Friday, September 15, 2006

The implications and social effects of Private Property

How lowering tax rates increases government revenue

Why are we thanking politicians for other people's money

How making frivolous laws causes anarchy

How government aid destroys our social institutions

When Prices Go Down?

***draft...please comment***

It's sad hearing many people's explanations as to why gas prices are coming down across the US. Many of these people sound like economists in their explanations citing reasons such as a new oil supply discovered in the Gulf of Mexico and an easing of speculation and fear in the market after the resolution of the Israeli-Lebanonese conflict. Logic seems to prevail when prices go down, but when prices go up, supply and demand, economies of scale and elasiticity fly out the window. This should be funny but it's not some irresponsibly stir up the mob to attack businesses for acting naturally to market conditions.

How does Price Gouging Theory work as gas prices drop? If businesses and their shareholders raise prices and gouge consumers because they're greedy, are we to believe that prices are now coming down because they're feeling generous all of a sudden? We should demand that the people and politicians who rode the high moral horse in their crusades against high gas prices come forward and explain how we owe falling prices to their battles against corporate greed. Fox News host Bill O'Reilly of The O'Reilly Factor once proclaimed that he scared Big Oil into lowering prices. Should we be so naive to believe that our politicians did the same?

It's plain irresponsible to feed on people's natural angry reaction to rising prices to further their political careers and attack the free market that has served us so well.

How the ASG can really win the War on Drugs

***draft...please comment***

Senator Liufau and Chief Justice Kruse deserve praise for legislation that will make American Samoa drug laws less stringent.

Current ASG laws are draconian in that the give our courts no room to adapt their judgements to the defendent.

If the government is really interested in winning the war on drugs, it should start treating the problem as a business, and if there is anyway to quickly kill a business, it's by undercutting market prices. Simply banning a product only raises the market price since the government lessens supply. Supply still exists during prohibition in the form of a black market where the real thugs and criminals thrive.

The ASG can either continue to battle the black market by knocking down doors, crowding our jails with drug users, driving our desperate further into the dark and away from the community, family and friends, and harming innocent civilians in the crossfire. OR the ASG can peacefully undercut the black market price by providing illegal drugs for free or cheap in treatment facilities. However, the ASG should go through great lengths in unstigmatizing drug use and making every effort to have drug addicts come for treatment without shame. Drug users should feel that the last thing they have to do is turn to drug dealers for a fix.

But treatment facilities need an aggressive program that educates our people of the destructive effects of abusive drug use and commits users to a path toward rehabilitation.

In the future, we have to come to grips to the fact that people will do with their lives as they please. We have to respect their right to their own lives. Addressing this issue means that for those of us who really care about abusive drug use have to turn up the heat on parents and their raising of their children. Drug users are not born over night. Drug use is a not just a simple decision between right and wrong that a huge fine or a long time in prison can solve. Drug use is largely a result of a weak social support at home and in the community, a lack of values or a number of things that affected that person's choice to use drugs.

Thursday, September 07, 2006

Testimonty to DOT on Hawaiian Airline Petition

****Docket number for this case is OST-2006-25612. ****

I ask that the DOT rule in favor of the HAL petition on the basis that this department must reaffirm the institution of property rights. HAL owns its planes and hires its employees without subsidy from the ASG, and it has the right to charge what it wants for its investment into the capital and labor that makes aviation to a remote location like American Samoa possible.

This is the foundation of free enterprise: The expectation of a company to reap the full rewards for the property that they build over time and despite risk drives people to venture into the unknown. Without this motivation, people would not have invented computers, air conditioners, washers/dryers, and all the other countless inventions that have saved us from the backbreaking labor of the past.

However, Governor Togiola’s executive order only serves to reinforce the idea that government can and should dictate the price mechanism of the free market. That if only enough constituents disagree or feel injured from the market price that government through democracy could vote the market price down. In my opinion, this is no different from a dictator ordering prices down upon whim.

We know what is really causing high airfares. US Cabotage laws that prohibit foreign competition, ASG excise taxes on fuel and overtime payments to ASG Customs and Immigration officials.

Instead of focusing its efforts on these issues, the local government thinks that attacking a private company with baseless rhetoric such as “predatory profits” and “highway robbery” is the best course of action. If the rule of law is not applied in American Samoa, then it will be wild-wild-west style politics that determines who gets to do what and at what price and that the only way to do business in AS is to buy some politician a fautasi boat for his district [in reference to McDonalds of AS buying a fautasi boat for the Governor's traditional district, Sua ma Vaifanua -- not included in original testimony].


NOTE: The U.S. federal government's Department of Transportation has a PDF of the above testimony over here while the DOT's profile of this testimony is here.

PRICE GOUGING STILL UNPROVEN

I want to thank Tuaman for his editorial countering my letter where I explained how price gouging doesn't exist other than that done by the government. Although he made a strong case, I wish to test the reality of some his arguments.

