Simple Economics - I Can "Protect" Myself, Thank You

Consumer Protection is the Antithesis of Consumer Freedom

If you asked me a question, I’d try to give you an answer.  If you came to me with an injury or ailment or injury, I do my best to treat you.  A word of caution here though.  My answer may incorrect and my medical treatment may not be effective, or may even be counterproductive, but, either service would be absolutely free of charge.  You know the old saying, “You get what you pay for”, or do you?

Now I am not a professor or a doctor, but when you consider what I charge, I just may be a better value than either, when you take into account what you have to pay to universities and hospitals.  So the question is, when it comes to education and healthcare, should I be your “go to guy”?

You instinctively know that the answer is “No”, but why?  There are two main reasons:
  1. Confidence
  2. Accessibility
It’s not like you are one of my family, close friends, or coworkers, so you don’t know much about me, and you will probably never get a chance to see or talk to me, but what if those two main reasons did not exist?  What if you had been my neighbor for ten or more years, and I had consistently demonstrated to your satisfaction, that I had a fairly broad and deep field of knowledge, particularly in the area that you were immediately concerned with?  You’d probably take it for granted that any answer or treatment that I provided would be correct.  I’d be your “go to guy”.

Now you don’t know me from Adam but, you do know people that have enough expertise in various fields, that you have complete confidence in their knowledge and ability.  Maybe some of them are close friends or family members. Chances are, you can take advantage of what they have to offer for free.  Other people, you may only know by reputation, but from what information you have been able to gather, you can be relatively confident of their expertise.  Usually, you’ll have render some type of payment to such people, even if it’s only owing them a favor.

My point here is that you probably have a vast resource of information and services just among the people you know, or are only strangers by one degree of separation.  This information, and these services are almost always free, or fraction of what you’d pay by going through traditional channels.  However, this resource does have it’s limitations.

Occasionally, you might be dealing with a subject where you just don’t know anyone that has any more knowledge of it than you, and sometimes services just aren’t available from an individual.  Open heart surgery would be a good example.  Even if your uncle is one to the nation’s top cardiovascular physicians, he’s not going to operate on you in his kitchen.

Consumers usually have an entire spectrum of choices of providers for any particular service.   From knowing a guy, to knowing a guy who knows a guy, to smaller start-up operations, to established businesses, to national firms.  Home and auto repair are good examples.  This spectrum gives the consumer a choice between saving a lot of money, or having an iron-clad warranty, or anything in between, and it is one of the best arguments for free markets.  It gives the consumer the power to decide what’s best for him or her, and usually provides consumers with the most value for their money, whatever level of service they choose.  The big guys can get away with charging more than average, but they can’t price gouge the consumer, because the smaller guy is always there offering to do the job for less.

What I described is the natural state of unencumbered free markets.  It’s a beautiful thing.  No one planned it.  No one set it up. it’s just the way all the pieces naturally fall into place.  It’s almost amazing how well free market capitalism works at providing the consumer with the most choices and the best value.

Fortunately, most goods and services in America are bought and sold in a free market system.  You can feel fairly confident that most of the items you pay for are fairly good values, if you have used any amount of good judgement in your purchasing decisions.  Do you feel good about the deals you made on your home, car, flat screen TV, etc.?  Everybody goofs now and then, but for the most part, don’t you think you are a fairly smart shopper?  Chances are, you do.  Give yourself a pat on the back.  You done good.  

But what about those few times where you got burned?  Don’t you wish there would have been someone or something there to protect you from  it?  Of course, you do, right?  Maybe I should rephrase that question.  How much would you have been willing to pay to have someone or something there to protect you?  After stumbling around for awhile, your answer would probably be something like, “No more than dollar amount of damage I incurred.”  See you are smart.  It doesn’t make sense to pay for more “protection” than you need.  It’s the reason you drop the insurance coverage on your car down to liability only, when it’s value falls below $5000.  Your a smart shopper, taking calculated, risks.  

