no third solution

Blogging about liberty, anarchy, economics and politics

In Favor of Free Markets: Freedom as an End in Itself

April 14th, 2011

It’s often argued that eliminating such-and-such a federal department will make us richer. Or that removing this-and-that tax burden will let us keep more of our paychecks. You’ve heard it before. It goes something like this:

If we get rid of the onerous taxes on the middle class, the regressive taxes that disadvantage the poor, the myriad regulations which hamstring businesses (the right-libertarian does not qualify, but the left-libertarian will probably refine the definition to include “small business, cooperatives, etc. in lieu of capital-intensive, oligopolistic industry) we’ll all be richer.

Depending on the degree of “libertarian” you’re dealing with they may add optional conditions like:

And just for Karma points, let’s stop dropping bombs on kids in Pakistan and funding death squads in South America, and you know what else, it doesn’t really matter if we put another man on the moon…

I’m with you so far [1]. But the argument concludes that we just axe all this stuff and your net income goes up, voila you are richer and then this becomes some sort of justification for the “free market”.

Wrong.

If you are going to be better-off in a free market, it’s not simply because you’ll be “earning more money”.

It ain’t about that 10% or 20% that Uncle Sam takes out of your paycheck every week.

Your nominally “higher” income isn’t going to matter much [2]. There will certainly be discomfort in the short- to medium-term as generations of capital misallocation are revealed all at once. But prices, like water, eventually find their level. So, the fact that you might have “more” money is probably not going to matter.

Nor is it about the paltry few cents that you pay for dozens of programs you probably vociferously oppose, (e.g., public health clinics, welfare for displaced/redundant labor force, mass transit, free birth control for high school kids or low-income people, crappy artwork in public places, etc.) but in the grand scheme of things don’t amount to a hill of beans.

If your primary objection is that the government is ripping you off a few cents on every dollar that you earn, if your strongest talking point is simply, “Well, we could all be richer”, don’t act surprised when people look at you like some bougie sonofabitch who’s just using the rhetoric of “liberty” in order to appeal to that me-vs-the-world selfishness with which you’ve been indoctrinated since kindergarten.

So this is a terrible argument: not only is it objectively incorrect, but it relies on gross exaggerations (if we stopped paying welfare – of course without examining or addressing the root causes of the poverty in society, we’d be richer!), and also because it espouses the very worst aspects of consumerism.

What matters in a free market is the opportunities which freedom presents.

In my estimation it is these intangible effects of such a shake-up that will really improve everyone’s lot in the long-run.

Deep down inside I’d like to believe that we all want freedom, security, a modicum of material comfort, leisure time to spend recreating and enjoying with our friends and families. Money-blind, though, so many have been brainwashed in to believing that these “luxuries” can only be purchased, and the price is perpetual labor & toil to make ends meet and provide for the occasional escape. But that ain’t freedom, and it ain’t security[3] either. It’s a very, very poor substitute at best.

Imagine the freedom to enjoy your life. Real equality of opportunity. The wherewithal to carve your own destiny, rather than trying desperately scrambling to fit perfectly in to some cookie-cutter pre-fab box that’s been forced in front of you like you’re the next interchangeable and totally replaceable piece rolling down the assembly line of life. And if everyone else could do the same? especially if the poorest & least-fortunate among us could substantially improve their lots as well?

The most important part about a free market is not that you will make more money (because you probably won’t, but that won’t even matter!). It’s the freedom, stupid! It’s working within a society, shaping those institutions which foster the freedom, security and well-being which is what we all really want (not that bullshit illusion of prosperity known as “The American Dream^TM“); a world where it doesn’t take 50+ hours of nose-to-the-grindstone or mind-numbing, paper-pushing, rubber-fucking-stamping “labor” to provide for your family, all the while barely making ends meet.

You can’t buy freedom. And you can’t really replace it. Understand that freedom contributes to real wealth, not the other way around, and that we need to be working towards freedom as an end in itself and not towards monetary wealth as some proxy or substitute for what we really deserve.

1. Setting aside the wolf-in-sheep’s-clothing arguments, of course, viz., some advocate policy with sleight of hand that really means, “Lower taxes for me, but not for thee!” in a close-minded zero-sum mentality; they just want a bigger piece of the pie and they are not at all interested in making that pie bigger. It’s easier to just take someone else’s.

2. Prices (including the price of labor, a/k/a “wages”) might rise because of the psychic effect of “more money”. But they might fall as barriers to entry, previously enshrined in law & tax code, have been removed, and competition prevails.

3. I can’t help but recall Franklin’s famous quote about those who would trade liberty for security. Right now it seems we’ve done just that. And if you look around at the jobless rates or the foreclosures or the number of people on this earth who are starving or living on $2/day or less, well it’s hard to argue that anyone is really very “secure”, either.

In a Free Market, Who Will Build the Parking Lots?

October 12th, 2010

Yesterday evening I caught a random comment from local news anchor Stephen Clark, lamenting (perhaps?) a proposal to increase parking meter fees in Royal Oak, Michigan.

