Derived Demand

When governments pass laws they often shift the winners and losers of the marketplace and artificially create demand where there would be none before. This shifts resources from those who (like myself) wish to be law-abiding citizens or resident aliens. Though this is something often discussed within the generally right-wing political circles of which I am an outlier, I thought it useful to provide some kind of example as to the companies that are turned into winners because of the derived demand of a single Thai law, namely the requirement that non-residents with particular visa classes (like my own) leave the country every three months.

What does it take to leave the country? Well, first it takes a bus trip to a border town. By far, the closest border town for most of northern Thailand is the Market town of Mae Sai (there are not that many border towns to choose from along the Thai border). A decent bus ticket to Mae Sai costs a little more than $10 (this is not a bad deal, but it is $10 I would prefer to spend on books or food). The bus trip is about four and a half hours. Other winners include the 7-11’s (there are two of them) next to the Chiang Mai bus station, since one has to eat while on a trip (I don’t like traveling hungry), and those are the most convenient places for snacks. Prices there are not great, but they are generally in line with the market, so the 7-11’s of both Chiang Mai and Mae Sai, along with the Green Bus company (which is the good way to travel to Chiang Mai—there are little dark green buses that are cheaper but far less convenient and with less legroom than a domestic American flight), are winners of the derived demand that results from a Thai law that forces foreigners to the borders every three months.

Mae Sai’s businesses in general are a winner as well. I would vastly rather take a trip to Chiang Rai (which is a very historical city with a lot of very tasty foreign food from what I have been told—I have not had the chance to experience it for myself). I would also much rather take a trip to Chaing Saen, which is a sleepy but very historical city on the Mekong River. Unfortunately, Chiang Rai is not a border city, and Chiang Saen is only a border city if one already has arranged the (expensive) visa to China and is willing and able to take a slow boat on the Mekong up to Yunnan. Despite the hassles that this trip involves, this is something that I would enjoy doing sometimes if it were possible to arrange (and pay for).

Nonetheless, if there were no need for a quick and dirty border crossing, Mae Sai would lose much of its business fervor and a large proportion of its farang customers (myself included). Some of us, like myself, have spent the night (twice so far for me) in the town because we are not interested in hurrying to the border and back, while others prefer to hurry because there is nothing attractive to them here. For those that prefer to travel at a somewhat more leisurely pace (there’s no point in being in a hurry here in Thailand, after all), the hotels (such as the Top North Hotel, where I have now stayed twice in a cozy fan room that costs about $13,33 a night, but whose meals are more pricey, running about $3-5 a plate) are also winners because of this law. So are the innumerable smaller merchants who sell fake watches, cheap backpacks and glass jewels along the streets of Mae Sai approaching the border.

We must also include the merchants of Tachilek and the Burmese government as winners as well, as unsavory as that is. After all, Burma collects its 500 baht fee (roughly $16.67 at the current exchange rate) for all of those who are traveling to Burma, and so everyone who obeys the Thai law ends up paying the Burmese government every visa run, as unpleasant a reality as that is. Likewise, if one goes to Tachilek (which is a fairly seedy and dirty town itself, far less attractive than Mae Sai, which at least has a certain beauty about it when its markets don’t get in the way of enjoying it), one will often spend a little money at an Muslim Indian restaurant (which is where those of us who don’t eat pork end up going) or buying more imitation belongings, which Burma largely seems to import and re-export through China’s expert counterfeiters. The existence of a supply of foreigners with comparatively bulging wallets and an appetite (if the street sellers are any indication) for porn, cigarettes, and viagra has led to a supply of these goods (but sadly, not a comparative supply for the goods I am personally interested in—books and socks are both almost invisible in the markets of this area, something that personally irritates me).

So, we what we have here is a very common situation, in that government makes a law and the obedience to that law has economic consequences. Like the broken window in that famous if slightly over-worn lesson of Economics, money that is spent obeying government regulations cannot be spent in other ways. There are many ways I would prefer spending my money (or other people’s money) than going to some seedy border market towns and seeing worthless trinkets. There are ways I would prefer to waste my time than to spend nine hours of travel to and from said seedy border market towns in a bus trying to avoid motion sickness and watching second-rate Thai movies. Being a law-abiding person, though, I do these things because the alternative is unacceptable.

