We have a 1976 Toyota Land Cruiser that's in good shape, but it's difficult for me to drive if my van unavailable or unusable. I can drive a standard just fine, but the Cruiser doesn't have power steering and it's HEAVY. Besides that . . . it doesn't like me. Every time I drive it, I get injured. I break a nail or bruise my knuckles. One time it knocked the diamond out of my wedding ring. I call it "The Bruiser" . . . but it IS a COOL Cruiser, as you can see. Anyone who drives it gets lots of compliments.
However, it can't carry a camper, or sheets of plywood, or a load of dirt. So . . . we're in the market for a used truck, small enough to get decent gas mileage, but big enough to carry a camper through the Colorado mountains.
We searched on Craigslist and plenty of trucks showed up in our range of affordability. One of them was newer than the rest, and the price was a LOT lower. We emailed the seller. She had a sad story about being recently divorced and needing to sell the truck. She said the sale would be conducted by "eBay Motors" which is a solid company. We asked for more information, and she sent the VIN number which I researched, and it checked out.
I asked for more details and she sent an "eBay transaction" number. She said not only would eBay insure the sale, but it would handle the shipping, cost included. That was just TOO good. You know the old saying? "If it sounds to good to be true . . . it probably is!" They just needed half down, and half later. My suspicions were raised, and I contacted eBay after I got her email with the "transaction number." Sure enough, it was a SCAM. Fortunately, we had not sent money or any sensitive information.
This experience got me to thinking about two things. 1.) The value of information, and 2) the benefits of a free market.
Information is valuable because you require details about goods and services you need or want. You can research a VIN number and get the individual history of a vehicle. You can go to Kelley Blue book and find out the TRUE value of any model, with features and mileage.
How does Kelley Blue Book determine the value of that type of vehicle? It's from the buying and selling on a FREE MARKET. The market determines the TRUE value of a vehicle. Kelley Blue Book tracks thousands of transactions and you get the benefit of that information.
How can you know if a price is "too good to be true?" You can know by finding out what the FREE MARKET price is. That's why a Realtor gets "comps" for you when you are buying or selling a house. The "comps" are the "comparables" for similar houses in that neighborhood. Would you like to pay $25,000 more for a house than for other similar houses in the neighborhood? Of course not.
Prices are signals. They signify the value, or worth, of something. If you know what a price SHOULD be . . . as we did with the truck, then we got a signal that something was wrong. Prices signal suppliers; rising prices signal that demand is going up, and producers increase supply in response.
The free market keeps you from paying MORE for something than it's worth, or selling for LESS than real value . . . and it can keep you from being scammed. The free market PROTECTS you. When people buy and sell freely, the item or service being sold will auto-set at REAL value. If the government ARTIFICIALLY sets a "price," (either a price "floor" or a "cap") it puts LIMITS on the FREE market. Then you don't know what that value really is . . . how do you know if you're getting the your money's worth?
That limit on the price of something interferes not only with the free market, but with TRUE information. It screws it up. If prices are not allowed to set themselves in the free market, someone is losing value . . . either buyers or sellers.
If sellers can't get what seems to them is the "right" price for something they're providing, they will provide less of it. Then buyers suffer shortages. Sellers, of all people, know the proper worth of something. They know the cost of time and materials to provide a product or service.
You may think the government can "control" costs (value). It can't . . . it can only control "price." If it tries to limit or suppress the true value/cost, then supply goes down. It happens every time.
If something seems too good to be true . . . it probably is. If you're shopping for a politician to improve the economy, and he or she wants to set limits on the FREE market . . . keep on truckin'!!!
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but how can you ever know what the value "really" is? value is totally subjective; it's a question mark. If a non-free market sets a price, how is that different from a free market setting a price as far as value is concerned? What is it that makes the "free" market price more realistic than the non-free market one? What about monopolies in free markets that jack up prices because they've killed all competition? Are they changing the "real" value of an item? Do you see value as a constant?
ReplyDeleteThe true value is the price point at which a seller is willing to sell and a buyer is willing to purchase.
