Posted tagged ‘Supply and demand’

Healthcare: Market Solutions vs. Bureaucratic Decrees

March 28, 2017

Modern thin line design concept for HEALTHCARE website banner. Vector illustration concept for healthcare diagnosis and treatment.

Our current battle over healthcare is being debated from a false premise. Most people have bought into the lie that healthcare is or should be a right. It isn’t a right as understood by most people. The right to keep and bare arms doesn’t mean someone else is obligated to supply a gun. The right to free speech  doesn’t mean someone else is obligated to supply a microphone, a stage and an audience. But for some reason we think a right to healthcare means someone is obligated to provide it.

The truth is healthcare is an economic good or service produced by individuals. These individuals own what they produce. It is their property. No one has a right to what someone else produces.

How can you gain possession of what someone else owns? 1) You can produce something they want and exchange it for what they have produced. 2) They may give it to you as a gift. 3) You can steal it. 4) You can have someone steal another persons production, exchange it for what you want, and have them give it to you indirectly. 5) You can have someone else steal it and give it to you directly.

Government intervention into the healthcare market, up to and including Obamacare, has been an incremental march away from the first two and toward the last two. Everyone knows that direct theft of another person’s property is unethical and immoral because it is illegal. But when we are one or two steps removed from the direct theft, for some reason we think it’s ethical and moral because government says it’s legal.

hand writing economic demand - supply graph on chalkboard

ECONOMIC REALITY OF HEALTHCARE

Healthcare is an economic good ruled by the laws of economics. Scarcity, subjective value, supply and demand are a few laws we need to look at in order to understand why government central planning isn’t the right process to ration the scarce good we call healthcare.

SCARCITY: Healthcare has to be produced. It is a scarce good. It isn’t like the air we breathe. Air doesn’t have to be produced by anyone. The abundant supply of air exists naturally. You might say the air I put in my tires Isn’t free. The air you put in your tires is first compressed and then forced into your tires. Compressed air has to be produced, therefore it is an economic good and not free like the air you breathe.

SUBJECTIVE VALUE: Everyone values healthcare differently. There is no objective value that can be placed on healthcare. The value for healthcare is subjective depending on each individual’s needs and wants. Both the demand for and the supply of healthcare is valued subjectively.

SUPPLY AND DEMAND: Since healthcare is scarce and valued subjectively, the law of supply and demand comes into play coordinating its production and consumption. The price reflects subjective valuations by individuals related to supply and demand. The subjective valuations at the existing price drives supply and demand to a new coordinating price.

The law of supply and demand states that more is demanded at a lower price than a higher price and more is supplied at higher price than a lower price. Price changes are constantly re-coordinating supply and demand according to the subjective valuations of individuals.

The supply of healthcare is limited by the scarcity of the resources, labor, capital and time needed to produce it. It is also limited by the demand for healthcare. If the demand for healthcare increases against a fixed supply, the price will go up in order to ration the scarce resource. As the price rises more resources, labor, capital, and time will be attracted to producing healthcare. As the supply increases to meet the higher demand a point will be reached where the price will stabilize and then decrease as supply outpaces demand.

The changing price sends information to consumers and producers about the scarcity of healthcare. These price changes are figured into the subjective valuations of how much each consumer will demand and how much each producer will supply.

Free market prices are the most efficient way to ration healthcare in a world of scarcity and subjective value.

government regulations, magnifier, pencil

GOVERNMENT INTERVENTION INTO HEALTHCARE

Government mandated healthcare subsidies, taxes and regulations distort the prices that would normally exist in a free market. Consumers demands and producers supplies are going to change according to these distorted prices. A mismatch of the supply of and demand for these scarce resources is brought about by government intervention.

What did you think was going to happen when more consumers were brought into the market by the Obamacare individual mandate? Subsidies also increase demand. Prices were guaranteed to rise as demand was artificially increased.

What happens when prices for healthcare services paid by Medicare and Medicaid are fixed below what they would be in a free market? The supply of health care would decrease at these lower prices.

