The Federal Budget, Part IV

In this, the penultimate post of this series, I’d like to start by discussing prices. Why do the medications for my severe rheumatoid arthritis (with the exception of the prednisone) cost so much? Why is Spam so darn cheap? Well, contrary to popular belief, a price is not a construct that is artificially imposed on an item to satisfy the greed of today’s capitalist robber barons. Rather, a price reflects either the inherent cost of producing a product or the consequences of government policy — or sometimes both.

In an entirely free and unmanipulated market, prices are determined in large part by supply and demand. If many people are clamoring to own a particular item and that item is in short supply (perhaps because it is expensive to produce or extract), its price will rise. If a product floods the market and is not snapped up by buyers, its price will decrease. Prices, in effect, are supposed to communicate to the consumer the relative availability of various commodities. Prices are also supposed to allow ordinary consumers to wisely ration scarce resources. If there’s a massive failure of the annual orange crop and oranges suddenly start selling for $10 per unit, fewer people will buy oranges. Consequently, those who really, really want to have oranges (no matter the price) will have a chance to snatch them up.

Unfortunately, that is not the whole story when it comes to prices in the US, as the federal government has constructed a cloud-cuckoo land of subsidies, all of which favor some industries and corporations at the expense of others. The US government also increases the costs of production through regulations of various kinds, and not all of these regulations actually result in a net benefit for the consumer. And finally, Americans are often confronted with the sequelae of the policies of other nations. This is particularly true when it comes to the pharmaceutical industry. Nations with government-run healthcare systems set artificial ceilings to control the prices of various medications. As a result, American pharmaceutical companies are forced to pass the cost of their research and development to us. Awesome.

Thanks for increasing the price of my drugs, jerks!

Of course, we can’t control what voters do in other democratic nations. We can, however, control the things our own government does which distort our economy and thereby lead to government waste and a lower standard of living for the rest of us. My third principle for fiscally responsible governance thus reads: Don’t play favorites. Don’t hand out extra-special money-flavored lollipops to the corporations and agribusinesses whose lobbyists are most eager to shine your shoes with their tongues.

The left would like us all to think that this isn’t so, but the “corporate welfare” issue is a problem that cuts across party lines. Republicans and Democrats both love to reward corporations for behavior they find politically desirable. When Obama spoke in his most recent State of the Union address about the need to “invest” in things like “green” technology and high speed rail, he was talking about government subsidies. Few in the private business world believe that “green” technology and high speed rail are worthwhile risks at present; that’s why they are not yet in widespread use. But for our own good, Obama and his Democrat allies want to foist them upon us using our tax dollars. We shouldn’t let them. We shouldn’t let anyone – no matter their party affiliation – attempt to manipulate the natural pace of technological development. All that does is divert much needed resources away from other (more viable) industries.

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