Markets In Truly Everything
From looting to "collectible," "vintage" kettlebells -- that were new and unused just a day or two before.
Andy Kessler writes in the WSJ that the laws of supply and demand have been at work in the pandemic and the protests. A few examples:
•Price signals. After nights of looting, Los Angeles announced curfews. I watched as protesters trying to make a point (not looters) quietly sat down in the street and were arrested one by one, zip-tied and taken away in modern-day paddy wagons. The next night, crowds dispersed right at curfew. Turns out the police issued $1,000 tickets for breaking curfew--a lot for protesters' parents to pay. Now that's a price signal. On the flip side, New York City's recent restriction of cash bail meant many arrested looters were quickly released so they could loot again.Health care has the same problem, because so much is "free." A study published last year in the Journal of the American Medical Association suggested 25% to 30% of health-care spending may be waste. This is especially true of notorious MRI and CT scans and heart angiograms. "Let's just take a look to rule things out," the thinking goes, "because insurance pays." Then came the pandemic, which the American Hospital Association says caused hospitals to lose more than $200 billion. Why? Because frightened consumers skipped procedures, including unnecessary ones.
•Supply and demand. Bob Barker told us, "The price is right." Well, except in the case of shortages of toilet paper, hand sanitizer, rice, sourdough ingredients and more. Stores wouldn't raise prices lest they be accused of gouging. Customers tried Amazon, but it had its own antigouging rules and was selling out of many items, like kettlebell weights for home workouts. So savvy sellers began listing "classic," "vintage" or even "collectible" kettlebells so they could set market-clearing prices. Voilà, no more shortages.
•Government. Can we trust officials to save us? Ask the Centers for Disease Control and Prevention about the months lost on its Covid-19 test fail whale. And government regulation can be deadly: Notice how quickly rules were dropped to allow doctors to practice across state lines when in short supply. Please don't reinstitute.
Then there's that offensive New York Times op-ed. No not that one--I mean the one by economist Stephanie Kelton endorsing Modern Monetary Theory. If she actually believed this debunked notion that deficits don't matter and America should spend, spend, spend, she would gladly be paid with wheelbarrows of Weimar German Papiermarks or trillion-dollar Zimbabwean notes.
I don't understand
If things are so expensive that most people who want them can't get them, how is that different from a shortage making things impossible to get? The end result is the same.
NicoleK at July 13, 2020 5:36 AM
If things are so expensive that most people who want them can't get them, how is that different from a shortage making things impossible to get? The end result is the same.
NicoleK at July 13, 2020 5:36 AM
In the first instance there will be a free market correction. The price will come down when the producer responds to the demand.
When the government causes the shortage, they will usually institute a policy such as price controls to make the shortage continue indefinitely.
Isab at July 13, 2020 6:23 AM
There's a market for everything. The internet taught us that. Why should it be different during a pandemic?
If there's a shortage of a desired product/service, the price rises. When the price gets high enough, a new supplier enters the market to take advantage of the price. The price has to be high enough for the supplier to bear the cost of circumventing the barriers to entry - legal barriers, logistical barriers, etc.
At some point, each supplier either seeks to eliminates the competition and become a monopoly supplier or find a way to procure the product/service at a low enough cost that a profit can still be made at a lower selling price.
If the market-bearable price gets low enough, some suppliers will leave the market, reducing supply and increasing the selling price. At some point, an equilibrium is found at which suppliers can make a profit and buyers are satisfied with the selling price.
Disruption occurs when a supplier abruptly enters an established market with a substantially lower price or better product/service at a price the market will bear - i.e., Dell beat IBM on price, Uber beats taxis on service, and Amazon beat brick-and-mortar on price and merchandise availability (long tail).
Government wage and price controls ignore costs. That's why they create more problems than they solve. Modern Monetary Theory ignores the reality of how money gets its value and any actual implementation of it will cause more, and greater, problems than it was intended to solve.
Conan the Grammarian at July 13, 2020 7:06 AM
> how is that different from a
> shortage making things impossible
> to get? The end result is the same.
Shush!... Listen! (Pause) Do you guys hear it? That tinkling sound? Over yon hill & dale? (PausePause) That charming little melody?
That's the sound that happens every time a bright young spirit is brought into the light! Teacher says....
Nicole is one of US now! She can never go back, and we can start sending her links to Reason magazine and other literature for grown-ups.
Crid at July 13, 2020 7:37 AM
A study published last year in the Journal of the American Medical Association suggested 25% to 30% of health-care spending may be waste. This is especially true of notorious MRI and CT scans and heart angiograms. "Let's just take a look to rule things out," the thinking goes, "because insurance pays."
The root of this isn't because insurance pays. This is defensive medicine 101: the test is done to keep my malpractice insurance from having to pay because you had an odd ball set of conditions that could have been detected with the test, and we skipped it and now you're suing me for malpractice.
Because insurance pays is just a bonus.
I R A Darth Aggie at July 13, 2020 9:45 AM
Upon review, now fully awake...