Obamacare created more demand and at the same time created the incentive to supply less. What happens to the price when more is demanded and less is supplied? Even though our politicians told us costs would go down under The Affordable Care Act, anyone who understood basic economics could have predicted which way the price would go. And that isn’t even including paying for the government bureaucracy needed to implement the ACA.

NOW WHAT?

The failure of the Republican repeal and replace bill is a good thing. The bill was just an exchange of a set of not quite as bad new government regulations for the existing bad government regulations. Their is only one way to reduce the cost of healthcare. Get rid of government subsidies, taxes and regulations. Unfortunately all Democrats and a majority of Republicans don’t understand basic economics.

Quoting Ludwig von Mises – “Economic history is a long record of Government policies that failed because they were designed with a bold disregard for the laws of economics.

Republicans are also scared of political fall out when they get rid of healthcare entitlements. The Democrats and their accomplices in the main stream media will trot out all the sob stories of people whose ‘access’ to healthcare was taken away. Of course the MSM didn’t tell the stories of all the people who had their healthcare costs sky rocket under the ACA. These rising premiums paid for the increased costs and subsidies caused by government intervention.

Millions of families got crushed by the higher cost of healthcare. These were small businessmen and people who worked for small businesses in the more rural counties in America. These are the same people who were barely able to stay afloat when the economy crashed in 08. They cut their discretionary spending to the bone. Many had to use their savings and retirement accounts to make it through the recession.

When the Affordable Care Act was implemented after 2013 there was no spending left to cut to pay for the higher cost of healthcare. Wives had to go back to work just for the insurance. Men took second jobs for the same reason. These are the people in the swing states of Ohio, North Carolina, Florida, Iowa, and the Democrat States of Wisconsin, Michigan and Pennsylvania who voted for Trump. He was their only hope. They literally couldn’t afford to vote for Hilary.

Fortunately market alternatives to Obamacare are starting to appear around the country.

Read Here- Direct Primary Care, A No-Insurance Model.

Read Here – Florida West Virginia Lawmakers Take Interest In Insurance Free Approach.

Read Here – Atlas MD, Wichita’s Premiere Cash-Only Clinic.

As the price of Obamacare goes higher the demand for Obamacare will decrease. This higher price will also bring about lower cost market alternatives to the Government run system. These alternatives will be outside of the system. We can call these free market alternatives as long as Government doesn’t try to shut them down with regulations. If they do try to shut them down they will then become black market alternatives (the new free market).

Fracking is an example of a market alternative to the OPEC cartel and our Governments regulations on drilling off shore and on public land. When the price of oil rose to above $110 dollars a barrel it became affordable for hydraulic fracturing to take off on private land. Now that it is profitable to frack at $45 a barrel the OPEC cartel has lost its monopoly power. The high price of $110 was what eventually brought the price of oil down. Healthcare will be no different. The market will find an alternative as the price goes higher.

Read Here – Trumpcare Defeat Could Be A Small But Important Victory For Healthcare Freedom.

Read Here – Ryancare Is Failing -What Should Happen Next?

Read Here – Forget Obamacare, Ryancare, And Any Future Reformcare – The Healthcare System Is Completely Broken.

Economic reality will end Obamacare. Let’s hope the Government doesn’t end the market alternatives that have started to take root.

 

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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.

 

Must Reads For The Week 10/22/16

October 21, 2016

A NATIONALIZED SINGLE PAYER HEALTH CARE SYSTEM IS THE GOAL

Obama On Skyrocketing Obamacare Premiums, “I Had Nothing To Do With It” at tammybruce.com. Obamacare created the incentives that produced the “skyrocketing insurance premiums”. I would say Obama is a moron, but he is just a typical politician.

Obamacare Premiums Are Going Up, Up, Up. This is a great explanation of why the costs are going up. It is by design.

Obama’s Plan Was Always To Cook The Frog Slowly And Turn Obamacare Into Hillarycare Nationalized HealthCare, at economicpolicyjournal.com. We have been saying this from the start. Obamacare was the next step toward a government-run single payer healthcare system. No one wants to believe that it was designed to fail. But is was.

