Week in Review
So many people fear the low prices of corporations. They say they will put higher priced Mom and Pop shops out of business. Then when they have a monopoly they will raise their prices and gouge their customers. Which is silly. Because corporations can’t create a monopoly. Only government can grant them one. Allowing them to charge the high prices once the government eliminates all competition. But even when the government does if there is a market for lower prices some competition will find a way (see 3 epic fails that prove Uncle Sam is a terrible venture capitalist by Burton W. Folsom Jr. and Anita Folsom posted 4/19/2014 on the New York Post).
After 20 years in Europe perfecting his steamboat, an inventor named Robert Fulton returned to the US in December 1806.
He knew that a legislator, Robert Livingston of New York, would back him to the hilt. Livingston was a Founding Father who believed that steamboats would work well on the wide rivers of North America. Livingston and Fulton obtained a monopoly from the New York legislature for the privilege of carrying all steamboat traffic in New York for 30 years, if they could produce a working steamboat within two years…
One problem with Fulton’s monopoly, however, was that it affected shippers in neighboring states. As steamboats became more common, the Fulton monopoly meant that other companies couldn’t sail in New York waters without fear of fines. The monopoly also kept ticket prices high.
Finally, in 1817, Thomas Gibbons, a New Jersey steamboat man, tried to crack Fulton’s monopoly when he hired young Cornelius Vanderbilt. Gibbons asked Vanderbilt to run steamboats in New York and charge less than the monopoly rates…
For 60 days in 1817, Vanderbilt defied capture as he raced passengers cheaply from Elizabeth, NJ, to New York City. He became a popular figure on the Atlantic as he lowered the fares and eluded the law.
Finally, in 1824, in the landmark case of Gibbons v. Ogden, the US Supreme Court struck down the Fulton monopoly. Chief Justice John Marshall ruled that only the federal government, not the states, could regulate interstate commerce.
This extremely popular decision opened the waters of America to competition. A jubilant Vanderbilt was greeted in New Brunswick, NJ, by cannon salutes fired by “citizens desirous of testifying in a public manner their good will.”
On the Ohio River, steamboat traffic doubled in the first year after Gibbons v. Ogden and quadrupled after the second year. The real value of removing the Fulton monopoly was that the costs of traveling upriver dropped. Passenger traffic, for example, from New York City to Albany immediately dipped from $7 to $3 dollars after the court decision.
Only governments can maintain and enforce a monopoly. And only a business with a government enforced monopoly can gouge their customers. For with the government eliminating all competition what else is a consumer to do? He or she has no choice but to buy from the business with the government enforced monopoly. The same is true today.
Free market capitalism is always finding a better way to do something that costs less. But people who enjoy government monopolies try to fight back. To keep their government privileges. Just look at the UAW and the automotive industry. Which used the power of their government privilege to restrict competition. Such as with tariffs and import quotas. Which only let the UAW to continue to burden the American automotive industry with ever more costly union contracts that ultimately led to their bankruptcy/government bailout. All the while keeping cars more expensive than they had to be. As the UAW used their government privilege to gouge American automotive customers.
Tags: capitalism, competition, corporations, Fulton, government enforced monopoly, government monopolies, government privilege, lower prices, monopoly, steamboat, UAW, Vanderbilt
Week in Review
A lot of people fear big corporations. And fight hard against them. Especially the big ones that provide a wide variety of goods and/or services at lower prices than the competition. The kind that put Mom and Pop stores out of business. Opponents of these big corporations say those low prices are only a dirty trick to put the competition out of business. To make themselves a monopoly. And once they get rid of all competition with their unfair low prices there will be nothing to stop them from raising their prices. Higher than even the Mom and Pop stores they put out of business. Of course, if that were true then you wouldn’t read stories like this (see Chick-fil-A Stole KFC’s Chicken Crown With a Fraction of the Stores by Venessa Wong posted 3/28/2014 on BloombergBusinessweek).
