The Truth About Santa Claus and Prices

Another Christmas has come and gone. Watching my niece and nephew open their presents reminded me of when I was dazzled by the Christmas tree lights and dreaming about the possibilities of all the things under the tree. To this day, the best present I’ve ever received was a model train that I had received the year before but that my father had expertly repainted in the colors of my favorite railroad, the Great Northern.

I remembered asking all sorts of questions at that age: What is the fastest train in the world? How does Santa Claus fit in the chimney? And why do things cost money? Why doesn’t the government just give people what they need?

I don’t remember how my father answered the last question, but it probably wasn’t the answer I would give to my nephew today. The most important role prices play is as incentives that act on both consumers and producers. High prices, for example, give producers incentives to make or to find innovative substitutes, while they give consumers incentives to consume less or to work harder to earn more so they can afford the things they want. The results are positive all around, generating more wealth, more conservation of scarce resources, and more inventive research.

Too few government policy makers and opinion makers understand this key role of prices in the economy. Government programs originally intended to correct for supposed defects in the market place usually end up creating perverse incentives because the people who designed the programs did not understand the need for the right incentives.

Take, for example, the national forests that people throughout the West know and love. Congress authorized national forest managers to charge timber companies fair market value for any trees they removed, and to keep an unlimited share of the receipts they collected. Meanwhile, managers could not charge for most forms of recreation, and they could not keep the receipts for the recreation they could charge for.

This created powerful incentives to favor timber over recreation. The way the timber program worked, forest managers got bigger budgets if they lost money on timber sales than if they made money. Because the receipts they got to keep were used to restore damage done by the timber sales, they got bigger budgets for sales that did more environmental damage than for sales that were relatively benign.

So naturally the Forest Service came to favor money-losing, environmentally damaging sales. So what if recreation were more valuable than timber on some lands? Recreation that conflicted with timber sales added nothing to the Forest Service’s bottom line, so it was ignored.

Not all recreation conflicted with timber sales. Motorized recreation, for example, was more compatible with timber sales than hiking and fishing. Economic studies showed that wilderness hikers and flyfishers were willing to pay far more per day than off-road vehicle drivers. But since the Forest Service did not realize any income from either, it simply counted visitor days of recreation and considered itself successful if it drove away the hikers and attracted ORVers.

Unfortunately, many of the hikers did not understand the value of incentives either. The Sierra Club believes that everyone should be charged for using national forests — except wilderness users and other hikers. The group seems to believe that fees should be in proportion to the damage done by the users. Cutting trees does more damage than recreation, to tree cutters should be charged a lot. All-terrain-vehicles do more damage than hiking boots, so ATVers should be charged more than hikers.

Some dysmenorrhea is heavier to bear, maybe need to stay in bed or take pain killer, in this condition the patients may clash their head and “roll cheap viagra canada on bed”. This is the problem in which male ejaculates too quickly while having the sexual intercourse with your partner beforehand and it can easily help to temper your levitra on sale http://robertrobb.com/house-gop-tax-plan-has-three-big-flaws/ nerves. On top of their price, most of these medicines viagra usa price are unable to offer services like Kamagra UK’s Next day delivery service. http://robertrobb.com/of-rinos-and-the-popes-of-conservatism/ generic super cialis If you are not comfortable walking to your local chemist provides. To anyone who understands incentives, the problem with this is that it creates incentives to emphasize the uses that do the most damage. So what if wilderness users are willing to pay 30 times as much as ATVers? If managers can charge the ATVers but not the wilderness users, then they will emphasize off-road vehicle use.

Most recently, prodded by the wilderness buffs, Congress decided that the Forest Service charge for recreation only at developed sites: places with toilets, running water, or other facilities. Again, this creates incentives to develop everything and ignore the wilderness users.

We see some of the same illogic going on in transportation. Most public transit agencies get 60 to 90 percent of their operating budgets, and all of their capital funds, from taxpayers. This dilutes the incentives created by the transit fares that cover only 10 to 40 percent of their operating costs. Rather than provide the best service to transit users, agencies try to please the taxpayers (or appropriators) who fund them. Often, this means building urban monuments or providing other glitzy services that do little for transit riders but keep the transit agency’s names in the papers.

Since 1931, highway users have paid for the vast majority of roads and other facilities that they use. At one time, the gas taxes or other user fees that they paid were dedicated to roads, which gave transportation agencies an incentive to build roads where people would drive. They certainly would not build a bridge to nowhere because it would not return them any user fees.

Since the early 1980s, an increasing share of federal highway user fees have been diverted to transit and other non-highway programs. Some states began diverting highway fees even before that.

Gas taxes are now viewed as a cash cow, a fund to be raided to provide local pork rather than an incentive to provide sound transportation. Or, if they are considered an incentive at all, it is as a punitive incentive to discourage people from driving, just as states keep raising (and enjoying the rewards from) cigarette taxes because smoking is considered a sin.

People who don’t understand the market fear that it gives an advantage to the wealthy. Toll lanes become “Lexus lanes.” “If we charge for wilderness recreation, only the rich will be able to use the wilderness.” Balderdash.

There are a lot more middle- and working-class people than wealthy people. So carmakers who catered to the rich, like Packard and Cord, are out of business. The carmakers who succeeded, like Ford and GM, catered to the working class or, anyway, all classes of people.

On the other hand, wealthy people not only pay more taxes, they have better lobbyists than the poor. So when government distributes goods, they are more likely to end up going to the rich. Given a choice between buses for the poor or light-rail for the rich, too many transit agencies have chosen the latter.

But if eleven-year-olds have a hard time understanding this, how do you explain it to urban planners?