A dollar an hour to park in royal oak..I bet businesses love that…not! (via Twitter)

If I had my druthers, the city would stop collecting property taxes and say to all the people and businesses: “You figure it out. The roads, the parking lots, the meters, they’re all yours now. Do with them (or not) as you wish.” So, this is not a defense per se of the proposed increase.

With that qualifier out of the way, I responded with a little Econ 101 knowledge: especially on a Thursday-Friday-Saturday evening, they could easily charge $3-4 per hour that much and there would be no shortage of people willing to pay. This is fundamental economics: when the price of a good or service is set lower than the market will bear, there will be a shortage of that good or service vis à vis the number of people who want to consume that good or service.

If parking were nominally “free”, it would be even more difficult to find a parking spot. Right now, parking is inexpensive, at fifty cents per hour during normal business hours and it’s still very difficult to find a parking spot. This is the number 2 reason why I don’t visit Royal Oak.

The number 1 reason is a preponderance of douchebags. I think the douchebags are attracted by low parking fees.

Stephen responded that, “As a rule, merchants resist parking price increases… they have a tendency to drive away business, but your point is well-taken.”

The notion that these customers (the same people who gladly pay $6 for a pint of beer and $190 for a pair of jeans) are going to be off-put by a 25-cent per hour increase in the meter fees is as retarded as a football bat, by the way.

Let me rephrase that: The business interests downtown oppose any change to this fee structure which would result in them bearing a greater amount (i.e., their fair share) of the burden for maintaining public parking lots in the city. The taxpayers in the City of Royal Oak are providing corporate welfare to the businesses in Royal Oak, predominately in the city’s downtown district. It is a direct transfer of wealth from the people who live and pay taxes in Royal Oak, to the people who only visit Royal Oak.

In a free market, there would be no taxpayer subsidized parking lots just like there would be no taxpayer subsidized bank bailouts, because there would be no taxpayers in the first place! How the parking situation might resolve itself, if I had my druthers (see above) is anyone’s guess. Here are a few options:

Parking lots could be strictly private: belonging to a person or group of people who may (or may not) choose to explicitly charge for their use.
An independent parking lot would probably charge daily or hourly fees to maintain the parking lot.
A restaurant might charge a daily or hourly fee for entry, and validate the charge (or a portion thereof) for any restaurant patrons, or a restaurant might keep the lot for patrons only, building the cost of maintenance/upkeep in to their menu prices, just like they do with the amortization costs of the establishment proper.
Or parking lots could be communally owned and operated — perhaps by a group of neighbors/citizens, but more likely by a group of commercial establishments with less absolute need for parking lots may pool resources together and establish shared lots, perhaps managed by the group or by a third party.

But instead, we have this pseudo-marketplace where the state or city zoning board sets (more-or-less arbitrarily) a uniform price for all places & times. The fact of the matter is that, although business interests may unanimously oppose fee increases, raising the parking fee is not necessarily “bad for business” or “bad for downtown Royal Oak”. The effects either way are probably de minimis, but I would argue that at least on principle of basic economic theory, subsidizing parking lots is a harmful distortion to market prices.

The results: parking is a clusterfuck during weekends and high-traffic events, and there are too many idiots wearing Ed Retardy jeans and fist-pumping all night long in sunglasses after dark.

MSRP and Dealer Agreements: Burton vs. Sierra Snowboard

March 12th, 2010

Note: A slightly modified version of this post first appeared on aGNARchy.

This past week there’s been a big shakeup in the snowsports industry. An online retailer (sierrasnowboard.com) deeply discounted Burton merchandise, apparently breaking some retail agreement. As a result, Burton is pulling the plug on Sierra who will no longer be allowed to sell Burton snowboards and softgoods. Sierra says,

Last week after our two day hardgood sale, Burton decided to pull the plug on our dealer agreement with them. This means that at this time we no longer have the opportunity or ability to buy or sell any additional product of theirs. Yes, we do have dealer agreements about when we can discount and how much, but we’re not the only ones who play with fire like last week.

—No More Burton Discounts on Sierra

This has prompted a firestorm among snowboard bloggers and folks who follow the industry news. There’s hate on both sides, because Sierra is like the “Wal-Mart” of snowsports (except they sell name brands) and Burton dominates market share for hard- and soft-goods. I blogged about this briefly yesterday morning trying to keep it as unbiased as possible; keeping with that spirit I wanted to get my economics on. Let’s get some details out of the way, first.

People get bent out of shape because Sierra is allegedly using discounts trying to superwin, but Burton at one time tried to claim intellectual property on the entire idea of “snowboarding”, essentially trying to take royalties on every snowboard ever made by anyone, anywhere, ever. They’re just looking out for their own bottom-line, too.
Burton is flexing their muscles more because they recently entered the retail game, with their own direct-to-consumer sales on the interhighway and flagship stores. But you know what? They’re only doing this to make more money and take more market share. Double-standard, anyone?
The fact of the matter is that even with the discounts, the internet only accounts for ~18% of snowboards and ~25% of softgoods sales, so they’re hardly “ruining” the industry (via Transworld Business).
Industry sales are down like 9%, but Burton sales are down close to 15%. Ouch!

