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Price Controls: Political Gut Reaction, Gut Punch To Public

06 Thursday Jan 2022

Posted by pnoetx in Price Controls, Shortage

≈ 1 Comment

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Artificial Tradeoffs, Big Meat, Big Oil, Black Markets, central planning, Excess Demand, Federal Reserve, Inflation, Isabella Weber, Joe Biden, Money Supply, Paul Krugman, Price Controls, Relative Prices, Scientism, Shortage, Unintended Consequences

In a gross failure of education or perhaps memory, politicians, policymakers, and certain academics seem blithely ignorant of things we’ve learned repeatedly. And of all the dumb ideas floated regarding our current bout with inflation, the notion of invoking price controls is near the top. But watch out, because the Biden Administration has already shifted from “inflation is transitory” to “it only hurts the rich” to “it’s fine because people just want to buy things”, and now “greedy businessmen are the culprits”. The latter falsehood is indeed the rationale for price controls put forward by a very confused economist at the University of Massachusetts-Amherst named Isabella Weber. (See this for an excerpt and a few immediate reactions.) She makes me grieve for my profession… even the frequently ditzy Paul Krugman called her out, though he softened his words after realizing he might have offended some of his partisan allies. Of course, the idea of price controls is just bad enough to gain favor with the lefty goofballs pulling Biden’s strings.

To understand the inflation process, it’s helpful to distinguish between two different dynamics:

1. When prices change we usually look for explanations in supply and demand conditions. We have supply constraints across a range of markets at the moment. There’s also a great deal to say about the ways in which government policy is hampering supplies of labor and energy, which are key inputs for just about everything. It’s fair to note here that, rather than price controls, we just might do better to ask government to get out of the way! In addition, however, consumer demand rebounded as the pandemic waned and waxed, and the federal government has been spending hand over fist, with generous distributions of cash with no strings attached. Thus, supply shortfalls and strong demand have combined to create price pressures across many markets.

2. Economy-wide, all dollar prices cannot rise continuously without an excess supply of a monetary asset. The Federal Reserve has discussed tapering its bond purchases in 2022 and its intention to raise overnight interest rates starting in the spring. It’s about time! The U.S. money supply ballooned during 2020 and its growth remains at a gallop. This has enabled the inflation we are experiencing today, and only recently have the markets begun to react as if the Fed means business.

Weber, our would-be price controller, exhibits a marked ignorance with respect to both aspects of price pressure: how markets work in the first instance, and how monetary profligacy lies at the root of broader inflation. Instead, she insists that prices are rising today because industrialists have simply decided to extract more profit! Poof! It’s as simple as that! Well what was holding those greedy bastards back all this time?

Everyone competes for scarce resources, so prices are bid upward when supplies are short, inputs more costly, or demand is outpacing supply for other reasons. Sure, sellers may earn a greater margin on sales under these circumstances. But the higher price accomplishes two important social objectives: efficient rationing of available quantities, and greater incentives to bring additional supplies to market.

So consider the outcome when government takes the advice of a Weber: producers are prohibited from adjusting price in response to excess demand. Shortages develop. Consumers might want more, but that’s either impossible or it simply costs more. Yet producers are prohibited from pricing commensurate with that cost. Other adjustments soon follow, such as changes in discounts, seller credit arrangements, and product quality. Furthermore, absent price adjustment, transaction costs become much more significant. Other resources are consumed in the mere process of allocating available quantities: time spent in queues, administering quotas, lotteries or other schemes, costly barter, and ultimately unsatisfied needs and wants, not to mention lots of anger and frustration. Lest anyone think this process is “fair”, keep in mind that it’s natural for these allocations to take a character that is worse than arbitrary. “Important people” will always have an advantage under these circumstances.

Regulatory and financial burdens are imposed on those who play by the rules, but not everyone does. Black market mechanisms come into play, including opportunities for illegal side payments, rewards for underworld activity, along with a general degradation in the rule of law.

Price controls also impose rigidity in relative prices that can be very costly for society. “Freezing” the value of one good in terms of others distorts the signals upon which efficient resource allocation depends. Tastes, circumstances, and production technology change, and flexible relative prices enable a smoother transitions between these states. And even while demand and/or input scarcity might increase in all markets, these dynamics are never uniform. Over time, imbalances always become much larger in some markets than others. Frozen relative prices allow these imbalances to persist.

