Posted tagged ‘Economic Ignorance’

Must Reads For The Week 9/2/17

September 2, 2017

HURRICANE HARVEY OBSERVATIONS

“Price Gouging” = Political Rhetoric and/or Economic Ignorance!

Every time a disaster happens the term ‘price gouging’ is used to describe what happens to the pricing system when normal supply and demand is disrupted. The first rule of economics is scarcity. Man’s desires are unlimited while resources needed to satisfy these desires are scarce. This constraint of scarcity exists for any economic system, be it free market or any of the other centrally planned economic systems (socialist, communist, fascist, democratic socialist). The question we must ask is; which system best deals with this inherent constraint? In a free market, prices ration scarce resources to their most valued uses according to the subjective valuations of consumers. In a centrally planned economy, bureaucrats make the decisions on what is valuable and how scarce resources are to be rationed .

A natural disaster quickly shows how a free flow of prices conveys knowledge about where resources are needed most. Prices rising in the affected area constrains consumer demand for these scarce resources on the one hand and incentivize suppliers to bring scarce resources to the affected area on thee other. Prices coordinate supply and demand, and at the same time the coordination of supply and demand is revealed through changing prices. Price rise or fall incrementally during normal market conditions. But during disasters there are wide swings in prices.

The wild swing in prices allows political demagogues to prey on the economically ignorant. This free flow of market prices is called “Price Gouging”. Politicians win when they demagogue rising prices, and the people affected most by the disaster are hurt. Even though the people hurt most don’t realize it.

Here are some videos that explain the role of prices in a market economy.

Walter E. Williams.

John Stossel

Stossel vs. O’Reilly

This video proves Bill O’Reilly’s ignorance about economics. When he is losing the argument he cuts Stossel off and tries to play on emotion instead of logic. He then resorts to calling Stossel a ‘fascist’. These are the tactics of leftists.

People who are being charitable with their own time and money don’t need to be incentivized to “do the right thing” (supplying goods and services to the affected area). Rising prices incentivize, non charitable people (if that’s what you want to call them ), to supply much-needed goods and services to the affected area.

Gas Prices To Rise Even Faster As Tropical Storm Harvey Floods Texas, at usa.com. I heard a gentleman call into a talk show complaining about the rise in gas prices in his part of the country. He didn’t think the prices should go up since his area wasn’t affected by Harvey. This shows the economic ignorance of a vast majority of people in the country. At least 12% of the countries refining capacity is being disrupted by Harvey. Gasoline distribution infrastructure is also being disrupted. Economic law states when supply decreases against a fixed demand the price will increase. This increased price works to coordinate demand to the new reality of the decreased supply. This works to ration the scarce resource to its most valued use until supply can be brought back on-line. Allowing prices to rise allows the coordination of supply and demand to happen much faster than if prices were fixed by government.

Private Sector vs. Public Sector

Private Sector To The Rescue In Texas: Never Underestimate The Power Of The Private Sector To Rise Up To An Challenge, by Mark J. Perry, at carpediamblog. First responders are individuals on the scene at the moment something happens. Second responders are police, firemen or FEMA. In New Orleans people relied on Government to help them. In Texas people are relying on themselves to help each other. Big difference! Many people think order can only come from central planning from Government. They can’t conceive of order happening spontaneously by individuals voluntarily cooperating.

EPA Approves Emergency Fuel Waiver For Texas, at epa.gov. The best way government can help is to get out of the way. Since refineries are down, Texas will now be allowed to purchase gasoline that is banned for use in Texas by EPA regulations. But don’t worry the lifting of the ban will expire on September 15th. Why do we need such regulations in the first place?

Thanks To Markets, Houston’s Disaster Isn’t As Bad As It Might Have Been, by Christopher Westley, at mises.org. Excerpt from the article: “At the time of this writing, 26 Harvey-related deaths have been confirmed in the United States….. imagine what the death toll would have been if a similar storm slammed into comparable population centers in the Pacific Rim, Venezuela, or other outposts of the Third World. No doubt: They would be in the thousands…… What makes Houston different has to do with property rights institutions taking root and developing there over decades, making it a center for capital investment, because capital always flows to those areas where it is most secure. The continued increase in the quantity and quality of capital over time increases wealth, allowing its owners to afford better infrastructure and safety, relative to more benighted areas that attract less capital over time. To get an idea about the effects of decades of capital formation on Houston in 2017, consider the devastation that befell Galveston in 1900, when another Category 4 hurricane swept the Texas coast and claimed about 8,000 lives.

