is not a necessary condition for the market forces to be working. Indeed a market might function best with only one firm in it all the while market forces would be working.

Why doesn't the electric company just charge double? I answered this in two different ways on my post above yours and the one a couple days ago about roads and trains. There are a bunch of market forces in play if a monopoly doubles its price.

The typical effect of oversight by government is to reduce those market forces due to the unintended consequence of the oversight reducing profit expectations for potential entrants, increasing cost, and criminalizing innovation.

We're gonna talk in circles here wuf, but I think it's time we just agree that there is such a thing as....I don't know what you wanna call it......pick a word.....Imperfections.....Conflicts.....Undesirab le effects.....in a completely free and unregulated market.

In a completely free, unregulated market maybe 5 other electric companies would pop up, and the cost of electricity might go down as a result. Sure...fine. But what else happens? Do consumers really want five sets of power lines running along their streets? or if we're talking about trains....how many more instances of tracks crossing roads would there be? What does that do to commuter traffic?

Maybe consumers have decided that having ONE set of infrastructure is most desirable, and worth some nominal extra cost.

[spoonitnow]

We're gonna talk in circles here wuf, but I think it's time we just agree that there is such a thing as....I don't know what you wanna call it......pick a word.....Imperfections.....Conflicts.....Undesirab le effects.....in a completely free and unregulated market.

In a completely free, unregulated market maybe 5 other electric companies would pop up, and the cost of electricity might go down as a result. Sure...fine. But what else happens? Do consumers really want five sets of power lines running along their streets? or if we're talking about trains....how many more instances of tracks crossing roads would there be? What does that do to commuter traffic?

Maybe consumers have decided that having ONE set of infrastructure is most desirable, and worth some nominal extra cost.

The bold is something the market can sort out on its own without regulations.

[wufwugy]

We're gonna talk in circles here wuf, but I think it's time we just agree that there is such a thing as....I don't know what you wanna call it......pick a word.....Imperfections.....Conflicts.....Undesirab le effects.....in a completely free and unregulated market.

There are undesirable results. If we're trying to figure out the best policy, we balance the results, desirable and undesirable, of each against the other. I would never claim a free market is perfect. It's not. But I do claim it's better than an unfree market.

In a completely free, unregulated market maybe 5 other electric companies would pop up, and the cost of electricity might go down as a result. Sure...fine. But what else happens? Do consumers really want five sets of power lines running along their streets? or if we're talking about trains....how many more instances of tracks crossing roads would there be? What does that do to commuter traffic?

Maybe consumers have decided that having ONE set of infrastructure is most desirable, and worth some nominal extra cost.

What Spoon said. Essentially these things are adjusted for in a free market. They are ALSO adjusted for in a regulated market, just less effectively.

[BananaStand]

The bold is something the market can sort out on its own without regulations.

So I've given this example before, but I guess I'll repeat it again. Tell me how the market would solve this problem on it's own.....

The Public Utility Oversight board doesn't oppressively regulate anything. They don't tell companies how to operate, who to hire, who to sell to, what projects to pursue, how to grow, or anything like that.

Basically, it works like this. The utility company adds up all of the capital they have invested in this system to deliver electricity. Then they say....well if I had instead put all that capital in a mutual fund...I could have made 8% with virtually no risk. But I actually sunk my investment into electricity production and delivery. That's harder, riskier, and benefits the economy more....so it's reasonable for me to expect a higher return. How about 11%?

Then the oversight board says yea or nay....end of regulation.

As you can see, the more capital the electric company invests...the more money they are allowed to make.

So, if you're a project manager at the electric company, you're given a project, and a budget. It is important to spend ALL of your budget. If you don't, then the capital investment is smaller, and the company makes less money.

So, let's say they want you to build some kind of electrical doohickey. First step in the project is to get a building permit. Then you find out....oh shit...the permit process takes 14 months. Guess what.....you aren't going to complete your project this year.

But you still have to spend your budget. So you start pulling in future projects that you can do now...just to spend money.

Maybe you replace some utility poles that aren't due to be replaced for another 5 years.

That's bad. What's basically happening is that you're charging consumers for infrastructure improvements that they don't need. What happens in that case, is that the oversight body looks at your expenditures and says "No, this investment doesn't provide any benefit to consumers, it just pads your bottom line. By royal decree...this line item is disqualified from your rate calculation"

How would the market fix that on its own?

[wufwugy]

I would like to understand the point you are making and I don't currently understand some of these premises. If you could clarify that would be great.

