Who Are You And What Have You Done With Alan Alda?
I’ve always thought of Alan Alda as somebody who was your typical Hollywood liberal who just didn’t understand even the rudiments of economic theory. However, the character Alan Alda was playing sure did sound good.
I turned on the TV last night, hoping to see the opening of the Redskins-Eagles game, and I stumble on what appears to be Alan Alda, talking about drug company profits. But it can’t be Alan Alda. I think of Alan Alda as someone who is hostile to drug company profits. But he’s explaining how profits are OK and how drug companies save lives and how drugs save us from what used to require an operation. He doesn’t say enough about the incentive effects of high prices, but it’s pretty good.
This is exactly right. When economists look at social gains from production profits are counted as a positive. Profits are good, not bad, generally speaking.
It’s some kind of debate I’m watching. Alda’s opponent who is evidently a Democrat, touts his economic plan that will create a million jobs. The moderator asks Alda how many jobs his plan will create. Zero, Alda says. In fact, he adds, I’ll cut jobs. I’ll cut jobs in the federal government. Besides, he adds, Presidents don’t create jobs, entrepreneurs do. My job as President is to get out of the way and let the market work.
Again this is quite reasonable to me. How many jobs did President Clinton create? My guess of zero would probably be quite a bit closer to the truth than the typical person’s guess (millions). Clinton and his team did a pretty decent job with the economy while in office and managed to take advantage of a good situation, but in the end Clinton and his economic advisors didn’t create any jobs. Clinton also followed Alan Alda’s advice with regards to government regulations,
Federal agencies should promulgate only such regulations as are required by law, or are made necessary by compelling public need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well being of the American people. In deciding whether and how to regulate, agencies should assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating.–Source (emphasis added)
We can look at a more recent situation: oil company profits. Why are oil companies reaping huge profits? Well in part the price of oil is quite high relative to a few years ago. But another factor is the way politicians have regulated the oil industry in particular the refining of oil into gasoline. In the early 80’s many smaller oil refiners benefitted from subsidies. When those subsidies were removed these less efficient refineries shut down. Also at the time oil prices (and hence gasoline prices) were very high. So not only did capapcity decrease, but so did demand. Add on the various regulations making it harder to build new refineries and you end up with a situation that economists call oligopoly.1 With oligopoly firms still compete, but their competition is not as intense as with a competitive market. Hence prices tend to be higher and economic profits are positive.
Of course, this doesn’t mean that the regulations are bad. If the regulations have resulted in cleaner air and a better environment then these regulatory costs maybe justifiable. However, it is all to common for the Left to have one reaction to pointing out these types of costs: denial.’
Basically it would be nice if either party decided to adopt the views of Alan Alda’s character.
1There is also monopolistic competition, but one of the components of monopolistic competition is product differentiation.