Free Markets, Free People

Markets vs. central planners … learning the lessons all over again

Here’s how markets work.  From Toyota:

It said today it will not release its proposed mass-market mini e-car, the eQ. The reason: there’s no demand for it, not while battery technology is failing to provide comparable range to a tank of petrol. The natural gas boom in the US has seen prices of the fuel plummet, in turn reducing the cost of electricity generated by burning it. The Japanese car maker said today it will release 21 hybrid gas-electric models in its line-up by 2015.

Reality rules:

“The current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge,” said, Uchiyamada, who spearheaded Toyota’s development of the Prius hybrid in the 1990s.

Here’s the market not working because of government intrusion (and ownership):

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.

[...]

It currently costs GM “at least” $75,000 to build the Volt, including development costs, Munro said. That’s nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part ofPresident Barack Obama‘s green energy policy.

A pity these things have to be continually pointed out.  But, of course, it won’t stop those who want government to decide what we should be driving instead of consumers and think subsidies will foster that desired behavior.

Two non-partisan government agencies — the Congressional Budget Office in Washington, D.C. and Parliament’s Select Transport Committee — conclude that during the next decade at least, the giveaways will have little impact on sales of plug-in hybrid and all-electric vehicles, or on gasoline consumption and greenhouse-gas emissions. Their main beneficiaries: affluent purchasers who’d buy the vehicles anyway.

“… during the next decade at least …?”  Love that caveat, don’t you?  They never work if it is something consumers don’t want. See current example for proof.  In the case of the market, it’s moved on … and much faster than government can react.  As usual, government has backed a loser.

The frenzy over shale gas deep under Ohio and other states has the makings of a different kind of rush on the nation’s highways. Businesses, cities, metropolitan transit systems and even school districts across the nation are edging toward a switch from diesel and gasoline to natural gas. Converting cars and light trucks to use either gasoline or natural gas is expensive. And heavy trucks designed specifically for natural gas also cost more than conventional diesels. But at current prices, engines that can run on natural gas cut fuel bills in half or better.

And GM has the Volt.  You have to laugh at the fact that the central planners invariably always get it wrong.

You’d have think we’d have learned that by now, wouldn’t you?

~McQ

Twitter: McQandO

Facebook: QandO

25 Responses to Markets vs. central planners … learning the lessons all over again

  • “You have to laugh at the fact that the central planners invariably always get it wrong.”
     
    Depends on whether or not your central planners are helping pay people off doesn’t it?  I mean, it’s not ‘wrong’ if a guy donates $30,000 to your campaign and holds a fund raiser for you, and in return you find a way to invest a few million in cash squeezed from the tax-payer to cover his losses or to shore up his company for a few more years is it?  If you can make him ‘whole’ and he doesn’t lose a dime, and maybe even manages to make some money how is it wrong?   Plus while you’re investing government capital you can tout jobs saved or created to show you’re doing the work of good governance!
     
    Sure, the tax money is ultimately wasted, but that’s free cash right?  Government money, there’s always more where that came from and who’s going to worry over a couple million bucks when we’re budgeting and spending in the trillions.  Tut tut! Hardly even worth hunting it down these days.  You’d think a million dollars was a lot of money to hear some people talk, pshaw!

  • Yep.  Markets work every time you let them.
    Central planning NEVER works.
    Yet, that is exactly what Obama believes in…down in his bones.  He thinks that it is government’s role to direct markets and technology, and he has so said.
    Just imagine how the cell phone industry would look if directed by the Obami!!!

    • Markets work every time you let them.

      I would disagree with your use of the “every time” absolute, but the real crux of the problem is that the word “work” is ambiguous.  Work for whom?
      Buggy whip manufacturers probably didn’t think the market “worked” for them, particularly if offered the chance to use government force to bail them out.  But market activity did “work” to signal the purveyors of outdated technology to seek alternative vocations.

      • The purpose, raison d’etre, of a market is…what?

        • For me, it’s being able to trade my time and skills for goods and services I cannot efficiently produce myself.
          Each individual gets to answer that question, for himself or herself, according to his or her own values.

      • Markets always work. Sometimes they increase, sometimes they decrease. The decrease is just as important as the increase. Left to it’s own this is just a natural business cycle with modest highs and modest lows.  But when government gets involved, with funny money and easy credit, then up cycles become dangerous bubbles, and then busts.

