Category Archives: Economics

Quality and Free Markets

Quality.  It’s a hugely subjective measurement. Some may argue there are universally accepted standards for what’s considered to be “good” quality vs. “poor” (eg. your local FDA bootlicker).  I would argue that Beauty is in the eye of the Beholder.

Many people mistake Price for Quality.  In a Free Market, Price only indicates the intersection of Supply and Demand.  If there’s a shortage of Supply and relatively stable or even increasing Demand, you very well could see prices for low-Quality junk go higher and higher.  The reverse is also true in that high-Quality goods may be in ample supply and thus prices drop.  (eg. computers, memory, and processors over the last 30 years.)

The reason I bring these up is because Socialists will, without exception, argue there is only one acceptable standard for Quality.  In fact, their aim is to eliminate choice altogether.  A Socialist State cannot allow for product differentiation because that opens the door for Disparity.

The head scratcher in all this is that Socialists want you to believe their agenda will give everyone the best fruits the Free Market has to offer.  Suddenly, everyone will have palatial mansions, Ferraris, and grass fed Wagu filet mignon every night.

This can’t be further from the truth.  Throughout history and even today in countries like Venezuela, Socialists and central planners cannot even supply basic needs like food, water, or even toilet paper.  

And let’s not forget the fact that not everyone wants or needs the same Quality of goods or services.  My needs may be very different from yours.  We have 7 children in our home.  Do you think for one minute your transportation needs are the same as mine?  Or size of home?  Or meal planning?  Or healthcare needs?

What about your own needs over time?  Will your needs change over the next 10, 20 or even 40 years?  My wife and I are big fans of Ikea and Walmart mostly because they provide LOW-COST options for our family.  It’s understood that everything we buy from them is pretty much disposable.  Furniture, electronics, food items, sundries, clothing — we have zero expectation of holding on to these things after all of our children have grown and moved out of the house.  But these things are very much in demand in our household for the time being.  The Free Market gives us the power to weigh our needs, wants, and preferences against our own personal Demand curves throughout time.  

The Socialist State will tell you what you need when you need it.  

You have children with Gluten or Dye Allergies?  LOL!  You think the Socialists care?  

You want organic, non-GMO produce for your salad?  The Socialist has no salad for you this month.  

You like energy-efficient, hybrid cars to ‘save’ the environment?  Socialists can’t even deliver the rubber for making tires.

Make no mistake about it.  When Socialists proclaim equality and fairness for all, they are talking about the lowest, common denominator of quality with no other options allowed.

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Anyone Want to Fly United?

Gotta capture this one for the books. This week started off with a viral video clip of Dr. David Dao’s violent removal from Flight 3411 because, though the flight was NOT overbooked, 4 airline employees needed the seats to get to Louisville for other flight duties. So after an unsuccessful attempt at offering up to $1000 per passenger to voluntarily deplane, flight attendants arbitrarily picked 4 people, including Dao and his wife, to be ejected from their ticketed seats.

You probably know the rest. Dao refused. Airport Security / Chicago PD was called. They grabbed him, apparently clocked him in the mouth, and dragged him off the plane.  He’s now believed to have lost 2 front teeth and suffered a broken nose and concussion.

Not helping the situation has been United Continental Holdings’ Chief Executive Officer Oscar Munoz. In his first 2 responses to the PR crisis, he’s gone from behaving like a cold, legalese-spouting robot to even blaming Dao for being “disruptive and belligerent”. At the time of this writing, Munoz has made several additional attempts at apologizing in public and also to Dao directly. He’s announced that all passengers on Flight 3411 will be reimbursed for the flight. And United has promised never to call the police on its passengers again.

All that you probably knew. What I wanted to capture here was the surprising reaction I’ve been seeing from friends and total strangers on social media to the situation. But to start, I’ll summarize my personal take on it.

When you make a purchase from a business to provide a service, you are entering into an agreement. In fact, by accepting payment, the business is creating a POSITIVE RIGHT for me. (See my previous post on the differences between Positive and Negative Rights for more details.) There’s no need to have a formal, notarized contract ratified to legitimize our agreement. I give you some money. You promised to deliver a service. It used to be that we did things on a handshake because our word was our bond.

