Wednesday, February 11, 2009

Give 'Em A Bargain

Any good business person knows that the best way to make more money is often to charge less. Sure, a high price tag is good for profit margins but if it repels customers to a high enough degree, it becomes worthless, thereby making the overall profitability drop to zero. Reduce the margin, draw in customers, and sell like crazy. Call it the tortoise and hare approach.

There is a town on Long Island in New York that has just embraced this simple philosophy, which is odd considering that government doesn't usually comprehend free market strategies. Quite the contrary, the practice most normally endorsed by the elected is to charge more as coffers dwindle; more in taxes.

Brookhaven Town may be the first to learn an important quality of capitalism - which sadly is at grave risk, but that's for another time - is such that when profits fall, sales are desperately needed to boost income. Understanding that the current economic climate has people choosing how to spread their increasingly limited resources, and facing its own budgetary woes, the town is experimenting with a half-off sale on outstanding parking tickets. That's right, Brookhaven is prepared, for a limited time only - call now, operators are standing by! - to fore go nearly a half million dollars if people will pay up now.

Here's where it gets confusing, though. If the town, which has the power of the county police force behind it, finds it difficult to collect fines from minor crimes to the degree that they have to offer a sale, what's to stop people from paying their property taxes on time in order to obtain the same deal?

Alas, I stray from my main point.

Ronald Reagan was one of few highly elected politicians to understand this basic principle of economics. Critics called his plan "Reaganomics" and sneeringly still refer to it as "trickle-down economics", something they insist on claiming was a failure, but the basic foundation is provably sound; the more money working people have as discretionary income, the more they will spend and the more the economy will benefit. And yes, it does work from the top down. Perhaps most important in this, especially at our current crisis, is that this model also means more cash spending and less credit spending.

The more money government seizes from individuals, the harder their everyday lives become. As we all know, nothing lasts forever, and things break. With less cash on hand, someone who needs a new refrigerator may have to buy it on credit and if times are that hard, those payments cut into an already squeezed budget. See the domino effect at work?

Government understands all too well the concept of living large on borrowed money, but they never have to worry about where the payments will come from; that's why they keep us common folks around. At least one small town may have stumbled across a painful truth, however blindly they may have found it. I just hope they absorb and store the lesson. Perhaps it could start a trickle-up effect...that's how governments usually work anyway.

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