And so it is with many regulations, some of them a great deal more annoying even than a four-times-a-year trip to sunny (for now) Mae Sai. Perhaps I might even be able to travel to another city if I save up my shekels and can get one of my local Thai Karen acquaintances to play tour guide to Laos (which would be interesting to see, at least as a change of pace, hopefully also including some of the Isan Thai-Lao parts of the Northeast of Thailand). The same thing happens when government laws force the filling out of massive amounts of forms or the hiring of employees dedicated to regulatory compliance. Laws passed by governments, for apparently reasonable motives, usually in response to scandals or complaints or the desire to favor some pet industry or company, shift the resources of companies and individuals in response to the changed legal climate. The result is that time and money are spent in ways that they would not have been spent on otherwise. Government, through its interference, crowns winners and causes there to be losers who would (or could) have gotten the money had matters been different (because it would have gone somewhere else).

Of course, those winners are far more ferocious in defending their interests in maintaining the status quo than those unknown losers are, for the very simple reason that the winners can tell just how many accountants are hired to obey Sarbannes-Oxley in the United States, and Green Bus or the Top North Hotel or the Burmese government can determine (very easily, if it wishes) how many foreigners per day or per year get bus tickets or hotel rooms or three-day “visas” because of the Thai law. The winners know that the law is what profits them, and so they have a known vested interest to protect. Those who lose because of the law only have lost possibilities due to opportunity costs, and it is vastly easier to fight to defend one’s known (if artificial) benefits than to bravely seek possibilities that may yet occur but are unknown because they are not (yet) reality. But such is life in a fallen world.

About nathanalbright

I'm a person with diverse interests who loves to read. If you want to know something about me, just ask.
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6 Responses to Derived Demand

  1. Richard says:

    What is the true menaing and intent of the word “Gospel”?

    • That’s a bit of a trick question. The English word Gospel is intended to be a translation of a Greek word that means “good news,” but the word Gospel itself is from the Old English God Spell meaning “God’s word.” My question for you is, why do you ask in this context?

  2. M. Ponens says:

    I can think of many accountants and accounting firms that would be much happier without as much SOX compliance and regulations. Even in the industry that “won”, it’s not overly loved and tends to create more hassles than not.

    • That is a good point that is applicable in the wider case also, though sometimes that means “winners” have a bit of tension between economic benefits and losses in other areas (like freedom).

  3. Richard says:

    I was just thinking this mornig about what the Gospel is and when I read this blog entry, I merely thought what is it that this research offers to people and that it is “good news”. Some people are ready and prepared to hear it and some are not. I think this might be a deciding factor in why some people have the UTI symptoms and some don’t.
    Some people respond to optimistic news as they are optimistic to begin with while others are pessimistic and cannot absorb or agree with anything. I cannot be sure as I am still trying to work ouit the bugs so to speak. Nothing intended, just a thought in the immediate.

    • Ah, alrighty. Thanks for explaining what you meant, as it seemed a bit of a non sequitor. Yes, those who are naturally optimistic would be more inclined to respond with joy to such good news while those who are pessimistic would not be so inclined. Nonetheless, the Bible does show a purpose for both types of people within the grand scheme of matters. See, for example, Luke 7:32-35. Wisdom has children that are both optimistic (playing the flute for others to dance) and pessimistic (mourning for others to weep), and both are the children of wisdom, but a society that can neither mourn and lament its sins and the suffering inflicted on the innocent nor can dance and rejoice for the good news of deliverance cannot respond to wisdom either in optimistic or pessimistic ways. As long as we remain sensitive in some fashion to respond to God’s judgment or mercy, we can find salvation and wisdom. If not, we cannot be reached at all. Let us not condemn pessimism, but rather condemn the moral apathy that cannot be stirred at all, whether to laugh or weep.

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