        • Markets work in so many situations, but they do not always work. There are occasions where the incentive structure can be set up wrong, e.g. tragedy of the commons.
          Also, its important to remind ourselves that the market is a tool. We can use them or we can not use them. Its a choice. We can have a free market in organ selling, or we can ban such activity. Its okay to say “no” to a market. Or we could buy all of our weapons on a free global market where China would end up with vital arms factories and we have none. Maybe we don’t want that to be a totally free market.
          I am very free market, but I think these distinctions have to be noted, and the exceptions are very, very rare.
          Having said that, there is a type of leftist that loves to use the few instances where maybe markets are not totally ideal, and then work from their to claim all markets have these problems.
          The other kind is the lefty who gussies up their BS with “market talk” – people like Ezra Klein and Yglesias do this sometimes…they find some supposed free-market fig leaf for socialism…”If we had national healthcare, we could compete better against Europe” or “if people didn’t have to worry about healthcare they would start more companies” are great examples of this.

          • This exchange illustrates why ambiguous terms like “work” (particularly without specifying for whom) are useless value judgments.
            Beyond considerations of efficiency–which must be measured from the perspective of each individual–what makes free market exchanges superior to central planning are the ethics.  In a free market, you get to decide what’s best for you.  You choose your own values.  And, prices act as market signals to inform you how to make better choices.
            Under the thumb of central planners, your values are discarded and you are compelled, by aggressive force, to work for the value of others.

          • @Elliot…very eloquently put!

      • Of course I was stating a true thing polemically…which is to say over-broadly.
        An enterprise failure is not a market failure, but rather an example of the market working.
        There ARE market failures…which tend to prove the rule of my polemic statement…but they are few and far between, and we have generally provided for them with counter-measures.  I consider tort law to be one example, though that may seem odd to some.
        For whom do markets work?  For all the players in the market!  And that without consideration of race, creed, color, sexual orientation, nationality…whatever!  How do we define “working”?  Markets tend to provide for the most efficient allocation of goods and services among various demands for them.  Markets have PROVEN to enrich the people and their organizations involved in them over time.  Markets tend to innovate AND drive quality improvements.  Markets provide choice, which goes to the point about morality.  Market economics are the only system of economics consistent with a free people.

        • Markets rarely fail on their own.  Usually they fail due to externalities.  Bad or poorly managed information.  An interloper seeking to create a particular outcome (such as the Hunts trying to corner the silver market).  Government management of interest rates.  Size can play a role – if buyers and sellers are so dispersed and rare they can’t be properly matched (think of what EBay did for the Beanie Baby market…which is still thriving, oddly enough). 

          The biggest cause of market ‘failure’ is loss of interest.  Supplies increase in Pet Rocks because people love this funny toy…until people realize they are paying $10 for a freaking ROCK!  Then Spencer Gifts is left with millions of pre-packaged Pet Rocks nobody wants to touch.  The market ‘failed’!  Um, no – it succeded wildly….until demand died.  The same thing happens with stocks that get overpriced.  AOL at $120 in 2000!  THAT was crazy.  Today’s price is one which is coincident with reality, not a sign of market failure.

          Markets, technically, CAN’T fail.

      • Buggy whip manufacturers, whether they felt the market ‘worked for them’ or not, are not the issue.  The market isn’t something you have to believe works for you, or feel like it works for you.  It does what it does because the countervailing forces of supply and demand make it do something which may run counter, or current with, what you believe or feel.  When you opt for feelings, you’ve moved out of the realm of management and into gambling.  That’s a question of odds – not market behavior.

        When the government gets involved (say, artificially lowering interest rates), it creates an environment which causes supply to go one way or demand to go one way.  In the case of interest rates, it stimulates purchasing over saving.  Housing prices rise as people shift money away from savings and investment and into a home and home supplies.  Oddly enough, the market is still working properly – people are doing what it SEEMS to be rational to do.  What people can’t account for is the malinvestment which occurs as a result of government intervention.  The market may actually NEED savings, based on a period of overspending.  It could be that savings are so low people recognize borrowing is a bad idea.  But the government says “NO – spend more and we’ll lend to you and zero interest (or close to it)”.  Thus by managing demand they create the APPEARANCE of a strong market.  In fact, the market is getting much sicker…in need of more savings, not less.