Nicolek isn't there yet! CloseCloseClose
A price isn't a Tool in the hand of the Man.
A price is a piece of information about the world. Gouging caps break the flow of information in a crisis: The worst possible response a civilization can make when threatened.
Crid at July 13, 2020 9:50 AM
I see they printed so many Weimar German Papiermarks they aren't exactly collector's items.
I R A Darth Aggie at July 13, 2020 9:52 AM
In all the conversation about markets/marketing, one thing seems to be missed every single time:
Product prices don't rise to a value everyone can afford. As items get scarce, their price rises until customers are scarce, typically until no one can afford the last few items.
Price is a method for selecting customers, often mistaken for an objective measurement, and it is not a method for distributing goods.
Radwaste at July 13, 2020 10:34 AM
Conan wrote:
If there's a shortage of a desired product/service, the price rises. When the price gets high enough, a new supplier enters the market to take advantage of the price. The price has to be high enough for the supplier to bear the cost of circumventing the barriers to entry - legal barriers, logistical barriers, etc.
I agree! Best argument against “school vouchers” I’ve read.
Kevin at July 13, 2020 2:33 PM
Conan wrote:
If there's a shortage of a desired product/service, the price rises. When the price gets high enough, a new supplier enters the market to take advantage of the price. The price has to be high enough for the supplier to bear the cost of circumventing the barriers to entry - legal barriers, logistical barriers, etc.
I agree! Best argument against “school vouchers” I’ve read.
Kevin at July 13, 2020 2:33 PM
Anti-price-gouging is ultimately stupid in a hurricane or other disaster. One great example is Florida after a hurricane--they won't allow out of state roofers to come in because they don't have a state license. Yes it is true there are some scams but the shortage of roofers also causes homes without a roof to be completely ruined by rain rather than saved.
Another example was a guy who bought a bunch of generators and went to a hurricane area. He was arrested. He took a financial risk, used his own time, and only sold to the willing. He increased the supply of something necessary. How could this be a crime.
People point to charities, and those are great, but there are never enough charities during a big disaster. Let the gougers gouge. If there are enough of them the price will come back down.
cc at July 13, 2020 2:35 PM
It's a better argument against the government monopoly of education. The price keeps going up, but the quality keeps going down. The barriers to entry for competitors are mainly regulatory and bureaucratic, not price-driven. Costs are not contained by any market mechanism, so they keep escalating.
Most private schools can deliver a better, or at least as good a product at a lower price, but are prevented from doing so by the bureaucratic folderol required to operate a school in competition with the government ones.
Public schools are also perceived by many to be free, but they're not free. Compare the $12,612 in taxpayer money spent per public school student in 2018 to the $10,676 average tuition of private schools in that same year.
Nonetheless, as much as I favor vouchers over public schools, introducing free money in the form of government vouchers could potentially drive up the cost of private education and disarm the market mechanism that would contain prices. That's what the free money from student loans is doing to the price of a college education.
Conan the Grammarian at July 13, 2020 3:27 PM
Fun clip from Australia regarding the risk associated with price gouging...
https://youtu.be/cSLrbYsqZ4o
Sheep Mom at July 13, 2020 3:34 PM
It's a better argument against the government monopoly of education. The price keeps going up, but the quality keeps going down. The barriers to entry for competitors are mainly regulatory and bureaucratic, not price-driven. Costs are not contained by any market mechanism, so they keep escalating.
We agree on this! It's the toilet-seat argument; when government buys a toilet seat, it's $8,000 or whatnot rather than $8.95.
But there's no "government monopoly on education"! One can homeschool; one can send a child to a private school; one can band together in a teaching collective. One can even engage in the horrid hippie notion of "unschooling," but there are plenty of alternatives to "government schools."
Public schools are also perceived by many to be free, but they're not free. Compare the $12,612 in taxpayer money spent per public school student in 2018 to the $10,676 average tuition of private schools in that same year.
I'll take your word for the numbers. My interest is that my taxpayer burden is $0. As long as I ask for no input into curricula, I think it's fair that I have no skin in the game financially or otherwise.
Nonetheless, as much as I favor vouchers over public schools, introducing free money in the form of government vouchers could potentially drive up the cost of private education and disarm the market mechanism that would contain prices. That's what the free money from student loans is doing to the price of a college education.
Again, we agree. I'm not sure why some people think it's fair that "free money" go to K-12 education, while it's unfair to expect taxpayers to pull the weight for college.
Kevin at July 13, 2020 5:52 PM
Perhaps "monopoly" was a bad choice of characterization. However, only government schools benefit from tax funding. You homeschool, collectively teach, or send your kids to private schools on your own dime.
There is no cost control mechanism in that system. Teachers unions demand more money and get it because raising additional funds is easy, raise taxes or pass another bond issue. We're constantly told public schools are "underfunded," but they cost more per student than private ones do.
The market consists of a system of overlapping mechanisms that constantly adjust and control price, cost, and supply according to demand. If you don't like a product at the price asked, you choose another, you vote with your wallet and the supplier must respond.
