Economic literacy
SINCE 2004, newly elected lawmakers have been attending a seminar conducted by the judiciary on the Covenant, the U.S. and CNMI Constitutions, as well as common law and the judicial process. Ideally, individuals who run for office should be knowledgeable about these subjects already. (Would you hire a mechanic who has to attend a lecture on Mechanics 101 before working on your car? Neither would we.)
But this is not an ideal world. And everyone — not just politicians — needs to, now and then, learn new things. Which is why we believe that a business entity or group should, like the judiciary, conduct a biennial seminar for newly elected officials (not just lawmakers), this time on basic economics: supply and demand, trade, prices, wages, profits, comparative advantage, marginal utility. Video-record the event and post it on Facebook or YouTube.
Right now, businesses have to spend a lot of time and effort in lobbying against the usual pieces of popular but economically illiterate (and harmful) legislation introduced on Capital Hill. Educating policy makers could help reduce the number of such ill-advised measures.
Years ago, a local businessman said he was quitting the biz because he was tired of dealing with government officials who couldn’t run a lemonade stand, but was always telling him how to run his company, all the while imposing punitive rules and/or fees that raised his costs, and then complaining about the higher prices he had to set so he could pay those costs in an attempt to at least break even.
Many politicians, in any case, say they want to “change the world.” Well then, they should, first of all, learn how it actually works.
Reasons
A LAWMAKER said there is “no reason” why passengers should pay $600 for a 30-minute inter-island flight.
This assumes that there is a “right” price for this flight service, and it is not $600. Maybe. But it would also be useful to know more specific details about this particular flight. Such as: the type of plane used, the average number of passengers (that is, the demand for the flight service), the costs of providing it, among other things.
Without an acquaintance with Economics 101, we could also say that there is “no reason” why life-giving water should cost way less than a “useless” diamond; or why businesses are willing to pay for a 30-second Super Bowl advertisement that costs $7 million which is way more than the annual budget of the CNMI Department of Public Safety. ($5.76 million in FY 2023 prior to the austerity measures and budget cuts.)
Well-intentioned and unwise
WITHOUT a familiarity with basic economics, many well-intentioned policy makers who have to “do something” about “high prices” end up introducing popular legislation that harms its intended beneficiaries.
Consider, for example, the well-intentioned recommendation of the CPA transition team to impose price controls on the contract for Rota’s stevedoring services. This presupposes that a stevedoring company — any stevedoring company — will agree to the prices dictated by the government (that is, politicians who want to be popular), and not by the actual costs of providing the service.
Price controls have been popular since, apparently, the beginning of known human history, and yet few people are aware of price controls’ utter failure to “control” prices without causing shortages and/or scarcity.
As economist Thomas Sowell would put it, “[P]rices convey economic realities that do not change just because the government changes the prices. It is as if someone’s fever was treated by putting the thermometer in cold water to bring the temperature reading down.”
