Honolulu Advertiser

SECOND OPINION  by Cliff Slater

September 27, 2004

Short 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 shirts.

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 ‘shortage.’

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]

Cliff Slater is a regular columnist whose footnoted columns are at: www.lava.net/cslater

[i] 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.

[ii] 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.

[iii] Elected officials have allowed the construction of housing with little regard for the provision of roads, schools, or reservoirs.

[iv] ‘Fair’ prices is the term voters use but the only price for government services that satisfies most voters is ‘free.’

[v] 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?