ReplyDeleteIf there are thousands of cars out there that sell for $2,000 and the government suddenly says the minimum price for a car is $3,500 . . . you KNOW that you're getting stiffed for $1,500 (or more) if you're looking for a cheap "beater" to drive.
By the same token, if you sell hand-made purses for $50 and the government suddenly says that purses must sell for no LESS than $100 each . . . as a seller you know you're making more than you "should" and that your buyer is getting stiffed. What would probably happen in that instance is that buyers would find a substitute for purses. They would use briefcases, or backpacks or make their own. ("Elasticity" of demand.)
If there is a monopoly, that's not a "free market." Even then, barring government interference, if prices go up enough, some entrepreneur will get INTO that market and provide competition.
Monopolies, or oligopolies, usually come about when there are high barriers to entry . . . things like high start-up costs or high risk (as in oil drilling or pharmaceutical research) . . . OR if the government makes a deal with a company that limits their competition (as with some states and certain insurance companies).
If prices go up high enough, some entrepreneur or venture capitalist will enter the competition, and that will increase supply and bring prices down. If government interferes, and CONTROLS prices . . . no one will jump the fences of start-up expenses in order to compete. In that case, the service/product in short supply will get in SHORTER supply because the price can't go up. In reality the "price" DOES go up, but people "pay" by waiting in lines, or substituting with more expensive alternatives, or the product/service goes black market, at an even higher price.
Value is not a constant. It is what a person is willing to pay. There are too many variables for the government to try to set prices for ANYTHING. If they do, they're wasting money just about everywhere along the scale.
The price of anything depends on it's features, the cost to produce it, the demand for it locally, regionally and globally, is supply (locally, regionally, globally), the cost of living in the place it's being transported to and sold, the cost of transporting it, whether its a perishable good or a durable good, it's popularity . . . and on and on.
You're too young to remember seeing the news stories on TV of the Soviets waiting in lines for hours, just for a loaf of bread. If a command economy can't even make something as simple as bread readily available for it's citizens . . . why would anyone trust it with anything else?
Trust freedom and liberty, not government control.
Here's a current example:
ReplyDeletehttp://pgosselin.wordpress.com/2010/06/22/german-solar-energy-gravy-train-the-coming-meltdown/
In Germany, the government guaranteed a return of 40 cents per kilowatt hour for Solar energy (non-free market). However, the free-market price per kilowatt hour for other energy is 6 cents.
The unnecessary costs to the German economy of this price floor on solar energy is about $107 billion.
That money could have gone into actual productivity instead of wastefulness.
"The true value is the price point at which a seller is willing to sell and a buyer is willing to purchase."
ReplyDeleteBut what if a seller is willing to sell at a loss because he is desperate? What if a buyer doesn't realize how much money has to go into making quality merchandise and refuses to pay an amount that would give a quality craftsman a reasonable profit? people growing up in our wal*mart culture sometimes have really skewed ideas of what certain items are really "worth." you know, child sweatshops in India &c.
It doesn't make sense to me to talk about REAL value if value is a variable. What if the gov't steps in and sellers are happy to sell at the new price and customers willing to buy at it? by your definition, the real value has now changed. what if a free market never manages to achieve a happy balance? it doesn't seem as cut and dry to me.
As for the Germany example, they obviously decided that effecting some kind of environmental change was worth whatever they spent encouraging the use of solar power.
ReplyDeletemoney isn't everything.
When a seller is "desperate" it means he/she wants to sell quickly. In order to sell quickly, he/she sets the price lower than market value to attract a buyer as fast as possible. He/she is using the "market value" to his/her advantage. Seller and buyer both benefit. If he/she wants the market value, he/ she can get market value, but he/she must be willing to wait for the right buyer.
ReplyDeleteTime is money. That's another economic principle. The desperate buyer trades "wait time" for "immediate money." It's kind of the flip side of interest . . . when you're willing to loan money and WAIT for it to be paid back, you get more. If you're not willing to WAIT, you get less.
"What if a buyer doesn't realize how much money has to go into making quality merchandise and refuses to pay an amount that would give a quality craftsman a reasonable profit?
