Why do we expect stuff to be free? (part 2)

In my last post, I wrote about my frustration with so many people who seem to believe that all taxation is bad. I listed three major social benefits gained by paying taxes: economy of scale, adjusting for flaws in the economic system (without destroying the entire economy), and the ability to better achieve long range plans. Having written about economy of scale, I want to look at the latter two.

If a society is to address the flaws in its economic system, it first must admit that flaws exist. I believe in a system founded on capitalism, but even it has massive imperfections. I don’t mean the problems that result from greed and unethical people; greed and lack of ethics can derail any economic system. I’m referring to the flaws that arise in capitalism, regardless of how well-behaved its participants are; often, these flaws are byproducts of what makes capitalism function in the first place.

We all should know the fundamentals of the market system. The price paid by a consumer for a final product or service, or by a firm for the components needed to manufacture the product or service, is where demand and supply curves intersect. For instance, a farmer would love to charge $5 per pound for apples and a customer would like to pay 1¢ per pound, so the market price represents the price at which farmers are willing to sell their apples and that customers will purchase apples available for that price. The system has many advantages, but the most important for society in general is that the best people will end up supplying particular products and skills. I, for instance, am a terrible plumber, terribly inefficient, so the money I would have to charge for me to make a living would draw no customers, discouraging me from entering the profession. The system means that we obtain the best results for the money we spend and, in doing so, means that we can purchase the maximum amounts of goods and services with our available incomes.

How, then, can something go wrong? The most obvious one is that the very success of capitalism can lead to its own downfall. Remember, the system depends upon there being competition among various suppliers to keep prices at the level that is best for consumers. What happens, though, when one producer is so efficient that all of the competitors are forced out of business? Obviously, the one remaining supplier no longer has any incentive to keep prices at a level that is optimal for society in general. This may not seem like a big deal, but what if that product is something that is essential, like water or basic food? If government doesn’t intervene well….does the name “Marie Antoinette” ring a bell?

So, unless you want the system to be totally overthrown, government has to intervene in cases like this, and government intervention requires tax dollars to fund whatever programs are created, and this is what Ayn Rand disciples just don’t get. They scream for deregulation, that government destroys the incentive for people to create. An overly-oppressive government does destroy that, but they believe that any amount of regulation is overly-oppressive. Baloney.

Another example is the use of subsidies. Subsidies have gotten a bad name in recent years, deservedly so. The specific programs are flawed and there are people who receive monies who have no business getting them. However, we should never assume that a flawed program means that there should be no program at all. Subsidies are especially useful if the product is essential and there forces that are beyond human control that affect supply.

When I was in high school, my classmates and I looked on in horror at a film clip that showed dozens of milk trucks backing up into a field and dumping out hundreds of thousands of gallons of milk into a field. They were doing this because the market price of milk had plunged so low that dairy farmers couldn’t even recover their production costs, due to an oversupply of milk. Granted, part of our horror was based on what was then the universal belief that milk was almost as essential as water for children, but the basic point remains. Sometimes, suppliers of essentials, through no fault of their own, find that the market price of their products is too low for them to stay in business; if that isn’t bad enough, imagine what happens when the market recovers and there aren’t enough products to meet need.

These are just the crises that result from the success of the market system. No one is evil or conspiratorial; everyone is acting as she or he should. In these cases, a well-funded government is needed for our good, and it is further called upon for those cases where people do misbehave.

 

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