The Parable of the $600 Toilet Seat

The great failing of the liberal mind is the inability to deal with, or even comprehend, the concept of unintended consequences. All actions have unintended consequences. This should be reasonably self evident. This I why the left is constantly reduced to whining "But that's not what we meant to happen."

Example: back in the early 90's the most popular handgun was the so-called high-capacity 9mm, holding anywhere from 15-18 rounds of 9x19mm. When the Clinton administration managed to get their "high capacity" magazine ban passed, people scrambled for a while to get pre-ban mags, but it didn't take long for the market to shift. Very rapidly the market became dominated by pistols which held 8-10 rounds. The difference being that these were in the good old .45 acp. Because if you are going to be limited to only 10 rounds, they might as well be BIG ones.

This brings us to what I like to call The parable of the $600 Toilet Seat. You see, Liberals hate profit, but what they hate more than anything else is unseemly high profits. Why that's unfair, that's gouging. Thus they have passed laws limiting the amount of profit that the defense contractors can make. Anyone with just a wee bit of foresight could see where this is going to lead. You see, you can't just take a $20 toilet seat and sell it to the government for $40. I mean, 100% markup? That's unseemly. That's gouging! No, what you do is you take the toilet seat plans to your machinists, and they make you the finest machined butt seat that money can buy. They machine that piece of oak down to the nearest thousandth of an inch. And it doesn't matter that the craftsmanship far exceeds the tolerance on the human rear end, because that seat actually costs a whopping $560 to make.

So when you sell it for $600, you only made 7.1% profit. Yes the government could have saved $560/seat by buying a Commercial Off the Shelf seat for $40, but that would have been gouging.

This is what is known as cost plus. It's how the government buys everything from file cabinets to nuclear capable bombers. It's why everything from File Cabinets to nuclear bombers costs so bloody much.

You see, back in the old days, a company would design an airplane, and if the Air Force liked it, they would negotiate a price with the company, and either buy it or not depending on whether the two parties could come to a mutually acceptable agreement. Since the company paid for the development out of their pocket, if they had a bad aircraft (or even a good aircraft nobody wanted), they suffered the consequences. On the other hand, if it was a great aircraft, like the F-104 Starfighter, the company made a pretty tidy profit. But a tidy profit is bad, remember?

So under the new system, the government pays for the entire cost of the aircraft, plus 5%-6%. Cost Plus, remember? And everything is accounted for from the airframe components down to the paperclips in the supply room. As a result, aircraft cost 10 times what they should, and development times are measured in decades, but at least we aren't being gouged. Right???

Seriously, anyone who knows anything about the defense industry thinks we need to dump cost plus and go back to real competition. The only real problem is that cost plus also drives mergers and acquisitions. We have a lot fewer defense companies than we used to.

The Liberals? They want to do the same damn thing to health care.

No, I mean it. Because cost plus is inevitably the end result if they ever achieve their left wing fantasy of a single payer system. Any time you have a monopsony (go ahead Google it, I'll wait) it will distort the market just as badly as a monopoly situation. Cost plus is inevitably the way a bureaucracy will attempt to control costs in such a situation.

So that $40 blood test that costs $20 and makes $20 in profit, well in the future, they will just run 6 times as many tests to make the same net profit, but it won't be gouging you see, because they will only make a couple of bucks per test.

Hope you have a good vein.