Thanks to the president, it’s the meme of the moment. Take it up a notch. With an understanding of the economics involved.
Tag: economics
A storm hits the east coast. Some homes are washed away. Others burn down. Millions lose power. Gasoline supplies are massively disrupted, even as mass transit is unusable for days.
Obviously, post-Hurricane Sandy, emergency measures are called for. It’s crucial, for instance, that the disrupted and reduced supplies of gasoline be gotten into the tanks of vehicles as inefficiently as possible, and by causing motorists to waste as much of their precious time as possible. Who but rational and well-informed persons could disagree?
To achieve this goal, rationing and laws against “price gouging” — in New Jersey, defined as adding more than ten percent to prices under normal conditions of supply and demand — come to the rescue! So Governor Chris Christie assures gas station owners that his government will “impose the strictest penalties on profiteers who . . . seek to capitalize on the misfortune of others in the midst of a crisis. . . .”
After all, what’s the alternative?
Well, it’s this: Let fuel prices rise to the height required to induce motorists who least urgently demand gas to give way to those who most urgently demand it. This would
- shrink or prevent round-the-block gas lines;
- encourage shipment of gas to those areas where prices have risen the highest, i.e., where gasoline is scarcest;
- allow people to get back on their feet as quickly as possible by following their own best judgment in the face of local circumstances best known to themselves.
What do you call this strategy? Getting out of the way. Or laissez faire — but there’s nothing foreign about it. It used to be the American way.
This is Common Sense. I’m Paul Jacob.
Two great economists died this month.
Anna Schwartz, co-author with Milton Friedman of the classic A Monetary History of the United States, 1867-1960, passed away last Thursday, at age 96. For reasons known only to a few Swedes, she did not receive the Nobel along with her more famous research partner.
Elinor Ostrom, on the other hand, who died about two weeks earlier, at age 78, did manage to nab a Nobel.
While Mrs. Schwartz may not have received the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, she had received the more popular honor of being dubbed “the high priestess of monetarism.” She knew more about the history of banking and finance than just about anyone. Tellingly, her intellectual odyssey didn’t stop when she reached retirement age.
In recent years, she attacked the politically popular notion that bailouts are a good idea during economic downturns. She also came out against the reappointment of Ben Bernanke as Fed chairman, and argued that government was the main instigator of the 2008 financial bust.
She knew how to make waves.
Elinor Ostrom focused her work not on finance but on the problems associated with managing common-use resources. She found that government regulations tended to mismanage resources, while individuals and communities better negotiated creative and effective solutions to problems that previous economists deemed insoluble without government.
Like Anna Schwartz, she was much more than an armchair theorist. She didn’t merely draw equations on a blackboard and pontificate on how necessary it is for “government” to “fix it.” The evidence — which they collected — is in, government most often is the problem that must itself be fixed.
This is Common Sense. I’m Paul Jacob.
In which industries do prices and costs rise fastest? Those in which government is most involved.
The process is no mystery. Regulate supply by limiting entry into the business — to “increase quality,” of course — will raise prices, as producers behave oligopolistically. Government does this with health care providers, and have done so increasingly for the last century. If, at the same time, you subsidize the consumption, that amounts to increasing demand, which also puts upward pressure on prices. This has been accelerated in America since the beginning of Medicare, and with each additional healthcare program.
Typical government intervention double whammy.
Higher education is also not exempt from the play of supply and demand. One policy advocate’s explanation of this, which you can read excerpted, online, at National Review’s site, is worth considering. He explains what happens as vendors rake in profits under a regulated-and-subsidized system: they
sponsor crowd-pleasing sports events on weekends, building public goodwill. Other profits are used to hire professional lobbyists to plead for both more subsidies and more freedom to set prices. You also convince the government to allow you and other incumbent . . . sellers to form a private organization with the authority to decide whether new sellers can become “approved . . . vendors” for the purposes of receiving public subsidies. Unsurprisingly, few new sellers are approved.
Predictably, the analysis is followed by halfway measures that don’t lead to a free market in education at all. That’s just too radical.
Education policy wonks, like educators themselves, seem never to learn . . . economics.
This is Common Sense. I’m Paul Jacob.
Costs are what we give up for what we want. Focus only on a transaction, and that McChicken sandwich “costs” only a bit over a buck. But ultimately that McChicken costs you what you give up in your budget because you purchased it: a candy bar, a chocolate milk, or a tune on iTunes.
Nearly everything has costs, often hidden.
Take Michele Obama’s anti-obesity campaign. The Hunger-Free Kids Act, the legislative kicker of the First Lady’s cause, withholds money from schools that don’t provide a rigorous well-balanced menu. Kids must take a variety of fruits and veggies with each meal. Must!
The regulation will cost local school districts about $7 billion to comply. Cash-strapped school districts. It will also cost quite a lot in thrown-away food, as kids are “required” to take food they don’t intend to eat.
And then there’s the cost in reduced nutrition.
It appears that kids like flavored milk products. You know, chocolate milk, strawberry-flavored milk, etc. But high fructose corn syrup (which was foisted on our population by the federal government in the first place, via huge subsidies to corn farmers in general and Archer Daniels Midland in particular) is now a no-no. Flavored milks are on the way out.
The cost of cutting them?
Well, kids get 70 percent of their milk from flavored milks. Take away their chocolate, and . . . the result, for many, will be no milk at all.
That’s how a pro-nutrition regulation can end up reducing nutrition.
This is Common Sense. I’m Paul Jacob.
Last week I asked, in effect, Who regulates the regulators?
It does no good to say “the people,” because — as much as I want government to be ultimately controlled by the people — if you’re like me, you don’t know enough to micro-regulate high finance.
But there’s something I didn’t mention last Wednesday: The regulators don’t have that knowledge, either.
Even keeping eyeballs on simple fraud turns out to be difficult. Trying to micromanage high finance? Much harder.
But the congenital inability of regulators properly to regulate doesn’t mean that we must consign ourselves to a never-ending, Sisyphean cycle of boom and bust.
Many of the instruments of the modern federal government try to do too much. These very institutions, because they hubristically attempt to regulate away boom bust deliver just the opposite. They make sure booms go bust in messy ways.
Here’s a fresh example: “Lack of regulation” wasn’t the main reason for this latest bust. More important? The “too big to fail” subsidy. By giving Wall Street, big bankers, and financial intermediaries the impression that they would be bailed out in case of implosion, those very same folks behaved in such a way to risk said implosion, and thus needing the bailouts.
Which happened.
Which started the cycle all over.
Only by going back to basics can we improve our long-term economic outlook — not by government micromanaging the economy.
Nicely, citizens like you and me can understand these “basics.”
And defend them.
This is Common Sense. I’m Paul Jacob.