Price Utopia

The issue has been raised that prices in Saipan are generally higher than they are in Guam. Who likes high prices? Not me (unless I’m charging them). Before we get to an Easy Solution, though, let’s take a look at the causes for our higher prices.

Non-economist economists always bleat about businesses “passing on” higher costs to consumers. That’s not the way markets work, though. Higher costs to businesses actually reduce the number of businesses in that market, and this reduction of supply puts upwards pressure on price levels. Thus, costs and prices are linked, but indirectly.

Businesses here (retail stores, gas stations, etc.) face higher shipping costs than most dollar based economies do for obvious reasons. They also face higher uncertainty in making investments here. Labor is getting difficult to find; close to impossible, actually. Laws change with the wind. Economic policy is made based on emotional whims. Faith in the tourism sector has plummeted after the CNMI gave up its market share to Guam. In sum…well, would you open a store here?

That’s the supply side of things, then. We darned sure won’t see an increase in the supply of goods, and it’s likely we’ll see a decrease.

We need to turn to the demand side to see how this will all meet and work out, price wise. Demand, as well as supply, has fallen here, for the obvious economic reasons.

Which could lead us to all sorts of speculation about the future course of prices here. As for me, I think it’s a fair bet that luxury goods such as cars will decline in price, land will decline sharply (a prediction I made over a year ago), and other big ticket items will fall as well. Food, stuff like Spam and Pepsi, though, might actually increase in price over the long run, as suppliers leave for better run economies (thus decreasing supply) but the demand from those drawing government checks (“We Accept Food Stamps”) remains unfettered. That is to say, the “necessities” of life could very well get more expensive. Hey, you run off the businesses, who’s going to bring in the good stuff–Santa Claus?

But why sweat all this economic analysis when we’ve got a “problem” (high prices) and we need an easy solution? So, here’s my easy solution: Price Controls.

Don’t say that price controls are “un-American.” President Nixon used them. Why can’t we?

It’s easy. The folks at the Department of Commerce maintain a list of goods and services for computing the Consumer Price Index (CPI). The shop for these items and keep track of the costs.

So here’s how my Easy Solution works: Every quarter (that’s three consecutive months) we obtain prices for these CPI items in Guam. Then, we post the prices here in Saipan, and make it illegal to charge any more than those prices. Or, if we want to feel really sophisticated, we could permit, say, an eight percent “premium” to be charged to compensate for our increased shipping costs. We can have boards and committees and endless meetings and arguments about how high this premium will be. Or–hey, this would be cool–we could have committees submit recommendations about how some premiums for certain categories of goods and services should be different than other premiums for other categories. Wow! It would be great fun!

Price controls, that’s what I say. It’s time that the business sector woke up and realized that they are the enemy, and we’re going to show them who’s boss. Power to the people, baby. Power to the people.