Why Houston Doesn’t Need Federal Flood Relief, – In Four Charts, by Ryan McMaken, at mises.org. Let’s not promise federal tax dollars to be assigned for rebuilding Texas. The funds will be subject to crony political distribution. And where ever there is a pile of Federal dollars there will be no shortage of people, who don’t need the money, trying to appropriate it. Excerpt from the article: “This isn’t to say real sharing and kindness are a bad thing. It’s excellent that private charities have already been hard at work helping with the cleanup in Houston. If one wants to insist that governments be involved, there’s nothing stopping other states from handing over funds to Texas directly. The federal government need not be involved at all

The Broken Window Fallacy Hasn’t Been Brought Up…. Yet!

Maybe we have won the war against ‘The Broken Window Fallacy‘. Usually after disasters like this we start to hear ‘experts’ talk about how the disaster will help the economy because of all the jobs created to replace and rebuild the things that were destroyed. I guess that sounds logical on its face, but if we remember our lessons from Frederic Bastiat we should look at what is seen, we should look at what is not seen. You will see the people employed in the rebuilding process. What you don’t see is what could have been done with all the resources, capital, time and labor used for the rebuild. The economy as a whole has less wealth because of a disaster. Everything that was destroyed has to be replaced just to get back to even par. If your car is destroyed. Not only do you not have a car, you won’t have what you could have purchased with the money used to replace your car. The economy as a whole, and you, are poorer by 1 car. The car was a useful good and was destroyed long before its normal replacement time. The broken window fallacy is simply the idea that consumption creates wealth. Production creates wealth. Consumption is the destruction of wealth.

Media / Politics

Fake News About Hurricane Harvey Is Why Americans Hate The Media, at thefederalist.com. This is just one example why the mainstream media has lost credibility.

Trump To Donate $1 Million To Texas Recovery, at cnn.com. I’m not a fan of people being public about their giving. Here is an excerpt from article: “President Donald Trump will donate $1 million of his fortune to recovery efforts in Texas……”

Hillary Clinton To Tell Audiences Her ‘Personal, Raw, Detailed and Surprisingly Funny Story’ In Nationwide Tour With Tickets Selling For Up To $1,200, at dailymail.co.uk. I wonder if Hillary is going to donate these proceeds to the recovery efforts in Texas? Or is she going to give some of he money donated to the Clinton Global Initiative for relief efforts in Texas? Oh! I forgot. Donations to the Clinton Global Initiative have dried up since Hillary lost the Election! Maybe Hillary and Bill will just have to give some of their fortune to the relief effort?

CARTOONS

From therightreason.net.

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Economic Ignorance Has Caused Our Political Chaos.

March 8, 2017

Microeconomics or Micro Economics as a Concept

What do Jeffery Sachs (economics professor at Columbia), Bill Gates, the Pope, Donald Trump and Republicans in Congress have in common?….. Economic ignorance!

Why are  pronouncements by people with authority rarely challenged?….. Economic ignorance!

I found some recent articles on economicpolicyjournl.com which have a similar theme: People with authority demonstrating their ignorance about basic economic principles.

Here are the articles.

Harvard Educated Economist Clueless About The Fundamentals Of Economics.

I Never Realized The Economic Ignoramus Bill Gates Is….Until Now.

The Pope’s Problem With Basic Economics.

Trump In Melbourne Spilling His Economic Plans And How Non-Free Market Are They.

House Republican Border Adjustment Tax Plan Gains Support In White House: Prepare For Higher Prices And Less Product.

Jeffery Sachs, Bill Gates and the Pope don’t have the power of Government behind anything they say. Their authority exists in the minds of the people who believe they have authority. They can’t force their economic ignorance on us

The President and Congress have the power of Government behind their policies. Politicians and bureaucrats can force their economic ignorance on us.

OUR ECONOMIC IGNORANCE

The increasing political chaos existing in the U.S is rooted in the economic ignorance of a vast majority of people. Both the masses, and people with “authority”, bear responsibility for our present political and economic situation.

People with “authority” being economically ignorant creates a problem because we the masses accept what they say as truth. This leads to the passage of Governmental policies which can’t produce the outcomes predicted by the people with authority.

We have the power to be a check on these people with authority. But we reinforce their authority on the one hand, and increase the economic ignorance of the masses on the other, when we don’t challenge the economic validity of what they say.

People with authority always want more power. Their power can’t be increased unless we allow it. Authority not backed by the force of Government isn’t real authority. We voluntarily give people their position of authority.

With politicians and bureaucrats it’s different. Their authority is backed by the force of Government. Our first non-violent voluntary recourse to their power is to vote the economically ignorant out of office, or not to vote them into office in the first place. Our second is putting political pressure on politicians. But this only works if a overwhelming majority of people put political pressure on them.

