What If There Were No Prices?

"Fear the Boom and Bust": Hayek vs. Keynes

An Orgy of Innovation

Cash-for-Clunkers, Low Oil Prices and Political Credit Assignment

Ever noticed long defunct gas stations with a price sign still displaying the price per gallon for regular around $2.00 (the day they went out of business, years and years ago). Over the years when driving by the defunct stations have you thought: "Was that ever a great price!”

Now when driving by, it comes to mind: "Yes that was a good price but not as good as the price today!"

On a recent trip past a particular defunct station also noted some junk cars sitting on the property. The junk cars and the old "$2.08 sign" might remind one of something. That something is the infamous cash-for-clunkers.

One of the arguments for cash-for-clunkers was gas mileage. That is, trade in that old gas guzzler with a taxpayer subsidy and receive a new fuel efficient vehicle. As the argument went, the new fuel efficient vehicle will save you money at the pump. Hence instead of paying $2,500 per year for fuel you will only pay $1,500 per year. In effect, one phase of the argument for cash-for-clunkers was: one would be lowering their price/cost for oil by buying the new fuel efficient vehicle.

Moreover, as the argument went on, James and Jane Goodfellow would enjoy $1000 additional dollars in their pocket and they would consume such savings and this would help the economy.

Putting aside the basic point that cash-for-clunkers was merely an exercise in accelerating consumption into the present, at an extremely high price to taxpayers, what about the argument point that one would be lowering their price/cost for oil by buying the new fuel efficient vehicle -and- would enjoy $1000 additional dollars in their pocket and they would consume such savings and this would help the economy?

How is it that the argument to lower the price one spends for gasoline (oil) in the cash-for-clunkers proposition (a select few that actually used the cash-for-clunkers program) is "good". On the other hand, a group of talking heads, pundits and advocates depict innovation and spontaneous/emergent order of the market lowering everyone's price for oil as "bad"? In both cases James and Jane Goodfellow lowered their price/cost of oil consumption, albeit for a select few in one example and the many in the other example, yet one avenue to lower price/cost consumption of oil is good while the other avenue is bad. Huh?

To one extent or the other, could it be that good vs. bad in the oil price argument finds its base argument as:

(1) advocacy of collective action where politicos can take credit vs. spontaneous/emergent order were credit is highly dispersed and no one individual can take political credit,

(1a) "good" is only if, credit for good can be politically assigned,

(1b) "bad" is where credit is politically unassigned.

Nobody Can Make A Pencil

The Seen and the Unseen: What About Doing Nothing vs. Politico Schemes and Their "Economic Impact"?

The right thing to do never requires any subterfuge, it is always simple and direct. - Calvin Coolidge

A question politicos desperately want to avoid but yet a question one should always ask oneself regarding grand plans of politicos is: the seen and the unseen. What is the counterfactual to past grand schemes or the alternative to currently proposed schemes? (1)

For example, say political taxing authority G spends plenty of resources on grand schemes over a thirty year period while simultaneously raising taxes to finance the schemes. Assume for a moment that the grand schemes yield little or nothing regarding economic growth. The counterfactual would be over the thirty years no politico spending occurred, taxes were not raised and the schemes never came to fruition. Would this counterfactual have yielded zero, negative or positive economic growth?

One can’t measure a counter factual as the counterfactual never occurred. However, one can indeed measure the impact of a series of schemes. If the series of schemes generated nothing in the form of economic growth for political taxing authority G, and no growth was occurring as the series of schemes unfolded, then why would one continue the series of schemes? Would not one measure results along the way and determine the schemes are in effect schemes (notional propositions) and merely resulting in first stage economic consequences followed by negative cascading unintended consequences resulting in nothing. Yes, the proverbial sound and fury signifying nothing.

When one examines a series of schemes over an extended period that produced zero economic growth, yet schemes A - Z were unleashed as serial schemes, why did the back-to-back-to-back schemes continue when zero was being accomplished?

Serial schemes, the continuation thereof, come with a variety of reasoning of which the marquee reason is: This time is different. The reasoning has a problem in that this time ends up no different than last time as it will be no different next time as notional propositions are in fact notional. This same reasoning comes with the excuse that it wasn’t the scheme that failed it was those implementing the plan that failed. Hence it isn’t the scheme it’s the people. Yet the people change and the scheme continues to fail. Another variation is size. If the scheme had been bigger it would have succeeded. And the granddaddy of all: Judge us by our intentions not the results.

The next question to ask oneself is did someone or some group benefit from serial scheme failure? That is, win, lose or draw was a particular group or were a series of groups benefiting? Was it the same group/groups over time? The next question is what group never benefited from serial scheme failure? Another question is who paid the tab for the serial scheme failure?

Returning to the counterfactual discussion above of thirty years where no politico spending occurred, taxes were not raised and the schemes never came to fruition; although one can’t measure the counterfactual one can indeed discuss the mechanism. That is, all the James and Jane Goodfellow(s) would have had resources at their disposal in the form of tax money never extracted. That would be a large group benefiting. Would all the James(s) and Jane(s) have used their resources in such a way to create serial scheme failure or would they have been more judicious with such resources?

What about the supposed “economic impact” of politico spending vs. the counterfactual “economic impact”? One should consider that government creates nothing that the private sector would not have produced absent tax. Meaning government can only exist by extracting resources from its citizens via tax. Hence X resources are fixed in the short-run and the choice to have someone else spend X or the larger group spend X, is the choice, and additional “X” is not created in either spending scenario. Merely the basket of goods and services changes depending on who spends X.

In the counterfactual a large group is benefiting with additional resources and from a rational point of view this group by-and-large are not going to engage in serial scheme failure. This group indeed creates “economic impact” albeit in a million transactions of wide variety. Moreover, each individual makes those transactions in their very own particular time and particular circumstance which is an every changing time and circumstance. Stated alternatively, spontaneous/emergent order creates economic impact.

The grand monument to “doing nothing” is one thousand more donuts are sold per day, one hundred more oil changes, Sally paints her house, Mae buys a bicycle and so it goes. Those transactions, or more succinctly exchanges at the point of mutual satisfaction, create massive economic impact. Meanwhile, one forgoes the grand monument to “doing something” and forgoes items such as arenas, swimming pools and music halls.

Coming full circle, political schemes of spending other people’s money are framed as beneficial as it creates “economic impact” but that economic impact exists without the political scheme. No additional “impact” has been created by politicos via times some multiplier of Keynesian foolishness because if such multiplier does exist, it would exist in both the case of the political scheme and the case of the large group benefiting with additional resources.

Notes:


(1) What Is Seen and What Is Not Seen, Frédéric Bastiat, 1851.

http://www.econlib.org/library/Bastiat/basEss1.html