Consider the Spin

If the retailers were banding together to keep prices high, people would raise hell over price-gouging, collusion, and cartelization. This is not different, it’s just being spun differently. When some retailers break stride with the industry and buck trends, (of course they’re just trying to make money, but that’s not a freaking crime, yet), the competition’s spin-factories start working over time, pumping out the “RUINZ TEH INDUSTRY” arguments, and you take it hook, line, and sinker. Unbelievable.

Plus, I kinda thought everyone liked low prices? Remember when CD players cost like $700? Or when a 128kb mp3 player cost like $150? They give those things away now for about $20. The companies are still making money, and we’re all happier for it.

Do Discounts Ruin the Industry?

One popular argument is based on the “war chest” myth, really an economic fallacy. It goes like this: the big corporation has a”war chest” of monopoly profits which it uses to sustain itself while taking price and driving its competition out of business, after which point it will raise prices again and thus be bad for everyone in the long run. The “war chest” argument is total B.S. for at least two obvious reasons:

They don’t have a war chest of monopoly profits.
Taking price on large market share means taking astronomical losses, it’s the equivalent of doubling your losing bets while playing blackjack.

It’s simply not a sustainable business model to sell product below cost, and nobody who uses this tactic remains in business for long. What I said before is important, and true:

[O]nline and discount sales hasn’t killed any industry yet. But we constantly hear about how it’s going to destroy snowboarding or the music industry or whatever. What it does do is to force change in the way things are done. … It’s the organizations which are most able to adapt to changing pressures that succeed in the long run.

The “online” is changing the way product is pushed to consumers, and in many ways this game is still evolving. This is the nature of our dynamic environment, there is no stasis. People are always going to try and find a better, faster, cheaper way to do things. Thirty years ago the airline industry told the FAA that Southwest Airlines was going to destroy the airline industry. Didn’t happen (what did happen was air-travel became more accessible and affordable to more people). In the long run, competition benefits all of us.

It’s Not Fair to Small Retailers and “Core” Shops!

An important lesson in economics and law is that most legislation aimed at fostering “competition” in order to “save the industry” usually ends up protecting certain competitors at the expense of the consumers.

The correct response to “it’s not fair to the small retailers” is that what’s “not fair” is the MSRP agreement in the first place. Of course there is inequity because Sierra has the clout to reneg on this agreement, but the root of the problem is ultimately market-power gained in an unfree market. Keep this in mind at all times.

If the manufacturer wants to prop up the small retailers, then charge a higher price and don’t give bulk discounts to the online megastores; build their “minimum acceptable price” in to the wholesale price and discriminate against different retailers. Certainly a brand like Burton (Anon, AK, Foursquare, Forum, etc.) has the market power to do this. Unfortunately, you could probably dig up a dozen precedents in anti-trust case law which would explicitly preclude the manufacturer from offering favorable pricing terms to certain retailers and “unfavorable” terms to others.

The fact of the matter is that “core” shops are going to survive. They’ll go online if they haven’t already, and market nationally as well. This flattens prices and margins everywhere. And they’ll still thrive on foot-traffic and personal service.

H.R. 3190 – A Legislative Solution?

Enter government… H.R. 3190 recently passed the House judiciary committee, it would “effectively ban manufacturers from dictating minimum prices to dealers.” But MSRP agreements are always forward looking and so Resolution 3190 ultimately isn’t going to solve the problem.

My take is that this is typical reactionary legislation that we should expect from government which is constantly trying to fix problems of its own creation. Otherwise, if a manufacturer wants to “dictate” the price, they can ask (i.e., require) their retailers to adhere to certain terms, and if the manufacturer disapproves of the retailers marketing/sales tactics, pull the plug like Burton is doing to Sierra.

Summing it Up

The idea that people would still be buying all this equipment at full MSRP if it wasn’t discounted is in direct contradiction to everything we know about price theory. All else being equal, for normal goods, people will buy a larger quantity of a product when it is offered at a lower price. If there is excess supply in the market, prices need to drop to reach equilibrium and clear out inventory.

Someone once told me that every year Ferrari takes orders for its new model. Maybe they get 1,000 people who put down a deposit to reserve a brand new Ferrari. So Ferrari goes ahead and manufactures exactly 999 new cars, thus ensuring that they’re not overproducing, in order to maintain command over a super-premium price.

Now, obviously I’m not proposing anything that extreme. It couldn’t be done with the snowsports goods, anyways, but you get the picture. There are brands out there that don’t over-saturate the market. Never Summer comes to mind, but they only make like 13,000 boards every season. The Lib Tech T-Rice is pretty hard to find these days, too. No idea how many of those they made, but what matters is they made approximately the right amount to command full MSRP on all of them.

The bottom line is that when you overproduce, there is going to be a loss on unsold merchandise, or a loss on discounted merchandise. Seems to me like Burton wants their retailers to absorb the lion’s share of these losses, and that’s not “good for the industry”, either.

Full Disclosure: I’ve bought merchandise from Sierra in the past. I’ve owned a Burton board (which I coincidentally bought from Sierra at a super-steep discount!), I love my Burton Cartel bindings, and some of my softgoods are Burton, too. I don’t have a vested interest in either side of the argument.