Government Limitations on Choice

I am a little late on this, but Ilya Somin has a nice post on Joel Waldfogel's book on capitalism and serving niche markets. 

University of Pennsylvania business Professor Joel Waldfogel argues that markets give us too few choices because
they often fail to provide products that satisfy minority preferences.
This is the opposite of Barry Schwartz's argument that markets are bad
because they give people too many choices, which I criticized here.
In one sense, Waldfogel's point is irrefutable: due to high startup
costs or fixed costs and just to the general scarcity of resources in
the world, there are some minority preferences that the market won't
satisfy. The market is undoubtedly inferior to a hypothetical world in
which all preferences, no matter how unusual, could be satisfied at
zero cost. Not even the most hard-core of libertarian thinkers denies
this. That, however, says little about the question of whether
government could satisfy such minority preferences better, or whether
it is even a good thing to provide products whose costs are greater
than their benefits.

He makes a number of good points, including the one that first comes to my mind -- that in most cases, it is the government that tends to limit choice.

the relative lack of diversity of programming on radio stations - one
of Waldfogel's principle examples of the inability of the market to
satisfy minority interests - is actually a failure of government
regulation. As Jesse Walker documents in this book,
the FCC has for decades colluded with big broadcasters in suppressing
alternative and "microradio" broadcasters, thereby greatly reducing the
number of stations and making it very difficult to run a station that
caters primarily to the interests of a small minority. Even a
completely free broadcasting market would not satisfy all potential
listeners. But it would have a great deal more diversity than is
currently permitted by the FCC.

I called for the end of broadcast licensing here.  By the way, the author also ignores Sirius and XM, which have some incredibly niche offerings, and which happen to be in the least regulated part of broadcasting.  Why Sirius would have more niche choices than Clear Channel is explained here.

I could add many other examples onto this.  The FCC's regulation of the cell phone market creates the stupid environment we have today, arguing about locked iPhones.  In a previous post, I demonstrated how new government "a la carte pricing' regulation will lead to more homogenization and less focus on niche viewing audiences in the cable TV industry:

I can add a million examples.  Hair braiders are stepped on by the government in collusion with licensed beauticians.  Taxi companies get the government to quash low-cost or innovative shuttle transportation.  Discount casket companies are banned by government in collusion with undertakers.  Take dentistry.  Why do I need to go to an expensive dentist when 99% of my dental needs could be served by a hygienist alone?  Because the government colludes with dentists to make it so.  And don't even get me started on medicine.  My guess is a huge percentage of the conditions people come into emergency rooms with are treatable by someone without a 4 year medical degree and 6 years of internship.  Does one really need a full medical education to stitch up a kids cut knee?  Well, yes, you do today, because doctors collude with the government to make it so.  Why can't people specialize, with less than 10 years of education, on just, say, setting bones and closing cuts?  Why can't someone specialize in simple wills or divorces without a full law degree?

Every business where the government has licensing is an industry where the government is limiting consumer choice.  It is limiting the number of competitors, and it is specifying a narrow subset of ways in which a company can compete, eliminating service or product innovation.  In Colorado, my employees needs a license to take our customers fishing on a lake.  In Phoenix, you need a license to paint street numbers on a curb.  In Scottsdale you need a license to work out of your own home, a license to valet park cars, and a license to give massages.  And, of course, there are our tremendously dated liquor licensing laws.

Per Milton Friedman:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Update:  Just for fun, I sat here and came up with 10 business ideas that would provide better service for customers, would reduce costs in notoriously high cost industries (e.g. medicine, dentistry, law) and which would make me a pile of money. which are all illegal due to licensing requirements that are set in collusion with current industry incumbents.

  • Phil

    Could you post them? I'm curious.

  • Mark

    With respect to medicine, I often raise this point.

    "How much does the antibiotic you received for your child's ear infection cost?"

    Usually the person will respond with their co-pay, or even their out of pocket costs.

    However, the real cost of that antibiotic is $100+ more than that because you first need to go to the physician to get the prescription for that antibiotic.

    The fact is that in almost 100% of the cases the parent can diagnose the ear or sinus infection just as readily as the pediatrician or family doctor. They could easily go directly to the pharmacy and receive the Amoxicillan or other similar anti-biotic.

    Anticipating the argument, in the modern world the usage of such drugs can be monitored. Therefore, any "over usage" of an antibiotic would trigger a flag and then you would have to see a physician to receive more of the drug.

  • http://cdquarles.wordpress.com Charles D. Quarles

    There are physician's assistants and nurse practitioners that do just that, sew up cuts without the MD/DO being there. The nurse practitioners can write prescriptions, too. These "physician extenders" were created to meet the needs of people for simple care that doesn't not require deeper diagnostic skills. The same "collusion" you speak of ties the doctor's, the nurse's, the PA's, and the patient's hand by making it harder for medical suppliers to make adjustments.

    @ Mark,

    Antibiotics have been so overused (by doctors, but amoxicillin is OTC in many countries and their resistance patterns are worse than ours in some areas of the world) that multi-drug resistance is common in the wild (not just the hospital or nursing home). OTC antibiotic dispensing is bad news for everyone. Methicillin resistant Staphylococcus aureus is spreading rapidly. Most sinus and ear infections are viral in origin and no antibiotic is required for treatment. Only persistent cases (more than 10 to 14 days duration) need antibiotic treatment. Even with this, it is easy to overlook fungal infections. Fungal infections are treated with much more toxic drugs, which will require closer monitoring.

  • Mark

    @ Charles

    Some of what you write is true, however, you are also not being realistic in how American medicine works.

    You child complains of an ear ache. Mother brings child to the doctor. THe doctor prescribes amoxicillin. Everyone is happy, probably because they have just billed a hundred dollars or more for the 15 minute office call.

    In other words, if amoxicillin and other low end antibiotics are otc, nothing has changed.

    Again, I would not advocate this without using information to flag overusage (whatever that would be) and anyone who reaches that level would not be able to get the anti-biotics otc.

  • http://cdquarles.wordpress.com Charles D. Quarles

    @Mark,

    Are you really going to tell me that I don't know how American medical care system works when I have spent nearly 20 years of my life in it? Plus that is part of the reason why I'm not in it any more and generally advise people *not* to get in it.

  • Marko

    This is a great post. Friedman has a great explanation of occupational licensure in "Capitalism and Freedom".

  • Mark

    "Are you really going to tell me that I don't know how American medical care system works when I have spent nearly 20 years of my life in it?"

    Only to the extent that having such routine antibiotics as Amoxicillin OTC would not change much distribution of this drug as prescribed by doctors.

  • http://cdquarles.wordpress.com Charles D. Quarles

    Mark,

    That's the problem. Amoxicillin is *too* routine now and OTC Amoxicillin only helped accelerate penicillin resistance overseas, where the emergence of bad resistance patterns were first noted. It basically doesn't work very well *and* for most current usages it isn't needed. Oh yeah, Amoxicillin costs $4.00 at Wal-Mart for the typical prescription. It might cost more than that OTC because you'd need special packaging for liquid forms which must be refrigerated after mixing. As an aside, special packaging (sterile unit dose packages for liquids and special blister packs for pills -- these things are bulky compared to the 100, 500, or 1000 count stock bottle) are one reason why meds cost more in hospitals versus the local pharmacy.