Hillary Email Confirms She Wants Obamacare To Collapse, at economicpolicyjournal,com. Hillary has been working for nationalized healthcare for years.

ELECTION STUFF

Why Did Vote-Rigging Robert Creamer Visit The White House Over 200 Times During Obama Administration, at zerohedge.com. Trump talking about a rigged election takes away from the fact that there has been voter fraud  going on for years. And the Democrats are the perps.

Fact Check: Hillary Lied Said 90% Of Clinton Foundations Go To Charity. Actual Number? 5.7%, at informationliberation.com. The Clinton Foundation is nothing more than a money laundering scheme for the Clintons and their cronies. Where does 94.3% of the money go?

“The Sons Of Alinsky” Getting Paid $3:00 An Hour To Protest Low Pay, at economicpolicyjournal.com. The fact that they are paying for a rent a mob for political dirty tricks is one thing. Paying them $3 an hour while trying to mandate a $15  minimum wage on the rest of us is something else. Do as I say not as I do.

Clinton’s False Assurances About Her Respect For The Second Amendment, by Jacob Sullum, at reason.com. Do you believe Hillary Clinton when she says this? I don’t believe a word she says.  “I did not send any classified Emails on my email server”.

Leaked Audio: Clinton Says Supreme Court Is ‘Wrong’ On Second Amendment, at freebeacon.com. Some of my Democrat friends tell me that they don’t want to take guns away. I tell them that’s great, but you are not the leaders of your party. I believe them. But Hillary? That’s a different story. If she gets elected, the left will be ready to act when she appoints a Supreme Court Justice. They will bring a gun rights case to a friendly district court which will eventually make its way to the Supreme Court. The court will overturn the Heller case in a 5-4 decision, and the second amendment will be meaningless words on paper. Mark my words.

Political Cartoons by Henry Payne

ECONOMIC STUFF

Why The Hell Is Socialism Gaining So Much Popularity? at economicpolicyjournal.com. Many people think socialism is the government helping people in need (aka a safety net). This is not socialism. Socialism is government ownership of the means of production. There is a difference between a free market economy hampered by government, and the government owning the means of production. Look at Venezuela if you want to see the results of Socialism.

Harassing Uber, at economicpolicyjournal.com. The status quo taxi cartel is trying to get the government to use its monopoly power to protect the cartel’s monopoly position that was originally created by government.

How Regulation Protects Established Firms, by Peter G. Klein, at mises.org. Goldman Sachs CEO Lloyd Blankfein admits that, “…burdensome regulation acts as a moat around our business.” Government props up the status quo making it tougher for new competitors to enter the market.

Is Your Personal Trade Surplus With The Rest Of The World A Problem?, at fee.org. Trump and Hillary are ignorant when it comes to trade. A trade deficit or a trade surplus is meaningless economically, but politically they are of great benefit for the politician.

We Can Build Our Way Out Of The Housing Crisis, by Steven Greenhut, at reason.com. The reason prices for homes in California are so high is because Government restrictions and regulations constrain the supply of housing. Low supply and high demand means higher prices. The high prices ration the short supply.

Highest-Paying College Majors, Gender Composition Of Students Earning Degrees In Those Fields, And The Gender Pay Gap, by Mark Perry, at carpediemblog. There is a gender pay gap because of the decisions made by men and women. Here are the top seven degrees by percentage of men and women who earn them, and the average salaries of the jobs people get when they graduate with these degrees. The subjective value of men and women is obviously different.

MEN

Computer Science                    82%    $70,000

Information Technology        82%    $64,008

Management Info. Systems   82%    $58,000

Electrical Engineering             80%    $68,438

Mechanical Engineering         80%   $68,000

Chemical Engineering             80%   $65,000

Industrial Engineering            80%   $64,381

WOMEN

Nursing                   84%   $58,928

Social Work             82%   $41,656

Education                80%   $43,000

Psychology             77%   $42,000

English                     69%   $45,000

Spanish                    69%   $44,256

Journalism              65%   $45,000

Communications    65%   $44,190

 

From Laissez Faire Capitalism.

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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.

