Sunday, August 21, 2011

Consumer expectations

Here is episode 7 of Milton Friedman's series "Free to Choose." In it Friedman argues for ending the power of government institutions to control which products we are allowed to buy. He argues the consumer self-regulation is a more powerful, non-coercive way to provide goods in such a way that properly balances safety with value.

Fast forward to the discussion at the end of the video. One of the problems that I think is really worth thinking about is mentioned at the end by a representative of automobile safety regulators. She says that now that cars have been subject to certain regulations for so long, consumers have a certain standard, anything less than which would not be tolerated. That is, if government were to suspend these regulations, producers would probably not depart from them, anyway, because customers would still demand them.

I'm inclined to agree with this analysis. Indeed I hesitate to take either her side or Friedman's in the debate, because I'm not sure we're really working with the right principles. Friedman wants to make the point that no one has the right to tell consumers what to buy. But he also seems to want to make empirical claims about the results of a free market. Can he have both? It appears to me that if you use a certain preset target as an empirical measure of market effectiveness, then you've implicitly rejected the normative principle about personal rights.

Indeed, the fundamental argument for a free market is that it allows society as a whole to unconsciously calculate the relative value of infinitely numerous objectives. Safety and the preservation of life are only two objectives out of thousands that a person has. The free market is supposed to coordinate the thousands of interests of every individual with one another, allowing them all to flourish simultaneously to the maximum possible extent. Obviously not all objectives can be reached equally well, or even at all.

But if there are certain objectives embedded into the public consciousness, especially regarding the preservation of human life, what is the possible response? It seems entirely possible that coercive power will often be taken not as coercive, but as a breath of fresh air, if you will, or a sort of wake up call reminding us of something we wish we had thought of all along. Regulations on automobiles will cause consumers to realize, yes, we really do want seat belts and air bags in all of our vehicles. We really were so foolish not to have demanded this earlier. Once the idea is implanted into the public consciousness, it completely changes the market.

It would be interest to run a sort of experiment on the public at large. Introduce a regulation on some business, say on automobiles, but don't let anyone in the public know about it. Then see how many consumers object to it: for instance, how many would demand the car company sell them a cheaper vehicle with less gas mileage? Now then, wait a few years until the regulation becomes totally standard. Then get rid of the regulation, and just see what happens. It would be fascinating to see whether consumer expectations could be so altered by coercive power that their "individual preferences" would actually conform to a forced standard.

If that were the case, and I suspect in many ways this is undeniably the case, it would make the case for a free enterprise system much more difficult on empirical grounds. If the system is designed to coordinate the various interests of individuals, it becomes much harder to recognize success when in fact it is so easy to change the interests of individuals using subtly coercive means.

I conclude, then, with a frank admission: I simply do not know how to defend liberty. I am actually rather sure that personal autonomy is, to a greater extent than we will admit, an illusion. But I am even more certain that we are arrogant and foolish to think that there is any fully justified basis on which "we as a society" can cause greater prosperity through comprehensive schemes, such as regulations on industry. In general, I suppose I am just a pessimist with respect to human reason. The more we learn, the more we ought to realize we don't know.

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