For example, the true value of good A at the imposition of price controls might be two units of good B. Over time, the true value of A might grow to four units of good B, but the government insists that A must be traded for no more than the original two units of B. Good B thus becomes overvalued on account of government intervention. The market for good A, which should attract disproportionate investment and jobs, will instead languish under a freeze of relative prices. Good B will continue to absorb resources under the artificial tradeoff imposed by price controls. Society must then sacrifice the gains otherwise afforded by market dynamism.

The history of price controls is dismal (also see here). They artificially suppress measured inflation and impose great efficiency costs on the public. Meanwhile, price controls fail to address the underlying monetary excess.

Price controls are destructive when applied economy-wide, but also when governments attempt to apply them to markets selectively. Posturing about “strategic” use of price controls reveals the naïveté of those who believe government planners can resolve market dislocations better than market participants themselves. Indeed, the planners would do better to discover, and undo, the damage caused by so many ongoing regulatory interventions.

So beware Joe Biden’s bluster about “greedy producers” in certain markets, whether they be in “Big Meat”, or “Big Oil”. Price interventions in these markets are sure to bring you less meat, less oil, and quite possibly less of everything else. The unintended consequences of such government interventions aren’t difficult to foresee unless one is blinded with the scientism of central planning.

Data and Amplifications On Incels

15 Tuesday May 2018

Posted by pnoetx in Free markets, Prohibition, Redistribution

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Black Markets, Feminism, General Social Survey, Incels, Institute for Family Studies, Involuntary Celibacy, Kevin Williamson, Lyman Stone, Organized Crime, Patriarchy, Prohibition, Promiscuity, Prostitution, Redistribution, Sex Concentration Ratio, Sex Robots, Sex Trafficking, Sexual Revolution, Shiekha Dalmia, South Caucasus, Virginity

Last week I wrote about some promising avenues through which “incels”, so-called “involuntary celibates” unable to find willing sexual partners, might enjoy some semblance of sex lives without infringing on the rights of others. Several postscripts appear below, but first I describe the findings of Lyman Stone’s examination of survey data on sexual frequency for the Institute for Family Studies blog in which he investigates reasons for the increase in male sexlessness.

The Data On Sex and Celibacy

Involuntary sexlessness is not a new phenomenon, but estimates of its frequency have grown over the past ten years. That’s been an operative assumption made by many writers since the van attack by an “incel” in Toronto in April. Stone examines data from several surveys, such as the General Social Survey (GSS), and focuses mainly on the unmarried 22 – 35 age group. He investigates both the dimensions of involuntary celibacy and aspects of the narrative offered by incels themselves.

  • Incels believe that women have become increasingly promiscuous: No, the GSS data reveal no real trend in female sexual frequency since the year 2000. The share of females reporting no sexual activity within the previous 12 months has not changed much either (~15% on average), about the same as males until more recent years.
  • Stone finds that the share of never-married males who have been sexless for at least a year has increased over the past 10 years.
  • Incels believe that a small share of males dominate sexual activity: No, while the distribution of sex is not equal, it is not nearly as skewed as incels claim: the most sexually active 20% of both men and women have 50-60% of the sex. Those shares have been fairly stable over time. Some of the most promiscuous actually pay for sex, which inflates the measured sex-concentration ratio. However, incels believe the top 20% have 80% of the sex, according to Stone‘s own reporting of on-line commentary. If so, incels exaggerate the success of those would-be sexual competitors.
  • The increase in sexlessness among unmarried men is mostly involuntary. This follows from a decline in the share of never-married, male virgins who abstain from sex for religious reasons and increases in the shares reporting “no suitable partner” and “other” reasons for celibacy.
  • Stone derives a “hard-core” incel population: “the share of never-married men ages 22-35 who have never had sex, and whose reason for never having had sex isn’t abstention for religious, timing, or health reasons.” This share has risen from 2.7% in 2002 to about 4.4% in 2015.
  • Most of the increase in the “hard core” incel share can be attributed to declining marriage rates and to an increase in involuntary virginity among the unmarried.
  • Two factors that covary positively with virginity are the level of education and living with one’s parents, but some of the covariation is due to voluntary celibacy.

Stone concludes that young male sexlessness is:

“… mostly about people spending more years in school and spending more years living at home. But that’s not actually a story about some change in sexual politics; instead, it’s a story about the modern knowledge economy, and to some extent exorbitant housing costs. As such, it’s no surprise that rising sexlessness is being observed in many countries. This, in turn, suggests that finding a solution to help young people pair up may not be as easy.”

