Government Intervention

It Costs a Lot When Government Sets Prices

Be it cigarettes, imported products, or even labor.

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You probably couldn't get New York Mayor Bill de Blasio and President Trump to agree on the time of day. But on the question of prices they are of one mind. Both of them think they know better than others what stuff should cost.

De Blasio recently boasted he will raise (apparently by decree) the price of a pack of cigarettes to $13—"the highest price in the country." The New York Times said his goal "is to persuade or coerce 160,000 of the 900,000 New York City residents who smoke to stop doing so by 2020."

De Blasio clearly understands the law of supply and demand: When you raise prices, demand falls. But he evidently hasn't applied that lesson to labor; he supports raising the minimum wage to $15 (which, incidentally, would help the poor afford cigarettes again). Advocates of minimum wage hikes like to claim raising the price of labor doesn't affect the demand for it. They're about as convincing as skeptics of climate change.

Trump also wants to raise the price of many things—particularly those things imported from China, for which he has proposed steep tariffs. The trouble with Chinese goods, as he sees it, is that they cost too little, so Americans like buying them, and that hurts domestic producers. To protect producers, it's important to deny the American consumer what she wants. And the simplest way to do that is to raise prices.

On the other hand, Trump thinks prescription drugs cost too much. He says the prices must come down "immediately," and he summoned drug company leaders to the White House for a lecture on the topic.

Certain drugs do cost a great deal. One stellar example is Sovaldi, a hepatitis cure that costs $75,000. But the price for Sovaldi actually has plunged from a decade ago, when it was essentially infinite because the compound didn't yet exist.

Prices for certain goods—a gigabyte of computer storage or a megawatt of solar-generated electricity, for instance—have plunged in recent years. And in historic terms, the relative prices of most consumer goods has fallen sharply too. As the Federal Reserve Bank of Dallas noted 20 years ago, "If modern Americans had to work as hard as their forebears did for everyday products, they'd be in a continual state of sticker shock—$67 scissors, $913 baby carriages, $2,222 bicycles, $1,202 telephones."

Prices for some goods do keep going up, however. Two obvious examples are college tuition and health care. By a remarkable coincidence, those also happen to be two areas of the economy in which the government is most heavily involved.

Federal and state politicians keep increasing subsidies for college attendance, which encourages colleges and universities to raise prices. Two years ago the Federal Reserve Bank of New York issued a study showing that every dollar of federal student aid hikes tuition by 50 to 65 cents. Health care has suffered from a similar phenomenon. Exempting employer-sponsored health insurance from income taxation while treating it as income for collective-bargaining purposes encouraged employers to substitute overly generous health plans for salary and wages, leading to medical inflation and wage stagnation.

All of this price-fixing produces a raft of unintended consequences, not least among them the gunking up of market efficiency. Too many politicians fail to understand that prices are not just charges, they are also signals.

Among other things, they signal the need for conservation. When the price of batteries spikes after a hurricane knocks out the power, that tells consumers at least two things: (a) They should not waste batteries on frivolous purposes and (b) they should not buy more than they truly need, so that shortages will be mitigated. It also tells suppliers that they should ship more batteries to the affected area, even if it means extra work, because they will make a lot more money if they do. That's what makes anti-price-gouging laws so foolish: They short-circuit those important market signals.

Hurricanes don't happen every day, but prices still steer goods to their highest and best use. A tungsten producer is never going to understand the complex totality of the industrial and commercial market in the United States, but prices mean he doesn't need to. All he needs to know is that he can get a better price for tungsten from a mobile-phone maker than from a ballpoint pen company, and he will send his supplies to where they will do the most social good.

Trying to decree the market price for a product or service simply doesn't work. De Blasio should know that already, but if he doesn't he will learn. Already, roughly three-fifths of all the cigarettes sold in New York are contraband smokes, and they go for $7 to $8 a pack—no matter what the law says. Like Shakespeare's Glendower, de Blasio and other politicians might command the devil. But that doesn't mean he will obey.

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  1. They’re about as convincing as skeptics of climate change.

    Are there climate change skeptics advocating minimum wage hikes? What makes them more/less convincing than the believers and why?

    1. They are a great deal LESS convincing than skeptics of climate change. The chicken littles of climate change have been caught lying so often – for our own good, of course – that skeptics of their philistine religion look pretty goddamned sensible.

      1. philistine religion

        They’re sacrificing children to Moloch?

