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Schubart: An Enduring Myth

05/12/11 7:55AM By Bill Schubart
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(HOST) Commentator Bill Schubart has been thinking about his own personal experience in the free market economy and wondering how it is that prices among the few remaining service consumer services providers remain so remarkably in synch.

(SCHUBART)  My libertarian and conservative friends love to cite the purifying qualities of the free market, operating like a natural stream-bed filter, removing weak business models, compressing economic fluctuations, and obviating any need for government regulation. This 20th century truism, has merit, but not in the absolute. Most can agree on the Buddhist concept of persistent change and much has changed in this country to sully the purity of free market economics.

It is illegal for competitors to conspire to fix prices. In the 20th century, price-fixing regulation, though hard to prosecute, was taken seriously by businesses. Milton Friedman, a philosopher of free-market economic theory and opponent of business regulation, couldn't foresee the impact of real-time, encrypted networks linking business offerings, competitors, and market transactions. These networks enable instantaneous and unison price changes that are responsive to competition and markets and that, so far, defy prosecution.
 
I recently went out West. A comparison of online airline prices yielded no competitive opportunities for this consumer. Later, when I suggested to our car rental agent that $144 for a one-day rental and $146 for a one-week was illogical, and that I might take my business elsewhere, he assured me that I would find similar pricing that day for all the rental booths lining that side of the airport. He went silent when I suggested that that was anti-competitive, if not collusive.
 
It's annoying how all our familiar hotels prices rise in New York and fall in unison. It's disturbing, however, that our "free market" providers of wireless, cable, satellite, and credit card services also have remarkably similar pricing and that we have only a couple to choose from.
 
The free-market was lionized at a time when regulation had teeth. The rare monopolies were strictly regulated and the concept of a free market with many consumer choices had meaning. Price fixing was prosecuted. Conspiracies had to be conducted in person or on phones that could be tapped. Digital networks changed all that.
So did the Reagan-Thatcher era. "Starve-the-beast" conservative politicians realized they could never sell the elimination of regulatory agencies to the American people, so they simply impoverished them. This stimulated a staggering aggregation of business ownership primarily by roll-up financiers rather than seasoned business owners. We are now living the consequences of this new economic landscape. So please explain how unregulated free market economics will stem the further polarization of wealth and opportunity and the gradual destruction of our vaunted middle class?


I believe in consistent, strategic regulation that is enforced. I believe that businesses - like citizens - need rules and consequences. The application of different rules and judicial consequences for different economic classes, and a blind adherence to economic absolutes will only further erode our once pioneering economy.

(TAG) You can find more commentaries by Bill Schubart at VPR-dot-net.
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