Thursday, July 9, 2015

Wolfonomics: competition causes higher prices

Governor Wolf, the businessman who knows how to get things done, who can reach across the aisle and find common ground with the opposition, is not a stupid man. However, he must think we are.
For a guy that wrote about “Conflict and Organizational Accommodation" for his Ph.D. dissertation, he doesn't seem to be to very "accommodating." As reported in numerous newspapers, the Governor's "My Way Or The Highway" approach is blocking progress.
"That's MY way over there; the HIGHWAY is over there."
His interview in Keystone Q & A gave us a warning when they asked:"How much of the budget that you introduced do you hope to see as an end product?" and he answered "All of it. It actually is a holistic program not meant to be cherry picked," Which means he isn't willing to compromise, at least not in the way I understand the word. Of course, that is a flip-flop from his inaugural address, when he said, "We have to believe that none of us alone has all the answers—but that together, we can find an approach that works." I guess he forgot to add "except for the budget."

As a college-educated man he had to take a few business courses, like accounting or economics, at some point in his academic career. One of the things you learn in those classes is that monopolies are inherently anti-consumer due to:
  1. Higher prices than competitive markets
  2. Decline in consumer surplus
  3. Less incentives to be efficient.
They are so inherently anti-consumer that there are laws prohibiting them. Then there is that whole idea of centralized planning; that worked so well for the eastern bloc and Soviet Union. You remember that: where the government decides what you are allowed to buy, where you will buy it, and how much should be made available. Sorta like the PLCB. 

Centralized government planning is known for:
  1. Being poor at predicting future trends
  2. Having a lack of incentives when income is guaranteed
  3. Being inflexible, with difficulty responding to shortages and surpluses

What is really ironic about centralized planning is the theory that the government will be able to overcome market failure and achieve equality of distribution...thus preventing monopolies from emerging to exploit consumers. Pretty funny considering our home-grown Fossil of Prohibition, the Relic of Repeal, the State Store System.

The Governor's reasons for vetoing liquor privatization really call into question what he thinks of the citizens of the Commonwealth. As noted in the Washington Post's blog (how badly does a Democratic governor have to screw up to be called out by the Post?): "Pennsylvania’s governor doesn’t understand economics (or won’t admit the real reasons he vetoed ending state liquor monopoly)."

It's bad enough that the PLCB treats us like children, but now we have the Governor doing it too. The piece in the Post quotes the Reason blog: "Wolf and his fellow Democrats 'warned that prices would rise as private businesses sought profit.' In other words, private merchants will jack up prices because they want to make money—unlike the Pennsylvania Liquor Control Board (PLCB), which seeks only to raise revenue." Except competition -- as 200 years of economic theory and experience prove -- drives prices down. When Wolf ran his family business, Wolf Furniture, did Wolf raise the price of his cabinets to be more competitive? Or did he lower them? Is this the dawn of Wolfonomics?

The Governor specifically mentioned, "In the most recent case of another state that pursued the outright privatization of liquor sales, consumers saw higher prices and less selection.” He's clearly talking about Washington State. Their higher prices wouldn't have anything to do with the 27% in new fees that came with their privatization plan, would they? You know they would, we've told you that, time and time again, and backed it up with fact, not speculation. More Wolfonomics: apparently competition somehow causes higher taxes, not government!

And the notion that selection has decreased for Washington's citizens is simply absurd. The number of stores increased almost fivefold, and true superstores entered the market, stores with more products on the shelf then the entire state control system stocked. You can see the same thing in New Jersey at any Super Buy Rite, Total Wine, or Joe Canal's. There are stores like these all across the country, and there is no reason they won't be in PA too (despite what you may read in comments sections of news stories). The Commonwealth Foundation had a nice synopsis posted that you can read here.

It was the Pittsburgh Post-Gazette that put it best, though: "Since [Governor Wolf] is now the sole person standing in the way of this historic privatization, the governor has earned the right to have the state stores named in his honor." 

We agree. Welcome to:

Unchanged for 80 years!
I would ask the Governor to put his business hat on and take this simple test. If you wouldn't put a system like the State Stores into place today... why do you want to have it tomorrow?

We all know the answer. No one really wants this system except the people who directly (or indirectly...through campaign contributions or dues) benefit from it, but it is because of those people and their outsized influence that Wolfonomics had to come into being. We don't want it, and you know we don't, and as a business owner you can't really want it. Do the right thing, Governor.

End It, Don't Mend It.

Wolfonomics - a system of economic theory that reverses 200 years of thought by presupposing competition increases prices. Or "Everything you know is wrong"  Feel free to use it whenever the Governor talks economic policy.)


Anonymous said...

Why did the PLCB ever want/need a union? If all PLCB jobs are civil service jobs anyway, aren't they already jobs that are hard to get fired from, and where the employees are perhaps treated too well for their efforts?

Albert Brooks said...

I don't think the PLCB ever wanted a union but it was the employees right to form one. Odd how the amount of state stores started going down right after that though....sorta like they had to spend money on other things.

Anonymous said...

This is news I just discovered: there actually is an entity known as the PLCB Woodshop, that builds cabinets and other wooden displays for PLCB stores. I have no idea where the building actually is but I would guess Dauphin County somewhere. Tom Wolf before politics was head of a cabinetmaker in York County, so I wonder... nepotism? Might this be the hidden reason he opposes privatization (aside from being a Democrat)?

Albert Brooks said...

All his kids are grown and have decidedly better jobs than working in the PLCB wood shop.

Anonymous said...

The woodshop is off Union Deposit on the street across from Lowe's and next to McDonalds. It would be cheaper to contract that work out but that would mean saving money.

Albert Brooks said...

Thanks for the info. I knew it existed but like the other writer had no idea where it was.

Anonymous said...

They also have a place in Scranton. Both well equipped and they build those box shelves, check out counters and store refirbs.

Albert Brooks said...

You'd think they would have one on the western end of the state too someplace.

Sam Komlenic said...

Maybe the state of Pennsylvania should enter the furniture business then.