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?

Slavery Is Freedom?

Harry Reid Argues Government-Induced Languidness Is Freedom

The Congressional Budget Office released a report revising employment projections under the Affordable Care Act (aka Obamacare). The report was not so good for defenders of the health care law.  The CBO projects approximately 2 million full time jobs lost by 2017, due to the provisions of the law, with another 500,000 full time jobs lost by 2024.

Then-Speaker of the House Nancy Pelosi sagely remarked in 2010 that “we have to pass the bill so you can find out what is in it…”

As it turns out, what’s in there is a host of tax and regulatory provisions relating to income taxes and insurance subsidies provided by the federal government (i.e., the taxpayer) such that 2.5 million people will eventually make the decision that not working is more preferable to working.

The remarkable takeaway from the report is that it doesn’t quantify how many jobs might have been created by employers absent the tax and regulatory scheme that is Obamacare.  Instead, the report analyzes individual choices people make with respect to the level of free subsidies received from tax payers, the cost of insurance coverage, income levels, and what is available as public assistance.  The CBO proves an age-old adage that mankind generally wants what he wants, and he wants it in exchange for the least possible effort.

Perhaps competing with Nancy Pelosi for the dunce’s crown, Harry Reid is reported to have said at a meeting with the press, “We have the CBO report, which rightfully says, that people shouldn’t have job lock. If they — we live in a country where there should be free agency. People can do what they want.”

Generally we would agree, but this statement is about as dumb as they come.

Harry Reid is advocating that having a job to pay for one’s expenses represents  a kind of slavery from which one should be freed. “There should be free agency,” he says. But free agency refers to being “able to act freely without being controlled by someone else.” The good folks at Merriam-Webster even published that, maybe just for Harry!

People who make their decisions based on the coercion of government tax policy are not acting freely without being controlled by someone else.  They’re being controlled by the government and its policies. When the government makes a life of mooching mathematically valid and more profitable than a life of holding a job, three things are certain. One, the person giving up work for life on the public dole is definitely being controlled by government policy. Two, there are a healthy number of people who will take the government up on their offer. Three, someone else must pay the bill.

Is it truly freedom or slavery when a government-created policy creates a disincentive to work and favors collecting public welfare as a new career path? What about the person who faithfully maintains a job, pays his or her own bills, and pays taxes?

Is it freedom or slavery to take away the fruits of his or her labor and give them to someone who has made a conscious choice not to work and to collect tax-payer funded benefits?

wiley-reidWhat about the man who stands in front of you, and with all sincerity tells you that giving up your job in exchange for government benefits somehow sets you free? Is he showing you a tunnel to freedom and new opportunities? Or is he setting a trap for you to run at full speed into a boulder face? Is he offering you freedom? Or is he offering you slavery?

One thing is certain: it’s anything but “free agency” or “freedom.”

Ducking Stupidity

I’ve heard over the past week that A&E has violated Phil Robertson’s First Amendment rights by suspending him for his recent comments about homosexuality being a sin.

They didn’t.

The First Amendment stands as a shield between citizens and the government. It does not and should not interfere with private individuals. If you work for a company and in the privacy of your own home take to Twitter, Facebook, and various social media to share with the world how much your employer (by name) sucks, you do not have a right to keep your job. Now we know that Mr. Robertson wasn’t saying anything bad about A&E, so don’t confuse the point we’re making here–the example is to illustrate how the First Amendment protects citizens from the government.

This means that government has no business getting involved in the A&E/Duck Dynasty brouhaha, and people saying “there outta be a law” or “A&E can’t do that” don’t know what they’re talking about.

This says nothing of the fact that A&E has bungled this incident with all the grace of the figurative bull in a china shop. It created a reality TV show—with unparalleled success—out of a Christian family that likes to spend time hunting (with guns even! OH NOES!) in the swamps of Louisiana. It then heard a comment from the family patriarch—who is known for being gruffly honest—that an interest group convinced the network was so offensive as to require immediate action.The network then painstakingly considered the situation for about 15 seconds and then decided to suspend one of the stars of arguably the only show on the network that a sizable audience deemed worth watching..

In our view, the dispute is playing itself out largely the way it should: Phil exercised his free speech rights and shared in an interview what he thought was “a sin” these days in response to an interview question.  Phil’s employer made a decision that such views were not in line with their network’s values, and that they did not want to be tolerant of views that were different from their own.  So they indefinitely suspended him. The show’s fan base is, in turn, holding A&E responsible for its decision, with calls, emails, tweets, messages, threats of boycotts, buying or not buying merchandise, etc. In the end, A&E must decide how it will respond—either to stand behind its original decision, or admit that it made a mistake and reverse its decision.  Either way, it’s hard to believe that the network will make a decision outside of its economic interests.

The only legitimate role for government in this case would be for a civil court to settle any contract disputes that may arise from the incident. No new laws needed. No new regulations needed. No government intervention and no ducking stupidity is needed.