TCS Daily

The Price of Everything

By Jon N. Hall - July 28, 2010 2:23 PM

BRIDGEHAMPTON, NY - JUNE 15:   Euros, from a r...

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Irish wit Oscar Wilde observed that a "cynic is someone who knows the price of everything and the value of nothing."

Be that as it may, prices are the economy's main mechanism for calibrating value.

The most important factor in determining prices is supply and demand: That which is valued and rare commands a higher price than that which is not valued and/or plentiful. We have a plentiful supply of dirt, so dirt is dirt-cheap. And if no one valued diamonds, diamonds wouldn't command much of a price, either, despite their rarity.

But prices don't always work perfectly at indicating value, sometimes there's a "lag"; it can take a while for the true value of something to kick in and register in its price.

For instance, during booms there can be so much money churning around and investors can be so anxious to find a home for it, that even the prices of stocks in companies with no profits can soar. We saw this in the dot-com bubble in the 1990s, when investors simply ignored price-earnings ratios. "Irrational exuberance" and mania make for high prices, as Holland once saw in the price of tulips. But, when the fever runs its course, or there's a bust, sanity returns and the tulip or dot-com is seen for its true value, which is reflected in its lower price.

Another factor determining prices is how ephemeral or perishable something is. Folks might pay a pretty penny in travel to see a total eclipse of the sun, or for a ticket to the last performance of a beloved opera diva retiring at the height of her career. Folks don't "need" these experiences, but they're willing to pay their prices because they value them. Such things command high prices because they will soon cease to exist.

Commerce receives a lot of criticism. Some demean commerce by cynically referring to "buying and selling." But commerce is a fundamental fact of life. Commerce allows us to get what we need to live, and even to thrive. And commerce is all about prices. The price that you pay for an item is equal to the value of the goods you produced to get the money to pay for that item. You spent your time, your life, producing the goods that got you that money. So what a price really asks is: How much of your one and only life are you willing to give up for something?

A price is a distillation of that question. If one got one's money easily, perhaps through inheritance, one might not be as careful about spending it as one would had one spent years slaving for it. So, prices demand a type of rationing -- self-rationing.

Ours is an acquisitive society; we deny ourselves nothing. Prices rise in such a society. Just as the kids must have their cell phones and $100 sneakers, adults must have their single-malt scotches and Caribbean cruises. We have been taught that we can "have it all," and right now. But the idea that we can have it all undermines values.

This world of ours has only limited resources, which requires us to make choices. And choices demand values. If one doesn't have to make choices between things, if one can truly have "everything," then one doesn't need values. So, "the price of everything" would mean the death of values. It's a price too high; don't buy it.

Contrary to Mr. Wilde: Price is always and everywhere a value phenomenon; to know one is to know the other. At least that's the way it is in a free market with rational buyers and sellers who possess good information. But we've only looked at price as it relates to the individual. As it relates to government, price has a different dynamic.

The limitations imposed on the individual by prices don't apply to government. That's because government pays with other people's money: the taxpayers'. And if the taxpayer runs out of money, the government can just print more. So the government is not constrained by self-rationing, unlike the individual. Government doesn't have to make choices. Like a child, government wants everything, both "guns and butter." Money is no object. Price is no deterrent.

Government's only consideration is the next election. So Congress makes nods to spending restraint with measures like Gramm-Rudman and Paygo. But Congress usually finds some pretense to override such constraints and spends anyway. Everything becomes an emergency. We see this in the current debate over extending unemployment benefits. Democrats refuse to use already-appropriated stimulus funds to pay for the extension. So they drive up the deficit even more, demonstrating that Paygo is a fraud.

Government undermines the mechanism of price. When government intrudes into the market place, it subverts pricing. When propped up or tamped down or set by the government, prices become artificial. When market forces are overridden, the true price/value of something remains unknown.

Government drives up the price of everything. Whether it's the price of toilets seats for the Pentagon or the price per job of the Obama stimulus program, government usually overpays. Obama admits that under his cap-and-trade green energy plan, the price of electricity "would necessarily skyrocket."

We cannot have both a growing government and a growing economy. Government must start making choices. But the current regime can't bring itself to make choices; it wants everything. The price be damned.

The upshot of out-of-control government spending is slavery: specifically, tax slavery. That's why the monster deficits run since the Democrats took power in 2007 are so evil. When government does the buying, the "price of everything" is Freedom.>America is suffering a bad case of buyer's remorse. We've belatedly discovered that we cannot afford our current government, and the price tag keeps going up. We need to cashier our pricey government in November, and elect one we can afford. Even cynical old Oscar Wilde might see the value in that.

Jon N. Hall is a programmer/analyst from Kansas City.


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