We have seen: for industries with big capital requirements or heavy regulatory frameworks (enacted for everyone's safety), it just doesn't.
Utilities (water, electric, telephony/cable/data services) or where having two of something makes no sense given physical limitations (Transportation sector, etc.)
What a wild system you have.
These are mobile providers. For home internet with a physical connection you usually don't have a choice and it is not outlandish to consider them a "natural monopoly" like you would electricity and water.
After all, if you're Time Warner, you could compete with Verizon by improving your infrastructure or lowering your prices, but that would spur them on to do the same thing, and then it's a race to the bottom where "everybody loses" (by which I mean consumers win a bit more and corporations win a bit less).
If you instead take the gentleman's agreement to not make any substantial changes, then you both get to gouge customers for poor service as much as you want, keeping profits high without having to do any work to maintain it. Sure, you might lose some customers to your competitor, but they also lose customers to you and everyone is happy (except the customers).
I can buy a script to build a Facebook clone from an Indian Dev for like $50.
The article reports the effort as a "surprise tax".
The point is that a windfall is also - by definition - a favourable change in the rules after the game has started.
The moral question here should be a simple one. Did the investors in the banks know (or at least reasonably expect) that they would make these profits when they decided to make their investment? If they didn't and they invested anyway then there's a reasonable argument for a windfall tax as long as it only claws back gains they had no reasonable expectation of making and did nothing useful to earn.
Frankly I think taxing some part of revenue instead of just income on big companies would be beneficial, no more "investing" in making market harder to newcomers (or outright buying them out) and getting tax cut on that.
Companies are just groups of people. Why should a group of 100 people get taxed more than a group of 100,000 people? Progressive rates on wages make sense because it's applied to each person individually.
The legal definition is certainly not "groups of people." Describing them in this folksy way is outright misleading.
It would be the other way around. This is in order to encourage the formation of new groups, which almost always start out small.
If that's your goal, having slightly lower taxes is a terrible way of doing so. It's far better to address the barriers to business formation directly (eg. availability of capital, market power of incumbents, regulatory requirements). We want people to found new companies to produce a better product (eg. Tesla), not to chase some tax incentive.
Or tax on revenue once company becomes big enough. Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.
That would cover most professional services firms (eg. lawyers/accountants). I don't really see why they should be considered worse than a mcdonalds.
>Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.
TSMC brings in 73.67 billion/year in revenue. Equifax only brings in 5.12 billion/year. Which one is making stuff "worse and worse"? Surely there's a better metric than dollar amounts, which totally ignore the financial nature of the underlying industry?
In some businesses there is also a benefit in scale (like in trading), and there you see the US banks leading because they've had it.
If you want the US banks to fully take over IB and corporate banking, definitely do tax the EU banks painfully more.
Or tax every financial counterpart painfully more, so then eventually the customers pay much more for their loans because the financial system has become so expensive.
The world of money existed before banks, it will exist after.
In short, due to international capital sufficiency regulations, there's now a market for excess regulatory capital. The attempt to prune low performing assets is due to a market as an alternative to low return on capital investments.
It's not because of charges and overhead.
Banks aren't worried about bad assets more than usual, they just have another arena to make money in now.
And then the incentives are all wrong if you bail your buddies out anyway. Play with fire and the fed will bail you out is terrible.
If we pass these windfall taxes and then use that money to help individuals who are struggling, those individuals then benefit; however, if we let all that money to go to the millionaire/billionaire shareholders, then there's a chance that, instead of adding it to the excess wealth they're already hoarding, they might decide to spend it on business or projects that they could already have afforded but didn't. Those businesses or projects could then theoretically create work opportunities which would then employ some more people, and maybe some of those people would be the people who are struggling, and maybe the pay would be a bit better than the market rate they're already getting paid for their labor for some reason and so they'd get paid a bit more, and maybe that would help them to struggle less. Didn't you ever think of that?!
You could think this is good as it supports people but I think it's kind of sad thousands of people get up and go to work every day with no impact on anything,just waste away at a desk. This doesn't even mention the economic waste
GP's point may not be obvious on the surface, but another way to look at it is, if for example the economy cools down and GOOG is pressured to maintain its profits, you can bet that management will decide to lay off even more people. In this sense it is just behaving as if it earns as much money as "expected" (by shareholders or the public, doesn't matter).