Basically, it works like this. The utility company adds up all of the capital they have invested in this system to deliver electricity. Then they say....well if I had instead put all that capital in a mutual fund...I could have made 8% with virtually no risk. But I actually sunk my investment into electricity production and delivery. That's harder, riskier, and benefits the economy more....so it's reasonable for me to expect a higher return. How about 11%?

Then the oversight board says yea or nay....end of regulation.

Is the company asking the oversight board if it can raise its prices enough that its return is 11% instead of 8%?

As you can see, the more capital the electric company invests...the more money they are allowed to make.

I don't understand how this follows. More capital investment doesn't mean more revenue or profit. Unless this is referring to the government regulation, in which case this is perverse incentives. But I don't want to get into that now.

So, if you're a project manager at the electric company, you're given a project, and a budget. It is important to spend ALL of your budget. If you don't, then the capital investment is smaller, and the company makes less money.

Why is it important to spend all of your budget? Why is spending more budget meaning more revenue/profit? Firms prefer to be under budget as much as possible. Why does this firm want to not do that?

So, let's say they want you to build some kind of electrical doohickey.

Who is they?

First step in the project is to get a building permit. Then you find out....oh shit...the permit process takes 14 months. Guess what.....you aren't going to complete your project this year.

Why does the permit process take 14 months?

But you still have to spend your budget. So you start pulling in future projects that you can do now...just to spend money.

Maybe you replace some utility poles that aren't due to be replaced for another 5 years.

I said I wouldn't get into this before better understanding your premise, though I will say that this sounds like the typical perverse incentive caused by government intervention.

[BananaStand]

I would like to understand the point you are making and I don't currently understand some of these premises. If you could clarify that would be great.

Ok

Is the company asking the oversight board if it can raise its prices enough that its return is 11% instead of 8%?

The %'s are irrelevant here. The company is presenting what it feels is a fair rate of return on invested capital. The oversight board represents the consumers. They are asking the company.."Why this price?" on behalf of the consumer.

Companies have to justify their prices to consumers all the time. It just happens in more subtle ways. How do I know a Honda Accord is priced fairly....because a Toyota Camry costs about the same. So unless those companies are colluding, I can trust that I'm not getting fucked over.

I don't understand how this follows. More capital investment doesn't mean more revenue or profit

If you invest $1,000 and earn a 10% return, you've made $100
If you invest $10,000 and earn a 10% return, you've made $1,000

$1000 > $100

Why is it important to spend all of your budget? Why is spending more budget meaning more revenue/profit?

Illustrated above. Though it's important to note that the spending isn't an expense the way payroll, facility rent, or insurance are....it's an investment. The money is capitalized on the company's balance sheet, not it's P&L.

Firms prefer to be under budget as much as possible. Why does this firm want to not do that?

You want to be under budget when it comes to expenses. This is not an expense, it's an investment.

Who is they?

Your bosses at the electric company.

Why does the permit process take 14 months?

Don't get hung up on this specific example. If you're running a public utility, or a train track, or the water works, you have to build a lot of different stuff in a lot of different places. There's often unforeseeable red tape that delays projects past their due date. I used permits as an example because that's what I've seen happen. But maybe you're laying underground power lines and run into a shit load of ledge in a certain area. Now instead of digging, you have to blast. Or maybe you're digging and you find native american artifacts and the whole area is shut down for 6 months so there can be archaeological explorations. Any number of crazy things can happen to delay a project.

I said I wouldn't get into this before better understanding your premise, though I will say that this sounds like the typical perverse incentive caused by government intervention.

How? It's the government intervention that negates the perverse incentive.

I'm only claiming to know all this based on one particular company that I audited as part of a forensic accounting engagement that my company had with the electric company in Vermont. They planned projects....the projects ran into problems that delayed them beyond the current fiscal year....so they spent the money on other, significantly less necessary stuff.

The oversight board called them on it, disqualified a lot of their investments from the rate calculation

Again, I think it's important here to realize that the government's role is really small. They didn't "punish" the company. Instead, they spoke for the consumers that they represent and told the company "Hey, we're not paying for this". End of oversight/regulation. The company's punishment came from the market, in the form of crippled cash flow and their bond rating going to junk status pretty much overnight.

[wufwugy]

If you invest $1,000 and earn a 10% return, you've made $100
If you invest $10,000 and earn a 10% return, you've made $1,000

$1000 > $100

The return on each dollar change is marginal. I'm not sure why the firm assessed that if it just invested more it would profit more.

I'm only claiming to know all this based on one particular company that I audited as part of a forensic accounting engagement that my company had with the electric company in Vermont. They planned projects....the projects ran into problems that delayed them beyond the current fiscal year....so they spent the money on other, significantly less necessary stuff.

Why did they do that? Did they assess they would make the same rate of return on less quality investments? Why would they make that assessment?

