Posts Tagged ‘free market’

Net Neutrality, and Regulation by the Unicorn State

September 3, 2014

images-4Net Neutrality” is a hot issue. It refers to equal service quality for all web-based traffic, against a fear that Internet providers (like Verizon) will allow (or effectively force) some to pay more for faster data delivery, making others second class netizens. So some advocate designating the Internet a “public utility” subject to FCC regulation to enforce net neutrality. This plea is highly seductive.

UnknownSimilar regulation by the Interstate Commerce Commission was imposed on railroads in 1887. No; “imposed” is the wrong word; actually the railroads wanted this, seeing ICC regulation as a tool to protect their market power against upstart competition.

I spent my professional career as a public utility regulator. One of my first cases targeted a small moving company breaking the rules. Its transgression? Prices too low. Were we protecting the public? Certainly not; we were protecting the established moving companies. This is the face of regulation in the real world.

Columnist L. Gordon Crovitz in the 8/18 Wall Street Journal notes that the ICC enforced a kind of “net neutrality” on the railroads: prohibiting “discriminatory” volume discounts or other market-oriented pricing schemes.* Result: a stagnating U.S. rail industry. The ICC was finally abolished in 1995, but the lingering effects of this deadening regulation leave American train service shabby compared to spiffier European or Far East rail systems.

images-1Crovitz also discusses the heavily regulated taxi industry. He quotes the New York City regulator’s website explaining that before it stepped in, the taxi business was a free-for-all with numerous competitors using “underhanded tactics” – like “drastically lowering fares to get more business.” The horror! The horror!

But today, across the globe, the taxi business is being up-ended by innovators like Uber and Lyft giving smartphone-using consumers service better tailored to their needs. And a battle royale is underway between these feisty upstarts and the old regulators (backed by the stodgy old taxi firms) struggling to hobble them. A similar war pits the old hotel industry against newcomers like Airbnb disrupting their business model by providing alternatives more attractive to consumers. This is what economist Joseph Schumpeter famously called “creative destruction” – it’s how an economy progresses – a great virtue of a truly free market.

imagesDo we really want to give the FCC regulatory power to squelch this by enforcing its ideas of service and pricing for the Internet? Or let creativity rip, with businesses free to innovate on services and pricing tailored to a swiftly changing technological landscape, responding to market forces and consumer preferences and needs?

Business-hating lefties think government must keep them on a tight regulatory leash lest abuses occur. And absent regulation they would occur. But I believe the costs and harms to consumers would be simply overwhelmed – overwhelmed – by the benefits in better products and services, lower prices, and greater overall societal wealth, if all regulation were abolished.

Think I’m nuts? Then look at China, where that’s exactly what happened. Since 1978, China’s private sector has been virtually free of regulation. And, yes, abuses have occurred. But meantime average per-capita income has grown 3000% – thirtyfold. I repeat: thirtyfold. (99-percenters take note.)

I wrote recently about an abuse by government, the unjust prosecution of innocent Muslim-Americans on phony “terrorism” charges. I marched in protest with local liberals. But they, I said, are like battered spouses who still profess undying love for their batterers – no matter how much it tramples their ideals, still liberals love government. images-2The same Wall Street Journal issue elsewhere quotes economist Michael Munger: “My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA. But their solution is, without exception, to expand the power of ‘the State.’ That seems literally insane to me . . . Then I realized they want a kind of unicorn, a State that has the properties, motivations, knowledge and abilities that they can imagine for it. [They] imagine a State different from the one possible in the physical world.”

I just got a call from a car repair business asking if I was “completely satisfied” with their service. I’ve never received such a call from a government agency.

* America’s first federal conviction of a corporation, in 1909, was for a railroad’s crime of cutting prices.


What Money Can’t Buy?

August 22, 2012

Scandals everywhere. All about money (or sex, as in Penn State; or was that really about money too?). Is money the root of all evil?

 In truth it was one of our greatest inventions. Barter works fine if each party has something the other wants. Otherwise, it’s far handier if you can sell your stuff for cash you can use to buy anything. This enabled the division of labor, with people specializing in professions – one of civilization’s killer apps.

I’ve written before about greed. It may seem puzzling that a billionaire wants even more – how many mansions and yachts can one use? But that’s not the point. It’s the playing of the game; money is the scorecard. And wealth confers power and status, which humans are biologically programmed by evolution to crave – especially males, to attract more mating opportunities. (Aristotle Onassis said that if women did not exist, all the money in the world would be meaningless.)

