Corporatism / Socialism

[John Galt III]

Just an observation. My electric utility bill just went way up, due to deregulation. I earn enough to "afford" it. But those who are below a certain income can get a subsidy, from taxpayers, to pay the electric corporation . Hmmm. I've seen a lot of this in the past few years. Cost of something goes way up, and a blurb appears with the cost increase stating how to get a subsidy if needed.

Perhaps this is how corporatism / socialism is being introduced to the U.S. : Raise the cost of things, get more money to the corporations, increase taxes on those workers who "can afford" to get tax increases, to bail out the low-level serfs.

Net effect :

A) Corporations get fatter.

B) Low level serfs stay poor and have higher prices to pay, but are subsidized by wealthier workers.

c) Workers whose wages haven't yet been reduced to serfdom pay higher taxes to pay the corporations their money.


A note : My electric company does not compete with other electric companies, and has even admitted this, since it has things set up to profit from the other electric companies that are allowed to provide us electricity. So there is no competition even after deregulation.

 

[Zathras]

All depends on your definitions.
Isn't public education a form of socialism?
College loans have been subsidized for years, and that is pretty much exactly what you describe.
For your electric bill, you can always use less, or make your own (wind/solar etc).

 

[dex]

My electric utility bill just went way up, due to deregulation.

Was it deregulation or was it due to mfg cost or buying electricity increases? Before deregulation, did the electric utility get subsidies or tax breaks?

 

[ERD50]

All these various 'subsidies' do distort the picture between 'rich' and 'poor' though. Some people point to 'marginal tax rates' but that is only one part of the puzzle.

Maybe a 'rich' person pays X% in taxes, but they don't qualify for the same student loans/grants, they don't get the free lunch program (which often waives many other school fees) and free cell phone, they don't get the utility subsidy and on and on.

Maybe it doesn't add up to much, but there are so many of them it's hard to say.

-ERD50

 

[dex]

All these various 'subsidies' do distort the picture between 'rich' and 'poor' though. Some people point to 'marginal tax rates' but that is only one part of the puzzle.

Maybe a 'rich' person pays X% in taxes, but they don't qualify for the same student loans/grants, they don't get the free lunch program (which often waives many other school fees) and free cell phone, they don't get the utility subsidy and on and on.

Maybe it doesn't add up to much, but there are so many of them it's hard to say.

-ERD50

Generally, I would go with the idea that the poor usually get the short end of the stick.
Take a look a corp. taxes; a regressive tax. Politicians and others support it because it look like a tax on the rich or a 'use' tax. But the poor pay the same tax incorporated in a loaf of bread as a rich person.

It would be political suicide for a politician to say we should eliminate corporate taxes because it look like they are a friend of big business; not the poor. A corp. is just a pass through entity - it incorporates its costs and a profit in its products' cost.

This is an interesting article.
US Study concludes the poor subsidize rich credit card users
US Study concludes the poor subsidize rich credit card users

 

[ERD50]

dex, I agree 100% on the corporate tax issue. I'm disappointed that some bright politician with good communication skills does not step forward and explain this to the public. I think we, as a society, would benefit from an elimination of corporate taxes, and it would be 'fairer' to poor people.

I find it ironic (or maybe illuminating?) that many of the same people who cry for higher taxes on those big, 'greedy' corporations also would say they are for progressive tax systems, and against flat or regressive tax systems.

I'm pretty sure I disagree with the credit card reward program as the 'poor' subsidizing the 'rich'.

As I understand it, the CC companies get ~ 3% transaction fee. So if they (eventually) provide me a 1 or 2% incentive to use my card, they are making an easy 1 or 2% many times over on other people's money. So it is a profit maker if you look at it as a stand-alone transaction. And the rewards do motivate me to use the card instead of cash. I don't think it makes sense to 'balance it' against other unrelated transactions.

-ERD50

 

[dex]

I'm pretty sure I disagree with the credit card reward program as the 'poor' subsidizing the 'rich'.

As I understand it, the CC companies get ~ 3% transaction fee. So if they (eventually) provide me a 1 or 2% incentive to use my card, they are making an easy 1 or 2% many times over on other people's money. So it is a profit maker if you look at it as a stand-alone transaction. And the rewards do motivate me to use the card instead of cash. I don't think it makes sense to 'balance it' against other unrelated transactions.

