Many people think that the role of government is to protect "the little guy" from corporations. Free-market economists disagree. It is the role of competition to protect the little guy from corporations. The problem is one of information. How do you discern the proper amount of protection? After all, you can completely protect consumers by preventing corporations from selling anything, and workers by preventing corporations from employing anyone. Set the protection level high enough, and that's what you get even if that's not what you meant.
Free-market economists believe that government cannot ever set the protection level correctly. The information cannot flow to the government quickly enough to adapt to changing workers, economic conditions, technology, procedures, and the market for safety. People's desire for protection also changes over time and their life circumstances. There is no one correct level &emdash; any one level set by the government will be wrong for some people.
Does that leave "the little guy" screwed?
No. You see, it is corporations themselves that have the information necessary to set the protection level correctly for their market. They won't volunteer that information. Instead, they will reflect it in their prices. If they are not protecting the consumer, competition will force them to charge lower prices. If they protect the consumer more, competition will allow them to charge higher prices.
Does that mean that consumers have to have perfect information in Libertopia?
No. Probably only 10% of consumers take the time to compare prices, quality, etc. These people are admired, though, and less diligent consumers listen to them. Over time, their information distributes itself among the less concerned shoppers. If a company is charging too much for too little protection, it will have lowered sales.
Free-market economists aren't in favor of less consumer protection. They're in favor of a different kind of consumer protection -- one which they believe generates a greater diversity of results which better matches the needs of individuals.
posted at: 01:26 | path: /economics | permanent link to this entry