ReplyDeleteAre you saying that poor people should be forced to buy expensive furniture so that craftsmen can get paid what they want? I doubt that's what you mean. At every price level, there are buyers and sellers. The market should determine the quantities of each, not some government bureaucrat. People should have the FREEDOM to choose the goods and services they want without the government limiting their choices.
Value IS real. It just varies by the person, the product/service, the location, and the timing, among other things.
If you are at home, you wouldn't pay for a glass of water. At a sporting event in 95 degree heat, you probably would pay for a bottle of water. Why the difference? Are you saying the bottle of water isn't worth what you are willing to pay for it because you can get it for "free" at home?
What do you have against providing jobs for poor people in India? What do you think would happen to those people if U.S. businesses pulled out? Where would they get their jobs?
ReplyDeleteWal-Mart has done more good for poor people than probably any other company in the country. Not only do they provide jobs for hundreds of thousands of (often low-skilled) people (if not millions), they make the dollars of poor people go farther than any other store. Did you know that Wal-Mart employees get a whole month's bonus once a year? And they provide health benefits, if you're there more than 6 months, and you don't even have to work 40 hours a week to get them.
Do you buy things when they are on sale? Why? That is the NATURAL thing to do. Everyone wants to make their hard-earned dollars go as far as possible. That's the most efficient thing to do, and we waste fewer resources by thinking that way.
:)
You're a thinker, and I LOVE that about you!
I never directly criticised Wal*Mart, I was only talking about our wal*mart culture, which often thinks that cheaper is ALWAYS better. It's not, but people are dumb. I know folks who will spend more money on crap in the long run because they don't want to fork up the dough ahead of time and get quality items and services. But what can you do about stupid people? That's a hard question for anybody to answer.
ReplyDeleteI think no job is better than a job that mistreats and uses someone. It's not right to do immoral business in another country just because they'll take it and wealthy, white Americans won't. The dollar should never dictate morality, ever. But when one's focus is very intensely on moneymaking, morality is one of the first things to fall by the wayside.
And I never said that craftsmen should get paid what they want, but rather gain a "reasonable" profit. No one would expect a man to spend two days working on a chair just to gain a $5 profit--! That's working for two cents an hour. I mean, no one thinks that snakeoil salesmen who peddle illusions and deceit should be allowed to remain in business. Obviously, some regulation is required to protect people and keep them from being taken advantage of. The question isn't whether regulation is bad--which you seem to be saying--but whether specific regulations are good or bad. Unless I misunderstand and you really are for 100% laissez-faire capitalism?
"Value IS real. It just varies by the person, the product/service, the location, and the timing, among other things."
if value is so subjective, then why keep barking about REAL and TRUE value? what if you're just saying what value is to YOU, and since value varies by the person, is only applicable to you?
If we were just a "Wal-Mart culture" there would be no other types of stores. But there are thousands of other choices: Targets, Penney's, Sears, Costco, Bass Pro, REI, Safeway, Alberston's, Best-Buy, etc., and malls in nearly every city in the country. All of them sell variations of the same types of products that Wal-Mart sells. People choose to shop where they want or need to. If they NEED lower prices, they shop at Wal-Mart. If they want higher-end merchandise, they shop at the mall, or REI. Free choice is a GOOD thing, for everyone.
ReplyDeleteYour comment "people are dumb" sounds a bit elitist, as well as "they don't want to fork up the dough ahead of time and get quality items and services." Not everyone can AFFORD to "fork up the dough" for "quality." If you have a family to feed and limited income, you'll gladly buy hamburger meat at Wal-Mart as opposed to steak from Outback (quality and service.) That's not "dumb," that's smart!
I agree with you that it's wrong to mistreat an employee. It's also wrong to mistreat employers. Businesses are sued by employees and customers, and run out of business by extortionist unions, and stores lose more inventory to EMPLOYEE theft than they sell to customers. I'll bet you didn't know that inventory "shrinkage" fact, did you?
