Saturday, March 18, 2006

ECONOMIES OF SCALE

If you own a business that sells lemonade, you may charge $10 for one cup. Ten dollars, yeah right! Yet you may want to charge that much if you only had one customer, because you need $10 to pay for the lemons, the water, the pitcher, the spoons, the cups and the overhead. Luckily, a lot of people like lemonade that you can spread your costs on more than one consumer.

You understand that although you have the right to charge $10 for each cup of lemonade you make, you can make more money selling 100 cups for $1 a cup than one cup for $10. Plus, if you could get away with selling a cup of lemonade for $10 than I might just open a stand to undercut your ridiculous price. This is how the profit-motive and open competition set real, fair and moral prices in the marketplace.

What if there is a lemon celebration held one month out of the year? Obviously, you would expect to have more customers for that month, but you know that after the celebration, it will be business as usual. The rise in demand is only temporary, so instead of wasting money on buying more pitchers and spoons and opening more stands, it’s better to just raise the price. The last thing you want to do is buy more capital that you will not use after interest in lemons goes away. Unused capital just adds to the overhead.

But what if interest in lemons continues beyond that one month out of the year? Now you have the potential to sell more than 100 cups. By analyzing the market enough, you find that you can sell 1000 cups for $0.50 (50 cents) a cup. So you figure you can only produce a 1000 cups of lemonade by buying more pitchers and spoons and opening more stands. You make more money selling 1000 cups for $0.50 each than 100 cups for $1 each.

This proven economic model explains a couple of things for us. Peak times, like summertime for air travel or hurricane seasons for batteries, are only temporary rises in demand in those markets. Businesses know their markets enough to know when demand is temporary and when it is not. Like with the lemonade owner, businesses are not stupid to buy more capital in an attempt to meet a demand that will just disappear in no time.

Therefore, a higher demand in the short-run raises prices while a higher demand in the long-run lowers prices when there is an economies of scale, which is the lowering of average costs over more units sold.

Economies of scale also explains why Hawaiian Airlines charges different prices between different ports. There are more people traveling between Honolulu and California than there are between Honolulu and American Samoa. Thus, HAL profits more from its lower priced tickets to California than its higher priced tickets to American Samoa.

Yet HAL needs a competitor. But after deregulation of the US airline industry, spoiled American companies have not been able to adapt to life without welfare support. American Samoa is going to need a foreign competitor servicing its people, but we’re going to need a declaration of independence from US cabotage laws and the Jones Act that prohibit such competition.

Where is Togiola, Faleomavaega and Moliga on the Jones Act? If they can’t get us an exemption, then we should lay the blame for the high prices of our roundtrip tickets where it belongs -- at the feet of big government.

Sunday, March 12, 2006

Tragedy of the Taxes

13 tax proposals now sit on Treasurer Velega Savali’s desk. The fact that the Tax Office and the Treasurer communicated with each other on these “alternatives” is enough fodder for a horror story. We have the tax collector and the spending arm of government together in the same bed. Scary indeed.

This may be frightening, but it is no surprise. The government, like any institution, must bring in revenues to pay for the services it provides. The real scary part, however, is the true nature in which government generates that revenue.

Unlike activity in the private sector, taxation is ultimately enforced at gunpoint. If you don’t pay taxes, you get a fine. Don’t pay the fine, a policeman will show up to your house. If you resist arrest and the violence spirals out of control, the officer can shoot you. Not paying taxes can ultimately mean the death penalty.

Being forced to pay the government takes an essential power right out of your hands. You don’t get to decide what your money gets spent on because the elites in government do that for you. Thus, you cannot punish poor customer service in a government department because they’re going to end up with your dollar at the end of the day anyway. You definitely cannot refuse to fund a 100% increase in Fono allowances either.

To keep your eye off the ball, politicians rely on emotional arguments. Emotional arguments need no reason, facts or rationalization. They only need to find a tragedy, isolate it from reality, pound their feet, cry their tears and then, arrive at your door with the police officer to hand you the bill.