The ability of politicians and bureaucrats to grow their power, rests on the economic ignorance of the electorate. If the economic consequences of the policies passed by these politicians were known by the voters, they wouldn’t have been passed. Understanding basic economic principles allows us to look over the horizon and see the consequences of these policies.

EXAMPLES OF FAILED POLICIES

The Affordable Care Act aka Obamacare sounds great. But the laws of economics will not allow the ACA to lower the cost of healthcare. The costs can be shifted, but not lowered by government decree. The result of passing the ACA is chaos in the healthcare market, or what is left of a healthcare market.

Increasing the minimum wage for low skilled workers sounds great. But the laws of economics won’t allow increasing the minimum wage, above what that labor produces. The result of passing this law is fewer low skilled workers will be employed.

FORSEEABLE CONSEQUENCES

If, we the people, understood some basic principles of economics we wouldn’t allow these interventionist ideas to be planted, let alone take root.

Some of these basic principles are: 1) Scarcity, 2) Subjective Value, 3) Supply and Demand 4) Production Precedes Consumption.

Lets look at the Affordable Care Act and mandated minimum wage increases through the binoculars of scarcity, and supply and demand.

Scarcity is the first rule of economics. Scarcity simply means, “what everybody wants adds up to more than there is”. Put differently. Their are limited means available to satisfy the unlimited ends we seek. These limited means have to be allocated toward producing the ends we seek. There are two ways to allocate these means. One way is voluntary cooperation, through prices in a free market. The other way is force, through the edicts of politicians and bureaucrats using government power.

Supply and Demand is easy to understand. Put simply; More is demanded and less is supplied at a low price, and more is supplied and less is demanded at a high price. Prices reflect and drive supply and demand. If their is a sudden drop in the supply of a product, the price rises. This increase in price rations the existing supply, and sends a signal that more needs to be produced. On the flip side of the coin, if their is a sudden increase in the supply of a product, the price will go down. This decrease in price sells off the existing glut, and sends a signal less needs to be produced.

AFFORDABLE CARE ACT AND MINIMUM WAGE LAWS

The Affordable Care Act forced “30 million” uninsured people to enter the healthcare market. This meant the demand for healthcare was going to increased. Even though the supply of healthcare couldn’t be increased as quickly. (Example) It takes years for people to become doctors and nurses. Increasing the supply takes more time than the almost instant increase in demand brought about by the stroke of pen. If we apply the economic principles of scarcity, and supply and demand to the Affordable Care Act, what was going to happen to the price of healthcare? And this is not even calculating the cost of the regulations and new bureaucracy created by the 2500 page bill.

Raising the minimum wage increases the price of labor. According to the law of supply and demand, less is demanded at the high price. Voting for laws which increase the wages of people who we think are not being paid enough doesn’t help these people. Fewer people will be employed at the higher price. Many times these low skilled workers jobs will disappear all together because they can be replaced by automation. The price of labor was artificially increased to the point where it was economical to automate (read here). If we apply the law of supply and demand to the rhetoric of increasing the minimum wage, people wouldn’t have been fooled into thinking they were helping the people the law was actually hurting..

OUR CHOICES

Economic principles are always in play. Government edicts can’t negate economic reality. The political chaos we have today is the result of ignoring the reality of basic economics. We can’t wish these realities away because we don’t like the fact they limit what we demand.

I’m going to quote a person with authority at this point. So don’t take this quote as authoritative. Figure it out yourself.

F. A. Hayek a Nobel Prize winning economist, (how is that for status), said: “Planning, or central direction of economic activity, presupposes the existence of common ideals and common values; and the degree to which planning can be carried is limited to the extent to which agreement on such a common scale of values can be obtained or enforced.

Let’s get educated in basic economics. Life is easier to understand when you understand how the world works. Here is another quote.

F. A. Hayek: “The curious task of economics is to demonstrate to men how little the really know, about what he imagines he can design.”

We have two choices. Scarce resources can be rationed through prices voluntarily in the free market. Or Scarce resources can be rationed forcibly by politicians and bureaucrats through the power of Government. Which direction are we moving?

CONCLUSION

Political insiders of both parties have shaped the battle field into a choice between the R’s and the D’s. In reality the real battle is between the insiders in both parties who want to grow the power of Government, and people who stand for free markets and want to cut the power of government. Neither group is a majority. The majority of people are the economically ignorant. These people have been fooled into fighting the battle through the R and D paradigm.

Our job is to educate the economically ignorant. When this majority understands basic economic principles, they will they stop fighting on the fake R and D battlefield and start fighting on the real battlefield: central planning vs. voluntary cooperation.