The days when fried chicken was synonymous with a certain white-haired southern gentleman are over, at least in the U.S. A new champion has claimed KFC’s long-held chicken crown: Chick-fil-A…
Anyone in the northern half of the U.S. is likely scratching her head and wondering why she hasn’t seen Chick-fil-A outlets opening in the neighborhood. Last year Chick-fil-A only had about 1,775 U.S. stores to KFC’s 4,491, and most are in the South. Yet in dollar terms the Colonel is coming up short even with that much larger footprint: Chick-fil-A’s 2013 sales passed $5 billion, while all of KFC’s U.S. restaurants rang up about $4.22 billion, according to Technomic. And that’s with zero dollars coming in to Chick-fil-A on Sundays, when every restaurant is closed.
Chick-fil-A has fewer outlets than KFC. Yet they have a greater sales volume. Why? Because they sell at higher prices than KFC. According to those who fear big corporations this is not supposed to happen. KFC should be able to sell at lower prices than the smaller Chick-fil-A. So low that Chick-fil-A should go bankrupt trying to match the unfair lower prices of KFC. But that isn’t happening. Because there is no way any corporation can monopolize any industry without the government first creating a monopoly for them. As Chick-fil-A has proven. They thought they could offer food people would prefer over KFC. And did. Despite KFC dominating the industry. And the people liked the food so much that they were willing to pay more to eat Chick-fil-A over the less expensive KFC.
The only way you can shut someone out of an industry is by raising the barriers to enter that industry. Such as with costly licensing, permitting, fees, restrictive regulatory policies, etc. Things only the government can force on the competition wishing to enter a market. Thus limiting competition in that market to protect their crony friends. But if there is no government protection of established businesses that are monopolies or quasi monopolies anyone can enter the market and compete against them. As Chick-fil-A proves.
People shouldn’t fear big corporations. They should fear government. The only entity that can create and enforce a monopoly. For it is only with the government’s help that a monopoly can gouge customers with their high prices. Because in a free market with low barriers to enter it will be impossible to gouge customers as the competition will keep all pricing competitive. Because if some try to gouge their customers those customers will just go to the lower-priced competition.
Tags: barriers to enter, Chick-fil-A, competition, corporations, free market, higher prices, KFC, lower prices, market, mom and pop stores, monopoly, prices
Week in Review
Competition makes everything better. If there was only one restaurant in town they could serve pretty bad food. Because if the people don’t have time to cook for themselves where else are they going to go? This restaurant could use ingredients past their ‘use by’ dates. Meats discounted by stores because they passed their shelf life date. They could use canned goods they heat up in a microwave. Using the cheapest ingredients that can be cooked the least amount of time by the fewest people. To keep costs down. It can work. Until there is competition.
If a restaurant opened next door that cooked only with fresh ingredients and did not use a microwave oven their food is going to taste a lot better. And people will stop going to that other restaurant to enjoy the better quality next door. This is why competition makes everything better. Because people choose what’s best for them. And if a business continually strives to exceed a customer’s expectations their customers will keep coming back. If they don’t people will just take their business elsewhere. And businesses will run tight ships. To make sure no one brings harm to their brand. Because if they didn’t something like this could happen (see Russian dairy plant closed after workers bathe in the milk by Sergei L. Loiko posted 3/28/2014 on the Los Angeles Times).
A Siberian dairy plant was temporarily closed Friday after its workers had been found bathing in milk, a Russian consumer oversight agency reported.
Trade House Cheeses, a dairy producer in Omsk, about 1,600 miles east of Moscow, was closed for 90 days by regional authorities for an urgent inspection after complaints resulting from photographs and a video posted by one of its employees on a Russian social network.
In the photographs and video clips posted on New Year’s Eve by worker Artyom Romanov, a group of undressed employees relax in a container of milk as part of their celebration. While still partly undressed, they then demonstrate cheese making in a clownish manner…
After the video appeared on NTV, a federal television network, many residents of Omsk refused to buy products made at the plant, an NTV report said this week…
“For five years Russia has been languishing in a so-called experiment of practically exercising no control over consumer production after a law was introduced limiting inspections of such facilities to only once every three years,” said Yanin, the board chairman of the Russian Confederation of Consumer Societies, a Moscow-based group…
The average salary of a sanitary inspector is equal to $500 a month, but instead of raising that, the government decided to try to prevent the inspectors from taking bribes by in effect seriously curbing their ability to control production norms and practices, Yanin said.
