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Government’s Myopic Price Setting Never, Ever Works
Government is awful at…everything.
Government price setting/regulating/capping…is awful squared.
Why is price setting awful?
Because it is impossible to do it even remotely accurately.
There are a multitude of market factors that coalesce into the price of a widget at any given moment.
These multitudinous market factors - are constantly changing. So the price of the widget is constantly changing - from moment to moment, over and over and over again.
So the price government artificially sets yesterday - may be way too low today. AND way too high tomorrow. There are simply too many variables at play.
Markets set prices WAY better.
And prices need to reflect future expenses - not just past expenses.
To wit: Gasoline. The price at the pump doesn’t reflect how much the last oil barrel was - it reflects how much the next oil barrel will be.
The price of a widget - has to reflect how much it will cost to make the next widget.
Why is government awful at everything? And why is government setting prices awful squared?
People spending other people’s money - never do so wisely or well. They don’t care what other peoples’ wallets look like after they’re through with them.
Government bureaucrats only have other peoples’ money to spend.
And Thomas Sowell wisely noted:
“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”
If the government price setters get it wrong - and they will, they’re government - they’re proboscises aren’t peeled. They clock out - and clock back in the next day. Their very generous benefits and pensions remain utterly unaffected.
But their inexorable errors - damage or destroy the industries for which they’re fixing prices.
Government is awful at everything. Setting prices - is contained within the subset “everything.”
Government price fixers don’t understand markets. And they pay no price for not understanding markets. So putting them in charge of pricing markets - is REALLY stupid.
We had government-price-fixed-induced gasoline shortages and LONG lines at the pump in the 1970s - because the government price caps didn’t remotely reflect market reality. I can’t imagine a single bureaucrat was even reprimanded for any of it.
Behold the Surface Transportation Board (STB). Yet another government bureaucracy of which you probably have never heard.
But if you work in the freight railroad industry - you absolutely have heard of it.
The STB has the power to set freight rail prices - if the STB bureaucrats decide that markets are being abused and competition is ineffective.
As we just noted, 10,000 years of human history has metaphysically established: Government bureaucrats do not understand markets. So they are incapable of deciding that “markets are being abused and competition is ineffective.”
Shocker: The way they make this determination - is wrong. They use models - yes, like climate and China Virus models - to determine train companies’ “revenue adequacy.”
Which is an awful way to decide whether to set prices - or do anything else.
We are in the midst of the all-time-stupid China Virus shutdowns. Which have dramatically contracted the economy. Last year’s “revenue adequacy” - has zero bearing on this year’s “revenue adequacy.”
The STB hasn’t changed its criteria to determine “revenue adequacy” - in FORTY YEARS. And they’re STILL using it to set prices. So I’m sure they’re exceedingly accurate and effective.
Amongst the very many “revenue adequacy” errors is - it is solely backwards looking. It solely examines how much money you had yesterday. Not what you need today - for tomorrow.
It is looking at the price to make the last widget - not the next. At the last barrel of oil - not the next.
Speaking of forward looking:
Freight rail companies routinely rely on outside capital investment to fund their next endeavors. And they are competing for these loans against many, many companies - from many industries besides just freight rail.
If these prospective investors see the freight rail companies being subjected to the straight-jacket of government-fixed prices - they won’t be lending the freight rail companies any money.
There are plenty of other less-regulated places to lend their coin. And less-regulated - is always the better bet.
This dearth of investment coin will, of course, crush the freight rail industry.
And given the fundamental role freight rail plays in our supply chains - that ain’t great for…everything we do.
So we will ask the STB what we ask nigh all government bureaucracies everywhere:
Don’t just do something - stand there.
Oh - and for the love of sanity:
PLEASE replace your “revenue adequacy” system with something that is at least in the same solar system as Reality.
This first appeared in Red State.