The Dangers of Relying on the Market

I'm a believer that government ought to ensure that every American has shelter, food, quality education, and health care (i.e. the necessities for survival). That seems to be the minimum that a moral society requires. I also believe that government needs to strongly regulate the market for any product that is essential for people to have (for example credit, prescription drugs, health insurance, housing, utilities, etc). Otherwise, it becomes far too easy for profit driven companies to take advantage of people's needs to profit outrageously, while making it hard for consumers to survive. 

But that does not mean I oppose freedom, or want to have a socialistic society. In fact, beyond those essentials, I'd let the market regulate itself in most cases. The example I like to use is that Merck and Pfizer should not be able to charge you whatever they want for prescription drugs, because you might well need them to survive, but Apple should be able to charge whatever it wants for iPhones, because as much as we might be addicted to them, people have been known to survive iPhoneless. 

Where I think calls to allow the market economy to work largely unimpeded (under the guise of increasing freedom) are most dangerous and misguided are in areas where a market economy only somewhat exists. 

Health care is the best example of this flawed conception. A market economy does not really exist in the health care realm. It's exceedingly difficult to price shop for treatments (when your doctor recommends a test or a treatment do you call around to doctors' offices asking how much they charge for the procedure? If you did, would they even provide an answer?)

Additionally, much of our medical care occurs on an emergency basis, often while the patient is  not awake and alert to make decisions (you don't get to ask about how much the doctor will charge for unclogging your arteries when you're sedated after a heart attack). Even when the patient is awake and alert, it can be difficult to price shop because he/she needs immediate care and few options exist. 

Further, our patent laws often prevent competition when it comes to producing prescription drugs. During the period under which a company has a patent, other drug manufacturers cannot produce similar, generic drugs, which would be far cheaper for the consumers. As I detailed in my blog on the healthcare system, the pernicious practice of repatenting often extends this period. 

Finally, statutory bars also exist that prevent a truly free market from existing. For example, in adding a prescription drug benefit to Medicare in 2003, President Bush and the Republican Congress prohibited Medicare from using its market dominance (and the sheer number of beneficiaries it has) to negotiate lower drug prices. While private companies that provide the Medicare prescription drug benefit can negotiate, they represent fewer beneficiaries than the government would represent, which equals less leverage. 

So whatever benefits open competition and a free market might offer, we often have a semi-free market that benefits whoever had the political power to shape the laws and regulations that govern the market. 

Moreover, in many areas of life, we lack sufficient competition to truly protect consumers. Or competition produces a race to the bottom (such as when one airline announces a new type of fee, and all of the other airlines jump on the bandwagon). 

Claire Cain Miller of the New York Times wrote about how Americans pay more for slower internet access than people in many other countries. Initially, this might seem stupefying given that most of the biggest and most important tech companies are based in the United States. Yet, it is a perfect case of why leaving the free market to its own devices often hurts the vast majority of Americans.

Miller details how the FCC deregulated the internet market in 2002 in the hopes of spurring competition. Unfortunately, competing companies have largely stayed out of each other's markets. The result is that consumers are almost entirely at the mercy of local providers who can freely set whatever prices they choose and provide slower connections for those prices (FCC Chairman Tom Wheeler estimates that 75% of Americans lack competitive choices among providers). 

We can argue about how essential internet access is. Certainly it ranks lower than healthcare, power, and water. But with each passing year, internet is an incresingly essential element of the modern world. It is becoming something from which many, if not most, Americans feel like they cannot easily abstain without significant inconvenience and, in some cases, hardship. 

What alternatives could government provide? According to Miller, many countries in Europe have regulations designed to spur competition by forcing companies that own the pipes carrying broadband to lease space in those pipes to their competitors.

Alternatively, Miller writes that the cities in the United States with the fastest internet have publicly owned fiberoptic networks. Currently, internet providers have little incentive to upgrade to fiberoptic networks. But the government could either build these networks and then lease them to internet providers (they might even promise to lease the networks to the company that offers the best deal for consumers), or the government could regulate that companies upgrade by a certain date. There might also be other laws or regulations that could spur competition (for example tax credits for companies that enter new markets, or for companies that invest in fiberoptic networks). 

None of these arguments is to advocate for socialism or not having relatively free markets. Indeed, I could offer a pretty passionate sermon against the dangers of socialism— among them freeloaders, lack of innovation, etc. 

But the pure libertarian notion that we ought to let the market work unimpeded, and the constant Republican argument that we should reduce regulation because it ipso facto hurts the economy simply lack practicality, common sense, and an understanding of the proper role of government. Too often conservatives seem to chase an admirable theoretical ideal that, in reality, reduces the quality of life for many Americans. 

What would I propose instead?

Each regulation/law ought to be reevaluated periodically. The question ought to be what good does it serve, and what downside does it present? Have there been unintended consequences? Do they outweigh the benefits? If so, scrap the regulation. Not every law works in the way in which it was envisioned. Government needs to be flexible and adaptable. 

Additionally, however, Congress (and state legislatures) must recognize that businesses, by their nature, care about increasing profits, not about what benefits the public. Government, in turn, MUST serve as the watchdog for the public interest. 

In an area like the internet or health care where people do not have the same flexibility to stay completely out of a market, the government needs to aggressively, but intelligently, regulate these industries to make sure that the products are affordable. Regulations can be designed to encourage competition and to use market forces to achieve public ends. They don't have to be blanket edicts and prohibitions (nor should they be).

But government (and the public) cannot expect companies to do anything other than what most benefits their bottom lines absent a nudge. When possible, that nudge should come from consumers. When, however, consumers either don't have the choice necessary to provide that nudge, or don't have the leverage to provide it because of unofficial collusion, or a race to the bottom, government must step in. 

Too often it seems as though many politicians (Republicans for philosophical reasons and Democrats for political reasons) willfully ignore that their job is to safeguard the public interest. Additionally, they seem oblivious to the fact that failing to regulate adequately actually plays favorites and interferes in the free market in the same way that regulating can. How? When people pay more for health insurance or internet, they have less disposable income to spend in other areas. Thus, the government essentially safeguards profits for these industries at the expense of other businesses. 

Unlike some of my conservative friends, I do not worry that such regulation might create a slippery slope of some sort. If voters are vigilant, educated, and intelligent in evaluating government action, slippery slopes are of little concern. I also don't mind trading a small modicum of freedom for a more just society and a higher standard of living. 

It's easy to have a blanket ideology and apply that ideology to all issues. Philosophically, I have a lot of sympathy for the conservative ideal. Nonetheless, when one translates that philosophy into reality, it can damage the lives of the vast majority of citizens, and even lead to more government and more government spending in the long run (for example, extra health care and internet costs = less money for eating healthy, gym memberships, etc., which reduce health care costs in the long run).