Economics Case Essay Sample

Economics Case Pages
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  • Privatization

Privatization makes sense both morally and economically. Indeed, Megginson and Netter (2001) show that in study after study, from the late 80’s to the early 2000’s, private companies performed better than state owned companies. Indeed, over a period of ten years, different studies showed that government ownership slowed down the growth of airlines, held back the growth of banks and hampered the economic profit of the majority of 500 non-US firms. Another 2001 study showed that private firms were more profitable had less debt and used less labor-intensive methods than state owned firms.

Nozick’s argument, then, is certainly justifiable economically. However, it makes sense to allow the government to control some things. Traffic, for instance, might be hard to manage if more than one authority was in charge of building roads, putting up lights and signs. Dining out would be a great deal riskier without the FDA. While private companies might try their hand at regulation, it would be hard for Americans to know who to listen to. If the government did not have a hand in funding schools, many children would probably not be able to afford to go. This would lead to higher poverty levels and a waste of human resources.

2) The Un-Insured

While it is true that many Americans lack healthcare coverage, the government’s involvement has hurt, rather than helped, the ability of insurance providers to provide healthcare to individuals at a reasonable price. Therefore, rather than adding lines to the tax bill and making the government more involved, it would be best to completely privatize the healthcare system, cut the bureaucracy down and save money on paperwork. This would make it easier for health institutions and insurance companies to provide adequate care to the small group of uninsured Americans.

3) Microeconomic Theory and Anti-Trust Laws

      Current microeconomic theorists almost always describe monopolies as necessarily harmful. Monopolies are, to most microeconomists, “market structures” with few substitutions and no competition. They are protected by barriers – either natural or government enforced.

To the microeconomist, monopolies are harmful because they disrupt the flow of supply and demand. If, for instance, one company holds a paper monopoly, it can produce as little as it wants at as high a price as it wants. Then, those who need paper (most of today’s businesses) are faced with a burden too heavy to bare. An anti-trust law might, for instance, make it impossible for one company to hog lumber, so that other companies could create paper.

4) Monopolies

      Monopolies do not always result in lower welfare. A Monopoly can create order where there would otherwise be chaos. For instance, in 1915, one woman complained about her experience with multiple phone companies in California. She said the following:

At the hotel you are rung up by Central to answer a call on another telephone, which, in order to reach, you have to leave your room and discover somewhere else in the hall.

She also complained of having to consult two books to find one friend and having to memorize, not only the number, but the company as well. She urged New York to allow a telephone monopoly. Clearly, in this case, there was some benefit to a monopoly – yet the benefits have been negated by technological and organizational improvements. Most cities now have more than one telephone company. The residents of those cities that do not have competing companies face artificially high prices.

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