Saturday, January 13, 2007

No need for caution: free markets at work, part II

Previous: No need for caution: free markets at work

That previous post is from August 2005, in which a couple were overjoyed to buy a 50-inch plasma TV at Best Buy for $3800. Their website today lists a 50-inch HP model for $2300. So was that couple foolish to buy technology when prices had only started to come down, since most everyone knows you can save money by buying later? Not at all. They placed a higher value on having the TV then, and their increased happiness turned out to cost $1500 for 17 months. Perhaps they went into debt to buy the TV, but that is still their preference.

Sharp revealed on Friday that it will open a new factory in Mexico, in addition to a new plant in Japan. The article explains that Sharp used to be the leader in LCD TVs, but it now trails Sony, Samsung and Philips. If Sharp's expansion is successful, that's good for both Sharp and consumers. If it is not, it is still good for consumers, who will continue to benefit from lower prices. Either way, consumers win.

And look what else this is doing: new jobs for Mexicans that pay well, which will allow them to buy more U.S. goods. Both sides are left better off. Protectionists, in their ignorance, would argue that Sharp should just move the jobs to the U.S. in the first place. But that would make the TVs more expensive (both to produce and when they are sold), meaning fewer people would buy them, and economic output would be less overall. As always, the protectionism would benefit a few while punishing the many. But when the labor-intensive production is based in Mexico, Mexicans have jobs, and their newfound income will enable them to buy capital-intensive goods made north of the Rio Grande, thus supporting Americans' jobs.

It should not surprise believers in the free market that there is still so much competition, despite prices coming down. The free market system rewards both producers and consumers simultaneously, because they are left free to pursue their own best interests. And why shouldn't both sides win? As Bastiat explained, "Man produces in order to consume. He is at once both producer and consumer." On the other hand, socialism makes clear delineations between the two, rewarding only consumers while simultaneously punishing producers, or vice-versa: government may give producers strong incentive, but at a higher cost to consumers, or consumers may be given incentive by price controls, which discourages producers. By separating the two sides to people's economic lives, socialism hinders the natural balance at which societies prosper and flourish.

Will "worshippers of government" (my favorite of all Bastiat's terms), from full-blown socialists to the "progressives" who believe government must "help," ever look at the myriad examples of modern technology and finally understand that government can never stimulate nor inspire invention and creativity? And with regard to social customs, look at what the free market hath wrought, things government takes credit for but could have never effected. Only the uncompetitive, slothful and tyrannical need fear free markets, which is precisely why the supporters of government intervention can always be lumped into one of the three.

On the other hand, Sharp's executives did not need the national governments of Japan and the United States to tell them to expand production in this way and that. Sharp's executives, and their advisors, were capable of making the decision on their own, based on the risk that they calculated. It should be obvious that they had far more incentive to be careful in calculating risk, because it's after all their money, as opposed to government bureaucrats who characteristically make careless decisions with other people's money.

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