"No job is better than a job that mistreats and uses someone" . . . so you'd rather a family starve than work at a job that might be lousy but pays regular wages? If the workers have a choice to take it or not, why is that more of a problem than starvation? What seems to an American to be "low wages" is actually HIGH wages in some other countries. Because of exchange rates and cost-of-living, they make GOOD money, while we get GOOD prices. Both parties benefit by this free trade.
"The dollar should never dictate morality, ever." I agree. But prices are set by peoples' wants and needs, and the supply. Businesses don't go into business to LOSE money; They're not like government, which can print money. If a business loses money, they go OUT of business. They MUST make DOLLARS (profit) to stay in business and provide goods and services (which CREATE jobs). If artificial constraints are put on either supply or demand, then there is waste. That unnecessary WASTE is immoral. Those wasted resources could go to things that people NEED.
For simple example: A family of 5 budgets $950 for rent/mortgage, $800 for food and they use about 100 gallons of gas each month (3 fill-ups) at $3.00 a gallon ($300), with none left over. If the government decides that they want to lessen the use of fossil fuel by raising the price to $4/gallon, then that family now has $100 LESS for food (or rent). They then must reduce their food consumption, or move to a cheaper rental, or SELL their house. THAT is immoral, because the government is "taking" that family's money (without due process) by forcing them to lose $100 in every month.
ANY government policy that sets a floor on price, has the potential of gouging the consumer. Any government policy that sets a ceiling on a price, has the potential of gouging the seller.
Value is REAL, and it's the price point where buyer/seller meat. YES it varies, and it SHOULD. If the government doesn't LET it vary . . . that is when it is NOT real.
Why is it that discussing economics & logic with English majors is so difficult? (Wink-wink :)
If we were just a "Wal-Mart culture" there would be no other types of stores. But there are thousands of other choices: Targets, Penney's, Sears, Costco, Bass Pro, REI, Safeway, Alberston's, Best-Buy, etc., and malls in nearly every city in the country. All of them sell variations of the same types of products that Wal-Mart sells. People choose to shop where they want or need to. If they NEED lower prices, they shop at Wal-Mart. If they want higher-end merchandise, they shop at the mall, or REI. Free choice is a GOOD thing, for everyone.
ReplyDeleteYour comment "people are dumb" sounds a bit elitist, as well as "they don't want to fork up the dough ahead of time and get quality items and services." Not everyone can AFFORD to "fork up the dough" for "quality." If you have a family to feed and limited income, you'll gladly buy hamburger meat at Wal-Mart as opposed to steak from Outback (quality and service.) That's not "dumb," that's smart!
I agree with you that it's wrong to mistreat an employee. It's also wrong to mistreat employers. Businesses are sued by employees and customers, and run out of business by extortionist unions, and stores lose more inventory to EMPLOYEE theft than they sell to customers. I'll bet you didn't know that inventory "shrinkage" fact, did you?
"No job is better than a job that mistreats and uses someone" . . . so you'd rather a family starve than work at a job that might be lousy but pays regular wages? If the workers have a choice to take it or not, why is that more of a problem than starvation? What seems to an American to be "low wages" is actually HIGH wages in some other countries. Because of exchange rates and cost-of-living, they make GOOD money, while we get GOOD prices. Both parties benefit by this free trade.
The dollar should never dictate morality, ever." I agree. But prices are set by peoples' wants and needs, and the supply. Businesses don't go into business to LOSE money; They're not like government, which can print money. If a business loses money, they go OUT of business. They MUST make DOLLARS (profit) to stay in business and provide goods and services (which CREATE jobs). If artificial constraints are put on either supply or demand, then there is waste. That unnecessary WASTE is immoral. Those wasted resources could go to things that people NEED.
ReplyDeleteFor simple example: A family of 5 budgets $950 for rent/mortgage, $800 for food and they use about 100 gallons of gas each month (3 fill-ups) at $3.00 a gallon ($300), with none left over. If the government decides that they want to lessen the use of fossil fuel by raising the price to $4/gallon, then that family now has $100 LESS for food (or rent). They then must reduce their food consumption, or move to a cheaper rental, or SELL their house. THAT is immoral, because the government is "taking" that family's money (without due process) by forcing them to lose $100 every month.
