Knowledge And Decisions

As in other cases, moving an asset or obligation backward or forward in time drastically alters its value or cost. Changing the retirement age a few years in either direction is the same as forcibly transferring billions of dollars from one group to another, since the costs of such commitments as life insurance, annuities, etc., depend crucially on time. One of the largest financial commitments arbitrarily changed by changing the retirement age is that of the government’s own “Social Security” program — which saves billions of dollars by postponing its own payments to the retired by forcing employers to continue to hire them longer. But because these changes in massive financial obligation (on employers) and defaults (by government) take the outward form of “merely” changing a date, it is politically insulated by the cost of the knowledge required for voters to detect their full economic impact.

CONTROLLING PRODUCERS AND SELLERS

Controlling the terms which individuals may offer each other is only one method of economic control. Other techniques include (1) controlling who can be included or excluded from a particular economic activity, (2) what characteristics will be permitted or not permitted in products, producers, or purchasers, and ultimately (3) comprehensive economic “planning” which controls economic activity in general on a national scale.

FORCIBLE RESTRICTION OF COMPETITION

While prices are crucial as conveyors of knowledge to decision makers, artificial prices which distort this knowledge can persist only insofar as competitors whose prices would convey the true knowledge are forcibly excluded.³² One reason for forcibly excluding competitors has already been noted — “external” effects, as in broadcast interference, which makes unrestricted competition unfeasible.³³ There are also industries where the production costs are overwhelmingly fixed costs — and high fixed costs at that — so that the cost per unit of output is constantly declining over any range of output that is likely to be demanded. In this case, one producer can supply the market more cheaply than two or more, since more output means lower production costs. Examples include industries with huge investments in massive systems of conduits of one sort or another delivering water, gas, electricity, or telephone calls. These are what economists call “natural monopolies,” since it would cost more to get the same service through multiple producers than through one producer per given area. Therefore government regulation substitutes for competition as a means of preventing high monopolistic prices from being charged.

This is the idealized economic theory. The reality is something else. Once a rationale for regulation has been created, the actual behavior of regulatory agencies does not follow that rationale or its hoped-for results, but adjusts to the institutional incentives and constraints facing the agencies. For example, the scope of the regulation extends far beyond “natural monopolies,” even where it was initially applied only to such firms. The broadcast-interference rationale for the creation of the Federal Communications Commission in no way explains why it extended its control to cable television. The “natural monopoly” that railroads possessed in some nineteenth century markets led to the creation of the Interstate Commerce Commission, but when trucks and buses began to compete in the twentieth century, the regulation was not discarded but extended to them. Airplanes have never been a “natural monopoly,” but the Civil Aeronautics Board has followed policies completely parallel with the policies of other regulatory agencies. It has protected incumbents from newcomers, just as the FCC has protected broadcast networks from cable TV, as the ICC has tried to protect railroads from trucking, or municipal regulatory commissions have protected existing transit lines from jitneys or other unrestricted automobile-sharing operations. As a leading authority has summarized CAB policy: “Despite a 4,000 percent increase in demand between 1938 and 1956, not a single new passenger trunk line carrier was allowed to enter the industry.”³⁴