Ohio Issue 3: A Taxi Cartel For Marijuana! Why Not An Uber Marijuana Market?

October 22, 2015

Just as Uber is taking transportation into the modern era by breaking up the old government sanctioned taxi cartel system (read- ‘Car Wars’ Return Of The Jitneys: Uber vs. The Taxi Cartel). We in Ohio are about to set up a stone age cartel system for marijuana if issue 3 is passed.  Don’t let anyone tell you that issue 3 legalizes marijuana in the State of Ohio. It does not. It creates a monopoly for 10 specific groups to grow marijuana, while it restricts the amount that everybody else can possess or grow. Here is what Issue 3 says (read ballot issue 3 here).

WHAT ISSUE 3 WILL DO

1) “Create exclusive rights for 10 self-designated landowners (click here for list of owners) to grow, cultivate, and extract marijuana.”

2) “One additional growth facility may be allowed in four years if existing facilities can’t meet consumer demand.”

3) “Allow approximately 1100 retail establishments to sell recreational marijuana if they get a license.” You have to get a license to sell.

4) “Create a special tax rate limited to 15% on gross revenue of the growth facilities…..and a special tax rate limited to 5% on gross revenue of each licensed marijuana retail store.” Don’t you wish you could set your tax rate that can’t be raised?

5) “Create a new state government agency called the marijuana control commission to regulate the industry comprised of seven Ohio residents appointed by the Governor.” Will this board be susceptible to lobbying or bribery?

6) “Limit the ability of the legislature and local governments from regulating the manufacture, sale, distribution, and use of marijuana and marijuana products.” Local governments have no say in any of this.

7) “Allow each person, 21 years of age or older, to grow, cultivate, use, possess, and share up to 8 ounces of usable home-grown marijuana plus 4 flowering marijuana plants if the person holds a valid state license. Allow each person 21 years of age and older, to purchase, possess, transport, use, and share up to 1 ounce of marijuana for recreational use.” You have to have a license to grow your personal plants. The amount you can possess is limited. And you can’t sell any of it you can only share it.

8) “Authorize medical use for a person who has a certified debilitating medical condition.

A MARIJUANA TAXI CARTEL! WHY NOT AN UBER MARKET?

Issue 3 doesn’t legalize marijuana. If it did, there would be no restrictions on the amount each individual could possess for any reason. Issue 3 gives out 10 marijuana medallions to certain individuals to supply marijuana. It excludes everybody else. An Uber market would allow every individual to grow, possess and sell marijuana if they choose.

The 10 cartel owners are either economically ignorant or they are relying on the economic ignorance of the voters when they put in the provision that one additional growth facility can be allowed in four years if existing facilities can’t meet consumer demand.

How is the cartel going to figure out demand? Why would it take 4 years to figure out demand? In a free market, individuals will demand less and supply more at a high price, and will demand more and supply less at a lower price. So in a free market, demand is constantly being discovered, not by any individual or group of individuals, but by every individual making decisions on consumption and production at the present price.

Who sets the price in the cartel marijuana system? The 10 growers will set the price in the cartel system because they don’t have any competition from other potential suppliers who can’t get a marijuana medallion. This is why the taxi cartel prices were so high. Government limited the supply of taxi medallions, which artificially drove up the price of a cab ride. The price was shown to be too high once Uber started supplying rides. These 10 individuals have set up the same type of cartel system that the taxi industry has enjoyed for decades.

WHAT ABOUT ISSUE 2?

Instead of lobbying and paying (bribing) legislators to gain a monopoly position, these 10 groups have decided to use the ballot initiative process of amending the constitution to benefit themselves by restricting access to the marijuana market. It’s crony capitalism through the ballot initiative process.

Issue 2 tries to stop people from using this process to benefit themselves. Here is what issue 2 says (read ballot issue 2 here).

1) “Prohibit any petitioner from using the Ohio constitution to grant a monopoly, oligopoly, or cartel for their exclusive financial benefit or to establish a preferential tax status.”

2) “Prohibit any petitioner from using the Ohio constitution to grant a commercial interest, right, or license that is not available to similarly situated persons or nonpublic entities.