        1. Not yet, but wait till someone comes out with a model predicting a drop in CO2 levels through child sacrifice.

          1. You’re about half a century behind Paul Ehrlich in your thinking.

          2. Get the phrasing right and I bet you could get a NSF grant to build the model.

        2. They are sacrificing other people’s money to their egos. A pox on the lunkhead lot of ’em.

          Their models are trash. Their predictions that can be checked have not come true, and so they’ve stopped making predictions we are likely to have the opportunity to check. Many of their statements are either flatly false, very careful framed to be misleading, or inconsequential. Their proposed remedies are massively unlikely to have a significant effect on the problem they claim exists, but (quell surprise!) WILL grant them and their pets significant power and wealth.

          I will consider believing that Climate Change is a serious threat when Al Gore moves to a tiny house, surrenders his cars for a bicycle, and stops using air travel.

        3. Not Moloch. They sacrifice children to coral reefs.

          1. So Dagon, then?

            1. Explains why Australia is populated by deep ones.

              1. The Old Ones may have created most life on earth as a joke or an accident, but the creatures in Australia they created as a warning.

      2. The problem is that the question “Do you believe in climate change?” has so many other questions buried in it related to values, politics and economics. The question itself is straightforward. Of course the climate changes over time. But if you answer with a simple “yes” you’re immediately on the side of the government-intervention alarmists and if you answer with a simple “no” you’re immediately on the side of the flat-earth deniers. It’s no longer even possible to have a reasonable conversation on the subject, which makes it very odd that Hinkle would use this as the basis for a metaphor in an unrelated story.

    2. It is generally a bad idea to choose a controversial topic as the basis for a metaphor. I wonder why Hinkle decided he needed to do that particular bit of social signalling at this particular time…

      1. He learned it from Robby.

      2. His tsrget audience is not Hit n Run readers?

        1. ^This^

          A. Barton Hinkle is senior editorial writer and a columnist at the Richmond Times-Dispatch.

      3. It is generally a bad idea to choose a controversial and vague or unrelated topic as the basis for a metaphor.

        Even if it’s controversial, you should really flesh out your metaphors fully:
        Wage Advocates:Affects on labor demand::Flat Earth Advocates:Affects shape of the Earth.

        I mean, considering the skeptics don’t get the default white coat treatment and aren’t exactly backed by international governing bodies and climate agreements, they do a pretty good job of convincing people AGW/Climate Change is a myth or, at least, not a concern. And neither the skeptics nor the believers make much of a lick of difference one way or the other wrt the climate.

      4. “Social signaling”
        The bots are more original than the actual commenters these days.

  2. This is really a very clever way to tackle the meth problem in New York. All the dealers are going to switch to peddling cigarettes, because it will be more profitable.

    1. And then police officers are less likely to get blown up while they’re choking the perpetrators to death. Almost everybody wins!

    2. According to the article, you only get $7-$8 per pack on the black market. Raising the taxes higher isn’t going to affect that number. Only an increase in enforcement efforts will.

      1. Not necessarily. Raising the legal price will raise the number of people that are willing buy cigarettes on the black market, thus increasing the black market demand. Higher demand means higher prices.

        1. I guess that could be true. Still, I doubt the price would go up much since supply outside NYC is much, much greater than inside the city.

          1. I guess it would depend on the cost of either traveling out of the city or bringing them into the city and taking on the risk of black market selling.

        2. Higher demand means higher prices.

          In the short term, assuming fixed supply. But if there is more money to be made, I’m sure the black market supply will be able to meet demand. And long term, more demand often leads to lower prices if you can increase efficiency with higher volume.

  3. Also, Christ, what a moron.

    1. In addition to being King Asshole, shitting out his shitty decrees from the Porcelain Throne of Assholos.

  4. Already, roughly three-fifths of all the cigarettes sold in New York are contraband smokes

    The link is blocked here, but I hope it goes into some detail about where. Are they being sold out of a van beneath an underpass somewhere? Asking for a friend.

    1. Eric Garner & Associates is a known source.

      1. Garner’s competitors had him eliminated.

        1. Dark, but accurate.

        2. Yes….yes they did.

      2. Ugh, Staten Island though.

    2. Ask your pot dealer!

  5. The basics of the greenhouse gas phenomena are well understood and accepted by all. For each doubling of the CO? concentration in the atmosphere, all else being held equal, the ambient temperature will go up by about 1.1?C. By that mechanism, going from our current .04% CO? to 100% CO? could only raise the temperature by about 14?C and it would have to go from the pre-industrial .027% CO? to .054% CO? to get even 1.1?C of warming.