Manu’a, for example, holds a special place in the hearts of many in our great territory, but we cannot have it both ways in that part of our country. Manu’a cannot fend off development (and its side effects: pollution, population increase, immigration of cheap labor, etc.) for fear of losing our culture, customs and traditions or harming the environment, and then expect to have all the conveniences of a modern economy. Mail, medical care, air travel, ocean transportation and food are not products of government but the market. Therefore, Manu’atele must voluntarily move forward in creating one.

13 tax alternatives (16 if you count the hotel, car rental and bottle taxes) on the government’s agenda will tax those people and assets that do the producing in our society. Yet, we have all this land that sits idly by while our producers pay for the police and courts that protect all of our lands. Mr. Goldwaithe is right that property taxes will force everyone to share the burden of government equally. The more land the police has to protect, the more you should pay as far as their expenses are concerned.

Yet, property taxes still robs you of the power over your own money. Police service is still mediocre despite all the money we pay in taxes now. Moreover, handing over property taxes to the government doesn’t guarantee that your money will go into protecting your property. More than likely, it’ll go to public schools even if all of your children are in college off island. More than likely, it’ll go to reducing LBJ fees even if you are healthy and in no need of medical services. More than likely, it’ll go to paying for a 100% increase in Fono allowances, government pay raises, Sega’ula, MV Sili, KVZK-TV and more.

So taxation allows for a disconnect between the consumer and the provider. When there is a disconnect, some end up bearing most of the burden than others do. When there is a disconnect, our money goes to things we don’t benefit from like a 100% increase in Fono allowances. Because of this disconnect, there is harmful unfairness in the tax code, and fraud, waste and abuse in the ASG.

To counter, politicians will argue that we need taxation to pool our money together. However, there are market mechanisms that address those concerns. They’re call insurance plans. Insurance plans can be tailored to consumer needs, and we can keep insurers accountable through open competition, contracts and the courts.

Another flaw of taxation is that even for-profit companies will try to use the system to their own advantage. This is called fascism. Companies like Vaipuna and Island Choice want to use the power of government to raise the prices of our bottled water (through the bottle tax) while keeping all of their profits for themselves. They make us suffer for their continued success, and that is wrong.

User fees will allow us to pay for what we receive. User fees will give us the power to keep government accountable and transparent because we will have the oversight and hold the strings over our own money. Thus, user fees will protect us from the government and special/corporate interest. Still, the ASG should enact a small flat tax to guarantee our police and court services committed to our individual rights to life, liberty and property. When and where we need more than that vital necessity, we need the freedom to use our money as we see fit.

Sunday, March 05, 2006

How The Federal Government And ASG Is Responsible For The Tuna Canneries Departure

Points:

***DOI Deputy Secretary Cohen states that transportation costs and high minimum wage makes American Samoa uncompetitive.

***Cohen blames current economic situation on lower labor costs in other countries and free trade agreements between them and the US.

***Cohen finds no fault in minimum wage laws imposed on our territory. He makes no mention of the Jones Act and its effects on our high transportation costs.

***The ASG created a welfare dependency by using federal funds to compete with local businesses.

***Recent business casualty is the Manu'atele losing marketshare from the government owned MV Sili. The ASG now has an airplane, the Sega'ula.

Note to readers: Feel free to comment on points you like to add or to expand on the points already listed. Thank you.

Why Hawaiian Charges A Higher Price To A. Samoa Than To California

Points:

***Governor Togiola demands that Hawaiian charge no more than $400 for a round trip. Tickets now range from $800 to $1000 for a round trip ticket.

***Governor Togiola says people can profit (especially since he profits everyday as a governor), but Hawaiian is too concerned with revenues and not financial burden on families.

***Short Run Costs vs. Long Run Costs

***Economies of Scale

***Property Rights

***Foreign carriers are prohibited from providing service between two US ports because of the Jones Act.

***What have our politicians done to exempt us from the Jones Act?

Note to readers: Feel free to comment on points you like to add or to expand on the points already listed. Thank you.