What will issue 2 do? Very simply, the cartel that the people are trying to set up if issue 3 is passed, is prohibited. In other words, you can’t use the Ohio constitution to set up a crony capitalist enterprise. You must do it the old fashioned way, lobbying and bribing politicians.

HOW SHOULD YOU VOTE?

If you are inclined to vote yes on issue 3 because you believe it legalizes marijuana, then you should also vote for issue 2 because it will allow anyone to enter the market for growing marijuana. I think you should vote for issue 2 and against issue 3. Then either lobby the legislators to legalize marijuana, or bring a clean ballot issue in the next election that simply allows individuals to grow, use and sell marijuana. An Uber type marijuana market will spontaneously organize itself, and the out dated cartel system will go away. If you pass issue 3 and not 2, you will be fighting the marijuana cartel at some point in the future just like Uber fights the taxi cartel today.

 

 

 

 

Must Reads For The Week 5/9/15

May 8, 2015
The pen is mightier than the sword...

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

ECONOMIC LESSONS ABOUT PRICE FLOORS AND CEILINGS

NYC Mayor: Lets Bomb New York City With Rent Controls, at economicpolicyjournal.com. Rent control is a price ceiling. When the price of rent is not allowed to go above what the price would be under normal market conditions, an artificial shortage is created. Less is supplied at a lower price than a higher price, and more is demanded at the lower price than a higher price, creating a shortage of housing and a surplus of renters. It’s simple supply and demand.

Robert Reich: Economic Malpractice On The Minimum Wage, by Mark J. Perry, at carpediemblog. A minimum wage law is a price floor that a wage can’t go below. Watch the difference between the explanation about the minimum wage from Robert Reich, and the explanation by the Kahn Academy. Robert Reich is trying to fool people who are economically ignorant. When a wage is set at a rate higher than what that labor produces, the demand for that labor will decrease, creating unemployment. Less labor will be demanded at a higher rate than a lower rate, and more labor will be supplied at a higher rate than a lower rate, creating a surplus of labor or a job shortage.

Meet The Hotel Robot That Will Battle Minimum Wage Hikes, at economicpolicyjournal.com. When a wage is set higher than what the labor produces, the labor will go away. Automation is one way this will happen. Robert Reich forgot to mention this as well as some other salient points.

Free market prices coordinate supply of and demand for scarce goods and services. Government price controls, like minimum wage laws and rent control laws, are interventions that are factored into the economic law of supply and demand. Government force can’t do away with the economic reality of scarcity, it can only distort the coordination process.

MORE GOVERNMENT INTERVENTION

Ripple Labs Faces Fines From FinCEN, at payments.com. Ripple Labs is the first virtual currency exchanger to be fined by the Financial Crimes Enforcement Network. The Government wants to keep its monopoly on money creation via the Federal Reserve, by making virtual currency providers comply with anti-money laundering laws. This is curious because the US Treasury and the Federal Reserve are running the biggest money laundering operation in the history of the world.

Obamacare Killer? Global Spending On Cancer Drugs Surges To $100 Billion, at economicpolicyjournal.com. Obamacare has taken over decision-making from what was left of a free market system in the healthcare system. Coordination of supply and demand through prices barely exists. Lobbying Government for protection and favors through Government decision-making is no way to run an industry, just ask the former USSR.

The Mysterious Source Of Surging Demand For GM Cars, Revealed, at zerohedge.com. The first trick to increase sales was channel stuffing. The second was subprime car loans. Now the Government has increased its purchases from Government Motors. Maybe it does pay to get into bed with the Government! They bailed GM out. They subsidised purchases of the Chevy Volt. Now they are buying cars, (for whom, I don’t know).

Government Using Subprime Mortgages To Pump Housing Recovery, Tax Payer Will Pay Again, at zerohedge.com. This didn’t end well last time, did it?

MISCELLANEOUS

Meet Three Kids Alive Today Thanks To 3D Printing, by Ashley Welch, at cbsnews.com. We are only scratching the surface of what can be done with 3D printing.

