Let’s Try Pricing!

We economists lead frustrating lives, largely because the obvious conclusions of our work are so difficult to implement politically.  One of the universal conclusions of all economists is that when goods are “free” (priced at $0), consistent shortages will occur.  After all, nearly everyone will want a product or service when it is free, but little or nothing will be supplied at such a low price.  Low prices lead to shortages, not only with private goods like Sony X-Boxes, but also with public goods like highways and clean water.

Simply using price to allocate resources could solve some of the world’s most pressing social problems.  Refusal to use price has lead to a lot of unnecessary cost and misery for millions of people.  Examples where prices could change the world for the better include traffic congestion, organ donation, clean water, and adoption vs. abortion.

Traffic Congestion:  The Minnesota Department of Transportation has developed a MN Pass program on I-394, which runs from the western suburbs into downtown Minneapolis.  Car owners may purchase a transponder that mounts to the windshield.  Holders of the MN Pass transponders may travel in special express lanes, paying between 25 cents and $8 for a one-way commute into the city.  Those who want to travel into the city at peak rush-hour periods can shave 30 minutes off of their commute with the MN Pass.  Sensors in the pavement monitor the amount of traffic and the toll is adjusted accordingly.  As the traffic rises, so does the toll.  Drivers need not stop to pay tolls, as the transponders within the car allow the state to debit the credit card of the MN Pass holder.  Those who do not want to pay the toll may stay in the “free” lanes and go much slower.

Since the inception of the MN Pass program, more than 1,200 vehicles move at an average speed of 55 miles per hour through the express lanes during rush hours.  Because those 1,200 vehicles are in the express lanes, speeds in the free lanes have increased from 2 to 8 percent.  The daily $4,400 in toll fee revenues has allowed the express lanes to meet operating expenses.  The economic lesson:  price highway usage above zero and you will avoid congestion!

Organ Donation.  Thousands of Americans wait for life-sustaining organs, particularly kidneys.  It is illegal to sell kidneys in the United States, making their supply dependent upon organ donors.  Thousands of Americans die every year because they cannot get one of these “free” kidneys.  This doesn’t surprise economists.  After all, at a “price” of zero very few kidneys will be donated.  No kidney donation and someone dies; it’s that simple.  Kidneys need to be priced.  Hospitals should be certified to pay donors, say $10,000-$20,000 for a good kidney.  The kidney would have to be removed at a certified U.S. hospital where transplants take place.  A well-documented interview process with the prospective donor and his/her family would be required before any kidney could be harvested.  This would thwart possibilities of involuntary donated kidneys and organs shipped in from abroad.
If such a program were introduced, there would be plenty of kidneys.  Because people need only one kidney to survive, the monetary incentive to donate an organ would dramatically increase the supply of kidneys and save thousands of lives every year.  Other than the pure emotional argument that “it is immoral to sell body parts”, there is absolutely no reason this plan can’t be implemented.  It is particularly frustrating to economists that thousands of people die each year for the lack of a “price” on kidneys.

Clean Water:  In less developed countries clean water is of paramount importance.  It is estimated that it takes about $10 a month to supply a family with clean water.  We “price” our water in the United States and as a result have a continual supply of clean water.  Often in poor countries, even when wells and filtration systems are in place, the water is priced at zero.  As a result the wells are overused, the filter supply is exhausted and the water system breaks down.  Attaching even a negligible price on the water rations its use and ensures that the infrastructure continues to operate.  The lesson repeats itself; even water shouldn’t be completely free.

Adoption vs. Abortion.  Most Americans prefer adoption to abortion whenever possible, yet many single females choose to keep their babies rather than release them for adoption by families that desperately want them.  The birth mother is expected to “gift” the baby to the receiving family.  In other words, the price of adoptable babies is zero.  Here we go again!  The zero price causes a shortage of adoptable babies.  What if adoption agencies could offer, say $25,000 for a healthy baby?  The money would make it much easier for single moms to make their babies ready for adoption.  If controlled and regulated by certified adoption agencies, future parents could even meet the birth mother in advance, paying for her pre-natal care and hospital expenses, as well as the payment for the child.  Of course, ironclad adoption agreements would have to be enforced in the courts.   Counselors would be required to meet with birth moms to ensure that they were making informed, rational decisions.   The results of infant “pricing” would be fewer children raised in poverty and single birth moms with much brighter emotional and financial futures.

The above examples aren’t just some “organ selling, baby merchant” economist’s fantasy.  They represent a legitimate and long-overdue pricing solution to some very important, even life-threatening problems.  Why are economists so misunderstood?  Why can’t the politicians listen to us?  Let’s try pricing!  Take it from an economist; the world would be a much better place!

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