The oversight board called them on it, disqualified a lot of their investments from the rate calculation

If it is the case that the firm assessed returns based on expectations about what the oversight board would do (it sounds like they did, but you can correct me on that if they didn't), then that explains some important perverse incentive problems that contributed to that weird investment strategy.

[BananaStand]

The return on each dollar change is marginal. I'm not sure why the firm assessed that if it just invested more it would profit more.

Because that's how you determine a price in a situation like this. You can't just try to pinpoint what you think customers are willing to pay. That's a dangerous game when your product is inelastic.

It goes...

([total capital investment] x [fair rate of return]) + Operating Expenses = Total Revenue

Total Revenue / Kilowatt Hours produced = Price for Electricity.

Why did they do that? Did they assess they would make the same rate of return on less quality investments? Why would they make that assessment?

See the equation above. Invested capital has a rate of return. More capital invested at the same rate of return = more actual dollars

If it is the case that the firm assessed returns based on expectations about what the oversight board would do (it sounds like they did, but you can correct me on that if they didn't),

That's about right.

then that explains some important perverse incentive problems that contributed to that weird investment strategy.

What's the perverse incentive?

Are you talking about the project managers who have a mandate to spend, rather than save?

[wufwugy]

Because that's how you determine a price in a situation like this. You can't just try to pinpoint what you think customers are willing to pay. That's a dangerous game when your product is inelastic.

It goes...

([total capital investment] x [fair rate of return]) + Operating Expenses = Total Revenue

Total Revenue / Kilowatt Hours produced = Price for Electricity.


See the equation above. Invested capital has a rate of return. More capital invested at the same rate of return = more actual dollars

I'm trying to figure out why they assessed the same rate of return for investments that should be expected to have different yields. In the hypothetical you provided, it appears to me that the "electrical doohickey" and the "pulling poles out of the ground five years too early" were assessed at the same rate of return by the firm. It's quite unlikely that would be a market rate, which is exemplified in the oversight board declaring that the "benefit" of each activity is not the same.

That's about right.

What's the perverse incentive?

In this case, a perverse incentive in this case could be that the firm assessed returns based on expectations about what the oversight board would do, resulting in the firm making stupid decisions while expecting the board to sign off on them.

[OngBonga]

I'm not being ignorant, I'm just too tired to read all that economics stuff and make sense of it.

[wufwugy]

I'm not being ignorant, I'm just too tired to read all that economics stuff and make sense of it.

Save for later.

[wufwugy]

It's super cool that you're working btw. Good job on that.

[Savy]

Actually what you'd do is wash less. As everyone would be in the same situation washing less would become more normal and therefore prices would drop, especially when people are buying purely bottled water to drink. Well what would actually happen is the government would intervene and ban bottled water but you know.

http://www.bbc.co.uk/news/uk-england-42808302

Just saying

[BananaStand]

I'm trying to figure out why they assessed the same rate of return for investments that should be expected to have different yields. .

Why? It doesn't matter. And in real life, they probably aren't the same. The actual process of making what's called a "rate case" is alot more extensive and nuanced than I'm willing to write in a forum post. Just know that it takes many meetings, and many pages of figures. Maybe the investments have various classifications that demand different returns on invested capital. It's really not important. what's important is the concept.

The price of electricity is not a function of what people are willing to pay for it. It's impossible for the consumer to assess what is a fair price, because there is nothing to compare it to. There is a natural fear of being exploited among consumers because of this. therefore, they used the power of democracy to protect themselves by creating this oversight entity.

So then, how do you decide what to charge for electricity? Costs are easy. They're quantifiable. This pole cost X, the wire cost Y, the laborer costs Z, and that's all real money. But the electric company isn't in business just to cover costs and break even. They're investment, effort, and risk deserves a profit.

What is profit? It's a return on invested capital.

How much profit should the electric company make? Ask the market. What do other, similar, companies experience as a return on invested capital? Or what do other similar assets generally yield as a return (this is where we could see differences between telephone poles and 'doohickeys')

Then you get into the nitty gritty stuff we don't have to get into here. But maybe there's some reason this particular company should be allowed to make more or less than the industry norms. That's all stuff the oversight board would handle.

This process allows the elec company investors to earn a fair return on their money. By fair, I mean they are not motivated to invest in something else. Maybe "fair" isn't the right word. how bout 'satisfactory'. the process also ensures that consumers are not paying any more than they need to in order to provide a 'satisfactory' return to those who provide their electricity.