Creative Destruction: Newspaper Ad Revenue Continues Free Fall, by Mark J. Perry, at carpediemblog. The market (decisions by individuals), picks the most productive goods and services. I predict the print media will, at some point, ask for a Government bailout.

CNN Anchor, Chris Cuomo, Ignorant About The Constitution And Hate Speech, by Robby Soave, at reason.com. And Chris Cuomo has a law degree from Fordham University? He must have missed the class when they talked about the first amendment!

Hello Al Gore: Low Sun Spot Cycle Could Mean Another ‘Little Ice Age’, by Chriss Street, at americanthinker.com. Who would have ever thought that the sun is the most important factor when it comes to the earths temperature.

CARTOONS THAT MAKE YOU THINK

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Decreased Gasoline Demand + Increased Oil Supply = Lower Gas Prices

January 6, 2015

supply and demand market economy - stock photo

Gas prices have been dropping since July, and the overriding factors responsible for this drop are our old friends supply and demand. Even though Government interventions such as regulations, taxes, and electronically printed counterfeit money are factors that have to be adjusted for by the pricing process of the free market, or what’s left of the free market, supply and demand overwhelmingly determine prices.

PRICES COORDINATE PRODUCTION AND CONSUMPTION OVER TIME

Prices are how consumers demands for scarce resources, and producers supplies of scarce resources are coordinated at any particular moment in time. The law of supply and demand states that, more will be supplied and less will be demanded at a high price, and less will be supplied and more will be demanded at a low price. Prices are constantly adjusting for all the variable factors (including Government interventions) that go into the process of production and consumption.

In an article from July titled, Gasoline Consumption Is Down: Why?, we showed that consumption of gasoline in the U.S. has slowly declined by 66% over the last eight years. Look at the full chart here.

Year           Thousands of Gallons Per Day (April)
2006            61,020.8
2007            57,354.7
2008            56,307.4
2009            51,215.6
2010            46,016.2
2011            41,555.0
2012            29,684.0
2013            28,179.6
2014            20,109.1

We stated in the July article that “Since demand is low, the price should eventually go down“. This is coming true, even though we forgot to look at the “supply” side, of the law of supply and demand. If we look at the price of oil over the last six years, checkout the chart here,  we see that it has been trading on average of around $90 a barrel. We know that more will be supplied at the higher price according to the law of supply and demand. This higher price over time has allowed fracking to become a profitable way of extracting oil from the earth. In spite of the Governments attempt to slow down, or shut down, fracking by taking Federal land off-line for shale oil production, the supply of oil in the U.S. has almost doubled since 08 because of the fracking boom that has taken place on private land in Texas, North Dakota, Pennsylvania, and parts of Ohio. Under normal market conditions, when the underlying commodity (oil) used to produce a consumers good (gasoline) costs less, the price of the consumers good usually goes down.

This chart is from carpediemblog.

oil

THE MARKET CHOOSES FOSSIL FUELS AS THE WINNER OVER GREEN ENERGY

This shale revolution is an example of prices working their magic, by not only discovering new oil reserves, but also in using new technologies to find new methods of extracting the oil. It is sad and funny at the same time to see how this administration went all in for funding (investing in) green energy, only to find out that politicians and bureaucrats aren’t smart enough to be in the venture capital business (here). They thought their green energy “investments” would lead job creation in our new green economy. In fact, if it wasn’t for the jobs created by the shale oil revolution, there would be no job growth in the U.S. since 08.

This chart is from carpediemblog.

texasemp

Green energy companies that received your tax dollars have gone bankrupt (here). Think of all the tax payer funded resources, capital, time, and labor that has been wasted, because politicians and bureaucrats don’t understand, or don’t care, that price coordinated markets are more efficient in allocating scarce resources to their most valued uses, according to consumer demands, than Government central planners could ever be. Green energy will only become viable when it’s unsubsidized cost is lower than our current way of supplying energy. The discovery of new oil reserves has pushed the chance for green energy becoming a viable alternative to fossil fuels  much farther into the future. Unless an exponential advance in green energy technologies happens that reduces the cost per unit of green energy, compared to cost per unit of energy from fossil fuels, green energy will remain a quixotic crusade for the left.