The risk/reward tradeoff is something we all have to deal with whether we’re betting on a horse, investing in stocks or commodities, or having the neighbor change the oil in your car.  The good thing about it is that you are in total control of what that ratio of risk vs reward will be, usually.  

Sometimes, you’re not in control, and invariably, the less control you have, the more you’re going to have to pay.  In the areas where you have the least control, it’s like those times you got burned, but it’s every time you make a transaction.  What I’m referring to here are situations where a law has been created that puts up some kind of barrier to entry into the market.  A good example of this is any service that requires a license to be provided.  Zoning ordinances are another.  

You might think the main force behind licensing requirements for providing services, was consumer protection.  Think again.  The vast majority of license requirements were originally pushed through by established businesses in that field, that wanted to limit the number of new start up competitors.  Never mind that they didn’t have to go through the cost and hassle of getting a license during their period of startup and growing pains.

A perfect example of unnecessary licensing in order to drive out competitors was the Wisconsin pesticide applicator’s license requirement, that came into law about ten years ago.  Before it was enacted, anybody who wanted to make a little extra money mowing and taking care of people’s yards, could spread weed ‘n feed, or other pesticides available in stores, on a customer’s lawn.  Now, one needs a license to do that.  

The state will tell you that the law was designed to promote safety, and prevent errors in pesticide applications.  People who apply pesticides now, are subject to fines for not being licensed or violating other regulations involving pesticide applications.  Home owners however, are still free to purchase and use typical lawn and garden pesticides themselves, and no one’s watching to see if they’re following the rules.

The end result of the law is that homeowners are still doing whatever they want, but a lawn guy that thinks that he might be able to make some money if he branched out into weed ’n feed applications is out of luck.  He will find out that it’s just not worth the hassle and expense to get a license when he can only expect to have a few customers who want to have a pesticide application those first few years after he started to offer it.  Now, all those weed ‘n feed applications that used to be done by the small neighborhood lawn guy for $40/application, are going to the big boys like Trugreen/Chemlawn, for $80 per application.  How’s that for consumer protection?  This example is far from unique, and you can find similar ones with any service that requires a license to be performed, like cosmetology.

Zoning ordinances are another good example of barriers to entry into the marketplace.  My favorite example is in a neighboring township, where the town chairman helped ram through a zoning ordinance that forbids truck drivers from parking their semi-tractors in their own driveways.  After all, who wants to look at commercial vehicles in the neighborhood?  Never mind that the town chairman owns an excavation business, has construction equipment in his driveway, and a gravel pit, (that’s right, an open pit mine), in his backyard!  He was conveniently grandfathered in.

I hope you can see how keeping the new kid off the block, causes consumer prices to rise.  Here’s the thing I want you all to take away from all of this.  Consumer protection and consumer freedom are at odds with each other, and nowhere is it more evident than in the two areas that are costing the average American the most amount of money; education and health care.  These two areas are more protected by artificial barriers to entry into the marketplace than almost any other.  Go see if you can start your own college or hospital.

You probably don’t have the ability or the desire to do either, but there are groups of people out there that could and would, if there weren’t so many obstacles to prevent it.  So what we’re left with in the areas of health care and education, are spectrums, where the whole middle has never been allowed to develop.  All the consumer has available to him is the free advice and first aid from a friend or family member, or the outrageous prices charged by  colleges and hospitals, who don’t have to deal with little guys. You know, the smaller competitors and new start ups that should be there in the middle of that spectrum, charging lower prices that keep the big boys honest.

The price you pay for this “protection” is enormous.  It is easy to see how smaller independent healthcare providers and colleges could charge less than half or what the established ones do if they were only given the chance to do so.  If that actually happened, you could probably have at least some of the things you only dream of now. Don’t hold your breath though.  The money coming in from the insane prices they charge, is going somewhere, and people with influence are going to make sure that the flow doesn’t stop.




 

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