The laws of economics cannot be violated

Recently I’ve been listening to Basic Economics 4th Ed: A Common Sense Guide to the Economy by Thomas Sowell as I drive to and from Idaho and on my commute into Seattle. One of the lessons was that if prices are fixed by the government you will have problems.

If the prices are fixed too low it results shortages, poor quality, and under the table payoffs to suppliers and/or government price control enforcement agents. If prices are fixed too high it results in surpluses, wasted resources, less efficient means of producing the product (no incentive to reduce costs), and a heavier tax burden. Letting the free market adjust prices dynamically results in much closer to optimal allocation of scarce resources with alternative uses.

This lesson has been known for decades, if not a century or more, but politicians have no incentive to adhere to the laws of economics.

Via email from Ry we have the further proof that the laws of economics cannot be violated without suffering known punishments:

A federal power agency discriminated against wind operators in the Pacific Northwest when it unplugged their generators to cope with a surplus of renewable energy on its transmission system this year, the Federal Energy Regulatory Commission ruled on Tuesday. It ordered the agency, the Bonneville Power Administration, to rewrite its rules.

Bonneville had argued that it had no option but to lock out the wind generators to protect salmon in the Columbia River.

While the agency could have reduced the power output of hydroelectric dams by routing excess water through a spillway, doing so would violate the Clean Water Act and the Endangered Species Act, it said.

But a group of wind companies filed a complaint with the energy regulatory commission saying that instead off turning off wind turbines, Bonneville should have resorted to “negative pricing,” or paying customers to take the excess power. Bonneville countered that this would conflict with its obligation to repay loans from the federal government and to provide power cheaply.

The problem could crop up more often as companies build wind and solar farms to meet state requirements for renewable energy.

“Negative pricing”?

We need a Constitutional amendment that guarantees freedom of commerce. That would have prevented the health care bill, the war on drugs, subsidies for farmers, and the $200 tax on firearm noise suppressors as well as crazy stuff like people advocating “negative pricing” for electrical power.

13 thoughts on “The laws of economics cannot be violated

  1. Missing from the article.

    Hydro power is about $0.04/kWh. Where wind power, which is subsidized in cost by the government to bring down the price is about $0.16/kWh. Who in this picture should really be doing the “negative pricing?” Maybe the wind power should price its self to be competitive in the Pacific Northwest.

    Wind power is an absolute joke and about the only people who seem to know it are the ones who actually pay attention to this crap.

  2. Barron beat me to it! The wind turbines are fine, but Central Washington generally has a surplus of electric power, and sells to the grid, thanks to men who looked into the future nearly 60 years ago. Now those very efficient and productive dams are being told to cut back on power production, right after upgrading their systems! The turbines, owned almost exclusively by Western Washington interests, even though they are in Eastern Washington, are damaging the viability of power production systems in place for 50+ years!

    I think wind power is an option in places where hydro is not available, or where people deem that building nuclear plants is unacceptable, (California comes to mind), but where there are viable alternatives, penalizing those alternatives because wind power is more expensive is simply stupid! Replacing old, cheap technology with new expensive technology at 4 times the cost isn’t just stupid, its wrong!

  3. Let me distill this for y’all;
    “If the prices are fixed too low it results shortages, poor quality, and under the table payoffs to suppliers and/or government price control enforcement agents. If prices are fixed too high it results in surpluses, wasted resources, less efficient means of producing the product (no incentive to reduce costs), and a heavier tax burden. Letting the free market adjust prices dynamically results in much closer to optimal allocation of scarce resources with alternative uses.”

    Take that, put it in your copper boiler for three hours while you condense the essence in your heat exchanger, and you end up with this simple phrase;

    People do much better when they’re not being coerced, m’kay?

    It’s all about the principles. You can come up with example after example, and dance choreographed dance troop routines on the heads of pins, but people do better when they’re not being coerced, any way you look at it.

    Now which is easier to present to those who most need to hear it and understand it– the choreographed dance troop routine, complete with music score, the motion charts and the prop changes, or;

    People do much better when they’re rights are not being violated or threatened.

    I don’t know, but I suspect I know.

  4. I barely touched on it above, but I didn’t get all the way to the real point– the really fundamental principle. All I did was reiterate Sowell’s paragraph. I’ll leave it up to the rest of the class to define that really fundamental principle. I could spell it out very easily right now (the truth is always easy) but I want someone else to do it.

    Anyone?

    Correction to previous comment; it should be “their” not “they’re” in the last bolded sentence. OK I made a mistake.

  5. I *think* what Lyle is fishing for is that there is nothing the government can do to improve the marketplace by trying to circumvent/interfere with the natural mechanisms by which it works, and that there is a lot it can do to screw things up. Even if it by some magic were to “regulate” things right at the marketplace equilibrium value, it would still end up causing problems because if something were to change, the marketplace could react to that change far faster than the government can. Furthermore, when government does react/interfere it tends to do so in the *opposite* direction that the market wants to go (e.g. anti-price-gouging laws), making the situation even worse than it was before.