The recent supposed “crisis” of capitalism has intensified concern with issues of money –inequality and greed. The cliché is that money can’t buy happiness. Tell that to the world’s billion or so still subsisting (or not) on less than a dollar a day. In fact, money buys a lot of things that make life more pleasant. And longer.

But, beyond a certain point, does it confer greater happiness? Some studies say no. This partly reflects what Barry Schwartz, in The Paradox of Choice, called the “Adaptation Effect.” You adapt psychologically to whatever socio-economic niche you happen to occupy, which you now expect to occupy; and anything merely expected gives no special satisfaction. Win the lottery and you’ll soon adapt to that higher niche. You may not feel happier; yet your quality of life has improved in a thousand ways. Does that not count for anything? Rather, for the world as a whole, surely it’s good if more people can afford better living.

True, pursuit of money for its own sake, rather than for what it buys, may actually degrade quality of life by detracting from pursuit of other desiderata (friendship, love, wisdom, etc.). Yet chasing wealth, for whatever reasons, is the chief motivating factor for all the efforts ever made to improve our lives. Until every human has such a good existence that no further gain is feasible, we should not denigrate the moneygrubbing that fuels such improvement.

In How Much is Enough? Money and the Good Life, Robert and Edward Skidelsky invoke a 1930 Keynes essay foreseeing increased future productivity so people need work only 15 hours a week to maintain their standard of living. We’ve gotten the higher productivity, but don’t work less. The Skidelskys wonder why people don’t claim all that added leisure time. Well, maybe they’re not satisfied to “maintain” a 1930 living standard! We do value leisure, but are motivated to work to afford better leisure activities. Besides, most people’s sense of identity is in their work, not their leisure. They don’t want to be like the useless, frivolous Eloi in H.G. Wells’s The Time Machine.

Then comes philosopher Michael Sandel’s book, What Money Can’t Buy: The Moral Limits of Markets.* (It ought to be What Money Shouldn’t Buy.) Sandel decries a world where it seems everything is for sale; he doesn’t want poor people selling kidneys to rich ones, for example. Many would indeed see an “ick” factor here.

 But that ignores the fundamental logic, and virtue, of all free market transactions: people buy and sell to each other only when it makes both better off. You can argue that the impoverished kidney seller is not really a free agent in the transaction because his poverty leaves him little choice. Perhaps so. But this is condescending elitism of the worst sort.

Nobody is ever totally free; everything we do or choose is constrained by a myriad of factors – economic, social, cultural, psychological, physical. Poverty is just one such constraint. Still we try to do what improves our circumstances. Thus the kidney peddler may be constrained by dire poverty, but given that reality, he judges that selling the kidney will improve his situation. He needs the money more than the kidney. Where does philosopher Sandel get off telling him he shouldn’t be allowed to make that choice for himself? And what about the other guy who may die if he can’t buy the kidney? Do Sandel’s moral scruples leave either of them better off? No, they do not.

In fairness, Sandel effectively argues that allowing such sales is bad for society; and that’s a legitimate concern. Certainly society may limit freedoms that harm third parties. But are kidney sales anybody’s business but the buyer and seller? Well, you might argue that a society permitting this is in some sense a worse society for everyone. That selling kidneys for money somehow uglifies society, or somehow degrades human life, etc.; again, the gut’s “ick” response. But these are all subjective judgments with no basis other than feeling. Not good enough.

To feel there’s something inherently grubby about selling anything for money is an irrational prejudice. The existence and use of money is a good thing, not bad. Ability to buy and sell things makes people more free. That’s why it’s called a free market. It means having more opportunities to engage in exchanges that make people better off – and kidney sales are in fact a perfect example. Anything that hinders such transactions makes people worse off. If you disallow kidney sales, the seller can’t ameliorate his poverty, and the other fellow will die (the ultimate in being worse off).

Sandel has forgotten what may be the first principle of moral philosophy: whether something is good or bad depends on how it affects the well-being of creatures capable of feeling. The parties to the kidney sale strike a deal because it improves well-being for both. It may put Sandel’s sensitive moral nose out of joint; but I don’t see how his personal feelings come into the matter at all.

*Confession: I have only read reviews, but I did read Sandel’s book Justice making similar arguments.