In 1973, as a young airman first class, United States Air Force, I was assigned to Yokota Airbase in Japan.  It was winter.  I had my wife and child with me.  Skipping over some details, we were assigned to a special government housing program in which we paid only for utilities, mainly electricity and steam heat.  This circumstance was the beginning of my education in practical, real-world economics.

The steam heating system was run by the base commander, who no doubt delegated the operation to subordinates.  It was not reliable.  Having an infant with us made this an untenable situation.  Worse yet, to save money for the government, the heat could be turned off whenever the commander deemed that the cold season was ended, even though the mornings remained cold.  The final insult was that we had to pay year-round, to spread our monthly expense to a more affordable level.

For these and other reasons, customers complained to the commander, but he had important duties that took up his time, and so lower-ranking officials responded, meaning nothing improved.  Therefore, some people began opting out of the steam heat program, choosing to use the more reliable kerosene heat instead.  We could control how much of that to use, and when.

Predictably, this raised the per-household cost of steam heat, which in turn forced the steam heat provider to raise its monthly fee.  Just as predictably, this led to even more people dropping out of the steam heat program, and very soon, the final death spiral left the steam heat program with no paying customers.

It must be noted that, from the very beginning, many of us urged the steam heat officials to lower their monthly fee so as to bring in more paying customers.  I remember trying to explain this in person to one government official.  He responded with anger — are you crazy?  We’re not taking in enough money as it is.  How can we possibly lower the price?  If people like you would stop opting out, the price would stabilize.

He was utterly deaf and blind to basic economic reality.  Every time he raised the price, he lost customers, but the only remedy he could think of was to keep raising the price even more, oblivious to the fact that he was losing money for the program by doing so.  (What is the proverbial definition of insanity?)

Yes, it may be counterintuitive, but lowering the price can increase the amount of money coming in.

The personnel running the steam heat program had obviously never run their own business, and they therefore had the same collectivist mindset that is rampant in government.

Although this is a simple example, the principle applies to everything the government manages, or should we say mismanages, from tax policy to procurement to oil production.

It’s been fifty-one years, and the death spiral continues.

Image via Pixabay.