||[May. 12th, 2009|12:42 pm]
newedition made some points on free markets and government regulation that I want to respond to. She was talking about the new credit card bill:|
"The bill is nonsensical for at least two fundamental reasons. First, it assigns government the authority to regulate business. Second, it violates the right of individuals to freely enter into contracts. Such is the psychology of the nanny state: people are not sovereign individuals with the authority to control their own lives, but irresponsible and needy wards of the state who require government protection against their own ignorance and shortcomings."
I'm generally in favor of a free market, except that I don't believe that's that's what we've been having. I think we've been having a rigged free market, and that's when I think government intervention is needed.
For example, if you had an entire industry mutually decide 'let's just rob people' like healthcare has done, no one would have the power to stop it. Consumers can't pick a 'better' option because there are none. A company would be insane not to rob people in this environment, because they'd get crushed by the competition. The 'free market' can't repair itself on its own in this case.
Credit cards are arguably similar. A large number of people want credit. To start a business, it's practically essential. With the way credit works, it's not always easy to move debt around if your credit card is suddenly a bad deal. Let's say you get a credit card with a low interest rate. You have a balance, but you make your payments on time. However, your credit isn't good enough to get multiple cards - maybe you're young and starting out. If your credit card company just randomly decides to triple your interest rate, you are screwed, and the 'free market' can't help you. You can't get more credit to swap the debt with, and depending on what you bought, you might not be able to pay it off quickly. Even if you made a responsible decision at the time of getting the credit card by finding the best rates/etc., the rules of the game have suddenly changed on you. If the grocery store had doubled its prices, you could just go to another store. But with this credit card, your debt is immobile until you pay it off. It's possible, in fact, that the tripled interest rate makes it so you can no longer afford all your bills, which causes even more trouble.
Your woes will hurt the company by making potential new customers go away, you say? With ZERO oversight, there are moves that companies will inevitably make because they look good on the balance sheet. Not out of 'evil' or anything else, but because it's good for the company financially. If their competitors follow suit, there may be no one to question them except government or law. I'm not saying it should be government, but we really have no other organized method that has any teeth.
Consumer mobs can react to things like 'ZOMG LEAD PAINT,' but they're incapable of studying finer aspects that can make a bigger difference.
As for the idea that people are incompetent to care for themselves, I don't like that way of thinking either. BUT, some of the problem (particularly with the mortgage crisis and with financial planners) is that people were being lied to by experts. If you go to a doctor and she says 'You have cancer' and then you go to two more doctors and they say 'You have cancer,' you're going to be pretty much convinced you have cancer, right? Particularly if they show you X-rays that point to lumps, and tell you things that agree with any of your own independent research? Now imagine that all doctors on earth are in cahoots to make you think you have cancer. Now replace 'doctors' with 'mortgage brokers.'
You and I are the sort that will dig around and look for information on our own, but will we do it for everything? If your dentist says you have a cavity, will you disagree? If your maintenance guy says you have termites? Much of how we operate is based on trusting experts, and also on the idea that at some point you have to trust a diagnosis and run with it (even if you did the diagnosis yourself).
This is very, very exploitable, particularly if you have an entire industry built to exploit it. Even worse if it's an industry you can't reasonably operate without or that is very difficult to not use, like a mortgage broker. Again, I think some sort of external oversight is necessary, someone that's not a part of the system but has power to make changes to it. Government's not the best choice, but it's the only entity at the moment that fits the bill.
And while we are currently undergoing a free market 'correction' and shady mortgage companies are going down in flames, the problem was allowed to fester so long that the correction has had disastrous consequences for everyone - foreclosures, debt tightening up, and so forth. Even people who handled their money responsibly have been impacted by higher prices, higher rents, minimal credit. If someone had stepped in and broken up the problem before it got this bad, the free market could have had a correction without getting it all over everyone' faces.