True Pricing and Subsidies / by kevin murray

Just about everybody enjoys a good deal or a good discount, because they intuitively recognize that less money spent on goods or services, means more money left in their own hands, so as to purchase other goods or for savings.  It is, however, one thing for an enterprise on its own to discount something, voluntarily, and an entirely different thing for an enterprise to either be compelled into discounting something by government fiat or to have to compete against similar entities which have been given special governmental privileges in regards to subsidies or tax benefits or both.

 

Any business that makes it part and parcel of their business that they need or require governmental subsidies or special tax set asides, haven't properly priced in how to run their business in the first place.  While a case can be made, that innovation will necessitate some sort of flexibility in pricing that doesn't take into account the current costs involved, projecting, for instance, that future volume and technological breakthroughs will eventually push the price down to a competitive or worthwhile effort, that can easily be addressed through the proper capitalization of the enterprise to begin with.

 

For example, for whatever reasons, and almost none are valid or good, the government insists on getting involved in all sorts of business enterprises, supposedly under the guise of the "greater good", so that if the government in its wisdom or stupidity or unfairness, deems that solar panel companies or wind generating companies, and the consumers that utilize these products should be subsidized, or receive tax breaks, you will, quite naturally, see a higher production of these items, but what is often forgotten in all of this activity, is that the true price point and the true cost have been marginalized by these subsidies and tax breaks, so that the payback point, if there is even one, is obfuscated.

 

Too often the government desires to have its cake and eat it, declaring that subsidies and tax breaks, and favorable treatment to certain enterprises are all necessary, even if there is a short term cost in extra monies spent and inefficiencies, because over the long term, society will benefit.  In case in point, if, companies truly believed that over the long term that their profitability would materially improve by focusing on certain products as compared to other products, they would, if they were sensible, go ahead and do it anyway, with or without subsidies or tax breaks.  The giving of such, merely gives the upstarts an unfair advantage via those that are not privileged to be accorded the same treatment.

 

In point of fact, if for some reason, a company consistently and constantly sells a certain product for less than its actually true value or real worth to the public, the public will benefit and that particular enterprise will take a negative hit to their bottom line.  The public are not fools, and therefore any product line that is mispriced, or misallocated, will in cases in which that pricing because of subsidies, or tax advantages, or giveaways is thereby priced at less than what comparable products would be priced at -- will see the public naturally consume more of it, so as to take advantage of market imbalances.  When the government makes it their business to affect the natural market forces of pricing for goods, they have, for better or for worse, strongly influenced who the winners and losers are in what is supposed to be a free enterprise system and tilted it accordingly.