PIERINI FITNESS.

Monday, June 12, 2017

Embracing capitalism

About 25 years ago while on vacation, my wife and I spent a hot and humid summer day in New York City (NYC).  Our goal was to explore as many Manhattan nooks and crannies as possible.  Eventually, as most tourists do, we strolled into the Chinatown neighborhood when something happened that oftentimes happens on hot and humid NYC summer days; it suddenly started raining.    

Hot and sweaty one moment earlier, we were now quickly cooling off thanks to a downpour of rain splattering on our heads and soaking our clothes.  We were ill-prepared for this rain; however, our quandary was brief as countless solutions immediately presented themselves.  In less than two minutes and two seconds, there were brigades of street vendors offering umbrellas for sale.  

All of us needing an umbrella were willing to pay a premium price but it wasn’t necessary because competition among these street vendors was intense.  Waving their umbrellas for sale, they sang their low prices in non-orchestrated unison in what seemed like a big band performance.     

It didn’t take long to decide which vendor would get my business.  I pointed to one and told him I’d buy one umbrella, pulled out my wallet, and completed my purchase.  My wife and I were now spared of further spoils from this summertime downpour, thanks to these small business capitalist NYC umbrella street vendors.

What an example of small business capitalism at its finest.  It gave me a better understanding and appreciation of Adam Smith’s “Invisible Hand” and the economic law of supply and demand than my college economic professor’s lecture 15 years earlier. 

Fast forward to the present, I wonder what would have been the outcome that day if a government program was my only solution. 

Such a program would have been the result of a study determining how best to respond to emergency umbrella needs.  Consultants would have been hired to conduct this study.  Purchasing the umbrellas would have followed a complicated and lengthy bidding process but only after stringent and politically-influenced product specifications were lobbied for and determined. 

Additionally, eligibility workers would have been hired to determine who among those needing an umbrella qualified for taxpayer-subsidized ones at a lower price, or perhaps qualified for a “free” one. 

This summertime shower would have been long gone before umbrellas arrived on the scene to save our day.

This decades-later Monday-morning quarterback reflection made me realize how capitalism fueled by the economic law of supply and demand does the most efficient job of delivering cost-effective and best solutions for taxpaying consumers.   Granted my story is a simple example demonstrating this so you may want to use your own more-complex scenario to see if you come to a different conclusion.

We’re living in an era that may be recorded in our future history books as the 21st century “Make American Great Again” continental divide. On one side are angry Americans and political leaders who are now underdogs.  Happy Americans and other political leaders now top dog and in charge are on the other side.  They want to do things different than how things were done the past eight years.

Each side is at intense odds with the other about what’s the best way to make America great again.  A competitive tug-of-war is taking place between two broad-based approaches.  One approach advocates government program solutions to fix our great nation’s socio-economic maladies while the other advocates private marketplace solutions.

Government solutions fail miserably; they’re terribly taxpayer expensive, reactionary, challenging to end when they’re no longer needed and subject to the perils of political influence.  Pick your favorite government program and test it for yourself. 

Like affordable housing, for example.  I recently wrote an op-ed article appearing in the Sacramento Bee asking the question of what’s the solution to California’s unaffordable housing crisis.  I gave examples of how government affordable housing programs are not efficient or cost effective. 

One example was of the State of California Department of Housing and Community Development’s helping hand in a new $15.8 million affordable housing apartment complex that’s now home to 30 lower-income facilities at an average cost per family of, ahem, $526,667.

In response to this article, I received an e-mail from a state housing official privately sharing another example even more mind-boggling.  He told me about a government affordable housing rehabilitation project in San Francisco, offering views of the Golden Gate Bridge, costing about one million dollars per unit.

Why do we need a Small Business Administration government agency?  Do you think Mark Zuckerberg of Facebook fame created this multi-billion-dollar company with seeds planted from attending an SBA workshop or funded by an SBA-guaranteed loan?

Why do we need any government-guaranteed loans? 

What’s the cost of these programs to taxpayers and who are the beneficiaries? 

Taxpayers or a few lucky souls like institutional lenders and borrowers having the wherewithal to borrow that may just take a little extra effort without a government-guaranteed loan?

Private marketplace solutions are clearly the best.  They’re the most cost-effective way of getting the job done.  Have you ever stood on your front porch holding your newly-arrived package from Amazon shaking your head in disbelief how quickly it arrived because you just ordered it the other day?

Adam Smith correctly figured this out over two hundred years ago and it’s time for us to rediscover and embrace it once again.  Capitalism is nothing about which to be embarrassed.  We should be its biggest fan just like we are for our favorite professional sports team.  

Granted, there are some public goods where private marketplace solutions may not do the best job of meeting our needs.  Providing a militia to defend our borders and interests around the world comes to mind.    

But such a public goods laundry list is smaller than we’ve been led to believe, meaning most of our public good needs are more efficiently and cost-effectively met with private marketplace solutions.

Just like that hot summer day in NYC Manhattan about 25 years ago when a sudden summertime shower appeared out of nowhere, and my wife and my needs for cover were immediately and cost-effectively met by small-business capitalist umbrella street vendors.

We’ll make America great again by embracing capitalism.

Pax Domini sit semper vobiscum

No comments: