Government Soup

It’s the Availability, Stupid!

2008-11-26T19:44:00.001-08:00

Okay, I apologize for calling you stupid. You’re right. That’s no way to start a friendly chat, but bear with me. For arguments sake, let’s say you have more money than Bill Gates. If you were stranded in the middle of the Sahara Desert, how much would you be willing to pay for ice cold bottled water? How about a nice home-cooked meal? Better yet, how much would you be willing to pay for a freakin’ satellite phone so you could get the hell out of the desert? I know you don’t normally think about this stuff with American Idol on and all but it’s really important. See, my point is that one of the most important things that prices do in a market economy is to ensure availability of goods. For example, say you live in Florida like me and a category 5 hurricane is barreling down on you. You pack up your spouse and three kids and head to Georgia like everybody else. After driving for what seems like forever, you stop at a motel. If that motel has the same rates it always does you would probably get two rooms, one for the adults and one for the kids especially after being cooped up with them for hours on end. However, there are about a million plus people fleeing the storm, and this motel owner has quadrupled the rate. Why in the world did he do that? He did that to make money, to be sure, but he also ensures you only get one room. Heck at that rate, you might even share a room with another family. His self interest has helped him to maximize profit while also maximizing availability. Inevitably, in the wake of such actions customers gripe about price gouging. The theory goes that customers would be much better off paying the usual $40 than the exorbitant $160. But that is a false argument. The real question is, “Are customers better off paying the “exorbitant” $160 or not having a room to rent at all?” So the next time you hear somebody, maybe you, railing about prices and what they can or cannot afford, just remember prices don’t exist to make things affordable, they exist in part to make things available.

Universal Pizza Delivery

2008-07-25T20:04:00.001-07:00

“Pickup or delivery?” Call your local pizza joint and you are sure to hear those words. But what don’t you hear? You don’t hear that the delivery is going to cost you an extra couple of bucks unless you’re a heartless Scrooge who doesn’t tip anyone but the maitre d’ at the private club. So if you pick up the pizza, you save some green. Or you could go to the supermarket and get a frozen pizza and save more green. Or you could go to the same store and buy the flour, tomato sauce, cheese, and pepperoni to make your own pizza*. With each step you cut out more people and save more money. Admittedly, it also requires more diligence on your part. Be that as it may, if you didn’t have the two nickels to rub together to go to the store and buy the necessary ingredients to make your own pizza, then how in the world could you afford to call Papa John’s and have one delivered? You couldn’t, but that is exactly what the proponents of universal healthcare insists is possible. Noted economist Thomas Sowell deems utter nonsense, “The notion that what we cannot afford in terms of medical care as 300 million Americans paying directly, we can somehow afford sending the same money through the government and paying for a government bureaucracy on top of all the other costs of medical care.” In short, you can’t get a pizza delivered cheaper than you can make one yourself. But you already knew that, didn’t you?

* For the purposes of this article, pizza is assumed to be a fungible commodity.

Put Me In Coach

2008-07-25T20:03:00.001-07:00

Imagine you are the coach of a professional football team doing battle on a Sunday afternoon. Your team is down 14 points in the third quarter when the unthinkable happens. Your starting quarterback goes down with a season-ending injury. You know what you have to do so you turn to the bench for the less than stellar backup. Just then someone in the stands catches your attention. It’s Sam. He is your team’s number one fan. He’s a rabid fan, you know, the one with the painted torso and season tickets. Sam is yelling at you. He’s yelling, “Put me in coach! Put me in!” What do you do? You actually considered it, but then you really assessed the situation. Sam is middle-aged and way past his prime. Sam is grossly overweight due to the weekly tailgating binges of beer and burgers. Most importantly, Sam doesn’t know any of the plays. After this short deliberation, you conclude that Sam, despite his benevolent intentions and fanatic zeal, could only do your team harm. No matter how hard he tried he would only hurt the team’s chances of winning the game. But this isn’t a football game. And this game isn’t just played on Sunday. And Sam isn’t a rabid fan. And you aren’t a coach. This is the game of business and it’s played everyday. “Uncle” Sam is the government. And you are a voter. You decide if government will enter the game of business. You decide if this bloated entity, which doesn’t know any of the plays, will enter the game in which it can only make matters worse. Will you put the clueless neophyte in or beseech him to enjoy the game from the stands?

