of water? parking? nurses?
Invariably, blame government's poor pricing policies
There is one word that we in Hawaii
use far too loosely and that is, ‘shortage.’ For example, we talk about shortages
of water, teachers, parking, and, in the last few days especially, nurses.[i]
Shortages are invariably caused by inappropriate government
policies about pricing. The reason that we never have shortages of underwear,
jewelry, or aloha shirts, is because these items do not have their prices either
controlled or influenced by government.
On the other hand, we have a shortage of water because the
City prices it too cheaply. We consumers only pay 10 cents for each 55-gallons
of water while golf course operators and farmers pay just a fraction of that.
At such low prices, homeowners do not think to reduce the
use of water by, for example, asking family members to take shorter showers nor
do they consider installing automatic rain shut-offs for their sprinkler
systems. Instead, we absurdly get pleas come from the city in the form of
public service announcements. Having caused a shortage by under pricing water,
they then try to remedy their error by exhorting consumers to use less of it.[ii]
Obviously these efforts are not having much success since
the ‘public service’ announcements about water ‘shortages’ continue interminably
year after year.
And while low city prices maintain excessive water demand,
the city does little or nothing about the supply.[iii]
Every precious drop of rain goes downstream to the ocean through concrete
spillways carefully designed to ensure that pure mountain water never
contaminates our aquifer. These are the reasons for the water ‘shortage.’ Will
they never learn?
Were aloha shirt prices controlled by the government they
would undoubtedly be under priced because of the normal political pressure from
voters for lower prices.[iv]
Manufacturers would subsequently be unable to produce aloha shirts at low government-controlled
prices leading to ‘public service’ announcements urging us to buy fewer aloha
Then there is the ‘shortage’ of teachers, especially math
and science teachers. Since the federal government has yet to control teachers’
pay, there remains a nationwide competitive market for teachers. School
districts across the country bid up wages for teachers while taxpayers try to
keep a lid on cost. Thus, any district with a shortage of math and science
teachers is simply not paying enough.
In business, you pay what you have to and either pass along
increased costs to customers, or substitute technology, or go out of business.
What you do not do is ignore market signals telling you that math teachers cost
more than English teachers.
As for the parking ‘shortage,’ there isn’t one; instead there
is an overabundance. Here’s why: The City requires each new office or retail building
to have a certain minimum amount of parking. This has led to the construction
of far more parking spaces in Honolulu
than were the process market driven.
Thus, a $75 parking space, which uses 300 square feet of floor
space (including space needed for entry and exit), rents for 25 cents per
square foot. This is far less than what it costs to build and far less than what
it would fetch if the City allowed it to be rented for other purposes, such as
storage. Thus, although developers are forced to lose money on parking they can
still afford to build when they can offset such losses with high office and
retail rents. Nevertheless, since parking is still not priced at what voters
perceive as ‘fair’ which, is to say, ‘free,’ voters characterize it as a
Basically, shortages are failures of public policy. The
remedy is to allow the market to set prices for goods and services and then have
government provide subsidies for those in need of them — as we do with Food Stamps
to provide food for the poor. We can do the same with Parking Stamps, Bus Stamps
and Water Stamps.
We have to learn that messing with Mother Market only begets
even greater problems than the ones we were trying to solve.[v]
is a regular columnist whose footnoted columns are
In true market economies there can be no shortages because as the demand begins
to exceed the supply prices will rise, which will reduce the demand down to the
level of supply. Elementary. However, what the average citizen considers a
‘shortage’ is that there is not enough of a product or service at the price
they are willing to pay.
One is reminded of Russia’s
former Soviet government pleading with farmers not to feed under priced fresh
baked bread to their pigs and instead feed them overpriced grain. However, the
farmers had been just sensibly responding to prices that told them that it was
cheaper to feed the pigs bread.
Elected officials have allowed the construction of housing with little regard
for the provision of roads, schools, or reservoirs.
‘Fair’ prices is the term voters use but the only price for government services
that satisfies most voters is ‘free.’
For example, if there is suddenly a shortage of
beef, maybe because of an sudden outbreak of mad cow disease, the price
will go up dramatically and demand will go down. This will lead to increased
demand for substitute protein products such as pork and chicken. The price of
chickens will go up sending a market signal to providers to increase
production. To increase production, producers will have to set aside a
significant number of eggs for hatcheries. This will lead to a sudden rise in
the price of eggs. There will be instant public outcries that Tyson’s is deliberately
driving up the price of eggs for its own nefarious purposes. After all, what
other reason can there be for this sudden and dramatic increase?