Economics In Action
Economics. Most people do not understand it. Most people are never taught it. Most people would prefer never to think about it. But there is no more important academic discipline that we need to understand than economics. The whole reason that we argue, and that socialist ideas are attractive to people is because most people don't understand how the economy really works, and how socialism screws up the economy. And now today, we have an excellent opportunity to see just how economics is happening right before our eyes with the problem of oil and gas prices.
First of all, what is economics?
Now, when you sell something, you want to get reimbursed for what you paid for the item, plus any other investments you put into the endevour, like transportation costs, capital repairs, supplies, employee benefits, taxes etc. The sum total of all those costs is your selling price. If it is too high, and nobody buys it, you will go broke. If it is too low, you won't be able to replenish your supply or support your family, and you will go broke. So prices are not arrived at carelessly or with greed as the motivation. It is a constant struggle to find the 'right' price for your product. Notice how peoples behaviour change when a 'sale' sign goes up in a store window. Prices affect behaviour.
We now have today the evil spector of 'price gouging' appearing in the news. When actually, price gouging is quite limited in real life. Most of what is perceived as price gouging is really the free market economy happening right before our eyes. Lets put aside any emotional element and only talk about the science for a moment.
Suppose I own a fuel supply company in Arkansas, and I have 1,000 gallons of refined gasoline on hand. One day a hurricane wipes out my neighboring state to the south - Louisiana. Now they are going to need gas. And I have some. If I get a call from Louisiana asking to buy my gas, I'm going to want a fair price for my product. That's reasonable isn't it? But what is a fair price?
One individual cost, that is part of the total cost of the gas, is the replacement cost. Consider that I have this 1,000 gallons of gas, and a customer in Louisiana wants to buy all of it. First of all I have all my normal costs that make up my normal price for my local customers, but now I also have to consider extra shipping costs, extra employee costs, and any extra costs to replace my stock. And since this hurricane shut down 26% of the refining capacity of the country, chances are my re-stocking cost is going to experience a slight bit of inflation. How much I wont know at first, but I need to charge enough money now so I will be able to afford to keep the gasoline flowing to all my customers. Thus an increase in prices. In the short term it will look like I'm making windfall profits, when in fact those 'profits' will dissappear when I buy more gas. If I raise my prices too high in this situation, I will attract negative attention and will lose more than money. In fact there is a chance I wont have raised my prices enough and will still be caught short. If my prices go up, only those most in need of the scarce resource will be able to get it because the rest of the people will be priced out of the market. Incentives affect our behaviour.
And that is the heart of the emotional issue for people. It is economics that force us to change our behaviours. And most people hate change. I have taken to riding the bus to work. That is a change in my behaviour based on economics. And based on the fewer available seats lately, I'm not the only one modifying his behaviour. Socialism, through central planning, tries to minimize the impact on people that economics forces, and tries to minimize how much we, as individuals, must modify our behaviours. But what ends up happening is the opposite of their intended goals. Controlling the gas price means no gas availability, remember the 1970's? Price controls went into affect and then we had no gas. But if the price was allowed to rise, there would have been no shortage. Prices affect availability.
You might ask, why does the poorer person find himself forced to modify his behaviour sooner than the rich man? That is because economics, being a system of incentives, also provides opportunity for the poor man to gain wealth. Your neighbors nice car should be an incentive for you to try and work harder, or smarter, in order to attain one also if you desire. It is counter-productive to society to be envious of your neighbor. Socialism allows for people to stay poor by removing the incentives, removing the rewards, and thus de facto encouraging mediocrity and a certain level of poverty for all. Notice all the entrenched poor who don't even try because they get a nice check from the government. Socialism subsidizes laziness.
So you see how prices left on their own are important at regulating the economy in ways that central managers cannot. Although it is unpleasant at times because we must always adapt and be flexible with our lifestyles. We are, after all, humans. And one trait of our humanity is our ability to adapt. The goal of Socialism is to create an environment where we never have to adapt, challenge ourselves or grow.
Therefore Socialism is in denial of reality, and tricks people into thinking normal behaviour is a crime. When, in fact, Socialism is the real crime.
First of all, what is economics?