Survey data are always suspect, of course, but measuring actual sexual frequency in large populations is difficult if not impossible without surveys. Also, the level of Stone’s analysis does not necessarily align well with particular environments and sub-cultures in which people interact. For example, some argue that the increasing ratio of females to males on college campuses has changed the sexual “terms of trade” between men and women, but Stone didn’t attempt to drill down that far. Finally, Stone doesn’t offer any solutions of his own. My own opinion is that policy should be guided by voluntary choice and adaptation, along with encouraging those who feel overwhelmingly lonely or rejected to get off social media and seek counseling.

Postscripts Re: Last Week’s Article

Sexlessness is not confined to the young-adult population, of course, and there are severely disabled people of all ages who lack a sex life along with others unable to form intimate relationships. In a post last week, I advocated legalized prostitution as a mechanism for effecting a “voluntary redistribution of sex”, allowing those who are unable to find willing partners to enjoy some semblance of a sex life.

Legalized prostitution would remove the business from the grips of organized crime and reduce sex trafficking (which is not the same as voluntary prostitution). It would also improve health and safety, reduce violence, and lead to more humane conditions in an industry that will never be quashed by ham-handed, counterproductive efforts at prohibition. This is a rather mainstream view among economists, most of whom understand the folly of intrusions on private, mutually-beneficial decisions. Here are some thought from an economist in the South Caucasus on the matter. To oppose legal prostitution on moralistic or religious grounds, as comforting and virtuous as it might feel, is to wear blinders to the tragic consequences of a black market in sex.

On a related note, legalization does not in any way imply government-sponsored or taxpayer-subsidized prostitution. That’s something I’d be most unlikely to contemplate. And in that connection, I don’t really care for the term “redistribution” to describe legalization, but following a few others, I used it. A redistribution usually implies a change in the allocation of a fixed quantity across various subgroups or individuals. Perhaps some incels believe in “redistributing” sex, which might suggest a coercive element and certainly not what I have in mind. My use of the qualifier “voluntary” was intended to make that distinction. Unlike forced redistribution, legal access to sexual services does not imply a zero- or negative-sum outcome. I also mentioned sex robots as a possible outlet and a voluntary choice for incels, understood to be unsubsidized by government.

I am sympathetic to the view put forward by Shiekha Dalmia’s in “Incels Are the Product of an Incomplete Sexual Revolution“. She says, “Neither feminists nor social conservatives have the right understanding”, asserting that the problem has to do with the difficulty incels have in navigating the jagged channels between today’s sexual expectations and more traditional gender relations. To that, one might add the negative baggage created by the “anti-patriarchal” sentiment promoted by feminists. That’s worth considering, and it suggests that everyone (including incels) might just be too uptight.

Finally, Kevin Williamson offers some “Advice for Incels: Join a Church“. That’s probably a fine idea for some incels, young and old, who might find a higher purpose from the decision, even if they can’t find a girlfriend there. However, it’s not as if there are no church-going incels to begin with. Furthermore, single women at church are no more likely than anyone to be drawn to men who lack an ability to interact with the opposite sex. And let’s face it: the girls at church are not exactly waiting for the next dashing paraplegic to roll through the doors. Sorry if that sounds cynical or demeaning. The reality is that many disabled individuals lack the relationship opportunities available to most men. The least society can do for them, regarding access to sex services, is to get out of the way.

Wanna Help People? End the Drug War!

03 Tuesday Nov 2015

Posted by pnoetx in War On Drugs

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Tags

Black Markets, Colorado Legalization, Colorado Pot Legalization, Drug Abuse, Drug Cartels, Gangland Violence, Individual Liberty, Jacob Sullum, Milton Friedman, Prohibition, Prostitution, Victimless Crimes, War on Drugs

August 20, 2013

We’re taught that illegal drugs are a scourge on humanity, that their use is immoral and that legalization is out of the question. Yet far more of us, our friends, and our loved ones have been intimate with the destructive effects of alcohol and dependency on legal drugs than on illegal drugs. Pharmacologically, the “worst effects” of illegal drugs are no worse than the well-known effects of alcohol abuse. In fact, the “worst effects” have more to do with prohibition than with the illegal drugs themselves.

Rules are codified into law successfully when widespread agreement exists among the citizenry that a rule is sensible. This should trouble drug prohibitionists: a substantial proportion of the population has used illegal drugs as adults, indicating a strong lack of consensus that recreational drugs should be illegal. For this reason alone, drug prohibition is and always will be ineffectual.

