Thursday, December 31, 2015

It's the safety razor thing all over again

Smart phones are just another product that demonstrates both the advantages and challenges of our free enterprise system. AT&T has announced that in the first week of the new year they will do away with two-year contracts to purchase phones. This is not something new. Other major carriers have already told customers that when they want to buy new phones, they will have to pay full price in monthly installments. CNN says that can be cheaper than two-year contracts. It is through competition that these new sales programs are developed. Another story that recently came out said that there are fewer smart phones being sold now than in the past. The reason, I believe, is that the cellular companies used to subsidize the cost of a smart phone by offering them at deeply discounted prices to their customers. It was the safety razor story all over again. When safety razors were new, razor companies would give away razors when you bought their brand of blades. Today, you can expect to pay full price for a razor and the blades. The same thing is happening with cellular devices. After shopping around, I have learned the next time I want to buy either an Android or an iPhone (I have owned both, not at the same time) I can expect to pay about $30 a month for 30 months for the phone. That means I will pay $900 for the smart phone. The phone I now have (a Samsung Galaxy S3) I obtained by paying about $100 and then signing up for a two-year data contract with AT&T. The “real” cost of the phone was absorbed by AT&T in exchange for my commitment to subscribe to one of their data plans. In addition to paying for a new smart phone , a data plan is required. Again, referring to AT&T’s website, 2 GB of data per month (a reasonable amount per person on a plan) will cost $30 per month. So, in this example, I would pay $60 per month for 30 months for the phone and the data plan combined. As I write this, Amazon is offering a discounted Windows Phone for $155 but you have to have a data plan from one of the carriers. Amazon does not offer a data plan. What will people do if they cannot afford their smart phones? They will learn to make do without them. When gas prices rose, people drove fewer miles each week. When gas prices fell, people took longer trips for shopping and pleasure. Yes, capitalism is a wonderful thing. I wonder if the “leaders” in Washington realize that when they limit our freedom to choose, they lower our standard of living. It is probably an oversimplification, but I have to wonder, if insurance companies and their agents could sell their products in all 50 states, would that drive down the price of insurance? Would that have made Obamacare a dream of the liberals instead of a headache for so many people? Freedom, like capitalism, is a wonderful thing! What if the tax code were simplified so the average business didn’t have to pay thousands of dollars a year to an accountant and a lawyer to avoid fines from the IRS? What if government officials took the approach, “We will only burden business owners with as many regulations as are necessary to protect people who cannot protect themselves from crooked businessmen and women? We might all be better off if government took a minimalist approach to governing. What a wonderful world that might be! Happy New Year to you and yours!