The government doesn't really have a ton of power here. If they try to squeeze the electric company by shaving points off of their returns, then they will motivate investors to invest somewhere else. All they are really doing is making sure that the company can't bilk consumers and score windfall profits just because they're the only game in town. That's really the whole reason I brought this up. Ong had a case of MUBS about monopolies. I thought it would help him sleep at night to know that someone out there is watching out for the consumer.

In this case, a perverse incentive in this case could be that the firm assessed returns based on expectations about what the oversight board would do, resulting in the firm making stupid decisions while expecting the board to sign off on them.

Sounds like you're giving them a little too much credit for being sinister. It's more like they knew what the oversight board would do, they just weren't competent enough to prevent it from happening. they would do their capital budget for the year, then they would communicate it to the project managers. They would tell them "our rate plan assumes that you're going to spend this entire budget. And if you succeed in hitting these numbers, we will give you a bonus"

then the project managers went about their business and inevitably some projects hit roadblocks. If you're a project manager...are you gonna eat your bonus because the board of selectmen in Cowcock Vermont only meets once every six months, and because of that you won't get your permit in time?? FUUUUUUCKK THAT! You'll just spend money on something else and get paid right??

Well, one guy got away with it. Then when his buddy ran into a similar problem, he gave his buddy a tip on how to beat the system. Pretty soon everybody was doing it, and it raised some flags with the oversight board.

It's not as though company executives were actively trying to falsify their 'rate case'. Call it incompetence. This loophole in their system resulted in them spending a lot of money on stuff consumers didn't need, and as a result consumers refused to give them a return. (sounds free-market-ish, huh?)

That's ALL the oversight board does. I don't even see how you could consider that an un-free market. I'm still hesitant to call it "regulation". All it's doing is providing some transparency to the consumer. It has no punitive powers. At least not when it comes to rate cases. Maybe it can levy fines if it finds something hooked up with too much duct tape. But that's not what we're talking about.

[wufwugy]

Why? It doesn't matter. And in real life, they probably aren't the same.

What caused the difference in this instance?

The price of electricity is not a function of what people are willing to pay for it.

In a free market it is. In a non-free market, it still is, just that price is more cost than sticker price, roughly speaking.

This process allows the elec company investors to earn a fair return on their money. By fair, I mean they are not motivated to invest in something else.

If it is the case that investors in Market A want to move to Market B because Market A doesn't have high enough yield per risk, it tells us there needs to be a price change in Market A. This is financial theory. The economic theory of it adds the insight that an upward price change increases the activity among other firms to enter the market.

The government doesn't really have a ton of power here. If they try to squeeze the electric company by shaving points off of their returns, then they will motivate investors to invest somewhere else. All they are really doing is making sure that the company can't bilk consumers and score windfall profits just because they're the only game in town.

What can sometimes seem like small input can be significant. Government oversight to "make sure customers aren't bilked" is a very big regulation even if its surface incidence seems small.

Sounds like you're giving them a little too much credit for being sinister.

The behavior is typical and nearly always not sinister. It's really just incorporating the regulatory impact just like a firm incorporates any other impact.

then the project managers went about their business and inevitably some projects hit roadblocks. If you're a project manager...are you gonna eat your bonus because the board of selectmen in Cowcock Vermont only meets once every six months, and because of that you won't get your permit in time?? FUUUUUUCKK THAT! You'll just spend money on something else and get paid right??

The question is why would the firm assess unequal investments as equal.

Well, one guy got away with it. Then when his buddy ran into a similar problem, he gave his buddy a tip on how to beat the system. Pretty soon everybody was doing it, and it raised some flags with the oversight board.

It's not as though company executives were actively trying to falsify their 'rate case'. Call it incompetence. This loophole in their system resulted in them spending a lot of money on stuff consumers didn't need, and as a result consumers refused to give them a return.

Sounds like there was a lot going on that I'm unaware of. Was this fraud?

Where did the assessment that investments of unequal quality were of equal quality come from?

[BananaStand]

Where did the assessment that investments of unequal quality were of equal quality come from?

from you

[wufwugy]

from you

What made the preferred electrical doohickey project of equal investment yield as the replacing poles prematurely project that the oversight committee said was worse than the electrical doohickey?

[BananaStand]

I dont know. And maybe they werent. The problem was the incompetence involved in the way they incentivized the project manager.

His directive was...spend and get your bonus. So in that regard, all investments are equal. The two may be different later on when it comes to the rate case. But the person making the decision of what to spend money on, doesnt care about those details.

The point though, is that the money was spent on something that consumers didnt want or need. So why should they pay for it?

[wufwugy]

I dont know. And maybe they werent. The problem was the incompetence involved in the way they incentivized the project manager.