Of course, this is the wrong conclusion to draw from this. The problem isn’t lax inspections by underpaid inspectors. The proper conclusion is in a previous paragraph. That conclusion is why we don’t have these problems in the United States. Or if we do they are very rare. The same goes for other capitalistic societies based on free markets. Unlike the communism they once had in Russia. Or the crony capitalism they now have in Russia. Because communism and crony capitalism are corrupt systems. Government establishes and maintains monopolies. Either by force under communism. Or by bribes and kickbacks under crony capitalism. Which, of course, eliminates competition. And THIS is the problem here. As the residents of Omsk identify. Who refused to buy an inferior product.
You could get rid of all the inspectors in the United States and this problem would not be any more prevalent than it is now. Why? Because of competition. Especially in the age of social media. For business have lost sales for just appearing to think ‘incorrectly’ on social issues. Just imagine what would happen if a video like this came from an American dairy. The backlash would be the worst conceivable. And this would happen before any government action. That backlash would spread to every store throughout the nation. Nay, to every capitalistic country based on free markets in the world where that brand sells its products. People would pause as they reached for a product from this dairy on their supermarket shelf. And move to the left or to the right. And pick up a product from another dairy.
This is what keeps American dairies clean. And every other established brand. For with competition consumers can reach for another product on the shelf. And once they do because they lost faith in a brand for any reason (such as cleanliness) it could take a very long time for that brand to reestablish the trust of the consumer. Costing it billions in lost revenue. This is why food businesses are cleaner in capitalistic countries based on free markets. Because of competition and profit. The two best protectors a consumer can have.
Tags: bathing in milk, better quality, brand, Communism, competition, competition makes everything better, consumer production, Consumers, crony capitalism, dairy, dairy plant, inspections, inspector, milk, Omsk, Russia, Russian dairy
Week in Review
One of the riches places to live in the United States is in the Washington DC area. And you know what you can do to rich people? You can increase their utility rates. Because whatever they charge a rich person is going to be able to pay it. Easily. In fact, they won’t object to rising utility rates. For they have so much they wouldn’t want to deny pensions and health insurance to the working people. At least they wouldn’t want to be seen as denying pension and health insurance to the working people. So they don’t complain about rising utility rates. Which is probably why stuff like this happens (see D.C. Full of Gassy Leaks, Researchers Say by Alan Neuhauser posted 1/17/2014 on US News and World Report).
Nearly 6,000 natural gas leaks were discovered beneath the streets of the nation’s capital last year when a team of researchers from Duke and Boston universities surveyed all 1,500 miles of the city’s roadways, according to an article published Thursday in the journal Environmental Science & Technology.
A dozen were leaking enough methane to explode, while others were letting off enough gas to fuel from two to seven homes…
On average, pipelines across the country lose about 1.6 percent of the natural gas they transmit. The pipelines in D.C., by contrast, were losing about 4 percent of their gas. These findings, Jackson says, highlight “the opportunity to fix them.”
Gas leaks? So what. Just raise the utility rate. It’s easier. And less costly.
Public utilities are highly regulated. They just can’t raise their rates. They need the approval of government to do that. The problem with these public utilities is that they are very close to the people that regulate them. Who often approve high rates in exchange for something nice from the utility to show their appreciation. It’s this kind of cronyism that brought satellite television into the market to compete against cable television. Because cable television companies had some real sweetheart deals that were gouging the consumers. Now the cable companies have a lot of competition. And they have to be a lot more creative in how they charge their customers today.
Competition makes everything better for the consumer. Where there is no competition you get high utility rates. And a lot of explosive natural gas leaking up from buried pipelines.
