Of Propane and Politics

What do propane and politics have in common? One smells bad, the other is used to heat hot water and provide heat for your home in winter.

Ha…Ha…Ha…

Very funny, we know! But they have something else in common as well. Both illustrate the beauty of competition. I received a marketing call from a well-known propane distributor (we’ll call them AmeriPropane) asking me if I needed to fill up my tank. And how timely! As the Starks of Winterfell say, “Winter is Coming!”

Propane Tank

Photo Credit: johnpoltrock via www.ilovemurphy.com

AmeriPropane’s business model (I assume) is to give away free gas tanks to commercial developers and home builders in exchange for licensing them to the eventual building occupant. Once licensed, the state government, in my case Virginia, protects the interest of AmeriPropane by outlawing the purchase of propane from any other distributor. Virginia considers filling a propane tank by anyone other than the owner to be a Class 3 misdemeanor.

And abracadabra! A tiny monopoly is formed for my individual propane market. I don’t own the propane tank buried beneath my yard, and I have to accept AmeriPropane as my sole-source provider of much needed heating fuel for the winter months.

As you can imagine, AmeriPropane has zero incentive at this point to provide any discount that might be confused with competitive pricing from other propane distributors.

To be sure, when I called to get a price for a refill, a very apologetic sales representative quoted me a price of $3.58 per gallon of fuel. Two competitors also servicing the area quoted prices of $2.29 and $2.19. (If it doesn’t sound like much, tank sizes average 500 to 1,000 gallons.)

AmeriPropane: $3.58 x 500 = $1,790
Competitor 1: $2.29 x 500 = $1,145
Competitor 2: $2.19 x 500 = $1,095

Propane is an differentiable commodity. Different competitors essentially provide the same C3H8 molecules. Assuming all companies are honest and provide the same propane (in this case they do), then using the lowest bid generates a savings of $695. At every fill-up. With as many as 2 fill ups during the winter depending on how low temperatures go and how vocal complaints from my wife are as to the thermostat setting.

Propane Molecule

Photo credit: Jynto via Wikimedia.org

AmeriPropane isn’t “wrong” or “criminal” or “exploitative” in charging the prices they do. Tanks cost money as does maintenance and installation. Politicians and progressives believe in free lunches. For the rest of us who live in the real world, the TANSTAAFL principle is an iron clad reality.

In this situation, the only way to win the pricing game was to alter the market and set myself up as the tank owner. I purchased my tank for $1,070, which the math above proves was easily paid for in less than 2 fill-ups.

Now I am the tank owner, and the monopoly for propane fill ups is no more. Free market competition – or at least an approximation of it with a market of about 5 local providers vying for business – is the new paradigm.

As an aside, Competitor 2 showed up, filled my tank and left me a swag bag filled with magnets, bag clips, and even a bag of chips to show appreciation for my business. None of which I ever received from AmeriPropane.

Since becoming the owner of the tank, I routinely call around for propane pricing – and am sure to ask my former tank owner for a price, “just to see” how much I’d be saving from my tank purchase. If they were a low bidder, of course they would get the fill up order. AmeriPropane is consistently 50 cents per gallon higher or more from the average price of the other companies.

Now back to where the story began – with the curious calls from my former tank owner. It seems they have started a marketing program to reach out to previous tank owners and offer competitive pricing on propane fill ups. Imagine that! Somehow they’ve reached the conclusion that selling propane at less of a profit is a better outcome than having propane sit in a storage tank at their distribution center.

I recently filled my tank this summer for $1.49. AmeriPropane had offered $1.99. (Yes even when I identified myself as the tank owner – no discount!) But this time, they wanted to offer me $1.45. They would have actually been the lowest bidder – if they had gotten to me a few weeks earlier.

Monopoly Board

Photo Credit: Rich Brooks via flickr.com

So if you’re still with me, you’re probably saying, “The point, man! Get to the point, man!” Talk of free markets, tormenting you with math, resurrecting dreaded economics terms, it’s all too much! The point is simple: free market competition generally produces a superior result than non-free market competition. AmeriPropane quickly learned and even adapted their behavior when stockpiles of gas went unsold at what many would consider ridiculously high prices.

And the more competitors the better. Consumer choice is a key ingredient in any healthy market. Bernie Sanders may not think being able to choose from 23 types of deodorant or 18 types of sneakers is a good thing, but the reality is that healthy competition keeps prices low and quality high, which enables consumers – particularly those with less disposable income who Bernie purports to “help” – to buy more of the things they need.

