"Predators" and Printing Presses

Apparently unable to go more than two days without an editorial calling for more government intervention, the Chronicle now wants more regulations on "payday lenders"--companies that offer short-term loans at high interest rates.

In recent years, the payday lending industry has done a lot of high-powered PR to clean up its image. But some things have not changed: These lenders can still be a menace, and their targets are frequently those who can least afford it — mostly poor folks and minorities with little financial sophistication. Under certain circumstances, the payday lenders can be downright predatory.

In other words, some people--those with little financial sophistication--might be taken advantage of when using this service. Therefore, concludes the paper, we should place more controls on these companies.

I could make a strong case that some people--those with little philosophical sophistication--might be taken advantage of when reading the Chronicle. For some reason I don't think that the paper would support controls on its editorial positions, and I wouldn't either. But the same argument the paper uses in calling for controls on another industry could be used to control the media.

According to the Chronicle, some individuals may take actions that aren't in their best interest. This is certainly true. But each individual has a moral right to take the actions that he deems best, for right or wrong. By what authority does the Chronicle, or the government, believe that it can force others to act contrary to their judgment?

While payday loans can certainly be financially damaging, embracing the wrong ideas is far more destructive than wasting a few dollars. Embracing the wrong ideas can lead to far worse actions than taking out a loan with high interest rates. For example, if one advocates rights-violating controls on a particular industry, one has no grounds upon which to defend one's own rights. If it is proper to dictate how payday lenders use their property (money), then it is equally proper to tell the Chronicle how it can use its property (printing presses). The fact is, such controls are never proper or morally justifiable.

What the Chronicle doesn't seem to realize is that when individuals are free, they will sometimes take actions that others find objectionable. Like take out payday loans or print editorials calling for more government control over our lives. But so long as they do not violate the rights of others--by using force or fraud--individuals have a moral right to use their property as they choose.

Of course, maybe the Chronicle does realize this and isn't concerned with individual freedom. Maybe the paper doesn't care if government officials dictate how it uses its printing presses.

In either case, the paper's endless calls for more regulations and controls have only one logical end--complete government control. And that would make the "predatory" practices of payday lenders look like a walk in the park.

Government Force vs. Personal Choice

Advocates of government regulations often argue that government intervention is necessary to protect consumers from unscrupulous businesses. They ignore the many ways that individuals can make informed decisions and protect themselves from fraud and similar practices. An interesting example comes from the paint industry and the Better Business Bureau (BBB):

The Better Business Bureau’s advertising arm has recommended that The Sherwin-Williams Company modify or discontinue certain odor-elimination claims for the company’s Dutch Boy Refresh Paint.

Sherwin-Williams (SW) joined with Arm & Hammer to create a paint that allegedly absorbs odors within a home. This claim was challenged by a competing paint manufacturer--PPG Architectural Finishes.

(I hasten to add that neither the BBB nor PPG is claiming fraud on the part of SW. The claims against SW are that its advertisements for the product are "misleading". I should also note that I am a painting contractor and use SW products almost exclusively, though I have not used the product in question.)

The BBB's advertising unit, the National Advertising Division's (NAD), reviewed information submitted by both SW and PPG and found the information inconclusive.

In the absence of reliable evidence, NAD routinely steps into the role of the consumer to determine the reasonable messages conveyed by the adverting.

In short, the NAD seeks to determine how a consumer might interpret an advertising message. The article does not state how the NAD does this, and such methods could be highly subjective. But the objectivity of the NAD isn't the point here.

As a private organization, the NAD cannot compel advertisers to abide by its findings. Nor can it force consumers to heed its warnings. Both advertisers and consumers are free to consider the NAD's conclusions, and accept or reject them based on their own individual judgment. In other words, while providing the information consumers need to make informed decisions, the NAD cannot impose decisions upon others. And this is how it should be.

There are many other organizations that provide similar resources for consumers--Consumer's Union, Underwriter Laboratories, and Angie's List are three examples. In each instance the consumer can judge the information provided within their context and on the basis of their needs and values.

In contrast are government regulatory agencies that impose their findings upon everyone. Rather than allow consumers to judge for themselves, government agencies necessarily force consumers and businesses to accept and act according to their dictates, for better or worse.

Contrary to what advocates of government regulation imply, consumers are capable of making decisions. And often they may want and need products or services that don't meet the standards imposed by regulators. That is their right--they have a moral right to act according to their own judgment, no matter what others might think (so long as they respect the mutual rights of others).

Killing Innovation in Electric Retailing

In his Sunday column, Loren Steffy does something I have yet to see an elected official do: He admits that the "deregulated" electric market in Texas is heavily regulated. And, though unintentionally, he demonstrates how regulations directly harm producers, and indirectly harm consumers.

In the summer of 2008 Marcie Zlotnik, chairman and COO of StarTex Power, a Houston-based electricity retailer, sought to differentiate her company by alerting customers when their contract would expire. The Public Utility Commission (PUC)--the state agency that regulates the "deregulated" industry--decided that this was such a good idea that it forced all retailers to do the same thing. Steffy quotes Zlotnik:

To me, that was a competitive advantage. It is now mandated. There goes my competitive advantage.

Which means, Zlotnik came up with an innovation that benefited her company and its customers. But the PUC wiped out her innovation and any rewards she might have received. Instead of allowing electric retailers to compete and innovate--and operate in a free market--the PUC stifles competition by forcing "innovations" upon everyone, whether they like it or not.

But the destructive consequences of the PUC go even further:

In an industry where the line between profit and loss is razor thin--margins for most retailers are in the low single digits--some companies worry that regulators are stifling competition by over-emphasizing consumer safeguards.

"That is a concern because it does take resources away from innovations and new products," said Catherine Webking, the executive director for the Texas Energy Association for Marketers, which represents electric retailers.

As we saw with Zlotnik, those who do innovate can have their competitive advantage wiped out by the arbitrary decree of the PUC. What incentive does any retailer have to come up with innovations in such an environment? The answer is: NONE. In fact, they have a huge disincentive because the "reward" for their thought and effort is have their creation forced upon the entire industry. Would Apple come up with new products if its competitors were forced to make the same devices? The answer is a resounding NO.

Of course, the regulations forced upon the "deregulated" electric industry are for the protection of consumers, because we are too damn stupid to make decisions for ourselves. We need the regulators at the PUC issuing mandates and dictates so that the "deregulated" electric industry doesn't take advantage of consumers. Addressing "smart meters", which retailers say will be beneficial to consumers, an attorney for the Citizens Aggregation Power Project said,

There's just as much potential that retail electric providers can create systems that will generate additional revenue.

Yes, this is a possibility. In fact, I would argue that it is a probability, because businesses tend to "create systems that will generate additional revenue." They are, after all, in business to make money. Further, I hope that electric retailers make oodles of money, because that means that they will be able to deliver the electricity that I want and need.

Electric companies have a moral right to use their property as they choose. If consumers don't like the service or products the companies offer, they can find their electricity elsewhere. That is how the free market works. But it can't work, nor do companies have an incentive to innovate, when government is regulating their affairs.