Tags: competition, health insurance, leaks, natural gas, natural gas leaks, pension, pipelines, public utilities, utility, utility rates, Washington DC, working people
Week in Review
Today there is an app for everything. Have smartphone will travel. Literally. Unless, that is, union cabbies want to make you stand in the rain/snow and cold for an hour in a bad neighborhood (see Why a taxi driver protest turned violent in Paris by Dylan Stableford posted 1/14/2014 on Yahoo! News).
The attacks by striking cab drivers on Uber cars in Paris on Monday — with protesters shattering windows, smashing mirrors and slashing tires — appear to be the first violent clashes in the ongoing battle between local cabbies and app-based car services.
But tensions, in Paris and elsewhere, have been brewing for months. Cab drivers say Uber and apps like it, which allow customers to hitch rides nearly instantly from their smartphones, create unfair competition and undermine the traditional cab-hailing business…
In Portland, Ore., Uber has urged lawmakers to change an ordinance requiring town cars to wait an hour before picking up would-be passengers.
In Paris, a “15-minute law” went into effect on Jan. 1, requiring all Uber drivers to wait 15 minutes after a request is placed to pick up a passenger — a move aimed at leveling the competition for traditional Parisian cabbies.
Nonetheless, hundreds of unionized cab drivers participated in Monday’s protests in Paris, demanding a 30-minute delay, minimum fares and a driver recruitment ban. At least 12 Uber cars were targeted, according to local reports.
Imagine that. Because someone else found a better way to do things union cabbies want new laws to prevent that better way. They want to make a person wait for an hour before anyone picks them up. An Uber car could be around the corner when they get the request. They could drive around the corner and pick this person up within three minutes. But if the union cabbies get their way the Uber car will have to sit there for an hour before moving. To give a union cabbie a chance to drive by and get hailed. Leaving that person in the rain or snow. Or in a bad neighborhood. Just standing there. Vulnerable. Just so someone providing a poorer service can get his or her business.
This is the difference between free market capitalism and crony capitalism. In free market capitalism the consumer is number one. And gets the highest quality at the lowest price. In crony capitalism unions, businesses and government are number one. For they are cronies and look out for each other. At the expense of the consumer. Who gets lower quality and higher prices. As unions, businesses and governments collude together to enrich themselves by forcing people to pay more for less.
Tags: app, cab drivers, cabbies, capitalism, competition, crony capitalism, free market, free-market capitalism, smartphone, Taxi, taxi driver, Uber, union cabbie
Week in Review
The problem in America these days is the mass ignorance of the people. Thanks to a public school system that does not educate but programs our children to be good Democrat voters. Higher education taken over by the leftist radicals of the Sixties that forever changed the curriculum to teach our children to distrust capitalism and love government. When controlled by Democrats, of course. And people who are for some reason respected for their economic prowess who are absolutely clueless on things economic (see The Daily Show Nails Why Healthcare Will Never Work As A Free Market by Christina Sterbenz posted 1/18/2014 on Business Insider).
Steven Brill, author of Time’s in-depth healthcare analysis “Bitter Pill,” appeared on The Daily Show this week to discuss his opinion of Obamacare.
Brill’s work exploded his career into a love-hate relationship with Obamacare, now leading to a book. Speaking with Jon Stewart, Brill certainly made his criticisms known but we also feel like he pinpointed exactly why healthcare just can’t work as a free market.
Brill told the story of a cancer patient forced to pay $13,700 out-of-pocket, up-front for transfusion of a drug. And that cost only constituted part of a greater $83,000 payment. Brill claims, however, the drug only cost the pharmaceutical company $300.
Stewart came back at Brill with the typical, conservative argument — creating a free market for healthcare where patients pick-and-choose their coverage to create competition and therefore, better options.
“Everyone says, well it’s a marketplace. That guy [the cancer patient] has no choice in buying that drug. His doctor told him, ‘This will save your life. You don’t take it, you’re gonna die,'” Brill responded.
He further argued free markets must host two aspects — a balance between buyers and sellers and secondly, knowledge — neither of which the current U.S. system offers.
“That cancer drug has a patent. That is a monopoly that the government has given the drug company. There is no other drug. That’s the drug,” Brill said.
