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.

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