“Government Should Be Operated Like a Business,” Part Two of Two

In my last post, I argued that inherent differences between government and business prevent government from operating like a business. In this post, I will argue that the examples the author provided do not actually support his argument. Instead, they illustrate how government action restricts businesses.

First, the author villainized businesses:

Businesses, unlike government, like to make profits and many of them are not reluctant to increase their rates or their retail prices.

In the private sector, the act of raising prices is not malicious. Companies incur costs that they have to cover, and they have customers whose willingnesses to pay is largely dependent on price. If a company raises its price too high, then individuals will stop voluntarily buying its product or service. As a consequence, the company will not be able to cover its costs, and then it will go out of business.

Next, the author provided several examples of companies that tend to go out of business when they raise their prices:

Detroit says the new model of car will cost $200 more; the dealer doesn’t like to hold his sales price at last year’s level. More uninsured people show up in hospital emergency rooms; hospitals increase costs to those with insurance. Utilities have to pay more for natural gas and coal to keep the generators spinning; they get a fuel adjustment rate increase and pass along the costs to consumers.

The problem with these examples, however, is that the government has already intervened in these particular markets to an enormous extent. As a consequence of this government intervention, private businesses have much less control over the price they charge to consumers, or the costs of their materials and labor, which causes them to go out of business. These particular examples showcase government-created problems, and the solution is less government — not more.

The auto industry is a prime example of high government intervention. Remember last year’s auto bailout? We don’t refer to GM as “Government Motors” for no reason.

The health care industry is another example of how government intervention has impeded private business. That’s because the government has mandated that hospitals treat everybody who walks through the emergency room doors, regardless of their ability to pay. This level of intervention doesn’t occur in most other industries. If a person shows up at a restaurant and is unable to pay, the government doesn’t mandate that he is served a meal. If a person walks into a clothing store and can’t afford to buy anything, the government doesn’t mandate that she walk out with a new jacket. Quite on the contrary, somebody who tried to walk out with a product without paying for it would get thrown in jail for shoplifting.

Furthermore, the fact that hospitals increase costs to those with insurance is a consequence of this government intervention — and the solution is less government, not more. As I have discussed previously on Show-Me Daily, in order to stay in business, hospitals have to make up for those patients who cannot afford to pay more than the government-mandated price.

The author’s gas station example provides a third illustration of how government intervention can restrict a business. He wrote:

When wholesale prices go up, business often pass on those higher prices to the consumers. We don’t know of many gas stations that are paying higher wholesale prices for fuel this year than last year that are still selling gas at last year’s prices, or the year before. We’ve seen old prices on some pumps in a few gas stations. But weeds are growing around those pumps and the sign doesn’t light up anymore, and the convenience store is empty.

He leaves out the fact that the government levies taxes on gasoline that can greatly affect the price at the pump, and also limit the control that a gas station owner would otherwise have to set a price that will cover his costs and that consumers will be willing to pay.

The gasoline tax in Missouri is 35.7 cents per gallon (including the federal tax of 18.4 cents per gallon). Because the tax rate applies per gallon, rather than as a percentage of the price, it means that the amount of taxes paid as a percentage of price is higher when the price at the pump is low. For example, if the price at the pump were $1.75, the percentage paid to the government would be 20.4 percent. If the price at the pump were $3.35, then the percentage paid to the government would be 10.7 percent. The price at the pump in Saint Louis is $2.65 right now, which means that more than 13 percent of that price constitutes taxes paid to the government.