Jon Stewart is a comedian. So one can almost forgive his ignorance. But you’d think a person writing for a publication with the word ‘business’ in its name would actually understand business. But the author hasn’t a clue. It’s not her fault. It’s because of the politicizing of our educational system. As her dual degrees in journalism and public affairs would have taught her squat about the classical, Austrian or the Chicago school of economics. Instead filling her head with Keynesian nonsense. The one economic school embraced by power-hungry governments everywhere that has a proven track record of failure. For it was Keynesian policies that gave us the Great Depression, the stagflation of the 1970s, the dot-com bubble and recession of the late 1990s/early 2000s and the Great Recession. Where massive government spending did not pull the economy out of recession but only made things worse.
Why does this pharmaceutical company have a patent? Or perhaps a better question would be why do we have this one cancer drug? Why is it that this one pharmaceutical company developed a cancer drug that works that no other pharmaceutical company or government developed? Because of that patent. The only reason they poured hundreds of millions of dollars into research and development and paid massive liability insurance premiums for taking a huge risk to put a drug onto the market that may harm or kill people. They do this on the CHANCE that they may develop at least one successful drug that will pay all of their past costs for this one drug, the costs for the countless drugs that failed AND a profit for their investors. Who took a huge risk investing, giving this pharmaceutical company the money to pay all of their employees over the years it took to come up with at least one drug that wasn’t a loser.
Does the author of this article work for free? No. Of course not. She has bills. As we all do. Even the people working at pharmaceutical companies. Who don’t work there for free. Even if the vast majority of their work produces nothing that their employer can sell their employer still pays them. Thanks to their investors who give them the money to do so until they can actually sell something. But their investors do this only because of the CHANCE that this pharmaceutical will develop that miracle drug that everyone wants. A miracle drug that would never come into being if it weren’t for investors who were willing to risk losing huge amounts of money. Something only rich investors can afford to do.
Health care worked as a free market before General Motors made it an employee benefit thanks to FDR’s ceiling on wages. Once people stopped paying for what they received all free market forces left the health care system. And costs began to rise. This whole “healthcare just can’t work as a free market” is a product of the dumbing down of our educational system. One that produces people who don’t know the difference between insurance and health care. Insurance protects our assets against a catastrophic and UNEXPECTED loss. Like when Lloyds of London started selling marine insurance at that coffee shop. Every shipper paid a small premium to protect against a POTENTIAL sinking and loss of cargo. A POTENTIAL financial loss. Not every ship sank, though. In fact, most ships did not. Which is why that little bit from everyone was able to pay the financial loss of the few that did. For the ships that didn’t sink the shippers paid every other cost they incurred to ship things across those perilous oceans.
This is how insurance works. Which isn’t how our current health insurance works. Where people don’t expect to pay for anything out-of-pocket. Not the unexpected catastrophic costs. Or the EXPECTED small costs that everyone can budget for in their personal lives. Childhood vaccinations, annual checkups, flu shots, childbirth, etc. Even the unexpected things that have a low cost. Like the stitches required when a child falls off of a bike. Things that would cost less than someone’s annual cellular costs. Or things that people can plan and save for (like a house, a car or a child). When we pay these things out-of-pocket there are market forces in play. For a doctor is not going to charge someone they’ve been seeing for years as much as a faceless insurance company. Even today some doctors will waive some fees to help some of their long-time patients during a time of financial hardship. Because there is a relationship between doctor and patient.
When we pay out-of-pocket doctors can’t charge as much. Because they need patients. If they charge too much their patients may find another good doctor that charges a little less. Perhaps a younger one trying to establish a practice. These are market forces. Just like there are everywhere else in the economy. Even a cancer patient requiring an expensive wonder drug would contribute to market forces if there was true insurance in our health care system. Cancer is an unexpected and catastrophic cost. But not everyone gets cancer. Everyone would pay a small fee to insure against a financial loss that can result from cancer. Where that little bit from everyone was able to pay the financial loss of the unfortunate few that receive a cancer diagnosis. Because only a few from a large pool would incur this financial loss insurers would compete against other insurers for this business. Just like they do to insure houses. And ships crossing perilous oceans.