    The argument is on secondary effects. The proposed multiplier there ranges anywhere from less than one (natural feedbacks reducing the temperature effects of increasing CO? concentration) to 6 or more (natural feedbacks multiplying the temperature effects of increasing CO? concentration). That, there is no agreement on at all and where the actual argument is.

    1. For each doubling of the CO? concentration in the atmosphere, all else being held equal, the ambient temperature will go up by about 1.1?C. By that mechanism, going from our current .04% CO? to 100% CO?…

      I don’t think anyone argues that this relationship holds all the way up to a 100% CO2 atmosphere…

  6. That was some thoughtless condescending crap – “about as as convincing as skeptics of climate change” I don’t expect that kind of thing here. Climate change denotes a cognitive zero…it has no real meaning. “Catastrophic man made climate change” on the other hand has some declarative meaning…It can be discussed. I am more than a skeptic of it as all well informed reasonable people should be. Extraordinary claims require extraordinary evidence and the advocates of catastrophic man made climate change haven’t even come close to meeting that burden. If you value human flourishing, I suggest you read the best arguments of the best skeptics. In short – think more, read more and don’t be a dick.

    1. I don’t expect that kind of thing here

      Well then…

      Who cares about cigarettes when you can make it about your pet peeve.

      1. Cry more.

        1. Awww, that’s cute.

          1. Yes, cry more now.

            1. Aren’t you a sweet little thing.

              1. Damn, I was kidding but you can’t stop crying.

                1. Look at you go, like a little tyke that just learned to walk.

                  1. God you can’t stop yourself. I’m embarassed for you.

                    You even keep posting, trying to prove your not upset. How sad.

                    1. No matter what anyone else says, I’m proud of you, little guy.

                    2. Get a room, you two.

    2. Extraordinary claims require extraordinary evidence and the advocates of catastrophic man made climate change haven’t even come close to meeting that burden.

      Yes, but they are experts at the emotional manipulation of those who blame humans for every problem.

  7. When you raise prices, demand falls.

    Or new sources of the more expensive resources are discovered.

  8. You probably couldn’t get New York Mayor Bill de Blasio and President Trump to agree on the time of day. But on the question of prices they are of one mind. Both of them think they know better than others what stuff should cost.

    Reason‘s Ron Bailey thinks the government should set the price of energy with carbon and gasoline taxes while the foundation’s transportation central-planner Robert Poole would prefer a crony-capitalist “public private partnership” set the price of driving on what are now public roads( freeing up the fuel and tire taxes up to be spent on more government).

    1. Yes, Bailey is all for individual transportation being priced out of existence by the government so driverless car fleets can take over.

      1. Pretty much. Now I think we could all benefit from your refresher on the definition of irony.

  9. ‘They’re about as convincing as skeptics of climate change.’ WTF!

    1. The only person I know of that actually believes the climate never changes was Al Gore. So I guess that makes him a skeptic of Climate Change.

    2. Yeah, that line seems to have bunched up any number of panties.

      1. It’s all part of Reason’s strategy to drive up the comment numbers, the main source of their revenue.

      2. I pointed this out in the other article/thread. Some Reason contributors are virtue signalling or simply deferring or eschewing to higher authority/fundamental rights. Others, OTOH, have shit for brains and/or are willfully peddling socialist dogma.

        The fact that he goes on to espouse solar energy and data storage equivalently only reinforces the latter.

  10. Do you think climate change hardliners would rather:

    1) Let the world die in a smoggy ruin

    or

    2) build nuclear power plants

    1. 3) Run the world on a windmill.

    2. I think there is a pretty good division when it comes to nuclear. More so before Fukushima (because people are fucking stupid), but there are some left.

      1. Really? Most people I talk to scoff and say something like, “Why don’t you just skip a step and blow up the earth!”

        1. Maybe I associate with a better class of liberal.

        2. Most scientists in my experience are quite pro-nuclear energy and also don’t think climate change is a hoax, part of why they tend to lean left.

          Admittedly most of the progressives I interact with are scientists. There’s always been a tension between the scientists and the hippies.

