The View from Abroad

Hard hitting commentary from an American living overseas

Kenn Jacobine

Kenn Jacobine
June 03
Kenn Jacobine is an international educator currently teaching History and Economics for the American School of Doha, Qatar. He has also taught at international schools in Ecuador, Mali, and Zambia. His political transformation took place over the course of many years. Starting out naively as a big state liberal, he became a Reagan Republican in 1982. Disillusionment set in with the realization that small government rhetoric rarely translated into limited government actions. On Christmas day 1992, he became a libertarian. In 1994, Kenn ran for the State Senate in Pennsylvania on the Libertarian Party ticket garnering 5 percent of the vote. He has been active in freedom causes ever since.

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APRIL 17, 2012 1:39AM

The Pot Calls the Kettle Black

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In what must be the epitome of the pot calling the kettle black, last week the U.S. government announced that it and 15 states are suing Apple and other major book publishers for price fixing electronic books. The Justice Department is alleging that the price fixing publishers have agreed to convert the retailers who sell their e-books into agents who continue to sell their e-books but no longer have the ability to decide what retail price to charge for them.  Thus, all prices are determined at the publisher level allowing the executives in those companies to collude to ensure higher profits for all to enjoy.  The DOJ estimates that by adding $2, $3 or as much as $5 to the price of many New York Times bestsellers and mass market paperback titles over the last two years consumers have been ripped-off by over $100 million.

Now, on the surface this may sound shocking.  You are probably thinking here is yet another example of corporate big-wigs gouging the little guy.  And that is what Attorney General Eric Holder and President Obama want you to think.  See, then they can ride in on white horses, file a lawsuit that will cost the defendants so much money that they settle out of court and therefore look guilty of actually doing something wrong , and save the day for average e-book buying Americans.  It fits into that government as the great protector of the masses mentality.    

But, the real truth is that even without knowing that publishers may have conspired to increase book prices no one was forced into buying them in the first place.  Consumers make choices about what to buy every day and many if not most of the time those decisions are based on cost.  If they felt the jacked-up prices of the e-books were too expensive they could have chosen not to buy them.  Enough consumers making this choice would have broken the back of the conspirators and forced them either collaboratively or individually to lower prices down toward the market level (equilibrium point).  Consequently, the collusion would have been destroyed through natural means and consumers would have reasserted their position of dominance in the market economy.

Additionally, it is America and consumers have other options.  Instead of buying the overpriced e-books, consumers could have purchased any of the potentially millions of used books offered on Amazon for literally pennies on the dollar.  To say nothing of used book stores and thrift shops which usually stock an ample selection of good reads. 

Naturally, whenever the feds bring lawsuits against sellers for any kind of anti-trust or price fixing scheme, they always neglect to take into account property rights.  After all, who owns the product to be sold and why is the consumer entitled to it?  In the case of the most recent assault on property rights by the DOJ, the publishers own the rights to the e-books and can choose to sell them to consumers or not.  If they choose to sell them they have the right to charge whatever price they wish even if they limit selection or competition through collusion.  The e-books are the property of the publishers like a person’s home is their property.  When selling, do homeowners not retain the right to set their own price?  

In a market economy, prices are determined through interactions between buyers and sellers.  If sellers venture outside of this process they run the risk of lost revenue, or mal-investment.  If they arbitrarily set a price for a product that is below market expectations, that is to say the equilibrium price where the amount supplied equals the amount demanded at a given price then a shortage will result and the seller will lose revenue - the difference between the artificially low set price and the equilibrium price for each book.  If the seller arbitrarily sets the price for a product above market expectations, once again the equilibrium price, a surplus will result and the seller will experience mal-investment – using capital to produce a quantity that wasn’t completely sold.  Of course the seller can always lower prices toward the equilibrium price and thereby clear his inventory and this is what would ultimately happen.  The fact that this did not happen in the case of Apple and its co-conspirators is proof the price fixing was not egregious enough to deter consumers from buying the e-books at the alleged inflated price.  So where is the harm anyway?

At the end of the day no one is entitled to another’s property through the coercive power of government.  Instead of meddling in affairs that are better handled by the free market, Uncle Sam should worry about the truly monopolistic price fixing scheme that he has been complicit in since 1913.  And this is where this whole ordeal reeks of the pot calling the kettle black.  Unlike the market where consumers have choices and options, through legal tender laws Americans do not have any choices or options with regards to the money they use.  Since 1913, the Federal Reserve Bank with Congress’ blessing has arbitrarily fixed the price of the dollar through interest rate setting and monetary manipulations.  This price fixing scheme is responsible for the dollar losing 95 percent of its value over the last 99 years.  It is the price fixing scheme that affects real people’s lives through erosion of savings and higher living costs.  It is the one responsible for forcing both spouses to work to make ends meet and the destruction of the middle class.  So while Attorney General Eric Holder is concerned about $100 million that he alleges e-book purchasers have been ripped-off for in the last two years he really should be concerned about the trillions of dollars Americans have been ripped-off by the Federal Reserve since 1913. In other words Mr. Attorney General,
"Why worry about a speck in your friend's eye when you have a log in your own?” 

Article first published as The Pot Calls the Kettle Black on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

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I'm not sure that I completely agree with your outlook on producers of goods having the sole right to determine prices that their goods will be sold for in all cases. Nevertheless, I think you right in this instance. Entertainment books, while very high on my personal list of priorities, cannot be said to be necessities.

Educational books, on the other hand, might very well be said to be necessary to the well-being of both the nation and the individuals who live there. Schoolbooks that have inflated prices can, and do, affect the manner in which our children can be educated.

I am given to understand that educational books are commonly of such inflated price that many schools have not been able to afford books for the children they teach. If this is indeed the case then it is necessary that the government regulate the prices of such books so as to ensure their availability to students.

One alternative might be for the government to have school books printed in government print shops and distributed free to schools. There is the possibility that this could result in serious savings for the taxpayer when the profit regular publishers accrue from educational book sales is no longer part of the equation.

As you can see, I am coming down firmly on about three sides of this particular fence! ;-)
I worry about price gouging on essentials, like gas at the pump. I tend to agree with you about gouging on non-essentials, like E-Books and TV. If the cable bill is too high, go Hulu. And if the E-Book is too high, don't buy it.

I do like the light-shining part of this exercise though. It does make us better consumers to know that there are other options. Good post.
Antitrust law is arbitrary and malicious. Thankfully the last forty years has seen a lessening of liability and a contraction in the Sherman Act's application by the courts. So Apple, which produces magnificent goods and services for mankind, might be in good shape.

Hopefully the government won't drag this out like it did with IBM for over a dozen years, which ultimately led to the case simply being dropped in the early 1980s. Antitrust lawyers were happy, though, with hundreds of millions spend litigating that absurd case.