Category: Politics

Against the Price Transparency Act

Price-Fairness-graphic-English1-1024x2048

My latest article on Mises Canada takes on the Price Transparency Act, a piece of legislation that would allow the Competition Bureau to investigate alleged “price gouging” of Canadians. Here’s a bit of it:

The price transparency act aims to seek out firms that sell profitably in Canadian markets and shame them into charging lower prices for their outputs. I’ve seen complaints that, since the legislation doesn’t grant the Competition Bureau the power to set prices, the investigations will create costs for the government and for compliant firms without having any real impact on prices. Actually, that would be the best possible outcome. The legislation would be far more disastrous if it succeeded in its goal of putting downward pressure on prices. To do so would remove the incentive for entrepreneurs to efficiently employ their knowledge and insight in allocating resources. While bailouts famously socialize losses while privatizing gains, antitrust actions to reduce “gouging” effectively socialize gains while privatizing losses. We all know how privatized gains and socialized losses led investors to take excessive risks in the lead up to the financial crisis. If the antitrust authority steps in to force profitable firms to reduce prices, effectively socializing gains, then entrepreneurs will be excessively averse to risk taking. Entrepreneurs will not seek out opportunities for high profit if they anticipate that government officials will order them to reduce their prices if they succeed.

High profits are what motivate entrepreneurs to zealously pursue opportunities. Whether they achieve those profits or not, in pursuing them they bring their best knowledge and insight to bear on the problem of allocating scarce resources. High profits motivate entrepreneurs the same way a carrot can motivate a donkey. Mainstream economists are too worried about losing the occasional carrot to realize that taking away the carrot would seriously impair the donkey’s motivation to walk. Taking away the carrot would save a carrot, but it would forfeit something far more valuable. Similarly, while pushing down prices that far exceed marginal costs could reduce the deadweight loss in a particular time, place, and industry, doing so would hamper the entire entrepreneurial process.

Go read the whole thing.

The post Against the Price Transparency Act appeared first on The Economics Detective.

Against the Price Transparency Act

My latest article on Mises Canada takes on the Price Transparency Act, a piece of legislation that would allow the Competition Bureau to investigate alleged “price gouging” of Canadians. Here’s a bit of it:

The price transparency act aims to seek out firms that sell profitably in Canadian markets and shame them into charging lower prices for their outputs. I’ve seen complaints that, since the legislation doesn’t grant the Competition Bureau the power to set prices, the investigations will create costs for the government and for compliant firms without having any real impact on prices. Actually, that would be the best possible outcome. The legislation would be far more disastrous if it succeeded in its goal of putting downward pressure on prices. To do so would remove the incentive for entrepreneurs to efficiently employ their knowledge and insight in allocating resources. While bailouts famously socialize losses while privatizing gains, antitrust actions to reduce “gouging” effectively socialize gains while privatizing losses. We all know how privatized gains and socialized losses led investors to take excessive risks in the lead up to the financial crisis. If the antitrust authority steps in to force profitable firms to reduce prices, effectively socializing gains, then entrepreneurs will be excessively averse to risk taking. Entrepreneurs will not seek out opportunities for high profit if they anticipate that government officials will order them to reduce their prices if they succeed.

High profits are what motivate entrepreneurs to zealously pursue opportunities. Whether they achieve those profits or not, in pursuing them they bring their best knowledge and insight to bear on the problem of allocating scarce resources. High profits motivate entrepreneurs the same way a carrot can motivate a donkey. Mainstream economists are too worried about losing the occasional carrot to realize that taking away the carrot would seriously impair the donkey’s motivation to walk. Taking away the carrot would save a carrot, but it would forfeit something far more valuable. Similarly, while pushing down prices that far exceed marginal costs could reduce the deadweight loss in a particular time, place, and industry, doing so would hamper the entire entrepreneurial process.

Go read the whole thing.

The post Against the Price Transparency Act appeared first on The Economics Detective.

On the Political Economy of Native Tribes

TSLEIL-WAUTUTH NATION - Squamish & Tsleil-Waututh Nations

My latest Mises Canada post is all about Native tribes:

Ludwig von Mises wrote that, “[d]emocratic control is budgetary control. The government has but one source of revenue—taxes. … But if the government has other sources of income it can free itself from this control.”[1] This principle is particularly important for understanding the internal politics of Canadian Native tribes, whose governments are the recipients of large transfers from the Canadian federal government.

A recent scandal involving the Squamish Nation, a Vancouver-area tribe with a population of about 4,000, is a case in point. Two political officials of the band spent $1.5 million from an emergency fund for their personal ends. According to the investigation that eventually exposed them, “it was clear they handed out funds to develop political support from members.” [2] The scandal derives from the fact that funds earmarked for one purpose, emergencies, were used for a different purpose. But the interesting economic story would nonetheless hold if the funds had been used only for their intended purposes.

According to its most recent financial statements,[3] the Squamish Nation earned $11.3 million from Aboriginal Affairs and Northern Development Canada, i.e. the Canadian Federal Government, and only $8.4 million from taxation in 2014. As Mises suggests in the quote above, a government with alternative sources of income besides taxation can use this income to free itself from democratic control. Robbing Peter to pay Paul is a favourite activity of all governments, but when the robbery occurs through taxation, it is at least limited by Paul’s awareness that he is being robbed.

Go read the rest at Mises Canada.

The post On the Political Economy of Native Tribes appeared first on The Economics Detective.