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Here Comes the Sun
The price of a product is a function of the demand for it — or should be.


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Kevin D. Williamson

Prices are a mystery, and why that is is a mystery. People often talk about prices as though they were set by conspiracy in some corporate boardroom, or as though the real-world marketplace worked like a cost-plus government contract, with firms totaling up the expense of all their inputs and then adding some percentage to it. Prices are in an important sense arbitrary, which is why, paradoxical though it may sound, they are meaningful.

Take the case of a round-trip flight between New York City’s horrible LaGuardia Airport and Miami’s horrible Miami airport. From the airline’s point of view, the cost of providing round-trip service from New York to Miami — fuel, flight hours, crew wages, etc. — is precisely the same as the cost of providing round-trip service from Miami to New York. In fact, each leg of the flight will in all likelihood contain both MIA–LGA and LGA–MIA passengers, some on their outbound journeys and some on their return flights.

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But, if it happens to be February, it will generally be the case that the LGA–MIA round-trip flight is significantly more expensive than the MIA–LGA round-trip flight, because New York City is a cold, miserable, wet, depressing place, where your stay will be nasty and brutish even if short, whereas Miami will be only wet, assuming you don’t go too far the wrong way on North River Drive. There is more demand for LGA–MIA than MIA–LGA, thus the higher prices. Nothing at work but supply and demand mediated by prices. Everybody seems to get that, until it comes to a commodity that they have a stake in.

The United States passed its first sugar tariff in 1789, before Rhode Island got around to ratifying the Constitution. We’ve had some major public-policy changes over the years — abolishing slavery, women’s suffrage, direct election of senators, gay marriage here and there — but the sugar tariff stays and stays, the economic version of drug-resistant syphilis. It is a matter of pure political power: The sugar producers believe that the price that Americans are willing to pay for sugar is not the right price — which is to say, it’s a lower price than the one they would prefer — and so we pay more thanks to the cowardice of Congress and the predictable victory of the producers’ concentrated benefits over the consumers’ dispersed costs. As Willi Schlamm said, the problem with capitalism is capitalists, a motto that should be engraved in marble above the entrance to the U.S. Department of Agriculture.

Similarly, the United States passed its first minimum-wage law in 1933. It was thrown out as unconstitutional, and then reestablished in 1938, at which point it became constitutional via the magic of the infinitely flexible Commerce Clause. (There’s a reason Supreme Court justices and fairy-tale wizards wear the same outfits, with the nine-member national super-legislature missing only those awesome conical hats, which we, a freedom-loving people, should insist they adopt immediately.) Why? Because, as with the case of the sugar producers, somebody with sufficient political power decided that the price wasn’t right — and a wage is nothing but a price, the price of labor. The same people who understand why LGA–MIA costs more in the winter than MIA–LGA cannot understand — or refuse to accept — that wages work in precisely the same way. I hear fairly regularly from public-school teachers who insist that they should be paid more because they have a master’s degree, from MFA holders who insist that they should be paid more than Starbucks is paying them, and from people who insist that people working in fast-food jobs should be paid $10.10 an hour, or whatever it is that the Democrats are proposing this week. But there is no should when it comes to prices. Nobody cares what it costs Delta to get them to Miami in February; they care that it’s warm there and that other airlines might be offering a better deal. They could, in theory, even fly U.S. Airways if they were cheap enough and sufficiently masochistic, and flexible about arriving eight hours after they’re supposed to.



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