Economics is the study of the use of scarce resources which have alternative uses.It is a very simple and predictable science. And it is devoid of any emotional component. The problem with most discussions of economic issues is people want to inject emotional qualifiers and anectdotes. That is like confusing the need for surgery with the physical impact of the scalpel. One must actually cut the patient to remove the tumor. It's a necessary uncomfortable thing to acheive a beneficial thing. Therefore prices (the cutting - especially when high), are absolutely necessary for the surgery (the economy) to have a sucessful result. And, more importantly, it is prices that determine how we ration items that are scarce. Instead of having a central planner determine which products go where, when and for how much, individuals determine all of that by deciding what they can or can't afford. And when there are many people in competition for the same item, someone needs to decide who gets it. Prices do that.
Now, when you sell something, you want to get reimbursed for what you paid for the item, plus any other investments you put into the endevour, like transportation costs, capital repairs, supplies, employee benefits, taxes etc. The sum total of all those costs is your selling price. If it is too high, and nobody buys it, you will go broke. If it is too low, you won't be able to replenish your supply or support your family, and you will go broke. So prices are not arrived at carelessly or with greed as the motivation. It is a constant struggle to find the 'right' price for your product. Notice how peoples behaviour change when a 'sale' sign goes up in a store window. Prices affect behaviour.
We now have today the evil spector of 'price gouging' appearing in the news. When actually, price gouging is quite limited in real life. Most of what is perceived as price gouging is really the free market economy happening right before our eyes. Lets put aside any emotional element and only talk about the science for a moment.
Suppose I own a fuel supply company in Arkansas, and I have 1,000 gallons of refined gasoline on hand. One day a hurricane wipes out my neighboring state to the south - Louisiana. Now they are going to need gas. And I have some. If I get a call from Louisiana asking to buy my gas, I'm going to want a fair price for my product. That's reasonable isn't it? But what is a fair price?
One individual cost, that is part of the total cost of the gas, is the replacement cost. Consider that I have this 1,000 gallons of gas, and a customer in Louisiana wants to buy all of it. First of all I have all my normal costs that make up my normal price for my local customers, but now I also have to consider extra shipping costs, extra employee costs, and any extra costs to replace my stock. And since this hurricane shut down 26% of the refining capacity of the country, chances are my re-stocking cost is going to experience a slight bit of inflation. How much I wont know at first, but I need to charge enough money now so I will be able to afford to keep the gasoline flowing to all my customers. Thus an increase in prices. In the short term it will look like I'm making windfall profits, when in fact those 'profits' will dissappear when I buy more gas. If I raise my prices too high in this situation, I will attract negative attention and will lose more than money. In fact there is a chance I wont have raised my prices enough and will still be caught short. If my prices go up, only those most in need of the scarce resource will be able to get it because the rest of the people will be priced out of the market. Incentives affect our behaviour.
And that is the heart of the emotional issue for people. It is economics that force us to change our behaviours. And most people hate change. I have taken to riding the bus to work. That is a change in my behaviour based on economics. And based on the fewer available seats lately, I'm not the only one modifying his behaviour. Socialism, through central planning, tries to minimize the impact on people that economics forces, and tries to minimize how much we, as individuals, must modify our behaviours. But what ends up happening is the opposite of their intended goals. Controlling the gas price means no gas availability, remember the 1970's? Price controls went into affect and then we had no gas. But if the price was allowed to rise, there would have been no shortage. Prices affect availability.
You might ask, why does the poorer person find himself forced to modify his behaviour sooner than the rich man? That is because economics, being a system of incentives, also provides opportunity for the poor man to gain wealth. Your neighbors nice car should be an incentive for you to try and work harder, or smarter, in order to attain one also if you desire. It is counter-productive to society to be envious of your neighbor. Socialism allows for people to stay poor by removing the incentives, removing the rewards, and thus de facto encouraging mediocrity and a certain level of poverty for all. Notice all the entrenched poor who don't even try because they get a nice check from the government. Socialism subsidizes laziness.
So you see how prices left on their own are important at regulating the economy in ways that central managers cannot. Although it is unpleasant at times because we must always adapt and be flexible with our lifestyles. We are, after all, humans. And one trait of our humanity is our ability to adapt. The goal of Socialism is to create an environment where we never have to adapt, challenge ourselves or grow.
Therefore Socialism is in denial of reality, and tricks people into thinking normal behaviour is a crime. When, in fact, Socialism is the real crime.
posted by Rockin Rod at 4:48 AM
0 Comments:
Post a Comment
<< Home