Topic: Regulatory Studies

Mauvaises Idées

The International Herald Tribune reports that Ségolène Royal, the Socialist Party candidate for the French presidency, wants to impose price controls on banking services. She also wants to distort the allocation of credit by having the government guarantee loans to young people.

These ideas do not make economic sense, but they are a sign of pogress. Thirty years ago, a Socialist in France would be arguing for nationalization of banks. At this rate, maybe the Socialists will be advocating free market ideas within 300 years:

In a French presidential campaign with recurrent anti-capitalist undertones, the Socialist Party candidate, Ségolène Royal, took aim at banks Tuesday, accusing them of penalizing the poor with low interest rates on savings and high overdraft fees.

…Banks should pay customers more interest on current accounts than the 0.5 percent to 3 percent common today, Royal said. They should also credit bank accounts on the day a transfer is made, and give every young person with a “project” a free €10,000 loan that would be guaranteed by the state.

Government Should Not Interfere with Company Pricing Decisions

It is currently illegal for a company to insist that a retailer sell a product at a certain price. Politicians claim that this policy, known as resale price maintenance, results in higher prices. This surely is true, but the key question is why a firm would want to insist on higher prices, especially since the retailer reaps the benefit?

The answer, as Steve Chapman explains in his column, is that some products are more likely to do well if the retalier has an incentive to give potential consumers more time, advice, and service. But this won’t happen if consumers can benefit from this attentiveness at one store and then buy the product at another store:

For a manufacturer to make an agreement with retailers to sell only at a specified minimum price is illegal — even when it promotes competition and offers benefits to consumers. …[E]stablished federal law … treats resale price maintenance agreements as invariably malignant. …The assumption is that if you let manufacturers control retail prices, they’ll hose consumers for their own profit.

But if they wanted to hose consumers, they could just raise the wholesale price they charge to retailers. That way, they would get the full proceeds of the rip-off, instead of sharing them with stores. So it’s reasonable to assume there is some motive besides price-gouging at work.

…Why would a company making purses or televisions or running shoes want to keep prices at a certain minimum? Maybe to induce stores to offer exceptional service or technical assistance. A store can afford to do that only if it can charge a commensurate price. But a service-oriented store can’t charge a commensurate price if a consumer can come in, get lots of help and then go across the street to Discounts Galore and buy the item at 30 percent off. By setting a floor, the manufacturer can prevent “free-riding” by bargain outlets.

In our hypercompetitive retail environment, if the strategy doesn’t serve customers, manufacturers who use it won’t survive. Consumers who can’t get one brand at a discount price will defect to other brands.

Congress Is Concerned about Your Mental Health

Congress is debating a new “mental health parity” law, which would require those who purchase mental health care coverage to buy the same amount of mental health care coverage as medical and surgical coverage. 

The Congressional Budget Office (CBO) just released this not-too-technical summary.  The CBO projects that the law would increase the cost of employer-sponsored health insurance by 0.4 percent.  That means it could add another $46 to the (already rising) cost of a job-based family plan.  Not a huge amount.  But every little bit hurts.  And Congress wonders why the number of Americans without health insurance keeps rising.

Of all the purposes government might serve, there can be none higher than telling people how much insurance they should purchase for mental health care, if they purchase insurance for mental health care.

The Negative Side-Effects of Government Safety Rules

Politicians and bureaucrats frequently impose rules and regulations to protect us from the risks of life. But even if one assumes that all this red tape is well-meaning, the consequences often are negative. The costs to the economy often are the most obvious downside of regulation, but sometimes safety regulations actually make us less safe. John Stossel’s Townhall.com column notes that safety caps on drugs actually have increased the number of children who get poisoned:

A joint study by the Brookings Institution and American Enterprise Institute found that government regulations that are supposed to save lives actually end up killing more people. Why? Because safety laws almost always have unintended bad consequences. …In 1972, the FDA passed a law requiring child safety caps on many medications. It was supposed to keep kids from being poisoned by drugs like aspirin. But there is an unexpected side effect. Because safety caps are hard to get off, some people – particularly older people – leave them off, and some parents, feeling safer with the cap, leave the aspirin where kids can reach it. A study of this “lulling effect” concluded that an additional 3,000 children have been poisoned by aspirin because of the regulation.

Euphemisms for Theft

English is a rich language. One reason is that we don’t have an equivalent of l’Academie Française, which tries (and fails) to prevent loan words, neologisms, and deviations from prior rules of grammar. 

Another reason is that political processes keep generating euphemisms designed to disguise horrid behavior. (“Did I say death camps? I meant happy camps.”) 

To honor that tradition, I offer this list of euphemisms for theft:

Email me mcannon [at] cato [dot] org (here) with additional candidates.

Bureaucrats Drunk with Power?

Last month, Justin Logan blogged about the socialist alcohol controls in Montgomery County, Maryland. For those of you not in the DC area, Montgomery County is a very wealthy, very liberal Washington suburb with our nation’s only completely government-run alcohol distribution system.

Yesterday, the Washington Post ran an excellent article that describes how this system is an absolute nightmare for the county’s restaurants.

Here’s an overview of the wine distribution process:

Let’s say the restaurant orders the wine from a private distributor on Thursday. The distributor then faxes or hand-delivers the order to the Department of Liquor Control. A county employee writes up a purchase order and faxes it back to the distributor. On Monday or Tuesday, the distributor delivers the wine to the county warehouse. On Wednesday, a white or navy blue box truck bearing Montgomery’s “Gardez Bien” county seal delivers it to the restaurant.

Now contrast that with the privately-run distribution system for restaurants in neighboring jurisdictions:

Restaurants in the District and Virginia buy wine from private distributors at wholesale prices, which includes the distributors’ markup. Placing an order is as easy as making a phone call. If an order comes up short or a large party unexpectedly drinks all the Diamond Creek cabernet, the distributor can make a delivery by the next day.

The system results in major headaches for restaurants, limited wine options for oenophiles, and, of course, greater costs for consumers:

A bottle that wholesales for $100 in the District costs Montgomery restaurants $125. If a restaurant tries to double or triple the purchase price – a standard practice – a bottle priced at $200 or $300 in a District restaurant ends up on a Montgomery wine list at $250 or $375.

You might ask why a county would subject itself to such an inefficient and expensive scheme. Well…

“We benefit financially from it,” [Montgomery County Executive Isiah] Leggett Leggett said. “But more importantly, you don’t see liquor stores all over Montgomery County like you might see in other jurisdictions, and I think citizens like that.”

Call me crazy, but I’d prefer a few liquor stores in my neighborhood over outrageously priced, government-controlled wine.