It’s hard to imagine that even 150 years after the publication of french political philosopher Frederic Bastiat’s classic essay “That Which is Seen, and That Which is Not Seen,” tired examples of politicians attempting to supersede the laws of scarcity still pop up. From U.S. President Obama’s landmark health care initiative guaranteeing health insurance for all to the European Central Bank refinancing Eurozone banks with cheap liquidity to get them buying up the bonds of distressed governments, the idea of the state curing all societal ills with guns and the printing press has never been more en vogue. Of course it doesn’t take a PhD in economics to realize that the government can force the purchase of any product, thus ensuring its universal obtainment, with the threat of a visit by tax enforcers. And if printing money only solves funding issues insomuch that the printing goes on in perpetuity, one only needs to see the can-kicking end results to realize its overall ineffectiveness.
(Chart via investor Ed Yardeni- It must be remembered that the ECB established its long term refinancing operations to stem the jump in Italy and Spain bond yields towards the end of 2011. The program has ended and yields are starting to move upward yet again)
In both these examples, Bastiat’s important lesson about the unseen is disregarded. Obamacare may force millions into the health insurance market but the red tape and cost controls that follow will result in shortages if simple logic is any guide. Since money printing by itself solves nothing besides papering over previous malinvestments while creating fresh ones, any short term boost in market confidence will be at the expense of later, more widespread pain.
Like the proto-Keynesian who rejoice in the fact that the shopkeeper in Bastitat’s tale will stimulate the economy by paying for a new window after his initial one is broken by a thoughtless hooligan, proponents of government intervention often find it difficult to see beyond the immediate effect of their favored policies.
The same insight can be applied to the Ontario government’s latest attempt to save hapless consumers. In the eyes of paternalistic lawmakers, cell phone shoppers are an uniformed mass incapable of making sensible decisions for themselves. From the Globe and Mail:
The Ontario government is vowing to beef up consumer protection for wireless services by adopting new legislation that would allow cellphone users to cancel their contracts at any time, while placing strict caps on any penalties.
In doing so, Ontario becomes the fourth province in recent years to step into the regulatory void left by the federal telecommunications regulator, which decided against the active regulation of cellular contracts nearly 20 years ago.According to Member of Provincial Parliament David Orazietti,
“This is a pocketbook issue that consumers want addressed, and our government bill contains measures that will reduce costs, cap cancellation fees, prevent automatic renewal and make cellphone contracts considerably more fair and transparent.”Judging by this admittance, Orazeitti doesn’t understand the concept of scarcity and tradeoffs. He pictures himself and his legislative peers as providing a free lunch to taxpayers that costs nothing down the road. Politicians like Orazeitt time and time again prove the old economic proverb espoused by Thomas Sowell correct:
The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.What this proposed consumer protection bill will accomplish is simply increase the risk for cell phone companies to accept new customers. By capping the price of risk, that is limiting the charge for cancellations, stopping instant contract renewal, and mandating a change in standard contracts, the potential for profit losses is that much more. Corporations aren’t in the business of providing charity. They endeavor to gain a return by selling goods and services to consenting purchasers. Business, based on unreliable and changing consumer preferences, is inherently risky. Financial success is never a guarantee.
If the prospect of not making a large enough return to cover input costs is increased, then supply offered will decrease if entrepreneurs can’t offset the risk by increasing prices offered to ensure their limited capital isn’t wasted. Government mandates are never free; a fact always lost on statist interventionists. By the same token, small, less resourceful competitors find it more difficult to even enter the market as legislative decree drives up the cost of entry.
All of these instances result in a tendency for supply offered on the market to fall. If quantity demanded stays the same or increases, simple economics teaches that price rise. Either that, or shortages must develop.
Again, the political class, despite its fantastical overestimation of its own abilities, can’t eliminate the law of scarcity.
The reality is that if consumers truly wanted the issues Orazeitti addressed, they would make their grievances known to those businesses they patronize before signing on the dotted line. Consumer protection is a deceitful term invoked whenever the state looks to bring another industry further under its regulatory grasp. Orazeitti’s bill is a power grab; plain and simple.
Backers of government-enforced consumer protection may relish in the short term effects of legislation but they don’t account for unseen. As regulation cuts down on market competition and supply, the unconsidered effects are the price increases and lack of technical innovation that could be achieved on an uninhibited market. The latter results are what constitute real consumer protection.
Bastait’s simple lesson may be generations old but it still shoots intellectual holes through the short-sighted efforts of public officials and their supporters. If Orazeitti’s bill passes, Ontario cell phone users will be left worse off just as the man paying for a broken window instead of having income left over to purchase a new suit.