Saturday, April 08, 2006

SOME BUSINESS ADVICE

Dear Businesses of American Samoa,

Your government has decided that it knows what’s best when it comes to the price you can charge for your property. Despite the fact that price controls have failed in every political experiment in the last 2000 years, the ASG thinks it can do what the rest of the world hasn’t done before. But they will learn, they will learn.

In the meantime, you have to protect yourselves and your property from the government. Because of this price-gouging law, you’re not just pitted against government but also against your customers. A mere dissatisfaction of a particular price is enough grounds for an investigation by the Consumer Bureau Police Chief, Mr. Keyser. Frivolous complaints will cost you time and money in audits and litigation expenses, and it may cost you more than all the $1000 fines combined. It'll be a field day for trial lawyers. So what can you do to protect yourself?

First, you can close your doors during a declared state of emergency. Just shut down your gas stations and your hardware stores (just make sure you have a gun to protect your property against looters because an irate government may retaliate by withholding its protection). You may lose more money in fines, audits and litigation expenses than the resulting loss of sales during the state of emergency. Closing down is the safer bet in this hostile political environment.

Coordinate with your fellow businesses to shut down simultaneously. I would say that in a time of crisis, you should care for the people. But right now, the public and the government have passed a law that makes you a criminal for doing what you want with your property. So take care of yourselves and your families first, and the best way to do so is to work together in the business community.

If you cannot shut down for some reason, you can do what wholesalers of gasoline do here in American Samoa under the MAP system and in Hawaii under the Gas Cap. What they do is quite intuitive. They charge for gasoline at the limits imposed by these caps even when gasoline is cheaper than the limit itself. They make their money while they can, because they know that the cap can be lower the actual cost of gasoline later on.

So a month before hurricane season, treat the price-gouging law like the price cap in the above situation. You should raise the price of your product 10% above costs immediately and indefinitely (even after the storm blows over). While you may lose money on the highly demanded item during the emergency, you can make it up by holding to the threshold afterwards.

Last but not least, if you can’t make up your money on one product (like gasoline) with the 10% limit, you should apply that 10% increase limit to the rest of your goods as well. You should raise the prices of all of your items with a 10% markup and hold them there indefinitely too.

Yet there is some good news in the passage of this ridiculous law. The governor has painted himself into a corner by signing this legislation. If he declares a state of emergency, he will see long lines, frivolous lawsuits, exacerbated shortages, a 10% across-the-board inflation, and unemployment unfold right before his eyes. If he doesn’t declare a state of emergency, he will lose face. Either way, the ASG will learn that there is only one god of prices in this world, and that is God himself.

2 Comments:

At 7:00 AM , Blogger Stuart K. Hayashi said...

This comment has been removed by a blog administrator.

 
At 8:18 PM , Blogger Stuart K. Hayashi said...

Right on, Tali! ;-)

You tell businesses: "you can close your doors during a declared state of emergency. Just shut down your gas stations and your hardware stores ... Closing down is the safer bet in this hostile political environment."

Your suggestion sounds like Ayn Rand's magnificent novel Atlas Shrugged, which dramatizes in detail how economic viabiilty is unsustainable in a market in which businesses cannot freely profit through peaceable means. I go into greater detail about that here and here. That is, "if the government of a certain geographic region punishes or hassles people on account of their being productive entrepreneurs, then those entrepreneurs won't have much incentive for being productive.

"If a globe symbolizes [American Samoa]'s economy, and Atlas holding the Earth symbolizes the entrepreneurs who keep the economy afloat, the government's perpetual addition of burdens on Atlas's shoulders will eventually make him shrug, causing the "world"/economy to fall and shatter."

When politicians find that their regulations have only worsened their situation and demand an explanation, American Samoa's businesses can explain to them using the words of an "Atlas Shrugged" character: "We [business operators] required that you leave us free to function -- free to think and work as we choose ... -- free to earn our own profits and make our own fortunes ... Such was the price we asked, which you chose to reject as too high."

Will Atlas shrug in American Samoa?

Hopefully the leaders of the community will heed your wisdom before it comes to that.

 

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