Got Milk?

2008-07-25T20:00:00.000-07:00

The government has just concluded, based on multiple studies, it must act quickly to combat the severe deficiencies of vital nutrients in American children. They have also announced that the indispensable weapon in the fight will be milk due to its high levels of calcium and assorted nutrients. The government has declared that each and every American family must consume at least one gallon of milk per week. Whereas the price of a gallon is $2.50 and the recommended minimum consumption is four gallons per month, each family will be given a $10 voucher on a monthly basis. Now, I know what you’re thinking and you are dead wrong. You’re thinking, “These stupid politicians never learn. How do they know people won’t spend the vouchers on junk food, movie tickets, or anything else $10 will buy.” But don’t you worry, these politicians are smart. The vouchers can only be redeemed for the purchase of milk. Problem solved, right? Not quite. In the weeks immediately following the announcement, the number of gallons of milk purchased tripled nationwide. In response to the increased demand, grocers started to raise prices on the hot commodity. Some states saw prices double. Last month Congress revisited the milk legislation in order to right the ship. More than one senator conceded she did not foresee the “price gouging.” Consequently, they revised the program to ensure its future success. First, they doubled the value of the vouchers to $20 to offset the widespread price increases. Second, they set a $5 per gallon cap on milk to make certain grocers would not continue to “manipulate the market.” Problem solved, right? WRONG! It’s been six weeks since Congress “fixed” the legislation and closed the price loophole. Now the situation is worse. There is no milk to be found in supermarket coolers. The Publix distribution center in Tampa has been out of milk for a week. Nationwide chains claim they cannot make a profit at the fixed price in the face of overwhelming demand. And so it goes with subsidies and price controls. They go together like cookies and er, um orange juice.

Government Soup

2008-07-25T19:59:00.001-07:00

In the midst of this health care quagmire, many people are asking a plethora of questions. Notwithstanding, there is one question that has not yet been uttered. Who is responsible for creating this precarious situation? The answer to that query can be found in our not so distant past. During World War II, the government instituted widespread wage controls. Predictably, a labor shortage followed. At that time, corporations competing to acquire labor at government-controlled wages started to offer health care benefits as an incentive and the concept quickly gained popularity. Some time after, the IRS discovered that the employers were not reporting the benefits as part of employee compensation and demanded that they do so. However, the regulation led to a public outcry as the employees had become accustomed to the tax exempt status. Furthermore, constituents urged Congress to pass legislation permanently securing the loophole.

As it stands now, health care expenses paid by an employer-based plan are tax exempt for the employee. On the contrary, expenses paid directly by the employee are subject to all payroll taxes. The problem with this system is the fact that it encourages employees to use a third party payment method. Economists have long understood what Milton Friedman wrote, “nobody spends someone else’s money as wisely or as frugally as he spends his own.” Costs skyrocket under such a system, because employees regard the money to pay the expenses as “someone else’s” and partake of medical care with no cost consciousness whatsoever. Add a social entitlement behemoth like Medicare/Medicaid and the problem just multiplies into our current day morass.

A story is told of six cooks preparing a soup, each adding the ingredients he saw fit. Unfortunately, after a short time it was evident that the soup was a disaster, but each cook continued as before, convinced his ingredients would fix it. Finally, a master chef was summoned to repair the damage and make the soup fit for consumption. All six cooks wondered what magic ingredients he would use to salvage their monstrosity. The master chef tasted the soup and without any visible reaction picked up the pot and dumped the remaining mess into the sink, for the best thing he could do was to start over as opposed to compounding the problem.

Our health care conundrum (not to mention foreign policy, social security, education, and gas prices) is such a scenario. The government issued the wage controls. The government passed the tax exemption. The government created Medicare/Medicaid. And now the government wants to institute universal health care. At every turn the government has been adding ingredients and tweaking the recipe only to make matters worse. Some will say the government was only responding to public demand and sincerely wanted to help. That being said, the fact remains that government policies set into motion the confluence of events that have brought us here. So, Mr. and Mrs. John Q. Public, how is your soup?