Excerpts from another interesting comment from a retired CFO who considered my argument naive:When it comes to the consumer or the regulators we still made a risk decision based on dollars. If we thought misleading customers might lead to an extra $500 million in sales, we compared that to the risk that we might get fined $50 million so we would walk away with a net of over $450 million. That made the decision to go ahead very easy.
I'll give you an example that might hit closer to home, the Group Insurance operations. For example, on a Long Term Disability case where the potential payout might be a half to a million dollars. We would hire a private investigator not to determine whether or not the person was disabled (we had our own docs examination to handle that question) but to determine the psychology of the claimant on whether he was the type, or had the connections, to sue. Denying benefits was based on the money saved vs the probability of a lawsuit.
...everyone should be aware that corporations are amoral (ie neither moral or immoral). Every single decision is simply based on money.
After reading this I wondered what part of my posts gave him the impression that I think companies would be motivated by anything other than making money? That is what companies are supposed to do. That is their purpose, and to expect them to operate with any other motivation in mind would definitely be naive. My position is that a free market, with the few (but pervasive) regulations that I have suggested, means that the choices that consumers make will effect the bottom line of these companies and they will change, not because of federal regulation, but because people will only buy their product if it will actually benefit them more than it will cost them. Thinking that government regulation will prevent companies from taking advantage of consumers is the real naivety in this debate.
Further, his examples support my point. I expect companies to make a decision that will net them $450 million after they factor in lawsuits. But if the government found that a company lied to consumers, the real question is what are they going to do about it? What if they didn’t allow the company to do business for a fiscal year? Would companies be more careful about lying to consumers? Perhaps we could also make a government website that listed every company who had been convicted of lying to consumers and how many times. Then the “unprotected” consumer can easily find out where they are likely to be exploited. It would soon be in every company’s best interest ($) to be honest.
His disability and healthcare examples don’t surprise me either. We need to assume that companies work in this way. Consumers need to assume that companies work in this way! For instance, a responsible consumer would, before purchasing long-term disability from his company, hire a private investigator to determine if they were the type of person, or had the connections, to sue. If they weren’t, than they saved a ton of money by not purchasing long-term disability from a company that would never give benefits to them anyway. Furthermore, if they asked the company if it hired private investigators to help determine the probability of their customer’s suing, and the company lied, it would fall under my one regulation for businesses.
The best regulations for a market are the ones that are based on the truth of the situation. Companies’ only objective is to make money. Consumers’ only objective is to get products in exchange for something they value less than the product. If companies don’t make money they are not good companies. If consumers don’t get what they pay for they are either not responsible consumers or were lied to.
It is with these assumptions that a free market system, with only two regulations, is the most simple and logical way to hold everyone responsible for their economic actions.
A few questions from a commenter concerning my post on free markets:Did BP lie? Do consumers have a real choice to buy Chevron, or Exxon? Which part of the free market would have saved a charter fisherman from ruin in Orange Beach? Should we believe that oiling the Gulf of Mexico for six months is the price of being uninformed consumers? Will the free market give us real choices between oil and something else? If we temporarily suspended the civil court system (the root of all this evil?) and allowed the"every man for himself" model you suggest, how would I know a product would kill my daughter until I gave it to her and it was too late? Does this model require we sacrifice a few lives every time we have a bad corporate player.
You have written a great, well thought and persuasive argument. Unregulated corporations with a fiduciary responsibilty to only make money however, scare the hell out of me.
These questions touch on a few different issues, so I sought to answer them as best as I could:
Did BP lie?
I do not know enough about the BP spill to answer this question, but let’s assume that they did not lie. According to a free market approach, consumers have the choice to spend not one more cent to BP because of the disaster. This is a small consolation for the disaster, granted, but it is what a free market affords. Also, although it might be inconvenient, you could also choose to only buy petroleum products that come from companies that you think drill and transport oil responsibly. If people really care about preventing oil spills they have the power to change practices by spending differently.
Which part of the free market would have saved a charter fisherman from ruin in Orange Beach? Should we believe that oiling the Gulf of Mexico for six months is the price of being uninformed consumers?
On the pre-emptive side of an oil spill, a free market should not protect big companies from risks that they take producing goods or moving them to consumers. For instance, it is reasonable for the government to make an oil company pay for the clean-up of an oil spill on a public highway, just as the government should make a citizen pay to replace a neighbor’s fence if they accidentally crash through it with their riding lawnmower. An offshore oil spill is more difficult to enforce because of the questions: Who owns the ocean? What should be replaced as a result? How do we quantify what was lost?