Health care would work better in the free market. It doesn’t today because government changed that. Starting with FDR putting a ceiling on wages. Which forced employers to offer generous benefits to get the best workers to work for them when they couldn’t offer them more pay. This was the beginning. Now the health insurance industry is so bastardized that it doesn’t even resemble insurance anymore. It’s just a massive cost transfer from one group of people to another. Instead of a pooling of money to insure against financial risk. For the few unexpected and catastrophic costs we could not afford and budget for to pay out-of-pocket.
Tags: cancer drug, catastrophic, competition, Democrat, doctor, drug, educational system, FDR, financial loss, free market, Health Care, ignorance, insurance, investors, Jon Stewart, Keynesian, market forces, miracle drug, monopoly, Obamacare, out of pocket, patent, patient, pharmaceutical, pharmaceutical company, premiums, risk, unexpected
Week in Review
There’s a myth in America that if we don’t have government food inspectors that evil corporations will sell poisonous food to unsuspecting Americans. As if people will keep buying from a food manufacturer who has a reputation of poisoning their customers. They won’t. For every food brand has a competitor just waiting to take their business away. Which they will do if the people believe they sell a higher quality product. So there is a huge incentive to sell people nothing but the best and safest food they can. For without government limiting a business’ competition it is only their good name that keeps customers coming back. Unlike in China (see Ten jailed for producing, selling ‘gutter oil’ posted 1/7/2014 on China Daily USA).
A man was given a suspended death sentence and two others life in jail for producing and selling poisonous food, a court in east China ruled on Tuesday…
In 2006, they began to produce “gutter oil”, which refers to oil illegally made by reprocessing waste oil or even leftovers from restaurants. It was then marketed and re-used as cooking oil.
They then sold the “gutter oil” to 17 edible oil dealers in Shandong and Shanxi provinces, with a sales value of 52.4 million yuan…
China has been clamping down on “gutter oil” as part of its food safety efforts. The oil, which contains carcinogenic substances, is dangerous if consumed.
This is what happens when you fetter unfettered capitalism. And transform it into state-capitalism. Or a planned economy. Where the government picks winners and losers. Favoring their friends. And hurting their competition. Such as by limiting competition to protect their friend. Giving them a state-enforced monopoly. The only way a monopoly can exist.
Without competition you can sell crap and the people have little choice but to buy it. Which is why a lot of businesses in a planned economy like China do things like this. Because they can get rich. Until someone catches them. Because without unfettered capitalism other competitors can’t enter the market to keep them honest. Leaving you to rely on a bloated, ponderous and often corrupt public sector to police that planned economy. And because they aren’t that good you get people trying to sell gutter oil in China. While food manufacturers police themselves in the United States. Because they know their brand is not the only brand on supermarket shelves.
Tags: capitalism, China, competition, competitor, food brand, food manufacturer, food safety, gutter oil, monopoly, planned economy, poisonous food, unfettered capitalism
Week in Review
Competition makes everything better. For consumers. That’s you and me. For it’s that competition that makes business give us more for less. To please us. And to persuade us to give them our dollars for their products. It’s a great system. It prevents businesses from giving us shoddy goods at high prices. For if they did they would lose their customers. And go out of business. So competition in free market capitalism gets businesses to choose to please their customers. By giving them more for less. Which allows them to stay in business. Unless they have corrupt friends in government (see Industry, not environmentalists, killed traditional bulbs by TIMOTHY P. CARNEY posted 1/1/2014 on the Washington Examiner).
Say goodbye to the regular light bulb this New Year.
… Starting Jan. 1, the famous bulb is illegal to manufacture in the U.S., and it has become a fitting symbol for the collusion of big business and big government.
