This will be the first of three interrelated articles. This article and the concepts I will discuss here provide the foundation for the others.
The first concept I need you to understand is nothing is unlimited, everything is rationed. The term ration is defined thusly:
As a noun: a fixed allowance of provisions or food, especially for soldiers or sailors or for civilians during a shortage
As a verb: to restrict the consumption of (a commodity, food, etc.)
Everything there is on this planet, oil, iPhones, even the air we breathe is limited to some extent and has to be rationed. Don’t think air can be or needs to be rationed? Go SCUBA diving. The air you need to breathe and live, you can only take one ration (what’s in the air tank) down there with you. If you exhaust your ration of air, you either have to leave the water and go back to where air is plentiful or die from the lack of air.
There is also a price and a cost associated with everything. A price is what we pay in monetary units (Dollars, Rubles, Yen, Euros and so on) for a good or service. The cost of an item is what we have to do to acquire the necessary amount of monetary units.
Say you want to buy an iPad. The price for a basic one is $329. The cost for me to acquire that $329 is about a weeks’ worth of work. For someone making minimum wage, it’s more like two weeks of work. The amount of work to acquire this item can be reduced if we are willing to pay other costs. This may mean eating ramen for a week, or paying this month’s utility bill next month. Those costs (low quality food, late fees and/or possibility of getting utilities cut off) can be used to temporarily offset the total cost to obtain that iPad. You will still have to repay the other costs later but those are decisions are for you to make.
iPads themselves are rationed because there are a finite amount of iPads out there available to purchase. If there are 10,000 iPads for sale and 20,000 people want to buy one, then the seller can raise the price until only 10,000 people can afford to get one, or leave the price alone and have 10,000 people go without until more are manufactured. Or one person who owns one can decide to sell their iPad to someone who really wants it and is willing to pay more than the $329 MSRP/RRP (Manufacturers Suggested Retail Price/Recommended Retail Price).
Healthcare is also rationed. A single doctor can reasonably see about eighty-four patients a week. This is 15 minutes with a patient and 5 minutes to do the paperwork (prescriptions, tests, chart documentation, etc) necessary to treat the patient. So that’s three patients an hour, eight hours a day for 3 and-a-half days a week. One day he does work in the hospital, the last four hours in his 40 hour week he is learning about new developments in the medical field and training to gain new skills.
What happens if a hundred people needs his knowledge and skills in a week? He can only see eighty-four. He has to ration his time. This can be done two ways.
First, he can apply free-market principles and if someone wants to pay the doctor extra to get to the head of the line, then those who can pay more get seen before those who can’t. Or
Second, he can apply a Socialistic principal and Triage (a French word, meaning to sort) his potential clients according to criteria that he (or a bureaucrat) sets. It could be those who have the direst need of his services, or who’s been waiting the longest, it doesn’t matter. Sixteen patients have to wait until next week or see another doctor. If one of those sixteen is Bill Gates, then he goes to another doctor or again applies free market principles to slip some extra cash to the doctor to get a priority slot.
Price controls (the price of a good or service that is set by government rather than free-market forces) guarantee rationing. How is that you ask? That’s a great question and I’m glad you asked!
Let’s go back to our iPad example. We still only have 10,000 iPads available and 20,000 potential customers. But the Deputy Assistant Under Secretary of Price Control decides, “That $329 price for an iPad is too high. Let’s make them $159 each.”
The chaos that bureaucrat unleashes is astounding. Because when the price hits that $159, there are no longer 20,000 potential customers, there are now 60,000. Sixty thousand people fighting over ten thousand iPads. The result is now massive rationing because only one person in six can get an iPad. Who decides who gets one and who doesn’t? First in line? Age? Political affiliation? Friends of the bureaucrat?
And what happens when Apple says, “We can’t make a profit selling them at $159, so we will stop making them.” The end result is several hundred people out of a job and 40,000 people who won’t get an iPad.
This is a universal problem because you can replace “iPad” with any good or service and “Apple” with the company that offers the good or service and you will get the same end result.
For those of you with Socialist leanings, you might put forth the supposition that the government should subsidize Apple and give them $170 per iPad so Apple could continue to produce iPads and the customers still get them for $159. What makes you think that the money itself is not rationed? If the government prints and prints money for these subsidies until the money is worthless (1930’s Germany, Venezuela today) the value of the money becomes irrelevant and thus you effectively run out of money.
In the end, all resources need to be managed to make sure that you have those resources today and tomorrow.