These questions should be answered and the government should hold BP responsible for these damages. BP took the risk of getting oil this way. It was always a possibility that this would happen. If we make them pay for it, and they know in the future that they will have to pay if something happens, they will take this risk into account and perhaps change the way they do things (or go bankrupt when they are unable to pay for the damages). This situation is not the fault of a free market. This is a simple matter of “if you break something that isn’t yours, you fix it, and in the future you will think a lot harder about making sure you don’t break something that isn’t yours.”
Do consumers have a real choice to buy Chevron, or Exxon? Will the free market give us real choices between oil and something else?
Once again, I do not know enough about how the current oil market works in order to answer this question, but I can tell you that a true free market would make the answer to both questions a resounding yes. If consumers chose not to buy oil unless they knew which company produced it, gas stations would start making this information available for want of customers. The real question is not whether consumers have a real choice, but do they really want one?
As of now, energy is not a free market. Oil subsidies and government funded programs for green research both try to stack the deck (against itself interestingly enough) in support of certain technologies. If the government ceased to interfere, different technologies could compete on equal footing. Big oil does not need subsidizing, but the prices for consumers might go up. They should because that is what it actually costs to get the oil. As oil prices rise to what they should have been all along, other energy technologies can become more competitive. Furthermore, investors will be more willing to support emerging energy technologies as oil prices show how truly unsustainable oil has become. This would be the free-market way to fund new research instead of the government interfering.
If we temporarily suspended the civil court system (the root of all this evil?) and allowed the"every man for himself" model you suggest, how would I know a product would kill my daughter until I gave it to her and it was too late?
As I said before, just as a single person must pay for ruining another person’s property, a company should be responsible for ruining something that doesn’t belong to them. I am not in opposition to the entire civil court system, although I am not a fan of everything it does (a topic for another discussion). As for the unknown product that could kill your daughter, this situation is actually a strength of the free market. Responsible consumers would never allow their daughters to use a product that could kill them (unless there were extraordinary circumstances).
Right now the government spends taxpayers’ money in order to make sure that products won’t kill consumers. But the responsible consumer who is not coddled by the government would require the maker of the product to spend their own money to provide enough testing to convince the consumer that it is safe. The consumer might even require that if the product did make the daughter in question ill, fatally or otherwise, the company would have to pay billions of dollars. If the company agreed, then great. But if they didn’t agree to the stipulations, the consumer can walk away. Also, the consumer is fine with the fact that the more they require of the company, the more they will have to pay for the product. This is good. This is how the free market works.
Does this model require we sacrifice a few lives every time we have a bad corporate player?
Finally, the free market really isn’t a savior. But the strength of the free market is that it holds all people responsible for their own actions better than a heavily regulated market, both businesses and consumers. It isn’t perfect because people are imperfect. This imperfection means that we sacrifice a few lives every time we have a bad corporate player no matter what level of regulation we have.
Another article at TMV caught my attention. It is written by Tina Dupuy who portrays the idea of a free market as a femme fatale that draws you in with her wiles but never delivers the goods. Although I disagree with her conclusion, some of her critiques of the free market are well founded. I really like this paragraph:What is never mentioned when propping up the immaculate free market is the defining characteristic of the idea – honesty. It’s transparency and allowing shareholders and consumers access to real information, good or bad. A free market is essentially crowdsourcing or democratizing business. And you can’t make informed decisions without accurate information. That’s a tenet lawmakers and business tycoons tend to glaze over when touting their “principles.”
I absolutely agree that the free market requires honesty. The other thing that the free market requires is that everyone intelligently seeks their own interests. The idea of a free market is not a savior. The consumers who intelligently decides what is best for them are the savior. The free market does not figure things out; the consumer does. While I completely agree with the above paragraph, I think that the conclusion of the article, “better regulations and more of those," is illogical.
A logical approach would be to take what we know about the difficulties of free markets and regulate only to fix those specific problems. The honest business and the responsible consumer are the two parties required for a free market to work, so here are the two regulations that would require businesses and consumers to act accordingly: 1) Businesses may not lie concerning any part of a business transaction. 2) The consumer may only raise a legal objection to a past business transaction if the business lied.
This would force businesses to be honest, but they would otherwise have full control over how the company is run. This would also hold consumers accountable for seeking the information they need to make good buying decisions.
Current regulations exacerbate the problems of a free market by giving consumers a false sense of buying security, enabling them to act irresponsibly. Consumers say, “I don’t have to read the fine print of my credit card contract or understand it because the government regulates that sort of thing.” Or even for contracts where no money is exchanged like signing up for a Facebook account, they think, “I don’t have to read or understand this long statement about information privacy. I am sure the law protects me.” If you remove the government as the over-protective mother who takes away the consequences of the consumer’s poor decisions, you will have a more careful consumer.
