If you own a barometer you could have seen that the weather was going to change. And when you live in the Northwest, it’s pretty easy to predict that if the weather is currently nice, the change that is about to set in will be less than nice. That’s the beauty of a barometer. If the barometric pressure remains stable, the weather you have is probably going to be the weather you’re going to have.
Markets also have barometers.
Think about the barometers of the marketplace during the next 24-48 hours. The history of politics have for the past hundred years seems to have fixed it on an ideological divide over the goodness or badness of these barometric readings. There are those of us who view the indications the financial barometer allows us to perceive as a good thing. That is, if these barometric readings allow us to perceive future change we benefit from these signals.
There is an ideological belief that is held by many—most notably Democrats, Socialists and Communists—that these barometrics are the cause of badness.
This is akin to viewing the barometer indicating change in the weather as being the source of that change. For those of us who embrace the Enlightenment, such silly superstitious belief can be condemned out of hand. It falls on the post hoc, ergo propter hoc fallacy.
It is true that very few of us have the exposure to the history of communism that would allow us to easily compare recent efforts by our Leftist politicians to those of their ideological forefathers in the former Soviet Union. This is sad. But the impulse toward liberty does not fit easily with the desires of collectivism. The libertarian balks at socially imposed restrictions on his thoughts. The leftist has no such compunction.
The left condemns the barometer. The right appreciates the value of the barometer.
Because the barometer is simply a tool.
What is this tool that animates the Left?
Price.
Here is a brief essay on the effects of Obama economics on the Russian people following the implementation of Russia’s War Economy.
What happens when the enemy of the Left is no longer a tool of the market? Here’s what Leon Trotsky had to say, “The collapse of the productive forces surpassed anything of the kind that history had ever seen. The country, and the government with it, were at the very edge of the abyss.”
And what tool of markets is being condemned by the Left?
Price.
The battle against price isn’t a recent development. We have the example that has existed since the time of Christ in the myth of Midas. Midas was a lucky guy. Price was never a problem for Midas. Whatever he touched turned to gold.
More recently was a popular show of the 1950’s, The Millionaire. And what a show! Each week some lucky guy would get a check for a million dollars!
"Hello, My name is Michael Anthony. And until his death, I was executive secretary to John Beresford Tipton, a multi-billionaire who had the strange hobby of giving away one million dollars. One million dollars, tax-free to an individual who had never met him-who indeed had never heard of him!"
During the 1980’s, politicians in Oregon passed a law that advanced the war against price. The Oregon Lottery. Now it is possible for some lucky Oregonian to avoid the horrors of price. Just spend a coupla dollars.
The most recent attack on price is taking place under the guise of health care reform. It’s important to parse the debate. What you are hearing is of the need to control the rising costs of healthcare. What you should incorporate are the determinants of those rising costs, price and demand.
Cost is not necessarily the same as price. What is the ultimate cost of my misapplication of health care? My death. I have a friend who is going into the hospital later this month to have a valve replaced. He asked me, who cares about the price? He is willing to pay whatever it is in order to avoid the cost of not having his heart’s valve replaced. Even the threat of calling him “cow boy.”
He is dying without the operation. He could save money without it, too. He could keep the cost of his health care down. He chooses not to do so.
The price of things is reflected in several ways. In the supermarket you may see a price of $3.49. But if you have a “club card” you might only pay $2.49. Why the difference in price? Because you have incurred another cost, joining the store’s club. You can argue that this membership is costless. But, it isn’t. And the criticism of store clubs requires an understanding of markets that we won’t attempt here.
What is the actual price of a thing? When you borrow money, what is the price of that borrowed money? The price you pay for borrowing money is known as the interest rate. We found out in the 1980’s that price controls on borrowing resulted in a market with plenty of demand and no supply. That is, by limiting the amount of the interest rate—the price—that could be charged for the borrowing of funds, the supply of funds dropped to zero.
There was no cash to borrow.
The price of funds was fixed by law not to exceed a level determined by the legislature. As a result, there were no funds available. Even for those willing to pay the price. We controlled the price. But what was the cost?
The impulse to control price in order to control cost has always ended poorly.
And what tool of markets is being condemned by the Left?
Price.
The battle against price isn’t a recent development. We have the example that has existed since the time of Christ in the myth of Midas. Midas was a lucky guy. Price was never a problem for Midas. Whatever he touched turned to gold.
More recently was a popular show of the 1950’s, The Millionaire. And what a show! Each week some lucky guy would get a check for a million dollars!
"Hello, My name is Michael Anthony. And until his death, I was executive secretary to John Beresford Tipton, a multi-billionaire who had the strange hobby of giving away one million dollars. One million dollars, tax-free to an individual who had never met him-who indeed had never heard of him!"
During the 1980’s, politicians in Oregon passed a law that advanced the war against price. The Oregon Lottery. Now it is possible for some lucky Oregonian to avoid the horrors of price. Just spend a coupla dollars.
The most recent attack on price is taking place under the guise of health care reform. It’s important to parse the debate. What you are hearing is of the need to control the rising costs of healthcare. What you should incorporate are the determinants of those rising costs, price and demand.
