Consumer choice is better than government choice

Government regulators say, ‘Hello, dummy!’

By Geoffrey Lawrence
  • Tuesday, January 13, 2009

Are you unable to rationally decide which businesses to patronize? That's what Silver State politicians and bureaucrats believe.

Nevada state government currently regulates a broad spectrum of private industries—among others: real estate, insurance, banking, mortgage, electric, water, taxicab and gambling. Government regularly chooses to regulate private industry because well-meaning public officials conclude that individual consumers are incapable of rationally choosing which vendors to do business with. Apparently, the thinking goes, consumers are blind lemmings who, after having discovered that patrons of a particular casino never win a dime, will still continue rushing into that establishment if benevolent government did not step in to save them from their own foolishness.

One reason why regulation exists is because lawmakers—after having been elected by voters—decide individuals cannot make rational decisions. Think about that. Like the one-man-one-vote-one-time elected dictators, these lawmakers, once in power, decide people should be deprived of the freedom to make certain decisions. While the set of decisions to be placed in the hands of the government is smaller, the principle is the same. Consumers are not to face the temptation of—for example—purchasing a cab ride from a cheaper company that has failed to win the favor of our government overlords. Similarly, federal and state government regulation of the telecommunications and commercial airlines industries prevented individual consumers from making the mistake of purchasing services from anyone other than government-approved regional monopoly providers.

Another major reason why regulation exists is that it allows politicians to reward favored and attentive companies with monopoly powers. Often, the first advocates for regulating an industry are the very producers that are to be regulated. If these producers can achieve at least limited monopoly status through regulation, they are often assured of a guaranteed profit margin. In a famous case, DuPont lobbied Congress in 1992 to have its own product (Freon) banned through federal regulation—just as DuPont's patent on the product was set to expire. Because DuPont owned the patent on the product replacing Freon, the company was acting to ensure that government regulation would prolong its monopoly status.

The protection from competition that producers in regulated industries enjoy allows them to forgo the costs of continually developing new innovations and efficiencies that would be necessary for them to remain competitive in a free market. The result is a dead-weight loss to consumers that gets larger over time. The loss that regulation deals to consumers was made clear by the Airline Deregulation Act of 1978. Immediately following deregulation of the commercial airline industry, prices for air travel began to fall precipitously and airline safety improved.

Further, government regulation often subverts its own goal of protecting consumers. Consumers are often assuaged by government regulation into believing that they no longer need to exercise their own vigilance over product quality. As a result, consumers actually can become more vulnerable to dangerous products if the regulators fail to highlight a problem or—even worse—become subject to corruption by accepting bribes from regulated producers.

Substituting the judgment of a handful of government bureaucrats for the judgment of 2.5 million Nevadans rarely produces the optimal solution for the consumer, no matter how well-intentioned the regulations may be. Last year, the state's Financial Institutions Division clearly demonstrated this fact when it acted rashly and prompted a run on the Silver State Bank—leading to its closure.

Despite the many failures when government's discretion is substituted for that of the individual, some policymakers in Nevada continue to rally for government regulation. NPRI recently proposed deregulation as a way to not only benefit consumers, but also to save the state money and alleviate its current budget woes. NPRI merely suggested that state policymakers examine the functions within the state's Department of Business and Industry to determine if all of those functions are truly in the best interest of Nevadans. Certainly, there should be room to consider that some of the regulatory agencies that benefit favored producers at the expense of consumers could be phased out.

Policymakers in Nevada owe it to their constituents to begin giving them back some freedom of choice. Private individuals deserve better than to remain at the mercy of monopolistic enterprises and the captured regulatory agencies that protect them.

Geoffrey Lawrence is fiscal policy analyst at the Nevada Policy Research Institute.

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