Dreams of the sovereign

We’re an odd bunch, we Americans. We prize our individuality, our liberty; we compete, we like to win. But when the situation demands, we coalesce and pull together, then separate again as the crisis passes. World War II was a great example – individual liberty was sacrificed to the greater good of protecting and perpetuating our country, our values, our way of life. We willingly bought War Bonds, submitted to rationing, hung blackout curtains, and joined the services in droves. But after the war, sailors and soldiers and Marines shed their uniforms and returned to the bustling, unruly competition of civilian life.

The key to this collectivization is its voluntary and temporary nature. When we recognize a threat to “us,” we willingly take up the traces. But when subservience is tyrannically imposed, we bristle, resist, and subvert. It's human nature. Note the Arab Spring, the French Revolution, and our own Revolutionary War.

Societies vary in the degree of individualism permitted. For instance, under Islamist rule, thou darest not be Christian. In China, you must not speak your mind unless you are in alignment with the Party. Even in England and Canada, you may be prosecuted for the offense of “offending” another. And many countries on Earth demand that their citizens be disarmed (hint – subservient).

Much to the dismay of the United Nations, we in the United States come from a much different mindset. Our Founding Fathers, reacting to the strictures of the English sovereign, turned that paradigm on its head and declared that “all men are created equal.” Gasp – a concept unknown in the world at that time, and still unknown to vast reaches of the Earth today.

We have something special, folks. Think about it. You are the boss of your life. If you want to be Christian, so be it. If you want to be Muslim, that’s cool. “None of the above” is a perfectly acceptable alternative as well. The government is subordinate to you – you are the sovereign!

So how does a nation of over 300 million individual sovereigns accomplish anything? In spite of the protestations of those of the liberal bent, our system rewards individual effort and risk taking, and the sum of those parts is enormously powerful in giving us all the benefit of a brisk, growing, and munificent engine of wealth. Oh, to be poor in America – the reason that our borders are overrun.

Financial dislocations, depressions, recessions are wholly due to foolish governmental interventions. There are no exceptions. If we were free to each pursue our individual dreams, the sum of our efforts would provide increasing wealth and employment and security. It is government policies, distorting market forces, which cause us pain. Social engineering, the holy grail of progressives, is our bane. With the exception of equal rights for all humans (black, white, female, male, gay, or Episcopalian), they are wrong on all other counts.

Leave us our individual dreams; have faith that the collective result will be excellent. We are each, after all, sovereign.

The price is right

Soviet farm women search empty shelves for overshoes.

How is it that we can find fresh tomatoes in Manhattan in January while Soviet farm women struggled to obtain adequate footwear and were often faced with empty shelves?

A seemingly simple question, but one which reveals the power of a market economy and the importance of prices.

When you decide to buy something, price is a very important factor in your decision.  You may decide to buy McIntosh apples at $1.29, or perhaps Red Delicious at $1.39.  But you might decide to substitute bananas for your fruit, or buy nothing at all.  Any of these actions sends a signal to suppliers whether to provide more or less of which variety of apple, or perhaps bananas instead. 

When you participate in these economic decisions as a consumer or supplier, you become part of an enormously powerful, highly parallel, economic computer.  This computer, orders of magnitude more capable than IBM’s Watson, allocates resources to meet demand at prices that consumers will pay.  Hundreds of millions of decisions are made every day: prices accepted or rejected by consumers, set by competitors, and read by suppliers.

What happens when this mechanism is bypassed or distorted?  There is abundant evidence that we suffer shortages, unwanted surpluses, or unaffordable prices when government, in its hubris, attempts to plan supply or control prices.

At one extreme is the Soviet Union; it was a managed economy with faceless bureaucrats determining investment, resource allocation, and production schedules.  Over the period 1928 to 1991, the Soviet citizenry’s experience was one of chronic shortages of food, fuel, and consumer goods.  A bureaucracy, even armed with automation, cannot begin to approach the immense power of our collective  economic computer.

Our government can, and does, fiddle with our market economy, with less than stellar results.  There are many examples.

·       Subsidies cause high prices.  During the conversion from analog to digital TV transmission, the government offered $40 coupons for converter boxes.  You never saw a converter box offered for less than $40 – it became the new zero (price floor).  There is strong evidence that government grants and loan programs have contributed mightily to the inexorable rise in college tuition.  Scholarly  studies show that government subsidies of ethanol have resulted in higher corn prices.  (Have you noticed what a box of corn flakes now costs?)

·       Price controls create shortages. When the government puts a cap on prices, shortages result.  During the gasoline crisis of 1973, price caps resulted in widespread shortages and massive lines of people waiting to get a few gallons of scarce gasoline.  In an attempt to control "gouging" during emergencies, government price caps only insure that shortages will occur.

·        In the absence of price information, competition disappears. Our current health care system is a perfect example of the lack of price information inhibiting wise consumer decisions and supplier price competition.  The result?  The cost of health care rose 7.32% in the 12 months ending in August 2010 (last period available), while the general rate of inflation during that same period was 1.1%.  So why did health care costs increase nearly 7 times the rate of inflation?  Because consumers have no idea what services cost, and additionally, have no skin in the game.  After all, the insurance company will pay.

What can you (citizen, consumer, voter) do with this knowledge?  First, be very skeptical of your legislators.  They may think that they are superior to our human, economic supercomputer, but they are not.  Be wary of schemes that “control prices”.  That can only be done with effective competition and full knowledge of pricing.  Look askance at subsidies; they will only result in higher prices.  Meet with skepticism any proposal that does not engage the pricing mechanism to determine supply, and competition to moderate prices.  

More and better information is always the answer, so that you, the wise consumer, in concert with millions of your fellows, solve the equation of how much of what to produce at a price that consumers will pay.  This is equally true of apples and hospital stays.

A conflict of interests...

All that needs to be said about government involvement in the market was revealed to us by Barney Frank yesterday (6/4/09). GM (the newly formed Government Motors) had determined to reduce costs by rationalizing logistical needs in the face of foreseeable business volumes. To that end, GM decided to consolidate parts warehouses and a GM distribution center in Norton, MA, was slated to be closed.

Enter Rep. Frank (D – MA), a veteran of the auto industry, who issued an-offer-that-could-not-be-refused to GM executives. The executives understandably caved and GM has reconsidered that closing

Now, the relative merits of closing or not closing that warehouse may be argued. But what is not debatable is that GM made the original decision based on an analysis of business conditions, while Barney Frank’s intervention was wholly political, intended to enhance his power and extend his tenure.

That, alone, is reason enough to look askance at government programs that might be better served by the market. Single payer health care springs to mind.