Cost is not necessarily the same as price. What is the ultimate cost of my misapplication of health care? My death. I have a friend who is going into the hospital later this month to have a valve replaced. He asked me, who cares about the price? He is willing to pay whatever it is in order to avoid the cost of not having his heart’s valve replaced. Even the threat of calling him “cow boy.”
He is dying without the operation. He could save money without it, too. He could keep the cost of his health care down. He chooses not to do so.
The price of things is reflected in several ways. In the supermarket you may see a price of $3.49. But if you have a “club card” you might only pay $2.49. Why the difference in price? Because you have incurred another cost, joining the store’s club. You can argue that this membership is costless. But, it isn’t. And the criticism of store clubs requires an understanding of markets that we won’t attempt here.
What is the actual price of a thing? When you borrow money, what is the price of that borrowed money? The price you pay for borrowing money is known as the interest rate. We found out in the 1980’s that price controls on borrowing resulted in a market with plenty of demand and no supply. That is, by limiting the amount of the interest rate—the price—that could be charged for the borrowing of funds, the supply of funds dropped to zero.
There was no cash to borrow.
The price of funds was fixed by law not to exceed a level determined by the legislature. As a result, there were no funds available. Even for those willing to pay the price. We controlled the price. But what was the cost?
The impulse to control price in order to control cost has always ended poorly.
Take a look at the effort to reduce the price of home ownership by federal fiat through the Community Reinvestment Act (CRA). Federal politicians decided the price of owning a home was too high. That is, those who couldn’t afford to own a home didn’t own homes. What to do? Remove the price from home ownership.
What was the cost?
What was the cost?
It isn’t hard to predict what will happen to markets when price controls are introduced. Price controls inevitably lead to reduction in supply.
Why Price Is The Enemy
The great divide between the Right and the Left hinges on Price as an enemy. Obviously, if every thing was free, there would be no need for price. But everything is not free. This was attempted before. Remember the cite on the New Economic Policy above? Even in the most dire conditions, the attempt to create a moneyless society failed. No amount of Rahming is going to make a shift to Obaman Utopia any more likely. No crisis is that great. But the attempt to control the price of medical care will persist. It is baffling to me.
(Link to this graph here.)The graphic tells a simple story. Food prices are down as a percentage of GDP. Medical prices are up. Or, are they?
Fighting price is ridiculous since we know that as prices fall, demand goes up. We also know that the demand for a television set is higher than the demand for the Etch-A-Sketch™. Both are rectangular. Both give you pictures. But the qualities of a television rather exceed the qualities of an Etch-A-Sketch™. And we are not surprised by the comparative demand for each being different from the other.
Why are we surprised to find that people prefer advanced health care treatments for rather anachronistic health care treatments? Would you prefer a leach? They are cheaper.
We know what happens when price caps are put into place. Shortages. We can also predict what will happen when a new treatment or procedure comes onto the marketplace. Regardless of its price, there will be an increased demand for that treatment or procedure.
Simply look at the advances made in treating the senile or for those who suffer from Alzheimer’s. Thirty to forty years ago, treatment was limited to housing. You put them into a home and waited for them to die.
Not so true anymore. There are new treatments and procedures that are coming onto the market that promise an increase in the quality of life for those who are living longer.
We live longer. We demand newer treatments and procedures. What will be the effect of increased demand for an increasing array of medical treatments and procedures?
How about an increase in the demand for those treatments and procedures?
The amount of a thing that we consume as a percentage of GDP might increase if more people demand more. That’s what the chart above tells us. When are we going to start demanding price controls for leisure time expenses? When will leisure time become a right?
What is the amount we consume? It’s pretty easy to find out. It is the amount of a good or service provided multiplied by the price of that good or service.
Fighting price is ridiculous since we know that as prices fall, demand goes up. We also know that the demand for a television set is higher than the demand for the Etch-A-Sketch™. Both are rectangular. Both give you pictures. But the qualities of a television rather exceed the qualities of an Etch-A-Sketch™. And we are not surprised by the comparative demand for each being different from the other.
Why are we surprised to find that people prefer advanced health care treatments for rather anachronistic health care treatments? Would you prefer a leach? They are cheaper.
We know what happens when price caps are put into place. Shortages. We can also predict what will happen when a new treatment or procedure comes onto the marketplace. Regardless of its price, there will be an increased demand for that treatment or procedure.
Simply look at the advances made in treating the senile or for those who suffer from Alzheimer’s. Thirty to forty years ago, treatment was limited to housing. You put them into a home and waited for them to die.
Not so true anymore. There are new treatments and procedures that are coming onto the market that promise an increase in the quality of life for those who are living longer.
We live longer. We demand newer treatments and procedures. What will be the effect of increased demand for an increasing array of medical treatments and procedures?
How about an increase in the demand for those treatments and procedures?
The amount of a thing that we consume as a percentage of GDP might increase if more people demand more. That’s what the chart above tells us. When are we going to start demanding price controls for leisure time expenses? When will leisure time become a right?