An agreement can have several conditions included in the exchange – some are explicit, others are implicit. For example, if I order a pizza to be delivered and it shows up next week, technically the business met the WHAT part of our agreement, but they certainly failed to meet the HOW or WHEN.

When it comes to the airline industry, it’s a hot mess. As consumers, we’ve grown so accustomed to receiving appalling service, getting molested and robbed by TSA agents, enduring abysmal on-time service level agreements, and begrudgingly stomaching an overall customer satisfaction rating that rivals most used car lot interactions.

So how shall we think about the events of this week? Well for starters, let’s look at the fact that city police were called to intervene on behalf of a business when no laws were being broken. Judge Andrew Napolitano said:

“By dislodging this passenger against his will, United violated its contractual obligation. … [Dao] bought the ticket, he passed the TSA, he was in his seat, he has every right to stay there.”

The Judge went on to say “If the reason for their call is not a crime, [CPD] should leave. … They have no right using violence to resolve a civil a dispute. … If the passenger is politely or reasonably sitting there, waiting for the flight to take off, he’s not committing a crime, he’s not engaged in violence, he’s not doing anything that justifies police force.”

Couldn’t agree with the Judge more. For those that are defending the authoritarians and touting the “Romans 13 / always obey the man with the badge” line of thinking, consider the dangerously slippery slope this creates. What’s to stop business owners from calling the police if you complain that you didn’t get the food you ordered at your favorite restaurant? They can now call the cops to just have you punched and dragged out? What about when you put money down to have a builder create your dream home? During your final walk through, you notice they used the nickel faucets instead of the copper that you had ordered. Cops will be called to force you at gunpoint to take delivery?

Again, these are civil matters. Not criminal. That’s exactly why the Judge states police have no business intervening. And these are obviously extremes, but in today’s crazy times, I’ve learned never to say “never”. Once the precedence is set, the door only swings open wider. Pandora’s box never closes.

Then you have the ad hominem attacks on Dr. Dao’s character. I haven’t seen any of my friends specifically justify UAL / CPD’s actions because of it, but they’ve felt the need to regurgitate the ‘background’ juicy details that have surfaced by digging into Dao’s past. So let’s think about this. Did the CPD know anything about his past when they assaulted him? Did UAL? Of course not. So anyone that’s actually taking even a second’s notice of anything that has to do with Dao’s character is basically playing a game of Statist Russian Roulette.

Put another way, when your moral evaluation of an attack hinges on whether the victim’s history warranted an arbitrary, unrelated, random (almost karmic) dispensation of justice today, then your argument is contrary to the ‘sanctity of the Rule of Law’ most of you also spout from the other side of your mouths. You can’t have both. You can’t support the “follow the rules” mantra and at the same time say “well regardless, he deserved it because he’s a jerk”.

Lastly, there’s the matter of the fine print. I’ve read over and over that the “fine print” on our tickets basically signs away all of our civil rights, constitutional protections, our first born, and part of our 401ks for the privilege of being stuffed into a can and shipped like cattle. (It’s very similar to the case of the Social Contract I often hear about whenever I protest the government stealing from us through taxation or waging wars we don’t support.) To this all I say, “is this fine print set in stone? We, as consumers, can’t demand more for our business? Are we completely powerless and simply have to take it?”

And yet again, the FREE MARKET is the solution to all of the airline industry’s problems. Why do we have such horrible service? It is not because of the lack of government intervention. It is directly CAUSED by government preventing competition from entering the US air carrier marketplace.

Marc Scribner of the Competitive Enterprise Institute notes that domestic airlines are protected against foreign airlines that want to fly domestic routes in the U.S.:

Since the Air Commerce Act of 1926, federal law has imposed ownership and control restrictions on U.S.-flag airlines. These restrictions were tightened under the Civil Aeronautics Act of 1938. Under current law, the maximum foreign ownership and control share of U.S.-flag airlines is 25 percent (see 49 U.S.C. § 40102(a)(15)(c) for the relevant definition of “citizen of the United States”). This is why Richard Branson only held 25 percent of Virgin America prior to its sale to Alaska Airlines. The rest was owned by a New York hedge fund.