  11. Trump also wants to raise the price of many things?particularly those things imported from China, for which he has proposed steep tariffs. The trouble with Chinese goods, as he sees it, is that they cost too little, so Americans like buying them, and that hurts domestic producers. To protect producers, it’s important to deny the American consumer what she wants. And the simplest way to do that is to raise prices.

    On the other hand, Trump thinks prescription drugs cost too much. He says the prices must come down “immediately,” and he summoned drug company leaders to the White House for a lecture on the topic.

    He also complains that Canada practices ‘unfair’ trade policies that disadvantage U.S. dairy farmers. But slapping a 20% tariff on foreign goods coming into the U.S. is just dandy.

  12. “They’re about as convincing as skeptics of climate change.”

    WTF?

    1. OK, as expected a bunch of people beat me to it, but this was my thought as soon as I hit that line in the article.

      1. It was a weird non-sequitur to throw in.

        1. It was March For Science weekend, doncha know?

  13. Already, roughly three-fifths of all the cigarettes sold in New York are contraband smokes…

    Nothing a few choke holds courtesy of the NYPD can’t solve. /sarc

  14. Jesus, people, can you not see that the upward trend in global warming coincides almost exactly with the downward trend in cigarette smoking? Do I have to draw you morons a picture? I mean, I’m doing my part to help out, my cigarette smoking adds particulate matter to the atmosphere which blocks the Sun’s warming rays, but I’m only one man and I don’t even like smoking. You think I smoke for my health? No! I’m smoking for your health and the health of Mother Earth. And what thanks do I get from you ungrateful wretches?

    1. A tap on the fanny?


  15. “The trouble with Chinese goods, as he sees it, is that they cost too little, so Americans like buying them, and that hurts domestic producers.”

    Question. If a foreign producer of goods used, for example, actual slave labor to make their goods should we have any problem with trading for those goods? Like whips and everything to make them build iPhone’s faster? Shooting people who try to escape from their slave-pen’s?

    I’m not saying that China actually uses slaves, but it’s perhaps worth noting that the government does own the people over there as well as the actual means of production. Either way, their trade practices are pretty terrible. It seems like that should bother people here in the United States but I guess cheap widgets really do win the day.

    Personally, I’d almost rather the United States not engage in trade with countries who do business like China. Sure, they definitely produce things cheaper than we do. It’s the how they produce things cheaper that might warrant a look.

    The argument for trade with countries like China go something like this: Free trade yadda yadda eventually they’ll be Democratic like us! Cheap stuff made by peasants and forced labor, hooray! America, FUCK YEAH!

    To me, it’s just plain ol’ NIMBYism by-and-large. America doesn’t want the industrial by-products that are a real problem in China and their Communist society can be made to serve us; for a time anyway.

    1. America doesn’t want the industrial by-products that are a real problem in China and their Communist society can be made to serve us; for a time anyway.

      The sad part is the equivocation. The price of a gigabyte of memory has tumbled dramatically over the last couple decades because of largely private innovation of an end-user product that didn’t exist a couple decades before that. Solar energy, OTOH, despite decades and decades of history, has gotten cheaper because of government manipulation and will, until battery technology catches up, require manipulation to get/stay viable. Even this assumes that the improvements in battery technology don’t hyper-regionalize the market such that solar is only viable within the tropics zone and that, otherwise, it’s (e.g.) cheaper/easier to have a nuclear reactor under a mountain or a gas-fired powerplant at each well-head and truck fully-charged batteries out from there.

      1. I agree. What bothers the hell out of me is that if you take what the left or right believes and apply it consistently their outrage is so misplaced that it’s almost comical. It’s almost like a nonsequiter as a way of life, but maybe I just don’t ‘get’ it.

    2. Re: BYODB,

      Question. If a foreign producer of goods used, for example, actual slave labor to make their goods should we have any problem with trading for those goods?

      First, there’s no “we”. You can do whatever you want, but it is not upon you to be everyone’s mommy.

      Second, let me and other have the freedom to demonstrate the sincerity of our principles and sense of humanity instead of merely assuming everyone (but you, apparently) is too greedy and needs government to MAKE US see our sins. Yes?

      1. I don’t think you understood the question. It seems like you’re having problems with basic words though, like we, which is a little weird. I’m guessing you’re an AnCap, so anything that has even a perfunctory appearance of a collective must really give you a migraine. Odd that you think a second order violation of the NAP is just fine, but that’s why I ask questions like these. I’m curious to see what people think.