If you think public schools cost too much and want to choose a competing private school, you don't get your public school tax fees back to spend as you like, but must cough up additional funds. As a result, the public school system has very little incentive to control costs; they get their money no matter what. On the other hand, private schools have every incentive to control costs to keep prices at a level which the market will bear.
Conan the Grammarian at July 13, 2020 6:45 PM
If you think public schools cost too much and want to choose a competing private school, you don't get your public school tax fees back to spend as you like, but must cough up additional funds. As a result, the public school system has very little incentive to control costs; they get their money no matter what. On the other hand, private schools have every incentive to control costs to keep prices at a level which the market will bear.
We agree again! If the notion of all taxpayers paying for public schools goes away, then the public school system has two choices: control costs or be made obsolete. Meanwhile, private schools still maintain their incentive to control costs.
Taking taxpayer funds out of the equation would seem to be a win-win for fairness, for quality, and for cost.
Kevin at July 13, 2020 7:10 PM
Conan you are trying way too hard here. Kevin hates kids. He has made that clear over and over again. His main interest (as he repeatedly makes clear here) is to stop paying taxes for public education. He has also made it clear in the past if he cannot stop paying for public education he wants that education to be as ineffective and punishing as possible. Hence his strong opposition for vouchers.
Ben at July 13, 2020 8:28 PM
Kevin hates kids. He has made that clear over and over again. His main interest (as he repeatedly makes clear here) is to stop paying taxes for public education. He has also made it clear in the past if he cannot stop paying for public education he wants that education to be as ineffective and punishing as possible. Hence his strong opposition for vouchers.
I have no interest in Uncle Sam redistributing my money without my say, which is all school "vouchers" amount to. If one wants to build and subsidize a private park rather than use the parks available, bully for you — just don't use the general Parks & Rec fund to do it, which is all vouchers do.
Kevin at July 13, 2020 10:41 PM
This is where we part ways.
We all have a vested interest in providing education opportunities to the younger generation - especially the underclass, the ones whose parents cannot afford to pay for private schools themselves. We do not want an uneducated, idle underclass in our society living in shanty towns on the edges of our cities - a la some Third World hell-hole.
Vouchers instill competition into an otherwise stagnant system. When schools have to compete for students, they are forced to improve the product being offered. Public schools currently do not have to compete; they are funded regardless. Ideally, each student would carry with them a certain amount of funding to be spent on a system of education, public or private, and each school would live or die on the quality of the education it offered. Perhaps this per-student funding could be grade-based.
Care would have to be taken so that vouchers do not end up subsidizing fly-by-night frauds - the way the student loan system was abused to fund proprietary trade school scams.
Care must also be taken to ensure that vouchers do not bypass market control mechanisms, the way student loans ended up inflating college tuition with loads of free money in the system. And, lest you think that free money grab was limited to private colleges, it was not. Public colleges, i.e., taxpayer-funded state colleges, got in on the tuition grab action, too.
Conan the Grammarian at July 14, 2020 5:11 AM
Kevin, you've publicly stated you would rather live next to a meth house than one with a toddler. You only care about tax dollars when they are spent on education. And in that case you insist any spending be in as inefficient and as harmful a way as possible. You hate kids. It is as simple as that.
Look, I applaud you for having a vasectomy so you don't have any kids you will hate and be responsible for. Raising kids isn't for everyone. But enough with the dishonesty.
Conan, agreed on the risks involved in school vouchers. The best solution I can think of is for parents to have some skin in the game. An 80/20 split where parents have to pay at least 20% of their kids education will help limit the moral hazard. A cap on per student spending from the government pairs well with that. But even so there will be problems. I just think they will be smaller problems than we are currently seeing.
Ben at July 14, 2020 8:21 AM
'You've publicly stated'
Crid at July 14, 2020 11:32 AM
Just a few days ago Crid. Or perhaps you are looking for 'Welcome to the English language'.
Ben at July 14, 2020 11:44 AM
FYI - here.
Conan the Grammarian at July 14, 2020 1:14 PM
I have no concern with Kevin's feelings about children. WGAF? I'm not keeping track.
On this most censorious day (Weiss and Sully quitting to get away from their co-workers), I'm amused by the "publicly" part. And the "stated" part. And the briskly accusatory "you've."
It calls to mind McCarthy's "I have here in my hand a list of two hundred and five people that were known to..."
You're addressing a gallery I'd not known to be present in these august chambers. You seem eager to build what in prosecutorial circles is known as a "case," and to build it quickly, and you'll need the gallery to remember exactly what they've heard from this individual, as it was said without shame.
Go go go!
(Who's Kevin?)
Crid at July 14, 2020 2:27 PM
Hi Kev
Crid at July 14, 2020 4:32 PM
Once again it is all in your head crazy grandpa. And as I said over and over I aint paying you rent so let me out of there.
Ben at July 14, 2020 5:38 PM
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