Thursday, August 14, 2003

Rights & Reason: On Pricing

Virginia Postrel has a superb column in today's, cough, New York Times on prices and how regulators fail to understand the true context of price competition:
Prices capture the relative value people put on intangibles. The price system lets individuals make trade-offs among goods, without having to articulate a "good reason" for their preferences. It rewards value you cannot easily count.

Some critics find that wasteful. "Addiction to a strict and unremitting valuation of all things in terms of price and profit" leaves executives "unfit to appreciate those technological facts that can be formulated only in terms of tangible mechanical performance," Thorstein Veblen wrote in 1921 in "The Engineers and the Price System."

Veblen's critiques still influence both intellectual opinion and practical policy. His intellectual heirs, like the economists Robert Frank and Juliet Schor, treat the intangible pleasures of style as either deceptive "salesmanship" (Veblen's term) or wasteful status competition.

Public policy often regards aesthetic value as illegitimate or nonexistent. This oversight comes less from ideological conviction than from technocratic practice. Unlike prices, regulatory policy requires articulated justifications and objective standards. So policy makers emphasize measurable factors and ignore subjective pleasures.
The FTC and DOJ, of course, have mastered (if not monopolized) the talent of reducing price competition to technocratic factors. Take the Justice Department's response in the Mountain Health Care case to several customers' complaints that they were pleased with the service--and by extension, the pricing--of Mountain. The DOJ dismissed the consumer's "subjective" judgment by declaring "they could have received lower prices and better service with competition." This statement was not accompanied by any factual evidence such as a study or even a description of the marketplace. The DOJ simply decided that no reasonable consumer could want to receive medical services from Mountain, and that the only reason they did patronize the group was because of Mountain's "coercive" power over the marketplace.

I do, however, quibble with Postrel's theory that regulators do not emphasize "ideological conviction" over technocratic practice. While that's true in many cases, there is, at least in antitrust, a core regulatory principle--competition as a primary. Time and time again, the FTC and DOJ state their premise that competition--not individual rights--is the organizing principle of society, and that all government action must be directed at protecting competition from those who would harm it. This means that individuals and businesses that do not "compete", i.e. lower prices to the government's satisfaction, are committing a heretical offense against society. Capitalism and individual rights are to the FTC what gay marriage is to the Family Research Council, an abomination that should never be spoken about, let alone implemented.

And with that, I'm off on a blogging recess. Expect to hear from me again sometime after Labor Day.

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