If you aren’t familiar with the Austrian School of Economics, Fredrich Hayek, Ron Paul, Murray Rothbard, Thomas E. Woods, Jr., or Ludwig von Mises, go to the Mises Institute and acquant yourself with the materials there. But also, know that the site is for intermediate to advanced economic readers. If you don’t know anything about economics, Mises probably isn’t the place to start…
One particular recent blog post struck me – Market Prices Versus “Make It So”:
Mark J. Perry alerts us to a great quote from P.J. O’Rourke:
“The free market is not an ideology or a creed or something we’re supposed to take on faith, it’s a measurement. It’s a bathroom scale. I may hate what I see when I step on the bathroom scale, but I can’t pass a law saying I weigh 160 pounds. Authoritarian governments think they can pass that law—a law to change the measurement of things.”
Perry then compares this to a minimum wage law:
A teenager with no work experience steps on a “bathroom scale” that accurately and truthfully measures the market value of unskilled labor, and the scale says “$5.00 per hour.” Politicians pass minimum wage legislation to rig the “bathroom scale” of labor value to instead produce an inaccurate, false inflated reading of “$7.25 per hour.” And they then seem puzzled that more than one out of every four teenagers who is looking for a job is unable to find one, but that’s what happens when you “rig” the “bathroom scale.”
As part of my adventure in health care a couple of weeks ago, I had a rather unpleasant encounter with the scale at the doctor’s office. To think that I could achieve my fitness goals by lobbying my Congressman to pass a law would be absurd. Instead, I’ve changed my diet and exercise habits. In particular, I’ve relied on some advice I first heard from Jeff Tucker: no shower until I’ve done thirty push-ups. I’ve been happy with the results after two weeks, and it’s a nice binding constraint.
Recent heat and humidity offer a similar analogy. It has been really, really hot in Memphis and in other parts of the country. People have suffered as a result. A politician who claimed that he was going to fight a war on heat by passing a “maximum temperature law”–or by switching temperature readings to celsius so that the numbers are smaller–would be laughed at. And yet that same politician who claims that he is helping the poor by passing minimum wage laws, price-gouging statutes, rent control, and other forms of interference with market prices is lauded as a compassionate hero of the downtrodden.
You can’t change heat, humidity, or people’s weight by passing laws. You also can’t change people’s productivity by passing laws. “Make it so” is great campaign rhetoric but it’s lousy economics. In a grocery store a few years ago, I saw someone wearing a t-shirt that reads “Stop Plate Tectonics.” A shirt reading “Stop Supply and Demand” would make just as much sense.
With the dawn of Obamacare, you can bet you will hear more and more about the “costs” of medical care going down. But my boy Tom has that rhetoric figured out:
The difference between prices and costs is not just a fine distinction made by economists. Prices are what pay for costs — and if they do not pay enough to cover the costs, then centuries of history in countries around the world show that the supply is going to decline in quantity or quality, or both. In the case of medical care, the supply is a matter of life and death…
When politicians talk about “bringing down the cost of medical care,” they are not talking about reducing any of these costs by one cent. They are talking about forcing prices down through one scheme or another.
All the existing efforts to control the rising expenses of medical care — whether by government, insurance companies, or health maintenance organizations — are about holding down the amount of money they have to pay out, not about reducing any of the real costs…
For political purposes, what “bringing down the cost of medical care” means is some quick fix that will win votes at the next election, regardless of what the repercussions are thereafter.