-ERD50

I didn't like the idea of poor subsidizing the rich aspect of the article. To make that point, the article should have shown that CC companies can pay the cash rewards they do because of the cash payers. I don't see how that link can be made since the 3% incorporated in prices is collected by the seller. The other question is if sellers incorporate the full 3% or they use a lower number to include cash payers.


It does point out that, if the poor do not use credit cards but cash, as the article states they are paying x% more than they should. If, there were two prices available - cash & cc the cash payer could spend less. (That x% transaction fee is in all the products sold; like the bread/corp tax issue. So the poor cash payer is paying for something but doesn't get the service and doesn't have the option not to pay it.)

I think the people at Freakecomics would point out how cc rewards programs work against the person yet people like them. If the transaction fee is 3% and we get 1% back we are spending 2% points more than we need to. Add to that, all the studies that show people spend more when they use a cc and the lower cash price could help a lot of people.

 

[RonBoyd]

Or, as Anatole France once said, a rich man has just as much right to sleep under a bridge as a poor man.

 

[ERD50]

It does point out that, if the poor do not use credit cards but cash, as the article states they are paying x% more than they should. If, there were two prices available - cash & cc the cash payer could spend less. (That x% transaction fee is in all the products sold; like the bread/corp tax issue. So the poor cash payer is paying for something but doesn't get the service and doesn't have the option not to pay it.)

I do agree with that analysis. Unfortunately, things like that happen all over. One thing drives another, and overall, that drives prices up for some of us. Features that I don't want are included in all sorts of products I buy, but since I'm in the minority, I end up paying for those extras.

In this case, the merchant feels they will attract more business by accepting CCs. OK, but this also means that that transaction price gets built in, and their agreement states that they can't give cash discounts. So we all pay - and in the long run, I doubt the merchant is getting more business (which one could argue could reduce prices), he is just keeping up with other merchants offering CCs. So, some of us use rewards to get back some of that cost.

But to say it is a transfer from one group to another would be like saying that people who buy stuff on sale are being 'subsidized' by those who don't bother to shop the sales. I guess that is true in a way, but should we demand that retailers never have sales, that it isn't 'fair'?

I think the people at Freakecomics would point out how cc rewards programs work against the person yet people like them. If the transaction fee is 3% and we get 1% back we are spending 2% points more than we need to.

But again, for many of us it isn't a 'choice' that we make. We are just trying to make the best of this new reality. And the reality is, that price is built into almost everything we buy, so I might as well offset it with rewards. If I could get a 2% discount for cash, I'd probably go back to paying cash - but that isn't a choice I have. Drop that to 1%, and I'd have to weigh it a bit more carefully - float and convenience and flexibility are worth something.

Add to that, all the studies that show people spend more when they use a cc and the lower cash price could help a lot of people.

But one should understand whether or not the averages apply to them, and act accordingly. It would be hard for anyone to convince me that I spend more by using the cc versus cash, but I don't doubt that is an issue for some other people. It's not 'one size fits all'.


-ERD50

 

[ERD50]

Generally, I would go with the idea that the poor usually get the short end of the stick.

Just so no one gets the wrong idea - I agree with that, of course.

I was just saying there are so many 'under the radar' offsets that don't get factored into some of the discussions. Maybe they don't amount to a hill of beans, and other negatives more than make up for those.

But there is a 'snowball' effect to the way these policies are done. Hey, if you really need to have your kids in the free lunch program at school, that's one thing (which takes almost no documentation to qualify for). But why does that automatically qualify you for a free cell phone with 200 minutes a month? I don't use that in 2 years - maybe because I pay for it?

-ERD50

 

[samclem]

OK, but this also means that that transaction price gets built in, and their agreement states that they can't give cash discounts.

This is where I have trouble knowing which side to argue. Should there be a law against CC companies and merchants agreeing to forbid discounts for cash?
1) Of course not. These entities both enter into these agreement voluntarily for their mutual benefit. They should be allowed to set their own terms.
2)This should be forbidden. There are too few CCs to allow true competition, so it's unlikely one would break ranks and allow merchants to offer cash discounts. Agreeing to prohibit cash discounts is a form of price fixing and should be outlawed.