 

Related ArticleMinimum Wage Laws Create Unemployment, at austrianaddict.com

Related ArticleIncome Inequality Part II: Increase The Minimum Wage, at austrianaddict.com.

Related ArticleThe Reality Of Obamacare, at austrianaddict.com.

Related ArticleThe Economics of Healthcare vs. The Right To Healthcare, at austrianaddict.com.

 

Reaction To EpiPens Increased Price, Reveals Our Economic Ignorance.

September 1, 2016

SAINT LOUIS, UNITED STATES - AUGUST 25, 2016: Two EpiPen auto-injectors used for treatment of allergic reactions.

The angst over the recent price increase of the product EpiPen, reveals our economic ignorance. This economic ignorance in and of itself wouldn’t be a problem in a free market capitalist system. Unfortunately we live in a crony capitalist economic system, where more and more economic decisions are being made through the political process. Businesses are being forced to obey interventionist laws passed by Congress, on the one hand, and cave in to political shaming by ignorant consumers and politicians on the other.

When this point is reached, companies are incentivized to put their resources toward lobbying Congress to pass laws that favor these incumbent businesses. They also donate money to politicians and political parties which is like paying protection money to the mob.

All of these resources could have been used to satisfy consumer demand. But these companies have decided that these resources can best serve their interest if they are invested in lobbying government. This is not how free market capitalism works. This is how crony capitalism works.

The EpiPen kerfuffle is an example of how our economic ignorance has allowed politicians to place the blame for the price increase on Mylan, the producer of EpiPen. The blame should be placed on the very politicians who are doing the finger-pointing. Government intervention into the healthcare market over the last 75 years, culminating in The Affordable Care Act (aka. Obamacare), is what has caused prices to skyrocket. Let’s take a look.

ECONOMICS 101

EpiPen is a product that delivers a life saving dose of epinephrine to individuals who have severe allergic reactions to food, insect stings, and medicines. Lets look at the economic reality of how EpiPen magically appears to perform its life saving task.

As much as people want to think that healthcare is a right, they are literally dead wrong. Healthcare in general and EpiPen in particular, is an economic good. This means it is subject to the first rule of economics which is scarcity.  EpiPen just doesn’t appear out of thin air as if we lived in the Garden of Eden. In the real world, someone has to produce this product, and you don’t have a right to take what a person produces.

The people who produce this product have to be compensated for the cost of production plus a profit. If they can’t make a profit, they would cut their losses and stop producing the product. This is why prices are so important in a free market economy. Prices send information through the production process. Government intervention increases the cost of production, which in turn sends false information through the pricing system.

CENTRALLY PLANNED HEALTHCARE

The Healthcare system was one of the most regulated industries before the Affordable Care Act (aka Obamacare) was passed six years ago. There is no true price discovery in our current healthcare system. This means information about which healthcare goods and services should be produced and in what quantity they should be produced doesn’t exist.

When third-party pays, whether it’s an insurance company or Government, prices are distorted. If you add the fact that insurance companies have to abide by the rules set by Government it is worse. Take a quick glance at this article, EpiPen Price: What To Know, at webmd.com, to see how much Government intervention there is in the healthcare system. Government intervention is essentially an attempt at price-fixing. Price fixing distorts the information sent through the market.

Government has created the monopoly position that Mylan holds with EpiPen. Government regulations have made it more difficult for competitors to enter the market and produce an EpiPen like product. Scan this short article, Why The EpiPen Has A Monopoly (Hint It Is Not Runaway Capitalism), at thelibertarianrepublic.com, to see how Government planners created the monopoly position for Mylan that allows the price to soar.

Supply and demand chart drawn on a blackboard.

SUPPLY AND DEMAND RULE THE DAY. EVEN IN A HAMPERED MARKET.

At a lower price more is demanded and less is produced. At a higher price more is produced and less is demanded. This is the law of supply and demand.

Government had artificially lowered the price, that people were paying for EpiPen, through Insurance mandates and Government subsidies. Because of the artificially low price, demand increased. When Auvi-Q, one of the other two producers of automatic injection devices for epinephrine, was taken off the market by regulators in October of 2015, overall supply was reduced. What happens when demand is increasing and supply is decreasing? The price has to go up to ration the scarce resource. Is this a good thing? It is neither good nor bad. It is just the reality of prices. Prices discovered through free markets not only coordinate supply and demand. Free market prices also reveal the scarcity that exists. But free market prices don’t create the scarcity.