The 2007 Energy Bill, a stew of regulations and subsidies, set mandatory efficiency standards for most light bulbs. Any bulbs that couldn’t produce a given brightness at the specified energy input would be illegal. That meant the 25-cent bulbs most Americans used in nearly every socket of their home would be outlawed…
Competitive markets with low costs of entry have a characteristic that consumers love and businesses lament: very low profit margins. GE, Philips and Sylvania dominated the U.S. market in incandescents, but they couldn’t convert that dominance into price hikes. Because of light bulb’s low material and manufacturing costs, any big climb in prices would have invited new competitors to undercut the giants — and that new competitor would probably have won a distribution deal with Wal-Mart.
So, simply the threat of competition kept profit margins low on the traditional light bulb — that’s the magic of capitalism. GE and Sylvania searched for higher profits by improving the bulb — think of the GE Soft White bulb. These companies, with their giant research budgets, made advances with halogen, LED and fluorescent technologies, and even high-efficiency incandescents. They sold these bulbs at a much higher prices — but they couldn’t get many customers to buy them for those high prices. That’s the hard part about capitalism — consumers, not manufacturers, get to demand what something is worth.
Capitalism ruining their party, the bulb-makers turned to government. Philips teamed up with NRDC. GE leaned on its huge lobbying army — the largest in the nation — and soon they were able to ban the low-profit-margin bulbs.
When you have collusion between big business and big government you no longer have free market capitalism. No. Instead you have crony capitalism. Where rich people both in business and government collude with each other to make themselves even richer. While making consumers poorer.
The lamp manufacturers got new laws that forced consumers to pay the higher prices they wouldn’t without a law compelling them to do so. Making the lamp manufacturers richer. And the lobbyists poured lobbying money over their friends in government. Who probably stripped naked and rolled around on it, rubbing that cash all over their naked bodies. And said God bless global warming.
Tags: capitalism, collusion, competition, Consumers, crony capitalism, customers, free market, free-market capitalism, GE, incandescent, lamp manufacturers, light bulb, Philips, Sylvania
Week in Review
SeaWorld is going public. In the initial public offering (IPO) filing they discuss the unpleasant business of their animals potentially killing people. Which has happened in the past. Of course, they don’t want their animals to kill people. For it will adversely impact the bottom line (see SeaWorld: Our Investors Should Know That It’s Bad For Business When Our Killer Whales Kill People by Matthew Boesler posted 4/18/2013 on Business Insider).
This incident and similar events that may occur in the future may harm our reputation, reduce attendance and negatively impact our business, financial condition and results of operations.
A lot of people think that if government doesn’t regulate businesses they will wantonly put their customers at risk. Even killing them with dangerous products or unsafe conditions. People in government believe this with every fiber of their body. So they can keep growing the size of government. Creating ever more government jobs. And they try to scare people whenever anyone talks about cutting the funding of government. Saying people will die from these ruthless businesses putting profits before people if they are not there to regulate them. Which is preposterous.
The SeaWorld’s IPO shows that if you harm your customers you will lose your customers. And if you lose your customers you will make fewer profits. Which means the profit incentive makes customers safe. Because a business knows the more customers they have the more profits they can make. So they have a financial incentive not to hurt their customers. Something they didn’t have in the state-owned business of the former Soviet Union.
There was no fear of losing customers in the former Soviet Union if they killed their customers with faulty products. Because there was no competition. Just layer upon layer of bureaucrats. And no one sued the ruling communists in the Soviet Union. They may sacrifice the occasional bureaucrat if the outside world was aware of some incident. But it was just another tragedy in the Soviet Union and life went on. The people just had to put up with substandard quality. And accept the occasional deaths.
Why? Because in socialism where they put people before profits they actually put the state before the people. Where bureaucrats protect themselves. And other bureaucrats. Because their state jobs are all that matter. While in a country where there is capitalism the profit incentive puts people before the state. Because any person felt mistreated by a business could simply take their business elsewhere. Which forces businesses to bend over backward to please their customers. Something you just don’t experience while renewing your driver’s license.