The great economist Milton Friedman was a long-time critic of the drug war. Several of his articles on the topic are linked at this site. One of the links is this interview from 1992, which is lengthy but sticks primarily to the issue of the drug war. I’m not sure that all of the facts Friedman cites have held up over time, especially with respect to trends in alcohol consumption. Nevertheless, it is a great interview:

“There are [sic] an enormous number of innocent victims now. You’ve got the people whose purses are stolen, who are bashed over the head by people trying to get enough money for their next fix. You’ve got the people killed in the random drug wars. You’ve got the corruption of the legal establishment. You’ve got the innocent victims who are taxpayers who have to pay for more and more prisons, and more and more prisoners, and more and more police. You’ve got the rest of us who don’t get decent law enforcement because all the law enforcement officials are busy trying to do the impossible.“

Here is a brief list of the pernicious effects of drug prohibition:

  • Prices are driven upward by the legal risk inherent in black market trade;
  • High prices lead to more crime as heavy users seek means of payment;
  • Impure and more dangerous variants are traded in attempts to stretch quantities and increase potency;
  • Dealers advance “samples” to gain trust and cultivate dependency among users;
  • Addiction is stubbornly resistant to legal barriers;
  • Unnecessary deaths from impure and excessively potent drug varieties;
  • Black market trade leads to violent crime as underworld elements seek to control markets and enforce discipline in their organizations;
  • Unnecessary deaths from gangland violence;
  • Arrest, imprisonment and ruined lives for victimless crimes;
  • A huge burden on taxpayers;
  • A huge burden on the criminal justice system;
  • Inevitable corruption in law enforcement as officials face hefty rewards for protecting the drug trade;
  • Innocent people become casualties of violence instigated by gangs and sometimes by police actions.

A fascinating dynamic of the black market in drugs is the tendency toward monopolization at the top: Large cartels dominate the importation of supplies due to the risk and expense of such operations. As Friedman noted, the war on drugs contributes to the difficulty of entering into competition with established players. At the same time, the drug war guarantees huge rewards to the cartels by inflating drug prices:

“What more could a monopolist want? He’s got a government who makes it very hard for all his competitors and who keeps the price of his products high.“

The drug war creates greater danger for users. In “Prohibition Kills“, Jacob Sullum discusses four recent examples of more dangerous and even deadly drug variants that have been developed as a direct consequence of prohibition. Friedman is often quoted as saying that crack cocaine was a direct consequence of the drug war. Sullum asks whether this could be an intentional strategy by drug warriors for discouraging consumption. I’m not convinced they are quite so nefarious, but it’s something to ponder.

More dangerous varieties of drugs would not vanish overnight if drugs were legalized, though the incentive to develop them would diminish. Of course, if legalization brings prices and risks down, as we’d expect, it would encourage greater recreational use. That should not be viewed as a “bad” any more than better access to cocktails at happy hour. Abuse is unlikely to increase because problem users tend to be undeterred by prohibition. And as unsavory as an increase in recreational drug use might seem to the temperance faction, it would still represent only a small fraction of the real costs of ruined lives imposed by prohibition and the drug war.

Legalization would bring other complexities, as Colorado’s experience with marijuana shows. For example, rules with respect to driving under the influence must be updated, as well as laws prohibiting possession by minors. Colorado went so far as to regulate packaging, and tax treatment of the drug trade will stoke debate, as governments will hope for something of a tax bonanza. But the more that government attempts to regulate and tax drugs, the more that problems similar to those associated with drug prohibition will persist, albeit on a smaller scale.

Economically, legalization should eliminate a burden on taxpayers. It would free up law enforcement resources to battle real crime and should make more funds available for treatment programs. It would also help to improve lives and safety in inner cities and other areas ravaged by black market drug trade and the violence it foments. And of course, legalization would put an end to the ruin of lives caused by the arrest of individuals for victimless crimes.

Prohibition of drugs belongs to a larger class of social problems brought on by efforts to bring the police power of government to bear on private behavior. I already mentioned that alcohol prohibition had similar consequences. To lesser degrees, similar harmful consequences are associated with laws against prostitution, large soft drink containers, sugary foods, and practicing almost any commercial art without a license. The same can be said for price regulations like rent control and the minimum wage. The former has led to the destruction of vast quantities of housing; the latter harms low-skilled workers along non-wage dimensions and makes it difficult for unskilled workers to gain valuable experience in the job market. Government interference with individual liberty might well restrain certain activities deemed “undesirable” by busybodies, but it it also leads to higher prices, greater risk, black market activity, violence, unnecessary legal actions against individuals, and greater expense for society.

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