Competition is Good

It’s been a while since I wrote about Economic Understanding – that there is no magic money tree. Here is a short refresher.

A few often misunderstood economic concepts are that one person getting richer does not mean others must be getting poorer and that competition in markets usually benefits everyone.

Many politicians try to convince us that rich people got that way by taking money from us. They must be dishonest and greedy. They are not playing by the rules or paying their fair share (whatever that is). When they give examples of those rich, fat cats, they never seem to mention rich people we admire. They omit the professional athletes, TV and movie stars, studio heads, software executives and others who make their millions by bringing us the entertainment we crave. Those people get rich, and they don’t do it by stealing. They earn their money honestly; fans spend freely on tickets and apparel. The majority of other rich people also did it honestly, and if they took advantage of loopholes, that’s what the politicians should be focused on rather than stirring up envy. (Most of those politicians are also very well off.)

In a free society, where people make their own choices about how to spend their money, that money flows to those with the best ideas, best products or best services as determined by some combination of quality and price. Consumers get what they want at a price they are willing to pay, and the providers make a profit. 

This fair exchange, happy buyer and happy seller, keeps the economy growing. As one seller sees a rival doing more business due to a better product or better price, he is motivated to improve quality and/or make the operation more efficient to be able to lower the price. We get better things for less.

Examples are easy to find. In 1975 a good (tube) TV with a 26-inch screen could easily cost in the $450 range. Here is a 65”, Ultra HD, Smart LED TV with good reviews for about the same price. That is a direct comparison without considering that $450 in 1975 would be over $2,200 in today’s dollars. 

 Air conditioning in cars began as a luxury item, but today about 99% of new cars sold have it. And those smart phones owned by many, even some of those considered poor, were unavailable twenty years ago at any price! Anyone claiming that poor and middle class families are not better off today would have to ignore history and economic reality. Examples are so easy to find.

The progress we see all around us, and mostly take for granted, was driven not by government programs, but by the free exchange happening everyday across the nation as consumers made choices based on quality and price. Those free choices forced the competition and innovation that led to generally increased prosperity. Certainly that prosperity is not evenly divided, but that’s not the fault of people we willingly gave our money to.

The idea of competition can be scary, but it only means everyone has to work harder to keep improving price and quality. Where would your favorite sports team be without competition – playing inter-squad scrimmages all year? What fun is that?

One market where competition seems impractical is public utilities. Years ago cable companies were treated like utilities because towns and cities didn't want more than one entity digging up yards and streets to lay cable. Today in my neighborhood outside a small Midwest city, I have a choice of traditional cable, fiber optic cable, satellite dish and soon Internet and TV delivered by my electric utility. Four companies compete and prices are now coming down! 

When the government alone provides goods and services, there is no competition. There is scarce pressure to be more responsive, more customer-oriented, more efficient, with better quality at a lower price. Prices go up at rates greater than that of inflation with minor if any improvements in the product, e.g., public colleges and universities. The post office and the DMV have for years been held up as examples of poor service. If we want their services, or are forced to use them, we don’t have a choice. We take what we get, pay what they demand; and improvements are slow.

Competition should not be scary. Competition is good.