        When this policy eventually fails (and it always does), people scream “the market is broken, it didn’t work!”  Idiot – the market worked PERFECTLY based on the altered signals the government created.  What was broken were the signals the government provided.  It’s as if a traffic cop appeared at an intersection and let everyone go left for an hour as the cars that sought to go straight backed up.  Sooner or later, the cars going straight have to be released, so the cop releases them all at once and there’s a massive pile up.  But wait!  The intersection failed!  No – the intersection worked perfectly.  The cop failed.  Problem is, people fail to believe the government (which is the cop in the economic example) is acting as the cop.  They believe the government can ONLY do ‘good’.

  • Let me play the devil’s advocate.
    Clearly, the problem of Chevy Volt sales is an example of the failure of the free market.  Considering the environmental terrorism of big oil and the willful damage they and the legacy car makers are doing to the environment the American people should be flocking to green energy alternatives like the Chevy Volt.  That they are not is nothing short of the failure of the free market.  When presented with the clearly superior choice the public made the wrong decision.  So it is up to a smart, progressive, government of the likes of President Obama to make an incentive via subsidies to the the American public to do the right thing.  The stewardship of the environment must come before the bottom line of GM and big oil.  If anything, the government is not going far enough.  They should tax gasoline so that it is more like $10/gallon.  The relics of the previous century that still burn poisonous carbon fuels should have an extra tax put on them to reflect their environmental destruction.  Say, $50,000.  Only then will the free market see the environmental costs represented and respond correctly.  Then people will thank the government, and Obama, that such things as the Chevy Volt were made possible.  Forward!
    Now excuse me while I go take a shower.

    • Then go buy one today.   Better yet, buy two.

    • I think the better Devil’s Advocate is this:
      1) Failures happen in capitalism and its okay for the Volt to be a failure.
      2) Sometimes you learn from your mistakes – and maybe GM will have learned a lot from the Volt.
      3) The cost of the Volt includes the development costs, but those are sunk costs and really should not be considered. Any sale of the Volt  at above cost of labor and materials is still making money, and if you end up selling a million of them, it won’t be a problem.
      This is ignoring the whole “gambling with taxpayer money” part.
       
      Tesla Motors seems to have a much better model…did they take state money too?
       
       

  • And they’re getting it wrong with the kids school lunches too.   Let me rummage around here for a second and see if I can find my ‘surprise!’ face.

  • It won’t be long before Bernanke and his permanent “Quantitative Easing” will be buying GM stock in addition to formerly toxic assets.

    • Sure why not.
      I don’t get why we didn’t just cut everyone a check in 2008. Sure, they would have been used to pay down debt, which would not have stimulated anything in the short run, but everyone would have MUCH better balance sheets now and would seem much fairer.
      I mean, did anyone think this recession was going to be a quick and easy one? Besides Obama and his advisers.
       
      Citizen gets check in mail. Citizen owes banks, and pays off bills. Bank is healthier. GOOD.
      Citizen gets check in mail, does not owe, spends it on strippers. Stimulus!
      Citizen gets check in mail, and saves it.  Good for investment.
       
       

    • Its how Ford got rid of all its expensive debt.  Ford used the GM bailout and renegotiated its debt obligations down by saying they’d end up like GM’s creditors if they didn’t lower Ford’s obligation.  Then they swapped out the expensive debt with relatively free Fed. debt.
       
      Its a similar method of choice for continued bailout of financial sector companies.  As well as a built in bailout for them.  Since they borrow money from the Fed to invest giving them the option of letting the taxpayers holding the bag if the investments collapse.

  • Or, Toyota never intended to sell large numbers in the first place and was beat in both time and performance/price by others.  Its got a range less than a Leaf (100 miles was promised and its coming in at 50) and price higher than a Volt ($45,000) (without the backup gas engine) coming out almost 2 years later.  So there’s no PR advantage to go forward.

    • Good point! And if you throw this out there to the media, and a few potential Volt buyers believe it, all the better.

      • Considering the Prius was a money pit for Toyota for most of its life, Toyota isn’t adverse to losing money if their a PR payoff for it.

  • Now here’s a cheery article that ties in not only to socialists governments and central planning, but to redistribution too.
     
    Remember Spain had a socialist government just this time last year.
    http://www.cnbc.com/id/49162890