Tuesday, November 13, 2012

LETTING THE MARKET FUNCTION


Barroso introduces new stupid regulations every single day. The day will come
when Barroso will dictate how we should bush-patrol, siphon our python, or drain
our lizard! At a meeting in 1680 between the French finance minister Colbert
and a group of French businessmen led by Le Gendre, Colbert asked how the French
state could be of service to the merchants and help promote their commerce. Le
Gendre replied simply Laissez-nous faire, Let us do. Laissez-faire is now a
synonym of pure capitalism.




Ron Paul points out that as the northeastern United States continues to recover
from Hurricane Sandy, we hear the usual outcry against individuals and companies
who dare to charge market prices for goods such as gasoline. The normal market
response of rising prices in the wake of a natural disaster and resulting supply
disruptions is redefined as price gouging. The government claims that price
gouging is the charging of ruinous or exploitative prices for goods in short
supply in the wake of a disaster and is a heinous crime But does this reflect
economic reality, or merely political posturing to capitalize on raw emotions?



Ron Paul notes that in the wake of Hurricane Sandy, the supply of gasoline was
greatly disrupted. Many gas stations were unable to pump gas due to a lack of
electricity, thus greatly reducing the supply. At the same time demand for
gasoline spiked due to the widespread use of generators. Because gas stations
were forbidden from raising their prices to meet the increased demand,
miles-long lines developed and stations were forced to start limiting the amount
of gasoline that individuals could purchase. New Jersey gas stations began to
look like Soviet grocery stores.



The cost of government regulation is truly staggering, and it's a barometer of
how free we are to pursue our own interests and to determine the course of our
own lives, independent of kleptocrats and the cancer of socialism. The cost of
regulations is one trillion dollars in USA and two trillion euros in Fourth
Reich(EU) every year. The global cost of regulation is six trillion euros every
year. Financial costs are not the only burden.



Regulations result in a tremendous loss of one of our most valuable and limited
resources, time. The private sector is spending over 10 billion hours a year
just to meet government paperwork demands in USA, and 20 billion hours in Fourth
Reich. It is no wonder that regulation discourages the creation of new
businesses, new jobs, new products, and new services. Starve the beast by
fighting taxes.




Ron Paul says that had gas stations been allowed to raise their prices to
reflect the increased demand for gasoline, only those most in need of gasoline
would have purchased gas, while everyone would have economized on their existing
supply. But because prices remained lower than they should have been, no one
sought to conserve gas. Low prices signaled that gas was in abundant supply,
while reality was exactly the opposite, and only those fortunate enough to be at
the front of gas lines were able to purchase gas before it sold out. Not
surprisingly, a thriving black market developed, with gas offered for up to $20
per gallon.




With price controls in effect, supply shortages were exacerbated. If prices had
been allowed to increase to market levels, the profit opportunity would have
brought in new supplies from outside the region. As supplies increased, prices
gradually would have decreased as supply and demand returned to equilibrium. But
with price controls in effect, what company would want to deal with the hassle
of shipping gas to a disaster-stricken area with downed power lines and flooded
highways when the same profit could be made elsewhere? So instead of gas
shipments flooding into the disaster zones, what little gas supply is left is
rapidly sold and consumed.




Ron Paul laments that governments fail to understand that prices are not just
random numbers. Prices perform an important role in providing information,
coordinating supply and demand, and enabling economic calculation. When
government interferes with the price mechanism, economic calamity ensues. Price
controls on gasoline led to the infamous gas lines of the 1970s, yet politicians
today repeat those same failed mistakes. Instituting price caps at a
below-market price will always lead to shortages. No act of any legislature can
reverse the laws of supply and demand.



History shows us that the quickest path to economic recovery is to abolish all
price controls. If governments really want to aid recovery, they would abolish
their price-gouging legislation and allow the free market to function.



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