Tuaman made the point that family and cultural matters would "force" some people to buy an airline ticket no matter what the price is. He says, "A 'matai' in American Samoa would travel even if airfares persist to be at a family function in the mainland." Tuaman also believes that our soldiers and students from abroad go through similar situations.

But what if the price of an airline ticket was $1 million? It's pretty safe to assume that no matai, student or soldier is going to fly back home at that price no matter what the circumstance. It's also safe to assume to that HAL would want to work that figure down until it started getting some customers.

If HAL worked airfares down to $10 grand, then maybe only the rich may pay to fly. But there are not too many wealthy folks around here, so HAL may get only a few takers, let's say 3 businesspeople and 7 ASG directors, if that. At $10 grand a pop, HAL would only make $100,000. That's still less than what they make at current prices with a full flight of 252 passengers.

Clearly, $10 grand or a million dollars won't maximize HAL profits. If you really think about it, profit maximization drives prices down not up. When someone wants to sell something, no one starts at the bottom. We all want that million dollar figure, but we quickly come to our senses for two reasons: 1) a larger consumer base to spread costs and 2) competition.

Yet cultural, family and career obligations are not the only factors affecting demand. There are millions of reasons ranging from individual incomes to world events that can affect a person's decision to travel. To think that some central authority could analyze all of these factors and set some fair price is stupid. Communism failed because such "intelligent calculations" often lead to gross misallocations shifting resources from one sector of the economy at the expense of another.

In a free market, everyone looks at the market price as a signal to guide their own decision making process. With the market price in mind, people can analyze all of the factors that affect them personally and judge for themselves whether they value buying or supplying that particular good or service more than another. Suppliers will aim for the highest price possible (Togiola calls this "predatory profits") while consumers will aim for lowest price possible (so do we call this "predatory discounts"?).

Nevertheless, it's sad that Tuaman completely ignores the question of property rights as does the Governor and many others. Even if freedom in the marketplace didn't produce the best price possible in an economic (not political) sense, we should still defend HAL prices on the basis that they own their own property. Once HAL falls victim to the force of government, there will be cries for the Governor to lower the price of everything. Some will say that our inter-island airlines gouge their consumers as well and expect Togiola to intervene. Who will be next on his hit list, gas station owners? Retail outlets and Cost-U-Less? Local farmers?

And it's not just businesses' property rights that are under attack. Across America, local governments are using eminent domain to confiscate homes to make way for shopping centers and resorts. If we're not consistent in applying property rights across the board today in American Samoa, what grounds are we going to use when it is businesses who use the government against our own homes? They too will use such excuses as "blight", "economic development", "more jobs" and "more tax revenue" to justify their actions.

How can any one of us expect the full fruits of his labor, invest and expect the highest returns possible or reasonably plan for the future when government has higher claim to what belongs to us?

NO SUCH THING AS PRICE GOUGING IN THE MARKETPLACE

If price gouging existed in the marketplace, then that means a business can force a person to pay for its goods or services. But setting a price never involves force, because the consumer always has the freedom not to buy. Price is never an ultimatum on the customer; it has always been an offer.

When we think about "price gouging", we think of monopoly prices like those for airline tickets offered by Hawaiian Airlines. Since no other airline exists then the people seem to have no choice but to pay HAL airfares. But that is still the wrong assumption because many people choose not to fly at current prices anyway. They just stay at home.

HAL understands this. There is limit to what people are willing to pay. This is called the law of demand. Raising the price any higher will reduce the current volume of traffic that now maximizes HAL profits. If HAL can supposedly gouge the consumer in the sense that they are using force to get their way, then the company wouldn't stop at a $1000 per ticket. They would increase fares to two or three thousands dollars if there were no limit to what consumers would pay.

It is with this same reasoning that environmentalists now demand that the government force gas prices up to $4 to $5 a gallon. You would think that gas station owners and Big Oil would join the environmental choir, but they choose not to. They understand that the current level of patronage relative to current costs of business maximize profits. Raising the price runs the risks of reducing their number of customers and thereby reducing their profits.

Perhaps they and the environmentalists realize that demand for gas is not as inelastic as presumed before. People start to conserve by running errands all in one trip, carpooling, buying smaller vehicles or taking other means of transportation. Prices to a point encourage people to conserve and buy less (what the environmentalists want), which translates to reduced profits (what businesses don't want).

In the end, price gouging doesn't exist for the simple fact that you and I have the right to our individual property. No one around says there should be a limit to the price we set for our own homes. You could "price gouge" your one bedroom house for a million dollars if you want to, but that doesn't mean someone is going to buy it. But what you think your property is worth is not only priceless; it's a fundamental and inalienable right.

However, there is only one real price gouger in the world. It is the government, which uses the political process to sanctify its thievery but calls it taxation and regulation instead.

It is with these logical conclusions that we should demand the Fono repeal the disastrous and unconstitutional price-gouging law. A better ASG policy would be to encourage high prices during an emergency as the best means of coordinating our limited resources and enticing entrepreneurs from abroad to assist us with a speedy recovery.