Monthly Archives: February 2017

Defending the Undefendable: The Scalper

Country music star Eric Church recently took the unprecedented step of cancelling 25,000 tickets to his spring tour that he claims were purchased by scalpers. The cancelled tickets will be up for re-sale so his “true” fans can purchase them. In fact, this effort to curtail scalping harms his fans – who does he think bought or will buy the tickets from scalpers? I recently tried to buy tickets to an event but was barred from buying more than 2 at a time. Ever. Had I bought two and went back and bought two more I would have been branded a scalper and all 4 tickets cancelled. Net effect: I just won’t go; it’s my whole family or none of us. Oh well. So I have no doubt many of those 25,000 were people like me who tried to skirt the stupid rules just so a family or group of friends could all go to a concert and actually sit together.

The idea that scalpers cause high prices is as persistent a ‘cart pushes the horse’ myth as is the notion college education causes success. Scalpers provide an invaluable public service. They identify and solve glaring supply problems. They make it possible for poor planners, the blissfully unaware, and the peripatetic to enjoy a show at a moment’s notice. In my college days I was in Paris for a summer study abroad. Through last minute word of mouth I happened to find out Pink Floyd was in concert one evening. Of course it had been sold out months before I arrived, but that was no problem. I walked up to the venue and in a few seconds had bought a ticket from a scalper. Couldn’t have been easier. Now someone might argue (incorrectly) that had there been no scalpers I could have bought one at the box office for a normal price. Ten minutes before show start? I don’t think so – not with a band as popular as Pink Floyd at the time.

But, that scenario actually could take place (box office purchase) if only the artists would stop ignoring basic economics. If something is in high demand (seating at a show) but the supply is low (seats x shows) the solution is to not to set an artificially low price and cover your eyes and ears and stamp your feet demanding scalpers not buy the tickets. The solution is to (a) raise prices or (b) increase supply (more shows or more seats). If they truly want all their fans to have an opportunity to see them perform they need to stop selfishly withholding their talents and perform more frequently!

The two most vilified economic activities, piracy and scalping, are both the result of producers over or under estimating their own worth. If someone is pirating your goods then you are charging too much. If someone is scalping your goods then you are charging too little. Think about it: if music and movies were priced at a nickel each, all piracy would cease. The irony is the studios would make more money following this model. Riches are obtained more readily not from charging high prices to a few but rather low prices to the many (which is why price based competition, in contrast to quality or service based competition, is the most popular tool at gaining sales).

Looking back to our example of scalping we can see that if performers charged what the scalpers charged, the scalpers would realize no more arbitrage advantage to scalping and would cease. Airlines do this rather well, offering a range of ticket prices all of which are still high enough there is nothing to gain by scalping them (ignoring security issues today, but this was true in the past when tickets had no names on them).

These performers are a “victim” of their own success. There is only one of them, so increasing popularity means more and more will vie for contact. They have no choice but to charge more or devote more time to their fans. Supply and demand is as inexorable as gravity: sooner or later it will win.

Tyranny of the Do-Gooders

In 2012 Jeffrey Dallas Gay, Jr. (age 22) died of an overdose of prescription drugs. There is little more tragic than death resulting from something so easily preventable. As a parent the instinct is strong to stamp from the face of this earth that which our child became entangled in. But just as setting a national 5 mph speed limit would be a counterproductive response to death by automobile accident, so too are the knee-jerk reaction of legislators when faced with these sorts of drug related tragedies. Senate Bill 81 was recently introduced into the Georgia General Assembly with the stated goal of trying to eliminate opioid overdoses. As with all such intrusions by the state into the lives of individuals, it leaves in its wake the collateral damage of individual lives sacrificed on the altar of the greater good.

The bill preamble first cites a scary-sounding decontextualized statistics (that roughly 30,000 die annually from opioid overdose – context: 0.008% of the US population) it then moves headlong into the “solution.” Now, if 30,000 people a year were dying because some enemy was lobbing bombs at US cities, then yes, the government should do something about that. But we aren’t dealing with an external foe, rather an internal one, ourselves. Laws on gambling, prostitution, drugs, alcohol, compulsory health insurance, etc. all share in common the well-intentioned desire to protect us from ourselves. But such laws undermine the very idea of a free nation built on individual rights. Do you sell your soul to save your life?

