Reformers Are too Willing to Turn a Blind Eye to Liberal Fixes for our Economic Problems

Reformers Are too Willing to Turn a Blind Eye to Liberal Fixes for our Economic Problems

Smith Letter to The Financial Times
July 12, 2004

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Sirs, Your edition of July 6 features two distinct columns that demonstrate a persistent neglect of economic liberalization as a way of resolving societal problems.  The first, by John Gapper (" The trouble with presuming consent") addresses the opt-out/opt-in provisions of many information-based services.  Mr. Gapper raises the issue first in the context of his mortgage application, in which his loan company "presumed" that he had authorized it to market him other services.

 

Some good, he notes, may come of this; but questions the wisdom of bundling a desired service (such as a mortgage) with a possibly less desired product (an option to gain another credit card, for, example), since such solicitation can annoy consumers.  Mr. Gapper suggests that competitive forces will probably sort out this question.

 

Turning to the same opt-out/opt-in issue regarding organ donations, he notes that people reluctant to envisage their own demise will rarely opt in, despite the significant social value of them doing so.  But here he views the solution as having the government establish the ground rules.  Note, however, that in both these cases market solutions would allow incentives for individuals to opt in.  Retailers already offer discounts to consumers willing to share information— for example, through supermarket discount cards or frequent flyer miles.  Similarly, government car license offices might offer reduced fees for those willing to donate organs.  And insurers might offer reduced rates for organ donors.  If politicians were willing to challenge the bias against economic incentives in improving healthcare, organ shortages might very well vanish; as do most market scarcities.

 

Meanwhile, Ira Millstein (“Tough corporate reforms are still being dodged”) focuses on how companies are complying—or not—with new requirements mandated by the Sarbanes Oxley Act and overseen by the Securities and Exchange Commission.  However, he fails to mention that reformers have focused only on steps strengthening political control over the company.  Reformers have failed to address the systemic weakening of competitive market regulation of these same companies that has occurred over the last century.  The corporate world is very complex, especially in companies operating along the economic frontier.  Should the reform movement not reconsider the laws that have made it harder for outsiders to take over a corporation believed to be performing sub-optimally or that make it illegal for key insiders to gain by disclosing knowledge that would correct an errant stock price?

 

Both authors seem well aware of the pitfalls inherent in political solutions, but neither considers the possibility that current problems might reflect past political interventions.  One would expect a more balanced treatment in the pages of The Financial Times.

 

Fred L. Smith Jr.

President,

Competitive Enterprise Institute

<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Washington DC 20036, US