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Wednesday, November 09, 2005

Just Do Nothing!!!

The economic ignorance of American citizens allows politicians to put on demagogic shows that harm those very citizens. Yet, they will cheer those politicians on. "Just do something" they yell. And the politicians do just that.

"It's cold. Just do something". So I burn the house down?

The latest "do something" is the politicians are looking into the high gasoline prices and the "windfall profits" earned by the oil companies.
"They are unhappy with the behavior of the oil companies," said GOP pollster David Winston, who advises GOP congressional leaders. "These are free market guys. They believe the market works. But in this case they are concerned that the consumer was clearly taken advantage of ... and they're pretty angry about it."

Let's hope they do nothing about it. Let's learn one thing today: Profits, even "supernormal profits" are good things. Sounds like Gordon Gecco?

Walter Williams provides a simple to understand and remember example of the benefits of profits:

Suppose there's a disaster wiping out food resources in Harrisburg, Pa., and I live in Philadelphia. Prior to the disaster, bread prices in both cities were $2 a loaf. I buy a truckload of bread, cart it to Harrisburg and sell it for $20 a loaf, earning huge windfall profits. When the word gets out that there are profits to be made, what do you think happens? If you said other people will start carting bread to Harrisburg, bakers will start working overtime to produce more bread, people who formerly used their oven to bake cakes and pies will switch to baking bread, there'll be bread conservation in Philadelphia and elsewhere and eventually bread prices will start to fall in Harrisburg and windfall profits would vanish, go to the head of the class. While some might find people earning windfall profits objectionable, the result of their actions, getting more bread to Harrisburg, is precisely what's desired.

Simple? You have a choice to conserve, buy what you need in the "high" price period or do without and wait for the prices to come down (if they ever do). But, if you want the item to be produced, transported and retailed to an outlet near you, then resign yourself to the inevitable principle of supply and demand. Deny that principle at the risk of doing without.

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