Tags: bureaucrats, Business, capitalism, competition, customers, incentive, profit incentive, profits, regulate business, socialism, Soviet Union
Week in Review
A lot of us no doubt hear our elders talk about how cheap things used to be. “When I was a kid you could buy a bottle of pop for a nickel.” “When I started driving you could fill up the gas tank for a couple of dollars.” “I remember when 99 cents would buy you two eggs, 4 sausage, a slice of ham, 4 rashers of bacon, hash browns, toast and a cup of coffee.” And, yes, everything they said was true. Things cost a lot less back then. But our paychecks were a lot smaller back then, too.
When President Nixon decoupled the dollar from gold we started printing money. And when we did we devalued the dollar. Causing a sustained and permanent inflation. This inflation caused prices to go up. And our paychecks grew, too, to allow us to afford those higher prices. So prices are relative. They become more expensive when they rise greater than our paychecks. They become less costly when our paychecks rise greater than prices. There is a better way to look at how prices change over time. Something that factors in the affect of inflation. By looking at the number of hours worked required for a purchase (see The Cost of Health Care: 1958 vs. 2012 by Chris Conover posted 12/22/2012 on Forbes).
Mark Perry has posted some interesting comparison of how prices have plummeted between 1958 and 2012 when measured in terms of the hours of work required to purchase items. He concludes that today’s consumer working at the average wage of $19.19 would only have to work 26.6 hours (a little more than three days) to earn enough income ($511) to purchase a toaster, TV and iPod. The equivalent products (in terms of their basic function, not their quality) would have required 4.64 weeks of work in 1958. In short, the “time cost” of these items has massively declined by 86% in less than 5 decades.
Similarly, Perry calculates that measured in the amount of time working at the average hourly wage to earn enough income to purchase a washer-dryer combination, the “time cost” of those two appliances together has fallen by 83%, from 181.8 hours in 1959 to only 31 hours today.
What if we applied this kind of analysis to health care? The results are quite interesting. In 1958, per capita health expenditures were $134. This may seem astonishingly small, but it actually includes everything, inclusive of care paid for by government or private health insurers. A worker earning the average wage in 1958 ($1.98) would have had to work 118 hours—nearly 15 days–to cover this expense. By 2012, per capita health spending had climbed to $8,953. At the average wage, a typical worker would have to work 467 hours—about 58 days.
In short, while time prices for other goods and services had shrunk to less than one quarter of their 1958 levels, time prices for health care had more than quadrupled…!
This simple comparison reminds us of three basic truths. In general, private markets tend to produce steadily lower prices in real terms (e.g., in worker time costs) and steadily rising quality. This is exactly what we observe for goods such as toasters, TVs, iPods, washers and dryers. In contrast, while the quality of health care unequivocably has risen since 1958, real spending on health care has climbed dramatically. This isn’t an apples-to-apples comparison insofar as the bundle of goods and services that constitute health care is also much larger today than in 1958. In contrast, even though the quality may be better, a washing machine in 2012 is still a washing machine. If we were willing to rely more on markets in medicine, we might be able to harness the superior ability of Americans to find good value for the money to produce results more similar to other goods.
So why are health care prices soaring in real prices when everything else is falling? In a word, waste. Where consumers spend their own money real prices have fallen. Where consumers receive benefits other people pay for real prices have soared. Where there are market forces (i.e., competition) prices fall and quality goes up. Because manufacturers have to get consumers who are looking for the best value for the money to buy from them. Where there are no market forces because someone else is paying for your benefits (single payer, third-party, insurance, government, etc.) people don’t look for the best value for the money. They just look to get the most someone else will pay for. So there is no incentive to reduce costs or find cheaper ways to deliver higher quality. Like in the private sector.
Obamacare won’t improve this. In fact, adding vast layers of bureaucracy will only add waste. And increase prices further. With all that money feeding into the new Obamacare bureaucracy there will be less available for health care services. Resulting in longer wait times, service rationing and service denials. Health care may be free one day to patients. But the cost of that free health care will soar even higher for the taxpayers who will have to pay for all of that bureaucratic waste.
Tags: best value for the money, bureaucracy, competition, Consumers, health care prices, inflation, market forces, Obamacare, paychecks, prices, quality, real prices, waste