Let’s look at the price of oil to understand what would happen if there were free markets in the healthcare system. When the price of oil was around $120 dollars a barrel, there was talk of oil going to $200 a barrel. But what happened. People started using less, demand started to decrease. At these higher prices fracking became economically viable. The supply of oil started to increase. Frackers started to find more productive methods of extracting oil from the ground. As supply increased and demand decreased the price of oil started to decrease. Because of these more productive methods, fracking wells could keep supplying oil at lower and lower prices. Because supply remains high and demand has just marginally increased, the price has remained low.

Even though Obama’s EPA took government land off-line for fracking, that didn’t keep fracking from happening on privately owned land. The free market pricing system worked to supply more oil to the market at a lower price. Bureaucrats in Government didn’t do this, free markets did. What does this have to do with the price of EpiPen?

In a free market the rise in the price of EpiPen would do two things. People would start using less. And companies would start supplying more. The price would eventually go down.

Because of Government intervention their won’t be new suppliers even at the higher price. They are being restricted from entry into the market by Government rules. Supply won’t increase like supply increased in the oil sector.

If Government and insurance companies subsidize the purchase of EpiPen, and Mylan gets bullied into lowering prices, their will be no true price discovery. False information about production and consumption will be sent through the hampered market. Their will be over consumption and under production of EpiPen. The more the planners plan the more their plans will not work.

CONCLUSION

Central planners, and people who vote for central planning, think that whatever is decreed, will happen. Unfortunately for them economic laws are more powerful than central planners mandates. Unless more companies are allowed to supply EpiPens, the artificially created shortage will continue. If the price is artificially kept below what it would be in a free market, demand will remain high. High demand and short supply means EpiPen will have to be rationed by bureaucrats in Government instead of by prices in a free market. Look at the waiting lines in Venezuela if you want to see what rationing by Government looks like.

The answer? Get rid of Government regulations and let free market prices work. Until people gain understanding about free markets, they will continue to get fooled by slick politicians, and we will remain in this political quagmire.

 

Related ArticleThe Economics of Healthcare vs. The Right to Healthcare, at austrianaddict.com.

Related ArticleLets Look At Government Run Healthcare, at austrianaddict.com.

Related ArticleThe Reality Of Obamacare, at austrianaddict.com.

Related ArticleGruber Tells The Truth About Obamacare, at austrianaddict.com.

Must Reads For The Week 12/21/13

December 21, 2013
The pen is mightier than the sword...

The pen is mightier than the sword… (Photo credit: mbshane)

Important South Africa And Ending Apartheid: The Free Market Road Not Taken, by Richard Ebeling, at economicpolicyjournal.com.

Will The DHS Now Put Keynesians On It’s Watch List, at economicpolicyjournal.com. Colorado high school shooter is a rabid Keynesian. Will the DHS start profiling keynesians like they profile people on the right?

Undercover Stings Used To Fight Domestic Terrorism, by Roxana Hegeman, at abcnews.go.com. These kinds of operations are dangerously close to entrapment, and this particular one definitely looks like entrapment. Read the article and decide for yourself.

David Stockman: Obamacare Is A Doomsday Machine, at economicpolicyjournal.com. As the roll out continues, more and more businesses will get rid of employer insurance and will pay the fine/tax because it will be cheaper.

The Fed, The Taper & What Happens “When The Kidnapper Wears Prada”, at zerohedge.com. The banks and wall street are addicted to the heroin that is QE counterfeit money. They will do everything in their power to get their next fix.

When I Grow Up, I Want To Be A Crony, by Mark J. Perry, at aei-ideas.org. Great video of kids talking about crony capitalism.

Amazingly This Woman Taught Economics At The University Level, at economicpolicyjournal.com. You won’t be able to get through 3 minutes of this video. The title of the post is wrong, it isn’t amazing, it’s perfectly believable. These are the pied pipers leading the ignorant.

The Federal Reserve’s Century Of Failure, by Bruce Walker, at americanthinker.com. The Federal Reserve system and Obamacare Both represent wholly misplaced attempts to replace the incremental influence of market forces with central planning by a national government.

The Obamacare Generation, Young People Have Been Had, by Victor Davis Hanson, at victorhanson.com. When will they wake up and see that they are being played?

Is This The Closest A Wingsuit Pilot Has Ever Flown To The Ground, youtube video. This is amazing.

Economic ignorance on parade!

September 10, 2012

In my previous post I wrote about the importance of understanding economic principles so as not to get fooled by rhetoric. This video demonstrates this point as Peter Schiff, who predicted the 07-08 economic meltdown, spoofs these delegates. These people agree with him that profits should be banned or confiscated,  without stopping to think about the consequences.                                                                                                                                                                                                        What are profits and what is their purpose in a free market economy? (more…)