One thing I'm fairly sure of: If these agreements were outlawed, discounts for cash would re-emerge and prices would go down, the prices for using CC would go up, and the cash rebates/points would probably dry up. I think that would be good, but until then I'll ride the rebate train.

 

[dex]

Should there be a law against CC companies and merchants agreeing to forbid discounts for cash?

We might be seeing 2 prices in the future, reduction/elimination of rewards and annual cc fees - back to the '70s

New credit card laws help merchants, but what about customers?
The law also addresses an issue that before had only been handled by a patchwork of state laws: namely, charging cash-paying customers less than those using their card. Prior to the law's implementation, consumers would probably only have noticed this difference at places such as gas stations in states that permitted the two-tiered pricing system. Some had laws that let cash customers get a "discount," although credit card users couldn't be slapped with a "surcharge."

​

 

[ziggy29]

One thing I'm fairly sure of: If these agreements were outlawed... and the cash rebates/points would probably dry up.

I don't think so. The fact that so many people already carry balances on double digit interest suggests they don't know how to optimally use credit, so even though one would be math-impaired to use a CC for 2% cash back when there was a 5% cash discount as an alternative, some would do it and a few would even brag about how good the cash back deal is.

If there were widespread cash discounts of more than 2% (my current cash back level) my use of credit cards would approach zero in most cases. But until then I might as well take what's being offered, which is (effectively to the consumer) a 2% discount for using credit.

 

[ERD50]

This is where I have trouble knowing which side to argue.

Me too, but I think the real crux of the issue is in the second part of your bullet #2:

There are too few CCs to allow true competition,

Most of the time, when there seems to be some breakdown in the free-market, it's really because the market isn't so free. Rather than passing some laws against it (with the inevitable loopholes and/or unintended consequences), I'd rather see them attempt to bring more competition into the market.

Other times, it's due to the widely discussed 'Tragedy of the Commons'.

-ERD50

 

[lets-retire]

Two of the biggest flaws I saw in the article are assuming I (not rich, but definitely use credit cards) shop in the same places as the very poor. If someone is so poor they are unable to obtain a credit card they are most likely shopping at Walmart, Kmart, Goodwill, or one of the stores like Goody's. One very good reason to shop at the extreme discount places is the very poor typically don't have much in the way of disposable cash on hand and they don't have a way to purchase many of the goods over time (with the exception of layaways). These are all decent stores, but we rarely go to any of them. It has been our experiences with stores like Goody's that we spend more time searching for decent items than it is worth (there's a reason the items made it to an overstock company and it normally isn't good). The last time we went to Goody's we spent an hour looking for a pair of jeans then walked out with nothing. The first issue limits the number of poor people shopping where I do. Since the poor do not have the disposable income to make large purchases at the stores I visit, it limits the ability of those who do to provide much of a subsidy to the "rich".

 

[Independent]

Just an observation. My electric utility bill just went way up, due to deregulation.

.

I wasn't aware of this. CA had a well-publicized experiment with deregulation, but I haven't heard about other states. Care to mention the state that has deregulated?

 

[John Galt III]

I wasn't aware of this. CA had a well-publicized experiment with deregulation, but I haven't heard about other states. Care to mention the state that has deregulated?

Pennsylvania.

 

[Emeritus]

Take a look a corp. taxes; a regressive tax. Politicians and others support it because it look like a tax on the rich or a 'use' tax. But the poor pay the same tax incorporated in a loaf of bread as a rich person.

The corporate tax issue is far far more complicated than this
Assume that a corporation makes only bread

Corporation charges for bread what the market will bear. they maximize revenue no matter what their costs are. If cost are below revenue they make a profit

For costs They pay enders interst employees for work and have other costs of production. Taxes are just a cost of production.
They pay profits to shareholders or top executives.

Eliminate corporate taxes and they raise dividends Or executives bonusesl. They don't cut the price of bread since the price is already at the revenue maximising point

so taxes compete with wages executive bonuses and dividends, poor people will pay the same for bread no matter how the profit loaf is sliced.

 

[ziggy29]

Corporation charges for bread what the market will bear. they maximize revenue no matter what their costs are. If cost are below revenue they make a profit

For costs They pay enders interst employees for work and have other costs of production. Taxes are just a cost of production.
They pay profits to shareholders or top executives.