Suppose there were only 2 producers of deodorant. The inevitable result would be less competition. Higher prices, lower quality, and less responsiveness to consumer demand would quickly follow.

Which brings me to the final point of this post. If we accept that competition is good – that it forces competitors to stay responsive and ultimately produces a superior result than having a market with only one or two competitors, then what does that say about our two-party political system?

Photo Credit: KDSK via KDSK.com

Photo Credit: KSDK via KSDK.com

The current two-party system leaves many people with only one choice and potentially no voice given a particular set of views. Despite all the evidence to the contrary for the failure of government managed programs (e.g., bankrupt Social Security, rampant Medicare/Medicaid fraud, failing schools despite record per pupil investment, the US Post Office, Amtrak, healthcare.gov, Cash for Clunkers, Prohibition, War on Drugs, Immigration Reform, Farm Subsidies, Affordable Care Act, Ethanol, “Green” Jobs frauds, Consumer Finance Protection Bureau, to name only a few…), if you like big government, then Democrats are generally your only choice. Conversely if you don’t like big government, then Republicans might seem like the only choice – except many of them lately behave like Democrats. This is a duopoly. And in duopolies, while things for consumers aren’t as bad as a monopoly, they aren’t much better.

Voter appetites for more choices are becoming crystal clear with the surges in popularity of Bernie Sanders and Donald Trump – both of whom are bucking the “establishment” of their respective parties.

So when it comes to our political system, isn’t it time to rethink only having two competitors to choose from?

Victory Lap for the Feckless

Those of us who did not sleep through civics class probably remember that the US Senate approves treaties with a 2/3 vote. Meaning 67 senators (or two-thirds of those present) must affirmatively vote to ratify a treaty. There are those of us who paid attention in civics class, then there’s Barack Obama, who decided to conduct an “agreement” with the governments of Iran and other world powers regarding that country’s nuclear ambitions.

Whatever your opinion of the “Iran Deal” is – and whether giving people who hold weekly “Death to America” protests a  path to developing a nuclear weapon is the best of ideas – is a discussion for another time. The concern we have is the process the president has used to bring about the current state of diplomatic play.

As with so many other initiatives, the president proves once again that he has no respect for the rule of law, for the Constitution he has sworn to uphold, or even basic political compromise. His administration negotiated a deal, and he took a figurative victory lap while declaring that this deal would be a path to peace.

But bypassing the elected representatives of the American people is not the right path to be on. Seeking Senate ratification requires 67 votes – meaning the president would have to subject his agreement to the Republican Senate majority for review. The same Republican Senate majority that won those elections that the president taunted them to win in 2012.

Republicans have been less than eager to voice support for the deal due to such glaring oversights as the Iranians essentially being able to self-certify that they are in compliance with the agreement. Call us crazy, but a country that is an active state-sponsor of terrorism is probably not an honest partner that should be trusted with self-certifying anything when it comes to nukes.

Rather than seeking political compromise with a majority of Senators – several of whom would need to come from the opposition party – Obama determined that the deal was an “executive agreement.” Executive agreements are essentially treaties that the executive branch pretends are not treaties for Senate review – but ARE treaties for virtually any other purpose – and would require the Senate (and House) to pass a law to void the agreement – over a presidential veto.

And voila. We have arrived at our current circumstance. Opponents of the Iran Deal in Congress and not the president are the ones who must muster a veto-proof two-third majority to disapprove the deal rather than the president being required to seek a 2/3 vote to ratify his agreement – as the Constitution requires.

If you’re of the opinion that this is somehow good policy, you probably really like Obama and really don’t like Republicans. You probably didn’t pay much attention in civics class either.

So what if a socially conservative president signed onto an international agreement to ban gay marriage or abortion in solidarity with other socially conservative South American and African countries who do not share the same beliefs that you do? You’d probably be pretty irked. (By the way, Iran would likely sign onto both of these deals too, so that should tell you something about your prospective partner in this current deal.)

Our government has a system of checks and balances that is required, not suggested, by the Constitution. The purpose is to prevent any one branch from seizing too much power. This is particularly true of an executive branch now headed by a lame duck president who will not stand for election again unless he determines that the two-term limit somehow doesn’t apply to him.

When presidents do everything they can to thwart our system of checks and balances in order to get their way, they break faith with the people they represent and the Constitution they have sworn to uphold and defend.