The Air Commerce Act of 1926 also prohibited cabotage (see 49 U.S.C. § 41703 and 19 C.F.R. § 122.165), whereby foreign airlines service U.S. domestic routes. There are extremely narrow emergency exceptions to this broad ban on foreign airline competition along U.S. routes and these typically are only granted when a remote domestic route in the Pacific loses all U.S.-flag carrier service—which has occurred in Guam, for instance.

Have you ever flown Virgin America or Emirates Airlines? I’ve flown VA. Still waiting for the chance to fly EA. I can tell you that VA was one of the most pleasant flying experiences I’ve ever had. And I wasn’t flying 1st Class or Business. Just regular coach.  (I’ve heard that Emirates is the stuff of legend.)  Competition in the marketplace forces businesses to offer better service, more reliable departure/arrival SLAs, friendlier staff, and competitive pricing. Take away the competition (i.e. Cronyism) and you reduce incentives for businesses to improve. They get lazy. They get complacent. And they aren’t as eager to keep your loyalty.

It will be interesting to see what changes take place at United and the US airline industry in the next few months and years coming out of this debacle. The cynic in me thinks the public will lose interest in less than a month and Dr. Dao’s violation will become a distant memory in the Hall of Memes. The realist in me believes opportunistic politicians will see this as their clarion call to further regulate which keeps out competitors from entering the marketplace. I hope for our sake that sanity will prevail and the public will keep the pressure on businesses like United to change. I also hope we embrace competition and freedom rather than control and regulation to energize the airline industry.

A quick thought on the additional benefits of the Free Market 

Any reputable economist will tell you that the cure for racism, sexism, and religious xenophobia is not regulation or more government but the Free Market.  When I buy a digital song or a car or a pair of jeans or a TV or a house or some chimichangas, I am unknowingly supporting millions of people from all walks of life and geography — men, women, old, young, black, white, Asian, Hispanic, gay, straight, Christian, Muslim, Jews, atheist​, and even poor and rich.

The Free Market doesn’t care who or what you are. It only cares what value you can bring to the table.  To produce anything, all of the components, parts, assembly, raw materials, financing, transport, warehousing, marketing, sales, and management come together, usually without central planning, without the need for coercion, and without any extra incentives other than individuals seeking out their own self interests. And yet, in the midst of the selfish anarchy of Free Will and Voluntary Association, every day people put aside all of the things that divide us and are able to work together on the majority of the things that unite us.


#Embraceliberty #MiltonFriedman #Rothbard #Hamsandwich #Thepencil #Adamsmith #Invisiblehand

An Evening With Bastiat

Yesterday, my wife and I attended a lecture hosted by the Charlotte chapter of the Bastiat Society.  I was thrilled to learn there was a local chapter in Charlotte and even more excited to learn there was a free lecture being given on Capitalism.  Those who don’t know, Claude Frédéric Bastiat was a 19th century French economist who wrote revolutionary, pro-liberty works such as The Law.  This book was responsible for my first step into the philosophy of Liberty.  If you haven’t read it, download a free copy of it here on audio or pdf at Mises.org.  

Seriously, it’s like 50 tiny pages and will take you less than half an hour.  Go learn something.  

The speaker for the evening was Clemson University Professor of Economics Dr. Bradley Hobbs.  He was very entertaining and informative, engaged the audience well, and gave a lot of excellent, historical and contemporary data about the benefits of Capitalism, why Socialists and the Left seem to be gaining popularity, particularly among the young and senior-aged cohorts, and gave some perspective on many of the common debates often heard on social and traditional media around the evils of Capitalism.  Dr. Hobbs will be sharing some of his presentation notes and references with us soon, so I hope to pass them on when I get them.  

One interesting exchange took place between me and an older, self-proclaimed Crony Capitalist (I’m 90% sure he doesn’t know what that means.  Pretty sure he thinks because he’s an entrepreneur and aged, that makes him one.)  Anyway, the exchange went something like this:

CC:  The problem with Capitalism is that people aren’t concerned about all these larger, global issues.  They’re selfish and only want to think about themselves.  They don’t think about what’s best for society.  That’s just human nature.