        *marks down ‘slavery is fine in a libertarian economy, as long as it’s not me doing it’ for OldMan*

    3. Question. If a foreign producer of goods used, for example, actual slave labor to make their goods should we have any problem with trading for those goods?…Either way, their trade practices are pretty terrible. It seems like that should bother people here in the United States…

      The thing about markets is, you can’t fool them. You can’t lie to a market, and say, “even though there’s a glut of this commodity, it’s really rare and special, and we need to treat this commodity as if it’s extremely valuable and precious and on the decline…for purely sentimental reasons.” Markets be like, “Bullshit, I can see that there are 7.5 billion of you, which means you’re only worth so much.”

      Labor is that commodity. Humanity is that commodity. We have a glut of it, and it’s only growing. No matter how much people whine about how bad their lives are, or how bad it is for one or another group of people who willingly enter into shitty work arrangements, they still find time to fuck and crank out more bebbehs. The market doesn’t need to compensate people for what they’re gonna do anyway.

      When labor gets scarce in China, employers will have to compete for workers. Pay and perks will rise. But for now, Chinese workers get jacked, because there are so goddamned many of them.


      1. When labor gets scarce in China, employers will have to compete for workers. Pay and perks will rise. But for now, Chinese workers get jacked, because there are so goddamned many of them.

        That seems like a decent answer. It still doesn’t directly address if it’s a good or bad idea to engage in free trade with illiberal centrally planned countries. I’m sort of playing a Devil’s Advocate here with the slavery angle since I don’t think China is quite that bad, but it’s an interesting point to me.

        The United States trades with countries that are really pretty horrible in many, many ways yet we continue to do so even though we’re actively supporting a regime that’s anathema to human rights. On top of that, they ‘cheat’ at trade (I.E. Currency manipulation) What is more valuable our support for human rights or lower prices (or can we have both)?

        It’s one thing to spout out ‘hurr durr, free trade no borders always’ but that seems far too simplistic. There’s not really any good answer though, so I suppose going with the cheaper goods is as good an answer as any if people don’t mind the human suffering it takes to get those prices.

        1. so I should only be allowed to by goods from countries that who’s regimes you approve of, got it.

          Here’s another solution: mind your own fucking business. If I want to buy Chinese instead of American then then you have no right to penalize me.

    4. Libertarians for protectionism!

    5. It’s a good question and you probably don’t deserve all of the venom it attracted.

      Ethical “value” is a part of markets too. When a big publicity ruckus happened over Chick-Fil-A’s positioning on gay marriage, it decreased the value of their products in, say, the median college town, and increased it in, say, the median Texas suburb.

      In the 1790s, over 400,000 British citizens were boycotting imported sugar from slave-owning countries and colonies; while this was just one of many factors in the eventual abolition of slavery, it served as a weight on the side of freedom. The same free market treatment should be applied to human rights violations in foreign countries, without the involvement of the U.S. government except in case of literal genocide.

      Adding ethical value to your purchasing decisions does require the availability of information, so perhaps there is some discussion to be had around how to provide people this information without violating the rights of a company who wants to hide the origin of their products.

  16. RE: It Costs a Lot When Government Sets Prices
    Be it cigarettes, imported products, or even labor.

    Central planning by The State is a wise and beneficial policy that has worked many times over.
    One only has to examine world history in the 20th century to recognize what central planning has done for the unwashed masses.
    Then you’ll see what I mean.

  17. De Blasio clearly understands the law of supply and demand: When you raise prices, demand falls.

    Does he also understand the law which says that if you use taxes to jack prices up to far more than a much-desired good costs to produce and for which it sells in surrounding areas, you will create a vicious black market?

  18. They’re about as convincing as skeptics of climate change.

    Now I know that ABH is retarded.

    1. And not w he knows that you are.

  19. his goal “is to persuade or coerce 160,000 of the 900,000 New York City residents who smoke to stop doing so by 2020.”

    And if that doesn’t work, plan B is to keep the tax money anyway. Win-win.

  20. It’s New York; who cares? They buy the New York Times, how bright can they be?

  21. Saying the a minimum wage increase will help the poor buy cigarettes undercuts the whole argument. How is that different than those who say it’ll help the poor buy food, shelter, clothing, etc? It’ll help those lucky enough to have jobs and hurt many of the most vulnerable.

  22. Because making things people are addicted to hard to buy worked so well for cocaine, meth, and heroine.

  23. I’m very skeptical of PREDICTIONS of climate change AND of measures supposed to affect it.

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