What is the amount we consume? It’s pretty easy to find out. It is the amount of a good or service provided multiplied by the price of that good or service.
Or, Demand (D) = ∑ Qn x Cn or, (Quantity (Q)1 x Cost ( C) 1 + Q2 x C2 + Q3 x C3…+ Qn x Cn).
Guess what happens when new products come onto the market? There is an increase in the demand for that product. When more people live longer, what happens to the demand for health care?
And what is the solution proposed by the geniuses in your government?
Price controls, aka, a Single Payer solution.
What costs more, an Etch-A-Sketch™ or a television set? What happens if we set price controls on television sets, so that no company can charge more for a television set than is charged for an Etch-A-Sketch™? You can assert that no one would fall for this kind of foolishness, yet it is this very same type of foolishness that has grabbed the headlines in the name of Health Care Reform.
Leftists are quick to argue that there are going to be no Death Panels. But you and I can predict what will happen to the quantity of health care supplied under conditions of price controls.
There will not be enough. Demand will outstrip supply. Shortages will result. So, who will receive the benefit?
Price is one helluvagood barometer for those who supply goods and services. Prices tell suppliers whether or not their efforts are worthwhile. Price will tell a manufacturer whether or not to increase the supply of a product being produced, whether or not to increase the amount of labour that is being employed and whether or not to increase the scale of their operation through increased investment in plant and capital.
Price tell suppliers what to produce.
Governments have to quit fighting price. It’s a losing battle. Markets will always be stronger than governments.
I leave you with this
And what is the solution proposed by the geniuses in your government?
Price controls, aka, a Single Payer solution.
What costs more, an Etch-A-Sketch™ or a television set? What happens if we set price controls on television sets, so that no company can charge more for a television set than is charged for an Etch-A-Sketch™? You can assert that no one would fall for this kind of foolishness, yet it is this very same type of foolishness that has grabbed the headlines in the name of Health Care Reform.
Leftists are quick to argue that there are going to be no Death Panels. But you and I can predict what will happen to the quantity of health care supplied under conditions of price controls.
There will not be enough. Demand will outstrip supply. Shortages will result. So, who will receive the benefit?
Price is one helluvagood barometer for those who supply goods and services. Prices tell suppliers whether or not their efforts are worthwhile. Price will tell a manufacturer whether or not to increase the supply of a product being produced, whether or not to increase the amount of labour that is being employed and whether or not to increase the scale of their operation through increased investment in plant and capital.
Price tell suppliers what to produce.
Governments have to quit fighting price. It’s a losing battle. Markets will always be stronger than governments.
I leave you with this
in order to read this.
What is the price you are willing to pay for “social justice”? What form of social justice is imposed when no one has access to the highest quality of health care?
The principles I’ve referred to in this post are taught in any basic economics course. Even at the high school level. The hard truth of the lesson isn’t taught; price is not your enemy. Profit is not your enemy.
The enemy is scarcity. And the best tool for overcoming the enemy isn’t social control over the producers of the goods and services you seek. The opposite is true. Any control placed on the producers of goods and services will drive up the price of those goods and services and lead to greater scarcity than less scarcity.
Scarcity is the enemy. It is the storm that is waiting around the corner. Price is the barometer to foretell the incoming storm.
2 comments:
"... cancelled the season’s last major golf tournament. High winds. Heavy rainfall. Thunderstorm."
Sissies! Back in Scotland, we'd play golf in the middle of the night, in fog so thick you couldn't see your own kilt, with just a putter for the whole course, and a golf ball that's been chewed by a mad goblin.
"Price tell suppliers what to produce."
You've probably linked to this one before, but here it is again:
I, pencil
There's also an introduction by Friedman.
When all are equal in wealth, all are equally poor.
Someone recently calculated that the total global money supply of between $50 and $60 trillion, equally divided among all the world's people, works out to about $9000/person. I haven't checked the math (except for M3), but it's probably not far off.
If your net worth is less than $9000, this might sound like a good plan. The rest of us would feel ill-used.
And one of the main goals of socialism is to "level the playing field".
We played in thigh-deep snow, and ice so thick that we strung barbed wire on our bare feet for traction.
OG - the desire to make health insurance a "right" is laudable, but wrong. Our founders drew a clear line on the subject of rights. If government gives it to you, or if others have to pay for your acquisition, it is not a "right". It is a wrong.
We have rights, but they are inherent - not given, nor paid for by force.
If health insurance is a "right", then obviously, so is auto insurance, and homeowner/rental insurance. I realize that the late Senator Swimmer felt strongly that health insurance was a fundamental "right", but as was so often the case, he was fundamentally wrong.
We have, as noted by the founders, a right to life (despite what abortionists would have you believe).
We have a right to liberty (despite increasing attempts by government to encroach upon it).
And we have a right to the pursuit of happiness. We have no "right" to attain happiness, but we have the right to pursue it. If our choices are correct, then we will likely attain it. If not, then not. It is not the job of government to attempt to ensure your happiness; the role of government is clear: it is not to impede your efforts to achieve success.
Somewhere along the line, the bureaucrats kind of lost track of that.
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