Smart Enough To Vote

If people can't be trusted to make wise decisions as customers, they can't be trusted to make wise decisions as voters either. Which is the main reason why democratic reactions intended to regulate market transactions are fundamentally misguided. Donald Boudreaux sends this message to one of those failures of democracy, an elected official:

Because, by introducing this bill, you show that you obviously regard most Americans to be utter imbeciles, you surely cannot fancy that your election to the Senate is the result of a wise, or even defensible, judgment by Florida voters. These people, after all, are among those whom you regard as incapable of sensibly choosing among competing telephone calling-cards.

If you're correct about the (lack of) intelligence of ordinary Americans, then you and other members of Congress owe your political success only to what you, as revealed by your words and actions, believe to be the intractable stupidity of your fellow citizens - which prompts me to ask: Why should anyone take you seriously?

This case is a perfect example of what Roderick Long was talking about in his AotP post: the government raises the barriers to entry, claiming that it will help protect consumers, but having the opposite effect of reducing competition and protecting entrenched business interests:

One especially useful service that the state can render the corporate elite is cartel enforcement. Price-fixing agreements are unstable on a free market, since while all parties to the agreement have a collective interest in seeing the agreement generally hold, each has an individual interest in breaking the agreement by underselling the other parties in order to win away their customers; and even if the cartel manages to maintain discipline over its own membership, the oligopolistic prices tend to attract new competitors into the market. Hence the advantage to business of state-enforced cartelisation. Often this is done directly, but there are indirect ways too, such as imposing uniform quality standards that relieve firms from having to compete in quality. (And when the quality standards are high, lower-quality but cheaper competitors are priced out of the market.)

The ability of colossal firms to exploit economies of scale is also limited in a free market, since beyond a certain point the benefits of size (e.g., reduced transaction costs) get outweighed by diseconomies of scale (e.g., calculational chaos stemming from absence of price feedback) – unless the state enables them to socialise these costs by immunising them from competition – e.g., by imposing fees, licensure requirements, capitalisation requirements, and other regulatory burdens that disproportionately impact newer, poorer entrants as opposed to richer, more established firms.

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"If people can't be trusted

"If people can't be trusted to make wise decisions as customers, they can't be trusted to make wise decisions as voters either."

Nice. Ilkka over at The Fourth Checkraise links a lot to folks that point out small connections that smack you in the forehead as obvious, and that'd you'd wish you'd put together on your own already. That's one of them.