SB 81 purports to solve, or at least mitigate, the opioid “epidemic” by limiting first time opioid prescriptions in the state of Georgia to no more than a 5 day supply. Additionally every pharmacist is required to log all such prescriptions into a statewide database (cough, Big Brother, cough) so usage can be tracked to prevent someone buying “too much” (whatever that may be). Just as someone today can hit a wall if they try to buy “too much” Sudafed so too will the unintended consequence be that some must suffer in agonizing pain because their prescription is “too much” under the eyes of “the law.” But hey, who cares about individual suffering if we think our policy might help someone. What’s next, tracking our grocery purchases to be sure we aren’t “abusing” our bodies by buying the food that makes us less healthy and leading to higher health care costs? The greater good of “public health” would surely allow for such reasoning. Yes, laugh now, but it’s coming one day.

Of course these legislators want their cake and eat it too. The paragraph stipulating no more than a 5-day supply is quickly followed by a paragraph supporting the right of a physician to prescribe whatever they deem medically necessary. So once again politicians get to bask in the limelight of “doing something” while not actually doing anything other than adding yet another layer of bureaucracy for doctors who are already over-burdened with a mountain of regulatory paperwork they have to comply with from the local, state, and federal level.

The sad fact that no one wants to face is there no way to solve the opioid overdose problem other than getting people to follow the prescription on the bottle. And that’s not going to happen because people are people and some people just can’t follow directions. People “abuse” antibiotics as well by doing the reverse, not taking enough. This promotes antibiotic resistance. Indeed, nearly as many people (23,000) die each year due to antibiotic resistance. Why no bills designed to solve that “crisis”? Perhaps because no one is getting high off antibiotics? The desire to stamp out any possibility of artificially induced pleasure seems to be the driving force behind drug policy in this country. Anyone who needs a medication should not be made to suffer the hardship of additional hurdles just to get what they need because a handful of people can’t act responsibly. If you want to make a meaningful inroad toward ameliorating this problem, lobby the FDA to remove rules on side effect disclosures that require events with a 0.00001% chance of happening being listed. This leads to information overload and people just tune out everything. If the warning listed only actual hazards – like death from overdose – people would pay attention. Thus unintended consequence of government meddling leads to “solutions” like SB 81 which will invariably lead to more unintended consequences which can only be solved by yet more rules and legislation. The state cannot remake man through the pen. It must stop trying to do so.

DeVoss vote a proxy for freedom, choice

The Democrats waged a bitter campaign against the confirmation of Betsy DeVos as Secretary of Education. Ultimately they lost that battle when Vice-President Pence cast the deciding vote in a split Senate. But this battle had less to do with DeVos the women (indeed, perhaps one can only be a misogynist if they oppose Democrat women) and more to do with the concept of “school choice.” Ah yes, the Democrats, the party of “choice” when it comes to women and their bodies are decidedly anti-choice when the debate shifts to where you send your children to school. Because DeVos has expressed support for school vouchers, that means she is a blood-sucking monster who wants to see children die. This is no hyperbole in characterizing the oppositions rhetoric – noted Democrat film critic Richard Lawson tweeted “voucher programs will lead to more suicides, Betsy DeVos’s policies will kill children. That is not an exaggeration in any sense.”

The tweet has since been deleted. But you get the idea. These people literally believe that if we don’t all meekly line up single file like cattle to go to our assigned schooling center, then the very fabric of society will be rent.

Apparently allowing parents the freedom to decide where their children go to school means the public schools will be unable to function by virtue of decreased revenue. But this makes little sense on its face. If a school has 1,000 children and 500 leave for another school then both revenue and expenses have fallen in concert. This is why if you choose to eat at McDonalds and not Burger King no one says your actions are “defunding” Burger King – as though Burger King has some superior claim to your money that for the good of society necessitates you eat there. Why if you don’t eat at Burger King then they may have to fire people, and unemployment is bad for society, therefore we will tell you when and where to eat, shop, live, and go to school. Even though schooling is the only active part of that hypothetical edict, logically there is no reason this greater good argument can’t be used for any other economic activity.

