Suspending Economic Realities

Thomas Sowell has been writing a super series about prices called Priceless Politics. In this series he emphasizes that politicians have for thousands of years tried to gain power by promising constituents that in exchange for their vote, the politician will overcome the underlying economic realities that prevent people from buying more than they can afford.

Economics is the study of how people with unlimited desires for stuff balance the acquisition of that stuff given that there isn't enough stuff for everyone to have as much as they want. It is the study of the relationship between unlimited wants and limited resources.

Prices are the mechanism that balance the two sides. Prices help people decide how they will use their limited resources to meet their limitless desires. I might want a new car more than I want a used one, but the difference in price forces me to choose wisely due to the fact that I also have to pay for groceries and the mortgage. A used car leaves enough resources in my budget that I can continue to pay my other bills.

One of Sowell's best sentences was this: "Prices force you to limit your claims on what other people have produced to the value of what you have produced for other people."

I love it! That is such a great statement. It is the essense of fairness! The liberals might tell us that it is not fair that a rich guy can buy whatever he wants (which isn't true) and that poor people can't. Fairness is being able to purchase from other people no more than you have produced for other people. Rich people are very productive (at least in a free market system), and poor people are not productive. Many people find the services of the rich to be a necessity in their lives and therefore pay them a great amount to obtain those services. Poor people have not made themselves or their services valuable to anyone, and therefore do not receive much income from others.

This is the essence of fairness. I also believe that it is the essence of morality. All people are called to serve their fellow man, especially in the Christian faith, but in many religions service to others is highly regarded. Only in the free market system is service to others (as recognized and chosen by them) required.

The politician is in the business of buying votes by promising gullible people that he can outsmart these economic principles. He thinks that by holding prices down for rents, or medical care, or food, or gas or by holding prices up in the case of minimum wage laws, that somehow the economic realities can be suspended. Unfortunately, wants are still unlimited and resources are still limited. The politician cannot suspend this fact. But he can get elected by promising to try. He still gets what he wants, and the rest of us have to live with the mess that results.

The sad consequence is this: by virtue of his meddling, the politician just distorted the transparent and fair mechanism of price and now some other mechanism must replace it - because there are more people who want the stuff and not enough stuff to go around. Maybe it will be long lines, maybe it will be bribes, maybe it will be "networking" (you have to know someone to get what you want), maybe it will be theft - but it will have to be something because their ain't enough stuff to go around!

Prices serve to equalize the supply of stuff and the demand for stuff. Politician intervention destroys the equalization. Prices are a fair and moral way of regulating the distribution of goods and services. Anything else is unfair and immoral.

Universal Health Care

All people should have access to health care. All people should have access to whatever it is that they want or need. If they want food, they should be able to have it. If they want furniture, they should be able to have it. If they want a car, they should be able to have it. If they want a TV, they should be able to have it.

In America today we have people advocating socialized, universal health care. "Health care should be a right." Again, I believe that everyone should have access to health care, but socialized universal health care would be a complete disaster, and here's why.

A government bureaucracy is the least effective way to stimulate innovation. As a matter of fact, you could almost say that bureaucracy does only one thing well - stifle innovation. Innovation, and the resulting excellence and value that comes from innovation spring from one thing - the desire for profit. Profit is the magnet for human innovation. Where there is an opportunity to make money, people will come in droves trying to figure out a way to "harvest" that profit opportunity.

The recent housing boom is a good example of that. Over the last few years, housing prices were going up rapidly. In the major markets like the east and west coast, people couldn't think about a house for more than 10 minutes because someone else would snatch it up. Houses sold immediately because they were in such short supply. People started flipping houses, builders went on a building spree, and in a fairly short time we went from a housing shortage to a housing glut. The high prices encouraged lots of people to seek the profit that could be made there, increasing the innovation and supply within the housing market.

Government bureaucracy contains no profit opportunity (except for the politician) and therefore has no innovation. Bureaucracy creates mediocrity, free markets create excellence. When you buy a car, you can get car insurance with a "15 minute call to Gieko." Then turn around to register that car, and you spend several hours at the DMV. Is registering a car inherently more complex than insuring it? No, it should be much simpler - but car insurance is provided by private companies that have to compete for your business while the DMV is a state bureaucracy. The DMV can't lose your business - because the government gives you no other options! Fail to register your car and you'll pay the price! The bureaucracy has no incentive to improve. Consequently, you sit in line for hours, then approach the person behind the counter who is sour and wishes they didn't have to be there and points out all the things you filled out wrong on your paperwork and then tells you to come back another day with your passport (oh, new security procedures).

The free market has produced such entertainment wonders as the Ipod - an amazing collection of super sophisticated technologies giving each person total control over their personal entertainment. Download whatever song you want, nearly for free, and take it, along with thousands of other songs and videos in your pocket to be enjoyed whenever you choose. People want control over their entertainment, almost miraculously, the free market provided it!

The free market has provided Americans with access to a mind boggling array of products at amazingly low prices. You can have your two cars, a TV in every room, your ipod, a laptop computer, a cell phone, and still have enough money left over to pay $100 a month for cable and internet. That is amazing! Freedom, free markets, and free enterprise make nearly any human desire a reality. If you want it, the free market will provide it, and over time will provide it at continuously decreasing prices.

However, and this is a big however, whenever government gets involved, costs go up. Government gets in the way of free markets on so, so many levels. Like I said, bureaucracies exist to stifle innovation. The greater the government involvement, the less innovative the industry and the higher the cost of the product that industry provides.

So why can't health care give such an amazing array of options at such great prices? Because government involvement has permeated the industry so much that costs can longer be contained. Few of the normal market forces that usually exist to drive supply and ensure conservation exist within the health care industry. Moreover, political forces are seeking to drive the remaining free market forces out entirely - in the form of socialized medicine.

Take the government regulation off the health care industry and you'll see that every American does in fact have access to affordable health care, just like he has access to everything else he wants. Conversely, continue down the road we're on to socialized medicine and you'll find that it won't matter how "free" health care is, because you'll die while waiting the months it takes to get an appointment with a lousy doctor.