Monday, September 28, 2009

Meddling with Prices: Supports

Price supports involve the government increasing the price, above market equilibrium, and promising to buy up any extra. Obviously, producers make more, while consumers buy less, and the extra is either given away or otherwise wasted. In the meantime, money is taken from everyone as taxes and given to the producers. In the end, everyone loses except the producers (and the government employees who are paid to buy and waste the excess product).

Minimum wages are a bit different from other price supports. Rather than leading to excess production of labor, it leads to under-utilization of the labor supply, which shows up as unemployment. You might think that the government does not pay people not to work, but it does. There is unemployment insurance, disability, WIC and AFDC. While the recipients of these benefit somewhat, it is labor unions that benefit greatly. Union contracts do not set wages at $X per hour, but rather at "Minimum wage + $Y per hour." So the most recent round of minimum wage increases, from $5.15/hr to $7.25/hr over three years, has resulted in American labor unions getting a $2.10/hr raise, that they did not have to negotiate for.

The biggest losers when it comes to minimum wages are those who are not able to produce more than it costs to employ them. Examples include young blacks, who usually do not get as good an education as young whites; single mothers, who must have more flexibility in their work schedule; and the handicapped, for whom all manner of accomodations must be made, and who may not be able to do physical labor as well. Other losers include those who would otherwise hire these low-productivity workers. They have typically gotten their customers to take the place of such workers, by "offering" the "convenience" of self-service checkouts, drink refills, gasoline pumping and windshield cleaning. Another group that loses out because of minimum wages are those who would prefer to get paid with something other than cash -- minimum wages pretty much prohibit apprenticeship, as an example.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Saturday, September 26, 2009

Meddling With Prices: Caps

The government may set a price that is artificially low, that is, below what demand would currently cause. Richard Nixon did this, with gasoline, in response to the 1973 oil embargo. Because prices were low, there was no reason to make up for the drop in supply. Also, there was very little reason for people to try to conserve gasoline. The result was that demand greatly outstripped supply, leading to shortages. Then rationing was added, which imposed extra costs on buyer, seller, and the government. Gas lines were a fact of life throughout the 70s as a result of all this meddling. The winners were public officials who claimed "I DID something about the high price of gasoline," people who sold their extra gas rationing coupons, and gas station attendants who took bribes to let people buy when the rationing schemes were against them. The losers were everyone who waited in line for gasoline, and everyone who didn't make and sell more gasoline because the price wasn't high enough.

Rent controls do the same sort of thing. Supply is reduced, while demand is increased. The winners are politicians and people who live in rent-controlled housing. There is a long list of losers. First are the rent-controlled landlords, who cannot raise prices to deal with increases in their costs. Second are their tenants. Because their landlords are making little or no money, they often have to forgo ordinary maintenance and sometimes even vital repairs. Third are developers, who don't bother to develop new housing because the rents will be held below what they'd need to make their money back and a living. Fourth is the city, which doesn't get the property taxes from the properties the developers don't make. But the ones who suffer most are the people who cannot get a home. Some go homeless. Most go to live somewhere else. You get long lists of people waiting for homes instead of long lines waiting for gas, but the basic problems -- shortage and waiting -- are the same. And you get the other typical problem, which is essentially a black market. In the case of housing, this is a giant up-front fee charged by the landlord in order to finalize a lease.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Friday, September 25, 2009

Obama's Gag Order

If there's anything that tells me ObamaCare is a really, really bad idea, it's this:

President Forbids Insurance Companies to Tell Their Customers What Changes ObamaCare Would Bring


Check out this article as well. The money quote:
As if to drive the point home, the Department of Health and Human Services issued a gag order this week telling all private companies participating in the Medicare Advantage program to shut up. Violators would face fines and jail time. Forget the First Amendment.

The gag order was issued after Humana Corp. sent a letter to its policyholders who participate in Medicare Advantage telling them the facts about Obamacare’s effect on the program. The companies were ordered “to end immediately all such mailings to beneficiaries and to remove any related materials directed to Medicare enrollees from your website.”

The bureaucrats added this blunt threat: “Please be advised that we take this matter very seriously and, based upon the findings of our investigation, will pursue compliance and enforcement actions. ….”

Those, my friends, are the words of soft tyranny. How much longer before it becomes a hard tyranny?

Reforms that increase liberty, freedom, choice, and options from the Cato Institute.

Thursday, September 24, 2009

Supply, Demand, and Price

As a schoolboy, I was taught that demand has a direct relationship to price, and that supply has an inverse relationship to price. Chances are very good that you were taught the same. And it's important to know how supply and demand affect price, but that is very far from being the whole story. Price affects supply and demand, as well.

The Laws of Supply, Demand, and Price

  • Increases in supply cause downward pressure on price.
  • Decreases in supply cause upward pressure on price.
  • Increases in demand cause upward pressure on price.
  • Decreases in demand cause downward pressure on price.
  • Increases in price tend to attract more resources to production.
  • Decreases in price tend to divert resources away from production.
  • Increases in price tend to reduce demand.
  • Decreases in price tend to stimulate demand.
When supply, demand, production, and price are all allowed to affect each other naturally, there is a constant trend towards equilibrium in all of them. Then, the things we want most are taken care of first, and as inexpensively as possible. Almost everything that is produced is bought and used.

This is the core of the free market system. Prices are allowed to move freely, so people know what use of their resources will bring them the most money. And, all other things being equal, that is what they do. It all works really well until somebody (that is, the government) starts meddling with prices.

EDIT: this really was too much to do at once. I have decided to break the giant wall of text into several posts.

In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies

Saturday, September 19, 2009

Health Care Reform

I believe that the health care reforms being suggested are very, very bad. I have formed a deep and powerful mistrust of any government-run institution. For starters, there's Papa Ben's blanket statement that a bureaucracy cannot provide what is most needed, which is love. Further:
"Bureaucratic Rule of Two: Removal of an activity from the private to the public sector will double its unit cost of production." -- Thomas Borcherding, BUDGETS AND BUREAUCRATS: THE SOURCES OF GOVERNMENT GROWTH

I found this article thanks to a combox post over on Father Longenecker's blog. The author, David Goldhill, does an excellent job of explaining why our health care system is so dysfunctional.

A synopsis, if you think it's too long to read, boils down to the King of Id's Golden Rule: Who has the gold, makes the rules. We are not the ones who provide the gold, so we do not make the rules. Medicare, Medicaid, your HMO, Blue Cross/Blue Shield, and other insurers are the ones who make the rules. And they make those rules, whether they mean to or not, to benefit themselves. Any benefit we receive is almost an accidental by-product.

I may not agree completely with Goldhill's proposed solutions; I have not yet given them enough thought. But I think he has his pinpointed the systemic root of the problems that most strongly draw our attention.

Global Warming and the Culture of Death

I've said before that anthropogenic global warming is touted primarily to increase the power of the government, by and for the culture of death. Chuck Colson seems to agree:
As I have said before on BreakPoint, for this kind of environmentalism, the problem is people. “Nature” can only thrive if human beings are diminished. It’s why a new study by the London School of Economics, revealingly entitled “Fewer Emitters, Lower Emissions, Less Cost,” concludes that contraception is the most cost-effective way to reduce global warming.

Monday, September 14, 2009

Pray for Reform

via Catholic Exchange.

Fr. Frank Pavone of Priests for Life has asked that we pray that health care reform actually support human dignity, rather than being an offense against it. See this page on the Priests for Life site; in addition to praying for health care reform, you can offer up your rosaries for the conversion of President Obama. If you use facebook (I don't), you can also use the Facebook Page of his cause.