Naked Economics by Charles Wheelan Read Free Book Online Page B

the water disappeared, we would be dead. The market does not provide goods that we need; it provides goods that we want to buy. This is a crucial distinction. Our medical system does not provide health insurance for the poor. Why? Because they can’t pay for it. Our most talented doctors do provide breast enhancements and face-lifts for Hollywood stars. Why? Because they can pay for it. Meanwhile, firms can make a lot of money doing nasty things. Why do European crime syndicates kidnap young girls in Eastern Europe and sell them into prostitution in wealthier countries? Because it’s profitable.
    In fact, criminals are some of the most innovative folks around. Drug traffickers can make huge profits by transporting cocaine from where it is produced (in the jungles of South America) to where it is consumed (in the cities and towns across the United States). This is illegal, of course; U.S. authorities devote a great amount of resources to interdicting the supply of such drugs headed toward potential consumers. As with any other market, drug runners who find clever ways of eluding the authorities are rewarded with huge profits.
    Customs officials are pretty good at sniffing out (literally in many cases) large caches of drugs moving across the border, so drug traffickers figured out that it was easier to skip the border crossings and move their contraband across the sea and into the United States using small boats. When the U.S. Coast Guard began tracking fishing boats, drug traffickers invested in “go fast” boats that could outrun the authorities. And when U.S. law enforcement adopted radar and helicopters to hunt down the speedboats, the drug runners innovated yet again, creating the trafficking equivalent of Velcro or the iPhone: homemade submarines. In 2006, the Coast Guard stumbled across a forty-nine-foot submarine—handmade in the jungles of Colombia—that was invisible to radar and equipped to carry four men and three tons of cocaine. In 2000, Colombian police raided a warehouse and discovered a one-hundred-foot submarine under construction that would have been able to carry two hundred tons of cocaine. Coast Guard Rear Admiral Joseph Nimmich told the New York Times, “Like any business, if you’re losing more and more of your product, you try to find a different way.” 8
    The market is like evolution; it is an extraordinarily powerful force that derives its strength from rewarding the swift, the strong, and the smart. That said, it would be wise to remember that two of the most beautifully adapted species on the planet are the rat and the cockroach.
     
     
    Our system uses prices to allocate scarce resources. Since there is a finite amount of everything worth having, the most basic function of any economic system is to decide who gets what. Who gets tickets to the Super Bowl? The people who are willing to pay the most. Who had the best seats for the Supreme Soviet Bowl in the old USSR (assuming some such event existed)? The individuals chosen by the Communist Party. Prices had nothing to do with it. If a Moscow butcher received a new shipment of pork, he slapped on the official state price for pork. And if that price was low enough that he had more customers than pork chops, he did not raise the price to earn some extra cash. He merely sold the chops to the first people in line. Those at the end of the line were out of luck. Capitalism and communism both ration goods. We do it with prices; the Soviets did it by waiting in line. (Of course, the communists had many black markets; it is quite likely that the butcher sold extra pork chops illegally out the back door of his shop.)
     
     
    Because we use price to allocate goods, most markets are self-correcting. Periodically the oil ministers from the OPEC nations will meet in an exotic locale and agree to limit the global production of oil. Several things happen shortly thereafter: (1) Oil and gas prices start to go up; and (2) politicians begin falling all over