WHAT HAPPENS NOW THAT THE PRICE IS FALLING

The process of supply and demand is always trying to find an equilibrium point. In an ever-changing world, this equilibrium point is always just out of reach of wherever the economy is at any given time. It’s difficult to understand that the future equilibrium point we are moving toward, is a creation of what individuals are doing in real-time. We also have to understand that economic data is a snap shot of what has happened in the past. And knowing that history is by its very nature tardy, we should also know that economic data has already been factored into the future equilibrium point that the economy has been trending toward both yesterday and today. And we also know that point will change tomorrow.

Since the price of oil and gas is falling, we know two things will happen or are already happening. 1) Less gas and oil will be supplied at these lower prices, and 2) more gas and oil will be consumed at these lower prices. The decisions that individuals are making about consumption and production of gas and oil at these lower prices, are already setting the stage for the next price shift upward. When this will take place nobody really knows. Look how long it took for gas and oil prices to go down from their highs over the last six years.

Here are a few things to think about.

1) If demand doesn’t increase a lot at these lower prices, it tells me the economy isn’t as strong as the experts have been telling us. Gas and oil are the energy that drives our economy. As economic activity increases more gas and oil will be consumed. If consumption levels stay close to the levels we have seen in the above charts, we will know how healthy our economy is.

2) If the price of a barrel of oil isn’t high enough to cover the cost of fracking a barrel of oil, fracking will begin to slow, and in some cases wells will have to be shut down. This isn’t good or bad, it is just the reality of changing market conditions.

3) How much of the fracking revolution is a bit of a bubble activity? We know the Fed has electronically printed trillions of counterfeit dollars over the years that, as Jim Grant says, “is money in search of mischief”. This counterfeit money has ended up in the financial markets and is searching for a higher rate of return. I’m sure this counterfeit money has found its way into the fracking industry. This counterfeit money is pulling future production and consumption into the present before it would have come to exist in an unhampered market. Any bubble part of the fracking industry will eventually be liquidated. This liquidation is the cure, it will purge speculative investment from the fracking industry, helping find the right amount of production that can be supported by true market conditions. This liquidation won’t happen if the Fed, along with politicians and bureaucrats, bail out the speculative investors. Lets hope they hate the oil industry enough to allow it to self correct.

4) If demand doesn’t increase at these lower prices, the price will eventually go up. If the amount of gasoline we use remains at a certain level whether the price per gallon is $2.00 or $3.00, what do you think the price will be? Put another way, if overall revenue is greater at the higher price than the lower price, the higher price will be charged.

5) Many say this lower price will stimulate the economy, because people will have money to spend on other things. While every increase in productivity helps the overall economy become wealthier; do we know what part of the increase in productivity in the oil industry is represented by what consumers save at these lower prices? The money that is not represented by an increase in wealth as a result of becoming more productive, doesn’t create anything new. Depending on how each individual chooses to use the money he saves at the pump, it is just going to be shifted from the oil and gas industry to a different sector of the economy.

6) When the price of oil and gas went up, the market (which means individuals) adjusted their activities around the new price. These adjustments ultimately helped produce the lower price that exists today. Individuals will now start to adjust their activities to the new lower prices. Whatever results from these new adjustments, even as the price goes up, is exactly what should happen.

7) Since gasoline consumption has been decreasing for years, State and Federal Governments have been collecting less tax revenue. With the price of gas going down, watch out for politicians and bureaucrats starting to talk about raising the gasoline tax, in order to repair and build highway infrastructure.

CONCLUSION

Prices coordinate supply and demand, according to what each individual desires in relation to the inherent scarcity that exists for any economic good or service. Prices don’t cause this scarcity, prices reveal the degree of the underlying scarcity.

Related ArticleIs The Economy; Growing, Shrinking, Or Exactly Where It Should Be?, by austrianaddict.com.

Related ArticleCapitalism vs. Crony Capitalism, by austrianaddict.com.

 

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