The Parable of the Coffee Cup
What happens when society gets in the way of supply and demand?
There was once a society of people who really liked coffee cups.
Bone china mugs that last for generations, disposable ones with plastic lids, tiny espresso cups and huge ones for lattes, plain white ceramic mugs and novelty ones of all shapes and sizes, matte-black brushed-metal insulated travel cups with rubber grips, self-stirring thick plastic tumblers with fist-sized handles—anything that you could fit a cup of coffee in. Factories churned out billions of coffee cups a month. Everyone had their own coffee cup and loved it—after all, how can you get through the day without a cup of coffee?
One day, the government, with the purest of hearts and the best interests of the people in mind, decided to make some new rules. It wasn’t right that coffee cup manufacturers could flood the market with overproduced coffee cups, so the government made the sensible choice to limit their production, especially of cheap, disposable coffee cups. It also wasn’t right that coffee cup manufacturers could produce poor quality cups that were bad for the environment, so the government began to require officials to monitor the quality and environmental impact at every coffee cup factory. Finally, it wasn’t right that just anybody could go into business manufacturing coffee cups, so the government enacted some wise regulations restricting who could enter the coffee cup business, and requiring expensive permits that would help them fund their regulation efforts.
It wasn’t long after the new rules were enacted that the prices of coffee cups started to rise. At first, the people who could only afford disposable cups were hit the hardest, while those who used self-heating, self-stirring smart mugs with built-in temperature control (many of whom were government officials, professors, and journalists) hardly noticed. Over time, the price squeeze became harder and harder to ignore. Society’s top experts began to blame the increasing prices on the greed of the coffee cup factories. After all, they controlled the production of coffee cups. They could collude with one another to raise the prices, lining their pockets at the expense of the people. With the help of the media, they spread this message far and wide, winning over the hearts and minds of the people. The next election season, the people voted in a new government, far less sympathetic to the coffee cup producers.
The new government, with even more noble interests in mind, decided to help people in need afford the coffee cups that they deserved. Their first action was to create a new program giving low-income families vouchers to buy coffee cups. To help even more people afford them, the government began contracting companies to produce a steady supply of affordable disposable coffee cups. Finally, they limited the prices that certain manufacturers could charge for certain coffee cups. These measures were expensive, but it didn’t matter—in order to fund them, the government borrowed some money and raised taxes on the coffee cup manufacturers, who were wealthy anyway and could afford to pay a little extra to help people in need.
Despite all of these measures to relieve the people, when they went to their stores and websites to buy coffee cups, they couldn’t find any. Lines to buy coffee cups stretched around the block, and those who were lucky enough to find coffee cups only saw the highest prices they’d ever seen. Many people were now unable to afford even the most basic ceramic mugs, and they started to become restless. The coffee cup manufacturers were clearly overcharging the people, and they needed to be reined in by the government.
Meanwhile, those fortunate enough to have bought coffee cups decades ago saw the value of their cups increase and increase and increase. Many of them were able to sell their coffee cup collections for vastly more than they had bought them for, allowing them to comfortably retire.
Soon, an even more radical government was elected. It had campaigned on a simple premise: Coffee cups were a necessary public good, a human right even, and after all, it’s the job of the government to secure the human rights of the people. The people desperately needed coffee cups, but they didn’t want coffee cups mass-produced by a capitalist machine that exploited its workers. They wanted coffee cups handmade by workers fairly compensated for their labor and given equitable working conditions. Only this, they thought, could help ensure that everyone could have access to a coffee cup.
The government made sure to keep their supply restrictions and regulations for private companies in place, but decided to make their own coffee cups. The utmost care was taken to ensure that workers were paid fairly and treated right, and that nothing went wrong in the manufacturing process, so each coffee cup ended up costing far more to manufacture than if it were made by a private company. This was no obstacle, of course—the wealthy could just pay for it. The handful of coffee cups that ended up being made were distributed to the poor. The middle class, on the other hand, started to feel the burden of steadily increasing taxes on top of their increasing coffee cup prices.
Despite this, the government decided not to course correct. It was more important to be kind and to ensure that everyone had an equitable chance at getting a coffee cup than to figure out which solutions allowed the most people to get coffee cups and to work backwards from there. Coffee cup prices continued to get more and more expensive, pricing more and more people out of the market, and in the end, nobody was happy—except for the increasingly wealthy coffee cup owners and the government officials and activists who thought they were doing the right thing.
It's certainly true that fluctuations in the price of common goods are felt more by those with less and that produces more visceral reactions, frustrations that can be expressed in democratic systems through voting, which in turn can influence policy (with good intentions, but for the worse). However, the characterization of this cycle's impetus seems specious. Markets are good at addressing demands within a scope, but that scope never exceeds the scope of the government nor the interests – present or future – of the society. Externalities will always be a problem, and gone unaddressed they can grow into greater problems. Perhaps government is the wrong tool for many aspects of regulation. Regardless, the issue of market failures should not be relegated to inconveniences that the society could healthily live with, like poor-quality mugs.
We should also distinguish society from government, unless you're arguing that society shouldn't exert its will and enforce its interests beyond individual choices to spend or not to spend?