His directive was...spend and get your bonus. So in that regard, all investments are equal. The two may be different later on when it comes to the rate case. But the person making the decision of what to spend money on, doesnt care about those details.

The point though, is that the money was spent on something that consumers didnt want or need. So why should they pay for it?

In the short run, that is a necessary component of what makes for a robust market in the long run.

Besides, it's not avoidable. Like you said, the consumers eventually responded to the information and the company's rating tanked.

[OngBonga]

It's super cool that you're working btw. Good job on that.

If I'm not working from home within six months I'm ditching it, I'll be fucked if I'm commuting an hour every day to work in a warehouse. But strangely, it does actually feel good to be doing something with my time, so I'm in no hurry.

[OngBonga]

What economists call natural monopoly derives from two elements: (1) fixed costs, and (2) economies of scale.

Ok so I took the time to read this post and try to absorb it. The first point is very easy to understand. I was kind of hitting on this point without realising by referring to the infrastructure necessary to deliver an essential service.

The second point, I kind of get this. The more efficient a business is running, the easier it will be for it to outcompete its rivals.

Regulation also plays a part. The more regulated an industry, the less incentive there is to enter the market in the first place. The established and wealthier companies are better able to absorb the costs associated with regulations.

So ok I can see the point that nearly everything is monopolistic.

But soda isn't an essential service, and niether is Walmart or Amazon. If a company gains a monopoly in a genuinely competetive environment, then that's testament to their success. That's not really what my problem is. My problem is where companies are able to make profit off essential services where they have not earned that monopoly by outcompeting their rivals. They have bought that monopoly with money and influence; they won a government contract. That isn't free market capitalism, that's oligarchy.

[OngBonga]

Sorry banana haven't time for your post.

[BananaStand]

Sorry banana haven't time for your post.

Workin man aint got time to read, I get it.

Basically you have MUBS when it comes to monopolies.

And wuf has MUBS when it comes to government oversight of monopolies.

And you both need to chill

[BananaStand]

If I'm not working from home within six months I'm ditching it, I'll be fucked if I'm commuting an hour every day to work in a warehouse.

I used to have a long commute. At the end of a long day there really is nothing like sparking up a joint, turning on an OAR album and driving the speed limit for over an hour. I think it's good for the soul or something.

Now I have a 12 minute commute. So I leave work, and within a quarter hour I'm in my living room catching up on what stupid shit the democrats are saying on TV. Not as good for the soul.

[Poopadoop]

Ugh. Commuting is the worst fucking time sink in life; not that there aren't worse ways to waste time, but just that it's frequency is so high. An hour commute both ways is 10 hours a week of your life spent in traffic, and basically makes your job 10 hours/day instead of 8. Music and a doobie might help, but nothing you can do in a car or on a train can ever truly balance that equation.

[BananaStand]

Ugh. Commuting is the worst fucking time sink in life; not that there aren't worse ways to waste time, but just that it's frequency is so high. An hour commute both ways is 10 hours a week of your life spent in traffic, and basically makes your job 10 hours/day instead of 8. Music and a doobie might help, but nothing you can do in a car or on a train can ever truly balance that equation.

Well if you're Ong, and you were at home, you'd be sitting around smoking a doobie. I'm not sure that driving around smoking a doobie is that big of a step down.

[wufwugy]

My problem is where companies are able to make profit off essential services where they have not earned that monopoly by outcompeting their rivals. They have bought that monopoly with money and influence; they won a government contract. That isn't free market capitalism, that's oligarchy.

Do you dislike the profit part of it altogether, or are you thinking in terms of the firm using its market power to set the price higher and quantity produced lower than the market demand wants?

What is essential?

[spoonitnow]

Ugh. Commuting is the worst fucking time sink in life; not that there aren't worse ways to waste time, but just that it's frequency is so high. An hour commute both ways is 10 hours a week of your life spent in traffic, and basically makes your job 10 hours/day instead of 8. Music and a doobie might help, but nothing you can do in a car or on a train can ever truly balance that equation.

I generally recommend podcasts and learning a language.

[Poopadoop]

I generally recommend podcasts and learning a language.

I was doing that for a while, but then I ran out of languages to learn while I was driving back and forth to work. I've started doing crosswords now. You'd be surprised how easy it is to drive safely while your mind is completely engaged with something else.

[spoonitnow]

I was doing that for a while, but then I ran out of languages to learn while I was driving back and forth to work. I've started doing crosswords now. You'd be surprised how easy it is to drive safely while your mind is completely engaged with something else.

Ladies and gentlemen, the leader of the rebel army.

[Savy]

I really don't mind commuting to work as long as I'm not on completely packed public transport or having to walk a lot. Driving in traffic sucks in comparison to being sat on a train doing puzzles/listening to podcasts/finishing off work etc.

