When prices are high, suppliers will make more of a product. Conversely, when demand drops, prices will face downward pressure, and suppliers will produce less. In the modern global supply chain world, markets have adopted even further.
This is supply and demand, a fundamental tenet of economics.
A Real World Image of the Market Economy
To understand a classic supply and demand environment, we need look no further than the boom of hand sanitizer in recent months. Suppliers of spirits (e.g., vodka) have even converted production from booze to make it! As in all markets, if buyers are willing to pay a higher price, the production will come online to support it.
Whether this means adding a second or third shift at the plants of existing producers — or new suppliers entering the competitive environment — the market will eventual drive to equilibrium thanks to pull/push forces which are in lockstep, exerting force against each other, the “Invisible Hand” as Adam Smith coined it.
Conversely, if buyers purchase less of an item or service, prices will fall, and production will, eventually, drop too. If anyone wants to take a road trip this summer, look at the price of a gallon of unleaded fuel compared to last summer to understand equilibrium in that particular commodity!
The market economy was not always as straightforward. In fact, the notion of a market economy is a modern invention. Throughout just about all of history, prices were generally fixed by kings and queens (and crown). Under the feudal system (e.g., England in the 14th century), prices varied little. A tanker of beer? The same from one year to the next? A bushel of barley? No change.
Can Market Economics Be Applied to Policing and Safety?
The other night, when watching both the protests and looting, this made us think: would it be possible to create a true market for safety and policing? Policing today is not dictated by communities or a market driven by supply/demand fundamentals, at least not directly. At present, policing contracts, terms and expectations are largely dictated by two groups — local government and the police unions. This is the equivalent of the crown and church dictating what the price of wheat should be (unfortunately, this is also the case with local government and teachers’ unions and, too).
But what if communities had a choice? What if there were alternative suppliers (including, perhaps, even a more modern version of the mafia, so to speak — might the very threat of this have deterred looting, perhaps, of so many businesses, including small manufacturers, in recent weeks)?
We are not suggesting that policing become a price competition or a Robert De Niro movie. Far from it. But what if communities could create a market economy for policing that establishes, on a local level, not only budgets, but expectations and outcomes. For example, if one community wants to require lower levels of violence to diffuse violent situations, they may have to pay officers additional “hazard pay” as an alternative to get them to even apply for the job.
A more market-based policing economy — that goes beyond pricing alone to emphasize other aspects of the expectations and benefit, the utility citizens would derive from the police — would encourage a market mentality by its customers, including measuring costs against outcomes. Such a model might also help achieve “buy-in” for policing based on citizen participation in the process, something we certainly don’t have today. It might also end of protecting small business owners more than the current situation.
Of course, communities (and suppliers) could respond with changes from one contracting term to the next, as demand (and supply) dictates, and the willingness to tolerate crime in exchange for lower costs or alternative policing behaviors – or the converse, a “zero tolerance” policy.