Eliminate corporate taxes and they raise dividends Or executives bonusesl. They don't cut the price of bread since the price is already at the revenue maximising point

I'm as cynical about corporations as the next guy, but I don't follow this -- at least not in a functional, competitive marketplace.

In terms of maximizing profit, there is a sweet spot always in terms of price -- set it too high and the loss of sales more than offsets the gain in per-unit profit. Set it too low and you're leaving money on the table because increasing the price won't lose sales faster than profits will grow.

(Warning -- math ahead)

Roughly speaking the "curve" is essentially a negative quadratic equation where the best price to charge is the maximum point of the curve where the value on the y-axis is at its peak; that is, where the derivative of that equation is zero. In a competitive marketplace, if the *cost* of making bread drops by 25 cents, there's no need for me to lower my price if no one else does. But as soon as someone lowers the price 15 cents, they gain market share, possibly enough to increase overall profits (since that reduced cost shifts the entire graph to the left). Another bread maker has to follow suit and cut their prices as well. By removing some of the cost from the equation, the "sweet spot" changes if the market is functional and competitive.

(Okay, no more math.)

Unlike payroll taxes for employees, which I don't think employers would pass on to employees in the form of higher pay, I think they *would* pass on much of a tax cut to *customers* in this environment. Businesses aren't competing much to attract and retain employees these days, but they are furiously competing to attract and retain customers.

Having said that, I'm not advocating for eliminating the corporate income tax. I just don't think businesses could withhold the benefit from customers in this economy like they could from employees.

 

[ERD50]

The corporate tax issue is far far more complicated than this
Assume that a corporation makes only bread ...

Corporation charges for bread what the market will bear. they maximize revenue no matter what their costs are. ...

Eliminate corporate taxes and they raise dividends Or executives bonusesl. They don't cut the price of bread since the price is already at the revenue maximising point

I'm as cynical about corporations as the next guy, but I don't follow this -- at least not in a functional, competitive marketplace.

... In a competitive marketplace, if the *cost* of making bread drops by 25 cents, there's no need for me to lower my price if no one else does. But as soon as someone lowers the price 15 cents, they gain market share, possibly enough to increase overall profits (since that reduced cost shifts the entire graph to the left).

Exactly, ziggy. And someone will drop the price to grab market share (if there is share to grab), you can count on it.

So in this alternate universe that Emeritus lives in, 1TB disk drives cost the same as they did ten years ago, because if we would pay $X ten years ago, we will continue to do so, and the reduced cost of production has just gone to CEOs and dividends. Sweet deal for CEOs and dividend earners (takers?).

Amazing the things you learn on this forum!

-ERD50

 

[Coderguy]

Exactly, ziggy. And someone will drop the price to grab market share (if there is share to grab), you can count on it.

So in this alternate universe that Emeritus lives in, 1TB disk drives cost the same as they did ten years ago, because if we would pay $X ten years ago, we will continue to do so, and the reduced cost of production has just gone to CEOs and dividends. Sweet deal for CEOs and dividend earners (takers?).

Amazing the things you learn on this forum!

-ERD50

No. There is no incentive to grab market share when it comes to electricity. Nobody wants the bottom of the market - the top will pay whatever it costs and the bottom tends to default on accounts.

Your comparison to disk drives is just wrong. You are comparing two markets with completely different barriers to entry; completely different pricing scales (one can use discriminatory pricing to price across the spectrum, the other can't; just one example of the difference). One is also regional and the other world wide.

 

[ERD50]

No. There is no incentive to grab market share when it comes to electricity. Nobody wants the bottom of the market - the top will pay whatever it costs and the bottom tends to default on accounts.

Your comparison to disk drives is just wrong.

I was responding to the ziggy/Emeritus exchange (which included: at least not in a functional, competitive marketplace.). I agree, you can't compare disk drives to public utilities. But you can compare cost reductions in disk drives leading to lower consumer prices, and cuts in corporate taxes leading to lower consumer prices in any free market, competitive area (like bread).

I can't wait until we have some real competition in that area also. I don't see utilities having any sort of potential like Moore's Law, but we might get to a better place.

