Price Check on Aisle Three, Please

Imagine, for a moment, grocery shopping where everything is (nearly) free.  You casually peruse the aisles of your favorite store loading up on anything and everything.  You pick more expensive name brands over cheaper generic brands, and fill your cart with more than you need.  But who cares?  It’s all free.  At the checkout, you plunk down $20 dollars and your membership card.  That’s it!

This scenario would, without question, lead to the overconsumption and decreased supply of food.  Without the price system to guide you into making wise choices, you over-consume.  You have no incentive otherwise.  This is our healthcare system.

In the absence of the price system, Americans over-consume healthcare.  Most of us pay an annual premium and then a small co-pay at the doctor’s office.  It matters not if I have one test run or 100 – my co-pay remains the same.  And because my premium adjusts only once per year, any correlation between usage and costs is vague at best.  In fact, my premium continues to rise despite my consumption of healthcare.

So, despite everyone’s constant lament that we spend 15% of GDP on healthcare, this fact is no surprise to me.  Incentives matter, and without the price system to shape our choices, we will continue to over-consume and pay ever higher premiums.

Election Day

Well, to say I'm disappointed would be an understatement.  My guy didn't win, but I don't think Ron Paul ever had much of a chance.

The wise Texas congressman did have some perceptive thoughts on the outcome though.  Mr. Paul said, "The only winner tonight is the status quo."

My thoughts exactly.

Free Market Miracles

Are you tired of missing your delivery from Amazon?  Concerned about theft?  Not to worry.  Simply tell Amazon to ship your package to your local Staples store.  Staples will store it in a locker, and you can drop by at your convenience and pick it up. 

 

Just another illustration of the free market hard at work for you.  

Link to story here

Letter to my friend

Here's a letter I wrote to a friend of mine.  I had no intentions of posting this, but I think it does a good job explaining my worldview.   Where have I gone awry?

You know this already about me, but I'll state it again.  I'm a free-market guy.  I believe in the voluntary cooperative arrangements that happen millions of times each day, in particular time and circumstances that enable our economy to work.  For example,

We take for granted that when we shop at Kroger there will be an abundance and variety of food on the shelf.  Why and how did this food get there? 

We take for granted that we will be able to fill our car with gas, day or night, rain or shine, 365 days a year in almost every city in America.  How on earth is this accomplished? 

We take for granted that we can get t-shirts made in Vietnam, plastic toys made in China, and silverware made in Indonesia all at Wal Mart for extremely competitive prices.  Who arranges this?

The amazing thing is that all this and more happens every single day unbeknownst to the general public.  We simply take it for granted. 

Now, is it perfect? No, but we haven't identified any other system than comes even close.  When free people are allowed to voluntarily enter into exchange with whomever they desire, we all benefit.  We are all made better off.

But, then government, for various reasons, interferes.  Government places restrictions on certain trades, or makes others outright illegal.  Sometimes for good, but mostly for naught.  Taxes, tariffs, regulations of various sorts, mandates, subsidies, licenses, and other market interventions are almost always served up with good intentions, but in the same frequency fail to account for the unintended consequences.  No policy intervention is without unintended consequences, yet pols routinely ignore them or falsely label them as additional market failures only to suggest more market interventions.

Show me a sector with high government intervention and most likely you'll find escalating prices, distorted and disjointed demand, decreasing quality, and the like.  It's inevitable.   What about sectors with very little government meddling?

The internet has revolutionized our world in ways not foreseen.  Why?  Because government has largely remained on the sidelines.  And we are immensely better off. 

So, when people such as yourself call for more government to fix this imperfection or that failure, I ask that you think through your proposed policy intervention and determine if the benefit is worth the cost.  You are often quick to parade the benefit, but slow to claim the cost.

Cash for clunkers.  Terrible policy.  At best shifted demand from one period to the next.
First time home buyers credit.  Delayed the inevitable and terribly expensive.
Ethanol mandate.  Raises prices (hurts poor) and does zero to improve air quality.

I could go on, but by now you have probably lost interest.  But you now fully understand my viewpoint.

BTW: when you get a chance, you should read Milton Friedman's book: Free to Choose.  Excellent read.