So, basically, result of a status competition that comes from misalignment between the interests of the company and the interests of individual managers.
But when times are tough you start making riskier jobs because you just don’t have the funds to support bullshit jobs.
> If one wants free enterprise and reap its benefits
who wants this from banking???
> one has to allow high profits for companies and see if competition takes care of the "problem"
ah, yes - we've seen this work so many times before!
You get that through competition for my deposits.
This is pretty uncontroversial basic economics...
If you're a healthcare provider in the US you often have to get a "certificate of need" to offer a service where a board full of competitors in the neighborhood determine if the neighborhood really "needs" this service:
> CON programs primarily aim to control health care costs by restricting duplicative services and determining whether new capital expenditures meet a community need.
Competition did nothing to stop industry alignment against consumer interests.
It's wild to imagine complaining about them being taxed but few complained about bails out from tax payers.
I'm sure there were a lot of complaints...
I certainly do. I like have lots of choices and banking is important to me. I also like innovative new banking products. I wish there was free enterprise in banking, it seems like we have an oligopoly, in the US at least.
Canada on the other hand had branch banking, meaning a few insitution each covering the whole country. So Canada had very far fewer banks historically.
During the Great Depression many 1000$ of banks failed in the US and none in Canada.
The USA has one bank for every 70617 people.
The EU has one bank for every 86637 people.
Italy is rather much more concentrated, having seen a huge decrease in unique banks over the last decade. It has one bank for every 134624 people.
I agree that the number of people is a better characteristic in this context, however the number of countries is important. EU has many different cultures, languages, regulations, so they have to have more banks. But looking at data, despite these considerations, EU still has worse competition. So still not sure what exactly parent meant.
Can you imagine if the number of banks per country was constant?
On the bank metric: There are plenty of quasi non functional FDIC insured banks that are used as vehicles for reverse takeovers to allow a market entrant to avoid the hassle of obtaining their licenses.
Additionally given the substantially increased variability within different European markets we'd expect significantly different competitive dimensions between regional and international tier banks.
What is it then?
I think it's a clear sign that competition doesn't work and savings were not passed to consumers. The thesis that competition will work eventually reeks of trickle down economics.
Such tax is just punishment for the lack of competition. It sends a message that if you are not going to compete for the customer then you can't keep the profits gained from your reluctance to compete.
The competition only works if competitors are willing to give consumer a better deal, and if moving between competitors is easy enough.
But if they decide "well, media say there is inflation so we have excuses to rise prices far higher than actual rise of costs", well...
1- Windfall tax 2- Elimination of banking license regulations
What do you think would be their choice?
They would choose (3) "pay money to lobby for none of the above" and instead lobby congressmen/deputies, to eliminate this question
And how many de novo banks have there actually been in any country recently? In the US, the land of plenty (banks), there's been one in the last twenty years.
Bloomberg's Odd Lots podcast just had an episode on this (including the topic of de novo):
* https://www.youtube.com/watch?v=8lPFHWgxq5c
Banking is low margin, and it takes decades to get any kind of return: few, if any folks, have the patience for that kind of ROI when there are alternatives.
That is, after all, how interest rates work. We 'tax' the mortgage payers and give it to deposit holders to hold as a store of value. That reduces the transaction rate.
So if we tax corporate profits and redistribute it around, then interest rates have to go higher to force the money released from the corporate profit store, to the deposit holder store.
If prices are too high, the solution is to encourage the capitalisation of more competition, not encourage keeping money in the bank.
1. Investors invest for speculative returns, not predictability or risk minimisation.
2. Free enterprise is possible within existing political-economic frameworks.
One must just glance at the US to see what happens, the high profits get used to lobby politicians to make competition impossible, thus the problem doesn't get solved and becomes the status quo.
Permanent high taxes are better than unpredictable windfall taxes.
It's very difficult to budget for the future when you don't know how much tax you're paying by a binary order of magnitude. When industry specific, it can create perverse incentives for outsourcing.
Banks will do just the same that all megacorps do: buy up their competitors with all the excess profit to make even more profit.
Also, I’m in Europe and my bank gives me better deals on savings than any American bank offers.
I sometimes wonder if perhaps other parts of the world have a different vision of how to run their economy. Surely "free enterprise" isn't a universal rule and certainly not the way it is conducted in North America. Maybe they're just doing things differently?