Shades of Gray

The invisible hand guiding the supply and demand of goods is the foundation of many political economic arguments put forward by politicians, pundants and drunks at locals everywhere. The simplicity of this theory is also the root of its efficacy. It is, however, just a theory with its own baggage. Primarily, that it views the political economy in black and white. Barriers to entry are rife in the economy and unless observers are willing to delve into the gray, analysis will be incomplete at best and misguided at worst.

Some products are so prohibitively expensive to produce and it is necessary for government, federal or local, to finance the production of these goods. Education, roads, ports, etc., are just some examples of these public goods. Public goods are often subject to political horse trading, but many of these goods are essential for the proper functioning of society.

Politically motivated barriers of entry typically motivated by national interest arguments. The defense industry is an obvious example. Not many citizens would foot the bill for a nuclear submarine, nor would we want the average citizen to have access to such weaponry technology. Other national interest arguments often involve protecting labor. The recent bail-out of the automobile industry is a prime example. These politically motivated barriers are implemented via shear political force, military, or by economic enticements in the form of subsidies or duties, sugar and apparel.

Cartels, or collusion, are another barrier to entry which has the potential to distort the forces of supply and demand. Cartels can distort the market in three ways. First, cartels can control the supply of a particular good to the market. Second, cartels can agree upon the quality of a particular good in the market. And finally, cartels can control the price of a particular good in the market. In some cases, all three forms of control are used, OPEC.

The final, and probably most manipulative, barrier to entry is the lack of complete information. Adam Smith envisioned an economy where both producers and consumers had complete information. Each would respond until the market reached equilibrium. Equilibrium would eliminate excessive profits and ensure the consumers are able to obtain the goods they want.

It is imperative for citizens to look deeper into the economic arguments that our politicians are putting forth if we are to receive the price and quality we deserve.