Regulation

 

Math Sucks

If necessity is the mother of invention,
Then I'd like to kill the guy who invented this
The numbers come together in some kind of a third dimension
A regular algebraic bliss.

Math does not suck!!! Economists would benefit by three-dimensional thinking.

Economists classify goods by the two dimensions of rival and exclusive.

Source: https://www.econlib.org/the-correlation-between-excludability-and-rivalry/

By excludable, it is meant that the good has a price or some other means that is used to exclude the good from non-payers. Rival means that if the good is being used then someone else can not use that same good. In this way there are more than just Private Goods (Excludable and Rival) versus Public Goods (Non‑excludable and Non-rival). It also includes Common-Pool Resource Goods (Non-excludable and Rival) and Club Goods (Excludable and Non-rival). Club Goods are also often called Private Monopolies because it also includes Cable TV, electricity, land-line telephones, etc. (i.e. my using Cable TV, or electricity, does not mean that my neighbor cannot also watch the same station on Cable TV, or use electricity.)  Private in this case does NOT mean the government is excluded from the operation. Some private monopolies (e.g. water, sewer) are often operated by public/government agencies).

To these two characteristics, dimensions, I would also like to propose adding a third: Regulation. It may also highlight why there are so many disagreements over Common-Pool Resources and Club Goods/Private Monopolies. In each economic transaction the buyer/consumer may have a different perspective/frame of reference than the seller/producer.

Both buyers and sellers agree that Private Goods should be Regulated. Sellers want to be assured that their goods can not be stolen, and that the medium of exchange used in the transaction can be trusted (e.g. no counterfeiting). Buyers want to be assured that the goods are represented correctly (truth in advertising laws, labeling, FDA, etc.) and are produced in a manner that they find acceptable (labor laws, OSHA, etc.). By contrast, both the buyer and the seller agree that Public Goods are un-Regulated.

The problem is that buyers and sellers do not have the same perspective, frame of reference, for Common-Pool Resources and Club Goods/Private Monopolies.

Sellers should want to be assured that there are sufficient Common Pool Resources for the production of their goods and should want those Common Pool Resources to be regulated. The buyer wants these goods available at the lowest price and may not care that the Common Pool Resources are regulated leading to what economists call the “Tragedy of the Commons.”

The seller wants to be assured that a price can be charged for Club Goods/Private Monopolies which requires regulation, while the buyers may not care that the goods are regulated (e.g. Napster/”free“ music, pirated movies, etc.)

Regulation is not necessary if all of the parties in the transaction can be trusted. By regulating you are saying that at least one of the parties can not be trusted, which is why you are regulating. So in addition to raising the cost by requiring regulation, the very act of regulation may offend some people. But if you trust everyone, but always cut the cards card (trust but verify) then you are regulating. So thus even Ronald Reagan was in favor of regulations, he was just disagreeing about what regulations he wanted.