-ERD50

 

[SunsetSail]

No. There is no incentive to grab market share when it comes to electricity. Nobody wants the bottom of the market - the top will pay whatever it costs and the bottom tends to default on accounts.

Your comparison to disk drives is just wrong. You are comparing two markets with completely different barriers to entry; completely different pricing scales (one can use discriminatory pricing to price across the spectrum, the other can't; just one example of the difference). One is also regional and the other world wide.

Actually there is an incentive to grab market share for electricity. There are examples (I can't think of where at the moment - maybe NJ) where distributors are obligated to lease out their transmission lines to third-parties at regulated rates. To a certain degree this eliminates the barriers to entry and makes electricity a fungible commodity in which the low price provider can and does grab market share.

I thought the thread changed from electricity to bread in which case the drive analogy works, but I may not be following closely enough.

To address the OP's point about socialism, this looks more like government interference causing problems as opposed to a shift toward socialism.

My understanding is that Pennsylvania only partially deregulated the energy generation side of the business (maybe 60% or so). CA's failed attempt at deregulation was to deregulate 100% of the generation business. Distribution companies weren't allowed (by the public utility commission) to raise rates even though they were being charged higher prices by unregulated generators when energy costs went up (based on input costs increasing - which were ultimately cause by fraud, but that is a different story). This caused bankruptcies of distribution companies and didn't help anyone besides bankruptcy attorneys.

If my understanding is correct (that's a big if because I haven't followed PA very closely), the prices you are being charged are still fully regulated by the state. If PA is like other states, the price increase is in response to higher generation costs, it is reviewed by a public utilities commission and is based in large part on formulas.

It looks like classic government bungling through subsidies rather than socialism. Maybe there isn't a huge difference at some level?

 

[dex]

The corporate tax issue is far far more complicated than this
Assume that a corporation makes only bread

Corporation charges for bread what the market will bear. they maximize revenue no matter what their costs are. If cost are below revenue they make a profit

For costs They pay enders interst employees for work and have other costs of production. Taxes are just a cost of production.
They pay profits to shareholders or top executives.

Eliminate corporate taxes and they raise dividends Or executives bonusesl. They don't cut the price of bread since the price is already at the revenue maximising point

so taxes compete with wages executive bonuses and dividends, poor people will pay the same for bread no matter how the profit loaf is sliced.

Corp taxes are a component of the price as wheat is to bread or oil to gasoline. When the price of oil goes down, the price of gasoline goes down.

If corp. taxes were eliminated (on bread for example), company A drops the price due to the elimination of the tax and company B offset the elimination of taxes by increasing another expense line item. The prices will be different on the shelves. The consumer will see the price difference.

There isn't anything complicated about it.

++++
Now the price of bread or your 'revenue maximizing' got to that point because of the marketplace where people could compare prices. Those mfg. that could make a profit at the market price stayed in business those that couldn't got out of the bread making business.

 

[Texas Proud]

Corp taxes are a component of the price as wheat is to bread or oil to gasoline. When the price of oil goes down, the price of gasoline goes down.

If corp. taxes were eliminated, company A drops the price due to the elimination of the tax and company B offset the elimination of taxes by increasing another expense line item. The prices will be different on the shelves. The consumer will see the price difference.

There isn't anything complicated about it.

Why is any of this complicated? If, we were discussing an across the board corp. tax increase, would anyone question that companies would add that to the price of the goods?

My bold.....

OK... there are economist here somewhere.... but I will try and explain the best I can...

They will try and add the extra tax to the item.... but they can not add all the tax... as Ziggy was saying, there is a curve of supply and demand.. I will also do some math, but all are made up numbers...

Say you sell widgets... there are a certain number of people willing to pay $12 per widget, some more at $11 per widget and even more if you drop it to $10, $9 etc.. You price the widgets to sell a certain volume at a certain price to try and maximize profits (but you also need to think long term here)...

Sooo, gvmt raises taxes on widgets by $1... that does not mean the person who would buy at $9 will now buy at $10.... no, he will still only buy at $9... What does a company do They increase the price by a percent of the tax increase... it might be 1/2, 3/4 or even higher according to the demand line... so the company has to pay the gvmt the full $1, it is not able to collect the full amount from the consumer... so in reality the company is making less money due to the tax. Not a full $1 per widget, but less...