Within the first hour of war (when I was at Parliament House in fact), the newsticker included claims that two entire Iraqi divisions were about to surrender. Twelve days later, Associate Press is running a story headed Three Iraqi Soldiers Desert the Army (running frontpage on the LA Times website). I was going to do one of those calculations about how long it would take for the entire Iraqi army to desert at this pace, but you get the drift.

Via The Agonist, I found this story of a journalist who sued Fox News after being fired because she was unwilling to participate in a false report about growth hormones. Allegedly, Fox won its case at the appellate level on the basis that the First Amendment included the right to lie (and presumably to force employees to lie).
I couldn’t find a confirming source for the story, which is in an Internet publication called the Sierra Times, and includes a mis-spelling of Rupert Murdoch’s name, and I must admit it sounds too good to be true -has anyone else among the Agonist’s legion of readers picked this up?

Almost instant update Me No No supplies a range of links, which led me to the Appeal Court’s judgement, available as a PDF file from this site, basically confirming the Sierra Times story (but not the original heading of my post, which I’ve now qualified). The crucial para is “We agree with WTVT that the FCC’s policy against the intentional falsification of the news – which the FCC has called its “news distortion policy” – does not qualify as the required “law, rule, or regulation” under section 448.102.” To clarify, the lawsuit was brought under a whistleblower protection act, and the judgement is that a reporter exposing lies by a TV station is not protected under the act. Fox does not admit that they were distorting the news, but chose to fight on procedural grounds rather than on the facts, which is pretty standard legal tactics.

I’m still leafing through my collection of Borges short stories. A particularly interesting one, in the light of various debates in this corner of Ozplogistan last year (try starting here and reading forward through the archive), is The Don Quixote of Pierre Menard, about a writer who attempts to think himself into the position of Cervantes, and then reproduce Don Quixote, succeeding to the extent of two chapters. Borges, in the person of a literary executor, quotes from Cervantes’ original a conventional apostrophe to History , then the identical passage from Menard’s ‘reproduction’ which, he argues, is utterly different by virtue of being written by a 20th century author.

As much as I throw myself into this intellectual escapism, I have to admit that I’m reading everything I can find about the war. At an intellectual level, I’m still convinced that this is a pointless activity – having tried and failed to stop the war, there’s very little that supporters of peace can do now to mitigate its awful consequences. But this hasn’t stopped me thinking about it most of the time, and so I’ll probably resume posting about it before long.

My piece on oligopolies gave rise to a lively, and often vituperative, comments thread. As is usually the case, the substantive issues got lost in the name-calling (entertaining though the latter was at times). Attempting to extract some coherent issues from the thread, I focused on two:

• whether some industries are naturally monopolistic and
• what, if anything should be the role of competition policy (for historical reasons, this is called ‘antitrust’ in the US).

In this post, I’ll stick to natural monopoly. I think economists have tended to underplay the importance of natural monopoly, particularly in the period of microeconomic reform that began in the 1980s. There are three main factors leading to natural monopoly (or maybe, I like threeway classifications, and have organised a diverse set of factors into three classes).

First, physical economies of scale are important in a lot of different contexts. For a city the size of Brisbane (a million or so people), it makes sense to have just one airport, one major brewery, a handful of major hospitals and so on. For network distribution services (phones, electricity, water supply etc) the same point arises a bit differently. In physical terms, it’s optimal to have only a single distribution network in any given local area. This is pretty obvious, but there were a lot of silly claims in the 1990s based on the fact that since microcomputers had displaced mainframes, it was obvious that technology would in future be small-scale and inherently favorable to competition. The fact that the world’s microcomputer chips were made in a steadily shrinking number of plants costing a billion dollars apiece (and rising) escaped the attention of these gurus.

Second, the economic importance of information is increasing all the time and information is nonrival in consumption – giving information to me doesn’t make it any less available to you. So, the technically efficient procedure is for information to be produced once and shared freely. Again in the 1990s, the slogan ‘information wants to be free’ was repeated a lot. Unlike the idea that new technology is inherently small-scale, this slogan was at least half-right. Once information has been discovered it’s costly and wasteful to keep it secret or restrict its use. But the slogan is also half false. Discovering/producing information in the first place is costly and those who discover/produce it want to be paid in some way.

So far I’ve been talking about information of the “E=MC-squared” type, but another sort of information is equally important or more so in explaining the prevalence of natural monopoly. Human relationships, including long-term economic relationships depend on the beliefs, preferences and intentions of those involved, and these are hard to discover. I can discover my own intentions and beliefs by introspection and I can infer those of other people from observation and experience – the human capacity for self-deceptions means that the latter kind of information is sometimes more reliable than the former.

As a trivial example, when I write a column for the Financial Review, the opinion editor expects that I will check my facts before I submit the column – (I flagged my uncertainty about the authorship of the airlines cartoon I cited recently, but as it turned out I should have asked on my blog first). For some columnists and some papers, this isn’t a problem of course, but for papers that aspire to accuracy, it’s easier to rely on contributors who are known to be reliable than to take on new writers who may require more careful checking. This kind of problem arises in all kinds of employment and contractual relationships.

As Ronald Coase pointed out over 60 years ago, it is the transactions costs associated with this kind of information that explain why so much economic activity is arranged through firms and other organisations (governments, households, clubs, and now Internet-based virtual communities) rather than through markets. If it were not for transactions costs, even physical economies of scale would not produce monopoly, since the same asset could be shared by an arbitrarily large number of firms.

I’m going to leave the question of competition policy for another post, but I’ll observe that one factual implication of the arguments above is that competition policy makes a difference. If it were not for restrictions on mergers and for the tight regulation to which monopolies are often subject, a lot of industries that are currently oligopolies (dominated by a few firms) would be monopolies.

As I said a few days ago, I’ve decided to stop posting on the war for the moment – I can’t see anything good coming out of it, or propose anything that is likely to produce a better outcome. But, as usual, I agree with nearly everything Tim Dunlop has written.