Part 1: TANSTAAFL — There Ain’t No Such Thing As A Free Lunch.
This means that whatever you get, you’re paying for it one way or another.
Whenever people are free, they allocate resources by pricing — think of this as “price-rationing.” But when the government intervenes, it does “political-rationing.” Only price-rationing actually works in an economy, though. Political-rationing does something else entirely — it dispenses political power in favor of some groups at the expense of others, but the total cost to everyone is higher than if price-rationing is left alone to allocate scarce resources.
Let’s see an example using a “price-gouging” situation.
The Scene: Following a devastating hurricane on the Gulf Coast, millions of people are left without electricity for several weeks. Recognizing the desperate need for power, a bright go-getter named Nick buys twenty generators in Birmingham and drives them to Mobile. There he offers them for sale at twice the price he paid for them.
The Mobonomics Scenario: Nick is charged with “price-gouging” and goes to jail. The state confiscates the generators, planning to distribute them to the needy. It turns out everyone is needy, and the generators get tangled up in a bureaucratic black hole in which various officials are vying to hand them out to their pet voters. In the end, no one gets the generators; they rust away in storage and are eventually disposed of. Nick pays a stiff fine to the State and learns not to take the initiative so boldly next time. He becomes a “tame” citizen, always worried about what laws he might be breaking. Total Cost: Everyone pays in the form of a classic Mobonomic Slap-Down.
- Nick loses his investment, his economic opportunity, the money he paid in fines, and a substantial portion of his humanity.
- Some people get the satisfaction of seeing Nick beat down by the state, but they forget about TANSTAAFL. It’s hard to put a dollar cost on this kind of vindictiveness, but it certainly has economic repercussions by discouraging innovation, initiative, and trade. They’re paying for it one way or another.
- No one gets the generators. Some think it’s too bad, but they figured if everyone couldn’t have them, then no one should.
- Just as Nick becomes weaker and more fearful, the state becomes more bold and powerful; taxes go up.
The Free Society Scenario: Nick pulls up in the parking lot of a devastated corner convenience store in a residential neighborhood. Within an hour he has sold half his generators at twice the price he paid for them. The second half goes for three times what he paid because the scarcity of generators induces buyers to offer higher prices — bids — for the last few. Nick calls his cousin Fred back home: “Get down here with fifty generators.” Fred goes to Buildit Home Suppy and orders fifty more. The manager clues in to what’s going on and sends his cousin to Mobile with fifty generators. Now there are 100 generators for sale, and two different sellers. They both make a killing, but this time the price doesn’t rise quite as high; for one thing, there are competing sellers. For another, the supply of generators doesn’t completely run out again because the suppliers are working day and night to keep from running out. Total Cost: High prices initially, but the area is flooded with much-needed generators; prosperity and convenience abound.
- At first, only people with lots of money could afford the generators. This was “price-rationing.” Early in the process, the rationing was very strict, and some of the people who couldn’t afford the first few generators got angry. They called it “price-gouging.”
- However, the profit motive induced more sellers to compete for buyers, which increased the supply and brought prices down.
- In a way, the early buyers — the rich — subsidized the arrival of more generators at lower prices. It’s not technically a subsidy because it was all done voluntarily, whereas a subsidy involves the state taking your money by force (stealing) and giving it to someone else. But the free market version of a subsidy is better because it gets the same result quicker, at less cost, and without anyone losing freedom.
- Nick bought the damaged convenience store and moved his family to Mobile. In the reconstruction they got rich. In this free society some people just get richer than others, and only greedy, self-centered, envious people hate them for it.
As you can see, Mobonomics doesn’t work as well as liberty-based economics. But I know what you’re wondering: What if Nick charged ten times what he paid for the generators? Or fifty times as much? Is there no point at which the Divine State must step in and limit the price he demands?
No. There isn’t, and we’ll see why in Part 2: Redneckonomics.
~ Manny Edwards