  6. Ubu, almost everything in that list can be explained away thusly: If you don’t like it, don’t spend your money on it. This is a natural, free market mechanism that guarantees that businesses can never get too far out of line, or they go out of business.

    In an actual free market, the absence of artificial barriers to entry etc. further ensure this because if there is a need that is not being met (a better deal on cabs, say) anyone who can rustle up the cash to buy a couple of serviceable vehicles can then start up his own cab company that takes people straight to where they want to go. Soon everyone will start taking their business to that company & it will expand; this will further force other companies to start to compete for business & go straight or drop out. This obviously has some limits-you still have to make a profit–but competition like this tends to keep profit margins fairly thin, which is good for consumers.

  7. @ubu52, Yes. But none of the first 30 or so I read on that list qualify as market failures. Transitory conditions that correct themselves with a lawsuit over damages don’t count.

  8. We can point to catastrophic failures, mass destruction, and 100s of millions dead from “central planning” typ governments, and the left says we’re wrong because a little freedom here and there can result in a light recession from which we bounce back stronger than ever.

    No. What we’re all doing here is dancing around the issue, arguinf over “If we do ‘A’ then X, Y, and Z, will result” types of arguments. Outcomes are of course worth considering, and even arguing over, but they are not the main issue. Looking at the outcome and possible outcome assertions and nothing else is what I have been complaining about as being the argument of the “Tweeker”. Republicans and Democrats are all Tweekers.

    No. The fundamental issue is that asserting your superiority (you know better than someone else) and then asserting that that superiority somehow grants you the authority nd justification to order others to do your bidding under threats of punishment, is WRONG.

    Good people don’t do that sort of thing. They advocate liberty because that is the right thing to do. Therefore talknig about the “If we do ‘A’ then X, Y, and Z, will result” types of arguments is also wrong. It’s none of our, or anyone else’s business.

    Is that really so terribly difficult to grasp?

    “But, but, but….I have all this DATA…!” you say.

    No. Liberty (recognition and protection of human rights) is right and coercion is wrong.

    That’s the argument.

    Take your data and use it in advertizing or something, for the business you have or are about to start, or deliver it to the nearest history class, or write a book and sell it.

    The argument for liberty is purely a moral one, and I’ll prove it right here;
    “People do better without coercion” says Thomas Sowell and says I.
    “OK, but what about the planet?” says the communist. “We have too many people on the this planet already, so your argument makes no sense.” and on and on and on. If it’s not one excuse it’s another.

    Your arguments are of no interest to the left. In fact they make no sense to them. Prove it to them and it still doesn’t matter. You’re a fool to them. You’re arguing in favor of people and the prosperity of people and they aren’t interested in your “materialist” arguments. See? The left doesn’t want prosperity and wealth among the global population. I was told this outright, back in the 1960s by a school teather. He’d had it all figured out when we were discussing the starvation in Africa;
    “Feed them, and all you’ll get is more of them to feed” followed by something about global resources.
    I can remember repeating that statement to others, thinking myself wise.

    Good Will Toward Men does not promote that kind of thinking. Ever. That’s Progressive, Eugenics, mass murder talk. It’s George Bernard Shaw and all the deadly tyrants that shared his assumptioon of superiority and lust for power over other people. It has nothing to do with good will toward Men or toward anything else.

    Your “material” (as the left will see it) end-result arguments are moot (you’re pandering to the greedy interests of the rich so you’re part of the problem) without first establishing that good will toward Mankind is the motivation.

    I know a lot of poeple don’t want to talk about this, but it’s plain old fashioned good verses evil. You can throw religion into it, but that’s not necessary. There is such a thing as good and there is such a thing as evil, and dotting all the ‘i’s on a professionally written contract, or coming up with just the right data set, or juuuuust the right set of tweaks to the economy (as if you’re playing farmer and everyone else is your herd of sheep) isn’t going to change that basic fact.

    So that’s a whole different subject right there, isn’t it?

  9. Okay, but your arguments are just as wrong in the sense that they will not convince leftists, because you are arguing absolute good and evil against people who deny these concepts–moral relativism and so forth. Good and evil are relative concepts, not absolute, and as such can be measured in terms of outcomes, and good outcomes are inevitable if we just toe the party line, and we have to do what’s best for most people yada yada yada–we’ve all heard this tripe before. Basically they have taken to shifting what’s left of the definition of “good” to “what they want to happen.”

    Which leads me to the conclusion that there are no axioms on which we can mutually agree with the authoritarians among us, and therefore there is no successful way of arguing with them or convincing them. Their brains are working from a completely different floorplan.

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