School choice means that if money is directed away from public schools that are not satisfying the parent’s desire for a good education, then those public schools will have to fire teachers and (gasp!) administrators. Fewer public school teachers mean fewer public school union members. Unions oppose school voucher programs not because they genuinely think it will harm children. No. They oppose it because they genuinely think it will harm their current position of political clout.

Fortunately the American public sees through the self-interest of the unions and past their spurious claims of wanting what is best for the children. A recent poll found that 68 percent of Americans are firmly in the school choice camp. Indeed it is often claimed that school choice is a clandestine method of re-establishing segregation in schooling again, but don’t tell that to the 72 percent of blacks and 75 percent of Latinos who are pro-school choice. For many of them it is the only life-line they have to escape the failing schools they have no choice but to attend by accident of their zip code. The Democrats claim to stand for the interests of the poor and underprivileged, but they are all too willing to sacrifice those ideals upon the altar of political expediency in praise of their god the unions (indeed, the Department of Education was established by President Carter to reward the strong support he received from the teacher’s unions). But there’s still hope for the anti-DeVos camp; throw your support behind Rep. Thomas Massie’s bill H.R. 899 which will abolish the Department of Education.

“Mr. Gorbachev, give us this wall”

Throughout Trump’s campaign he repeatedly promised that “we” would build a wall and that Mexico would pay for it. The details of that boast were conveniently omitted. But class is now in session and the homework is due, so at long last we have been made privy to his “secret” method of getting Mexico to pay for this wall: tariffs. Trump plans on imposing a 20% tariff on imported Mexican goods coming into the US. The proceeds are earmarked for paying for said wall. There’s just one problem with this little scheme of course: it won’t work, or at least not the way Trump imagines. In other words, as with all government actions, there will be unintended consequences. One of the central tenants of economics is that incentives matter. Closing a door just means now the window doesn’t look so bad. Like rats from a sinking ship, there are numerous routes to avoid the tariff. To offset the tariff Mexican exporters may raise prices, which of course means US buyers will shoulder the cost (although magically increases in minimum wage never incline one to increase prices). But higher prices mean US buyers may then opt to forego the purchase or to seek alternative goods; the net effect being no tariff earned and decreased sales for the Mexican company employing, you know, Mexicans (homework assignment: what effect might increased Mexican unemployment have on the demand to enter the US looking for work?). Or if the Mexican company decides to absorb the cost then that means they’ll either have to cut costs by potentially scaling back their work force or slowing the rate of hiring – all of which puts more Mexicans out of work (again see homework assignment above). The more you turn up your stereo to drown out your neighbor’s music, the more he does likewise in a perpetual game of one-upmanship until you both go deaf.

The immigration “problem” is one of positive feedback. Actions designed to decrease an effect actually make it grow. The irony here is that Trump of all people doesn’t see the problem. He is quite fond of blaming China for harming the US economy and putting people out of work by flooding the US market with cheap goods. However, he fails to see the US has been doing the exact same thing to Latin America for decades. That area of the world is less developed and so depends much more on agriculture production to support its economy. Any factors (such as cheap imports) in that agricultural market will have an outsize effect in that region. The US has a long history (since the depression) of agriculture subsidies to US farmers. Subsidies lower the cost of US agricultural products, allowing US farmer to export heavily into the Latin American market where local farmers can’t compete. That darn NAFTA! Yes, NAFTA enabled cheap imports in both directions. These imports had the obvious effect of putting them out of work whereupon they are left with little choice but to move to where there is a demand for low skilled labor – the US.

The inconvenient truth is that the solution to most of the immigration “problem” is to simply end all agricultural subsidies. But no, we’d rather scratch our heads as to why so many keep coming here, shrug our shoulders, and then set about building a wall to keep “them” out. Farm subsidies have become such a political lighting rod in this country that it is actually easier to subsidize foreign farmers (the US sends subsidies to Brazilian cotton farmers!) than to scale back subsidies to our own farmers.

If Trump really wants to stem the tide of Mexicans entering the US he needs to make Mexico great again – great enough that their economy becomes a magnet to all expatriates, drawing them home to where the jobs are. Perhaps Carrier should build that Mexican plant after all.