Me:  And so you are making an argument that because Human Beings are selfish and short-sighted, we should put Human Beings in charge of determining what’s best for everyone to deal with these issues?  Milton Friedman once asked “Who are these angels that are going to come down and organize society?  Where do we find them?”  

He didn’t like me tone, I guess, because that got him going.  

Somehow, we got to the topic of Public Safety and Motorcycle Helmet Laws.

CC:  Someone has to take responsibility for protecting us and keeping us safe.  The government enforces things like motorcycle helmet laws. . . .

Me:  So if I want to ride my motorcycle without a helmet, breaking the law, and I get into a crash, who is the victim?  

CC: Society is when my money has to take care of your family and loved ones because of your selfishness.  

Me:  So you are protecting Me from Myself [on behalf of my family]?

CC:  Yes because when you’re in the hospital and don’t have the money for emergency care, my money is going to pay for your care. 

Me: No, I do not want any of your money.  

CC:  You will someday.  When you’re laid up and have nowhere to turn.

It’s like a broken record, but I have this same exchange almost everywhere I go (physically and virtually) to talk about Free Markets, Choice, and Liberty.  I even had a similar exchange with a co-worker the other day.  The idea that elected officials, people who were slick enough to convince 50.1% of the voting population to put them into power, know what is best for the hundreds of millions of people in our country is beyond my tiny brain to comprehend.  

Invariably, Statists proclaim that the reason why Free Markets and Liberty fails is because people can’t be trusted.  Thus, People need to be placed​ in charge of everyone.  They also arrogantly claim responsibility and authority over my own free will to make choices about my life.  Because somehow they know what’s best for me.  

Updated edit – The organizer of the Charlotte chapter said I should lead one of the next lectures.  Hmmmm. . . .

 

What Would You Say, Ya Do, Here?

Just a short thought prompted by an exchange I had recently on Facebook with a former student of mine. When it comes to Labor, there’s a difference between Value and Activity. In the free market, Value is determined by the Consumer. Whoever is buying decides if the good or service offered has enough Value to justify the price. As I’ve written before, in a free market, Price is simply the agreement of terms set by the Buyer and Seller. If the Buyer doesn’t see enough Value at a given price, he doesn’t buy. If the Seller doesn’t see an adequate return on his labor, she doesn’t sell.

The Free Market demands Producers give their best in order to attract the most Buyers. Now, a Seller could very well try to cut corners, use inferior materials, or cookie-cutter mass produce his goods to get them to market at the lowest price. And the Buyer might favor affordability over quality. Choice. That’s the magic of the Free Market.

Activity is also known as busy work. I’m sure you can identify someone with whom you’ve worked that seems to always be busy, but you can never really articulate what it is that they do or what their contribution to the organization might be. If you’re familiar with the movie Office Space, one of my favorite scenes is when Tom is meeting with the Bobs, trying to explain what did at Initech. People skills!

Now, this is not a rant against management or some Proletariat rallying cry for the Workers. Good managers absolutely add value to an organization. But the biggest culprit of Activity promotion is Government. Government thrives on pushing paper, filling out redundant forms, following arbitrary procedures and protocol, perpetuating outdated equipment, and generally making you wait. And the reason is simple. Government has very little accountability. They’re not measured on whether their Activity produces anything efficiently. They usually have no competition, so there’s little incentive to make any improvements to the status quo.

I remember seeing news stories of the Soviet Union where everyone was given Activities to perform. Someone might have been responsible for cutting pipes. Another person might have been instructed to produce the joints. Another made the valves. Turned out that the pipe cutters used ¾ inch pipes. The joint makers used ½ inch. The valve makers used 3/8 inch fittings. Because they each had an Activity to perform and no incentive to make sure their product was useful or compatible with others, they just kept making their daily quotas. And what happened? Well, if you were trying to build a house, you probably ended up using a lot of duct tape.

Only in the Free Market, where Producers are rewarded for Value they create and Consumers are empowered to choose the products and services that exactly fit their needs, can a nation thrive, overcome poverty, innovate and explore, and progress ahead. Government, almost universally, stands as the greatest inhibitor of progress. It is a parasite on the Free Market, rewarding Activity and not real Value creation.