ANY government policy that sets a floor on price, has the potential of gouging the consumer. Any government policy that sets a ceiling on a price, has the potential of gouging the seller.
Value is REAL, and it's the price point where buyer/seller meet. "Real" doesn't mean "static." YES it varies, and it SHOULD. If the government doesn't LET it vary . . . that is when it is NOT real.
Why is it that discussing economics & logic with English majors is so difficult? (Wink-wink ;)
You seem to make a lot of assumptions concerning what I'm trying to say, so I'm going to respond to your post point-by-point and avoid those kind of misconceptions.
ReplyDelete"If we were just a "Wal-Mart culture" there would be no other types of stores. . . . Free choice is a GOOD thing, for everyone."
I agree. I'm all for free choice. I'm an anarchist, remember? ;)
"Your comment 'people are dumb' sounds a bit elitist,"
yeah, that was a bit mean. Meant to write "SOME people are dumb," but left that bit out. the software ate my first post so I was a bit hurried when typing it a second time. btw I should have been specific, I was thinking about my grandfather who is building a house. He's rich, no doubt about that, but pays for the crappiest work because he's got some skewed idea of value. He's had to have things re-done multiple times and court battles and the works because he wouldn't just go with reputable companies and instead just picked dudes with their own vans.
Now, as for food, since that's the first thing you mentioned in your example (wal mart hamburger vs. outback steak). Regulation is good here. We wouldn't want Wal*Mart to be selling people dangerous meat, would we? Food pumped full of chemicals and crap? and what about how some stores ship meat from halfway across the world to get it there... it might be "cheaper" to ship meat from somewhere across the world, but it's actually more efficient and beneficial for everyone to buy meat next door instead. some costs are hidden costs, but they affect us all eventually.
"I agree with you that it's wrong to mistreat an employee. It's also wrong to mistreat employers."
Sure. but less common. And I do know that employees steal the worst--Eli used to work at "savalot" grocery in Barnesville, and all kinds of crap goes on there.
". . . so you'd rather a family starve than work at a job that might be lousy but pays regular wages?"
What do you mean by "lousy"? I'm talking real problems here, like exploitation of children, paying people less than they can actually live on for full time work, putting workers in dangerous situations where the risk of death or injury is great and COULD be reduced but isn't because the business is cutting corners, etc. ... I don't think we're talking about the same thing. I think it's better to shut the business down than allow them to hurt any more people. People need to be given BETTER choices if their only choice is that kind of work or starvation. Better yet, they need to be given charity aid until they have better job choices. I wasn't necessarily talking about only American jobs, either. There isn't too much of that going on in America anymore, but there certainly are businesses that encourage it in other countries where no one is looking over their shoulders.
I am all for free trade. But really free trade, where cost of living actually is taken into account and people are treated with respect and dignity, no matter what.
"That unnecessary WASTE is immoral. Those wasted resources could go to things that people NEED."
I agree. But just because a market is free doesn't mean that resources are not wasted. Restaurants and grocery stores regularly throw away perfectly good food because it is a day old or whatever. There are people starving in the streets while safeway dumps all their baked goods at the end of the day. is this not horrific waste that must be combated? What about recycling...? Most businesses don't bother (around here anyway) because it is cheaper to just throw things away and use new products. Isn't that waste? Governments aren't the only things that waste resources and money... Free markets do their fair share of wasting too. you can't possibly tell me that potentially re-usable products wasting away in a landfill (non biodegradable to boot) is not waste.
In your simple example: no. The gov't is taking away money that they budgeted toward gasoline. There is another option that you didn't list: that the family use less gasoline. They might not want to take the hit, or they might not be able to (living really far from work/school or something) but the issue is gasoline consumption. It's not about stealing money but about lifestyle values butting heads.
ReplyDeletevalue is real, but subjective, and hard to pin down. do you think corn should be subsidized for farmers' income? and things like that? I mean, beyond just artificial price controls with gov't, how free of a market are you talking about?
(I'm a libertarian btw... not a communist or something. I'm all for free markets. but at the same time, I realize that due to human sin a regulation-free market is not the best way to go)