The best commute I ever had was when I used to work at the same place my dad did and he'd drive so I basically got to sleep 30 mins both ways.

[spoonitnow]

[Poopadoop]

Did it say anything about the value of getting spanked with a magazine with your daughter's face on the cover?

[BananaStand]

I can only speak from my own experience, but having been the "bull" in a handful of these situations, my observations are as follows:

1) The woman likes her husband's money, but also wants some guilt-free deep-dickin'

2) The guy is a closet homo.

[OngBonga]

Do you dislike the profit part of it altogether, or are you thinking in terms of the firm using its market power to set the price higher and quantity produced lower than the market demand wants?

I think it's a simple as that money that is paid in dividens, that profit, would be better spent on investment, whether that be R&D or lower prices. I fail to see how these companies have earned the profit. Just by taking risk? What risk? Their profit is guaranteed. The only risk they're taking relates to their competence, and even that isn't a deal breaker.

[spoonitnow]

I can only speak from my own experience, but having been the "bull" in a handful of these situations, my observations are as follows:

1) The woman likes her husband's money, but also wants some guilt-free deep-dickin'

2) The guy is a closet homo.

Same and I linked to a paper earlier in this thread or the randomness thread on the current active page that goes into a lot of detail on #1.

[spoonitnow]

I think it's a simple as that money that is paid in dividens, that profit, would be better spent on investment, whether that be R&D or lower prices. I fail to see how these companies have earned the profit. Just by taking risk? What risk? Their profit is guaranteed. The only risk they're taking relates to their competence, and even that isn't a deal breaker.

The bold is mistaken.

The underline is just, like, your opinion man. Additionally, they've earned the profit by taking on the risk. That's how an investment works.

[OngBonga]

I used to have a long commute. At the end of a long day there really is nothing like sparking up a joint, turning on an OAR album and driving the speed limit for over an hour. I think it's good for the soul or something.

Now I have a 12 minute commute. So I leave work, and within a quarter hour I'm in my living room catching up on what stupid shit the democrats are saying on TV. Not as good for the soul.

The commutes haven't started yet. I'll be lucky because I'll be passenger and I can smoke... so I can chill the journey. And it's not quite an hour, it's perhaps under 40 minutes on a good day, but you gotta account for traffic, which is dreadful once you hit town at rush hour.

What will suck about the commute is I'm returning to the town I just fucking left, but like I say, it's a means to an end. Either I'll be working mostly from home by summer, or I'll find other ways to make a living.

I won't be going back on benefits again, those days are done.

[OngBonga]

The bold is mistaken.

Well if their profit is as hard earned as your regular man's business, I might soften my tone somewhat. But I fail to see how it isn't guaranteed, or at least close to. Ok a nuclear meltdown or an oil slick is going to eat into their profits somewhat, but they lack the competition to pay the ultimate price for their failure. See BP for example.

[BananaStand]

I think it's a simple as that money that is paid in dividens, that profit, would be better spent on investment, whether that be R&D or lower prices.

If that's the case, why would the shareholders of these companies invest at all? Who would invest in a train with a 0% return when they could invest in....literally anything else....even treasury-bonds.....and earn a profit?

I fail to see how these companies have earned the profit.

They've successfully provided a service that people want at a price people are willing to pay.

Just by taking risk? What risk? Their profit is guaranteed.

False. Literally not even close.

The only risk they're taking relates to their competence, and even that isn't a deal breaker

Really? C'mon man...think!

What if a drunk driver blows through a railroad crossing and T-bone's a train? Or, if we're talking about the electric company, what if that drunk driver takes down some utility poles?

What if hackers breach the system and fuck with the electrical grid?

What if there is an ice storm and trees fall on the power lines, or across the railroad tracks?

What if there is a solar flare that shorts out significant portions of the infrastructure?

I could keep going...

[spoonitnow]

Well if their profit is as hard earned as your regular man's business, I might soften my tone somewhat. But I fail to see how it isn't guaranteed, or at least close to. Ok a nuclear meltdown or an oil slick is going to eat into their profits somewhat, but they lack the competition to pay the ultimate price for their failure. See BP for example.

The higher the risk of investment, the higher the dividends if you want to keep investors on. It's that simple.

This has nothing to do with profit being "hard earned" or a "regular man's business." It's the same principle for all businesses and investments.

Simple example: It's the same reason why loans have interest, and the higher the risk on the loan, the higher the interest.

[OngBonga]

If that's the case, why would the shareholders of these companies invest at all?

