The whole process looks absurd, but it is simply political. Aerospace companies – either Boeing vs. Bombardier or Airbus vs. Boeing – lobby for subsidies whose final impact on the world market is not easily measurable, and each company attacks the other’s subsidies. Great companies become efficient at playing the political games instead of concentrating on producing goods that consumers want. These companies and “their” governments don’t stop invoking the socialist mantras of “fair trade” and “level playing field.”
There is no way for bureaucrats to calculate meaningful costs or subsidies. The only known mechanism to get rid of inefficient producers is to let consumers choose and let the free market work, whatever the real or imagined advantages or handicaps of the competitors. What is needed is not the fair or level market, but the free market.
Fact one: capping the price does not keep the cost of bottled water low. Time spent waiting, time and fuel spent driving to distant towns where supplies are greater, and the anxiety unleashed by the inability to obtain water are all costs. The fact that these costs are not revealed in the price of bottled water does not render them less significant or real.
Fact two: while a higher market price both prompts consumer voluntarily to economize more diligently on water’s use and increases the quantity of water supplied (by giving incentives to suppliers to bring more water to this market), the queues and empty shelves generated by the price cap force consumers to economize, but do nothing to inspire suppliers to bring more water to market.
Fact three: the economization forced on consumers by price caps is ugly and arbitrary. Those obliged to do without are the unlucky ones who couldn’t get into the queue early enough and who have no political or business connections. These unlucky consumers are also typically too poor to pay the high prices demanded on the black market. A fact always missed by proponents of price caps is that black-market prices are higher than the unregulated market prices would be. The reason is that unregulated market prices—being visible and legal—will stimulate a larger inflow of supplies than will black-market prices.
Our findings indicate that premiums as a percentage of coverage purchased are regressive: premium shares are larger than income shares for lower-income zip codes. Payouts, however, also as a percentage of coverage purchased, are progressive, meaning lower-income zip codes receive a larger portion of claims paid. Overall net premiums (premiums – payouts) divided by coverage are also regressive.
Kevin Erdmann at his best. (HT David Levey)