Well that's the point. The only people who have the incentive to run this service for no profit are the people themselves... ie the taxpayer. Their profit is savings.

[OngBonga]

The higher the risk of investment,

But how risky is their investment? If they're buying a government contract and will have no serious competition, the risk is very low indeed.

[BananaStand]

Well that's the point. The only people who have the incentive to run this service for no profit are the people themselves... ie the taxpayer. Their profit is savings.

Is it really a savings? When has the government ever demonstrated that it can run an enterprise cheaper, or more efficiently than a private institution?

[spoonitnow]

But how risky is their investment? If they're buying a government contract and will have no serious competition, the risk is very low indeed.

Then they get small dividends relative to the risk. That's not the same thing as no dividends.

Note, however, that your assessment of the risk is only based on a lack of competition. A lack of competition is not the only risk.

[BananaStand]

But how risky is their investment? If they're buying a government contract and will have no serious competition, the risk is very low indeed.

This is what government oversight analyzes. As I outlined in the example of Vermont's electric company, there is a government body that evaluates the "appropriateness" of the firm's return on invested capital based on many factors, including their relative risk.

[wufwugy]

Well that's the point. The only people who have the incentive to run this service for no profit are the people themselves... ie the taxpayer. Their profit is savings.

That's not much incentive.

The method that economics shows directly decreases price and directly increases quantity in a market is from the profit incentive, and indirectly the result includes quality increase.


I hate to appeal to an example because they are never persuasive, but we have examples of markets being run non-profit and a popular quote that came out of one of those examples is "they pretend to pay us, we pretend to work".

[wufwugy]

See BP for example.

What do you think about BP?

[wufwugy]

I won't be going back on benefits again, those days are done.

That's great to hear. Have you experienced change?

[BananaStand]

Well that's the point. The only people who have the incentive to run this service for no profit are the people themselves... ie the taxpayer. Their profit is savings.

you could say this about anything

How come the government doesn't make pencils? How come there isn't one government run entity making laundry detergent? If a taxpayer wants to buy a bicycle, why should he have to pay a price that includes profit for some private bicycle enterprise??

What if everyone just went to work, gave all their paychecks to the state, and then stood in line for government rationed beets?

Sounds like paradise.........right???

[wufwugy]

How come the government doesn't make pencils?

Here's why government doesn't make pencils: there isn't one single person alive who knows how to make a pencil. It takes knowing how to cut down trees, which takes know how to build saws, which takes know how to mine ore. To use the trees, it takes know how to process the wood, know how to transport it. The other components -- graphite, rubber, etc. -- also take unique know how from people all across the world. Selling it in stores takes know how.

No one person knows how.

So, if one person was in charge (like with a government), he would clearly delegate (like with a bureaucracy). But the bureaucrats don't collectively have the know how either. They would delegate to firms that specialize. But the firms don't have the know how regarding how much to make, in what styles, for what function, and where to put it. So firms would delegate to clients and consumers and other firms along the chain. How do they delegate to consumers and others? The price system. Since the price system does the work, what is the role of the bureaucracy and government? It has no role but to assuage concerns that citizens believe should not be addressed by the price system. What we want to do is change that belief so that the more effective mode of manifesting peoples' preferences -- the price system -- can work for more.

[OngBonga]

you could say this about anything

Jesus wept pencils are not a naturtal monopoly. I'm not a commie who wants the government to make everything so bad capitalists can't make a profit. That's dumb and is never going to work. So no, I can't say the same about anything.

There's no incentive for the taxpayer to pay for a company that makes pencils, the reason being pencils are not an essential service where the population has no genuine choice but to use. If a pencil is too expensive, buy a different one. Sure the consumer might save a few pence if pencils are made by the government, but how many people does the government emplopy to make pencils?

Noone wants a big government do they? I don't. I want the government to be as small as possible while doing what's necessary to run the country.

[OngBonga]

That's not much incentive.

Of course it is, it's the same as profit, because it is capital gain.

If I could guarantee that I'd bring down people's energy bills by half, I'd win votes. Incentive.

What do you think about BP?

BP drill for oil. It's hard to be enthusiastic about a company that engagesz in such activity. I have no idea how the company is structured, it's a PLC but that only means the public can buy shares, it doesn't mean the government own it unless the government themselves buy shares.

When the government bail it out, they essentially buy shares, but whenever that happens, the government nearly always seek to sell their shares in the future. I dunno if that happened with BP, but it certainly did with the banking bailouts.

[CoccoBill]

That's not why governments don't (usually) make pencils though.

Not one person knows how to make a pencil, that's probably true, but there's no reason why one organization collectively couldn't have that knowledge, and I don't see how that would be different whether that organization is a public or a private sector one.

Within governments and pencil corporations it's the same exact people working there (humans), and from a manufacturing, engineering and logistics point of view how they operate could be identical. I say could, because there are a vast number of different ways to organize the supply chain for a pencil (or any commodity), regarding the level of outsourcing. You could just outsource everything from design to manufacturing to sales, or do one or all parts of that in-house. The reason why governments generally don't produce pencils, is the same reason why Apple and Pizza Hut don't. It's not their core business, and they see no benefit in investing in that area and bring in the expensive expertise required. For them it's much more economically viable to outsource it.

[CoccoBill]

So, if one person was in charge (like with a government), he would

One person? In many countries the top position, be it president, king or whatever, is usually the most powerful, but in most countries apart from dictatorships you definitely cannot say one person is in charge. In most democracies the powers are severely limited, even in the US where undeniably the president has an unusual amount of say in things. In more and more countries the "top" position is largely ceremonial and more a PR position than anything. The "one person in charge" is a much more relevant concept in business.

[BananaStand]

http://www.foxnews.com/entertainment...n-couples.html

They used pictures of straight people to illustrate the results of a study that evaluated 580 gay couples.

Brilliant.

[spoonitnow]

The commutes haven't started yet. I'll be lucky because I'll be passenger and I can smoke... so I can chill the journey. And it's not quite an hour, it's perhaps under 40 minutes on a good day, but you gotta account for traffic, which is dreadful once you hit town at rush hour.

What will suck about the commute is I'm returning to the town I just fucking left, but like I say, it's a means to an end. Either I'll be working mostly from home by summer, or I'll find other ways to make a living.

I won't be going back on benefits again, those days are done.

This needs more attention.

[MadMojoMonkey]

You mean the fact that by many arguments on this forum, ong had no incentive to ever get himself off the gov't dole, and yet here he is, not only getting off the dole, but feeling good about it.

It's almost as if the act of simplifying human motivations down to a single issue is rarely the whole story.

[Savy]

Week 1, I give it 2 months.

Also if you quit a job you don't get benefits so maybe he meant that.

[MadMojoMonkey]

Week 1, I give it 2 months.

Also if you quit a job you don't get benefits so maybe he meant that.

If you want to be hired by someone else, you give your 2 weeks notice and work it out to demonstrate you aren't a petty jerk.
If you want to get back on the dole, you just no-call / no-show until your boss fires you.

Is it different in the UK?

[spoonitnow]

If you want to be hired by someone else, you give your 2 weeks notice and work it out to demonstrate you aren't a petty jerk.
If you want to get back on the dole, you just no-call / no-show until your boss fires you.

Is it different in the UK?

The bold doesn't work quite like you think it does. You can't get welfare, unemployment, etc. in most states in this type of scenario, especially if you haven't worked there for several months.

[wufwugy]

That's not why governments don't (usually) make pencils though.

Not one person knows how to make a pencil, that's probably true, but there's no reason why one organization collectively couldn't have that knowledge, and I don't see how that would be different whether that organization is a public or a private sector one.

Within governments and pencil corporations it's the same exact people working there (humans), and from a manufacturing, engineering and logistics point of view how they operate could be identical. I say could, because there are a vast number of different ways to organize the supply chain for a pencil (or any commodity), regarding the level of outsourcing. You could just outsource everything from design to manufacturing to sales, or do one or all parts of that in-house. The reason why governments generally don't produce pencils, is the same reason why Apple and Pizza Hut don't. It's not their core business, and they see no benefit in investing in that area and bring in the expensive expertise required. For them it's much more economically viable to outsource it.

In this situation, the pencils still need the price system to get made according to preference and at greater benefit than cost. Every firm in the world that knows everything about making pencils still don't know what to make, where to put it, when to do it, etc., without the price system.

[wufwugy]

One person? In many countries the top position, be it president, king or whatever, is usually the most powerful, but in most countries apart from dictatorships you definitely cannot say one person is in charge. In most democracies the powers are severely limited, even in the US where undeniably the president has an unusual amount of say in things. In more and more countries the "top" position is largely ceremonial and more a PR position than anything. The "one person in charge" is a much more relevant concept in business.

The illustration works with this.

[BananaStand]

If you want to get back on the dole, you just no-call / no-show until your boss fires you.

Is it different in Missoura?

Where I live if your employment is terminated for cause, you do not enjoy the benefits of unemployment insurance.

[Poopadoop]

Is it different in Missoura?

Where I live if your employment is terminated for cause, you do not enjoy the benefits of unemployment insurance.

Same for when I'm from (Alberta, Canada). Goddamn socialists don't even know how to let people milk the system.