Furthermore, irresponsible consumers breed deceptive business practices. Businesses think, “if a consumer is irresponsible enough to buy something without asking for the information needed to make an informed decision, why should we make a superior product?” Also, when the government regulates the market based on shady business practices that have already taken place, businesses hear, “Hey, stop that! That was a clever trick, but it is over now.” Of course the business then looks for the next trick that isn’t regulated.
So at this point you might think, “Great, so this guy wants me to read fine print and ask detailed questions about everything I buy for the rest of my life.” That is most certainly not the case. There are two great things about the simple regulations I am proposing. First, businesses no longer have to include thousands of clarifications and disclaimers because of all the different government regulations that are constantly subject to change. They have to be very careful not to misrepresent their products and services, but they will not need teams of lawyers following every new policy development in order to comply.
Second, the careful consumer can and will choose to buy goods and enter into contracts only when they are given enough information to make an informed decision. They can choose to walk away if they are not satisfied with a vendor’s level of transparency. They will also be suspicious of fine print jargon, knowing that as long as businesses tell the truth beforehand the consumers have no grounds to complain. Consumers could also choose not to buy goods or enter into contracts if businesses bombard them with pages and pages of jargon, whereby businesses would realize it is in their best interest to keep it simple.
I really do appreciate this article and how it pointed out the fatal flaws of the idea of a free market, but I hope that we can reconsider how we approach those flaws. More regulation may sound like the sexy arch-nemesis of the free market, but simple regulation that directly relates to the flaws of the free market is the only approach that really makes sense.
This title was the title of an article written by Taylor Marsh as a guest columnist at TMV. She supports her hypothesis that conservatives are waging a war on women with the story of a Nebraska couple who delivered a baby, knowing that it would most certainly not be able to live outside the womb. I could not help but respond:
I am deeply disturbed by this story. Parenthood is one of the most noble callings if not the most noble. Like any of those things that completely change your life, there is risk when you bring a baby into the world. Something could go wrong during the pregnancy, during delivery, during the infancy, during childhood. Senseless tragedies happen all the time, and they are awful. They are heart-wrenching and often completely unfair. But responsible adults accept these risks and choose to seek parenthood despite them. Even more, the willingness to accept these risks shows the kind of self-sacrificial love that makes the parent-child relationship so mysteriously strong.
Claiming that a woman is a slave to an unborn fetus (child), whether that fetus is dying or completely healthy, is irresponsible and extremely disrespectful to the self-sacrificial love-in-action that is parenthood. If you are engaging in activities that could lead to parenthood, it behooves you to understand and accept the risks involved. Parenthood is an awesome responsibility, and it seems that the woman in this post was well aware of the risks involved in bringing a baby into the world and accepted them.
Having to watch your child suffer and die is the hyperbole of agony. Yet, every parent risks having to see that by choosing to have a child. The real question here is, “if we know the baby will suffer and die, should we prevent the suffering of both the child and the parents who would witness it by killing the child?” It should not matter whether it is a fetus in the womb, a newborn infant, or a toddler. If suffering and death are sure, is it ethical to kill the child? Why should the parent of a newborn have to watch their little child suffer and die, but not the expecting mother? Shouldn’t both mothers have a choice? Or perhaps neither?
I would not yet pass judgment on someone ascribing to either side of the above argument, but I do take issue with pretending this scenario is about abortion (trying to take away the natural consequences of human actions), when the real ethical question is about euthanasia (trying to prevent suffering that will surely lead to death).
The next commenter was full of passion, but no reason:
I will pass judgment on you though, [Guidry]. It makes my skin crawl to read what you wrote and to know that you could actually write it after watching that entire video. I don't know you anywhere but in this online forum, and I thank God for that.
Thankfully I was defended, and this comment is one of which I am quite proud:
I, too, was disturbed by [Guidry's] post, but after re-reading it several times, I'm quite intrigued by it. There's a comment that this is about euthanasia and not about abortion, and I think there's a lot of validity to that argument. There's also a comment that people who elect to have child-producing sex have to acknowledge and accept all the risks of having a child, and I agree with that as well. There's also a challenge that our current view of unborn children as "problems to be solved" is ethically inappropriate, and I agree with that as well.
I don't think [Guidry] is condemning either side in the argument, just stating, apparently from the heart, the dilemmas involved. Frankly, I think it's one of the more thought-provoking pieces on abortion I've read in a while.
Rational discourse can make people think and even reconsider! That is what this blog is all about.
I have not sent it yet, but this is my planned response. Any criticisms or comments are very welcome:
Dear Al,
Thank you for your response concerning the federal budget. Let me be clear that I do not blame one party over another for our current national fiscal problems. And I certainly do not blame freshman congressmen. Although we could see this debt coming from years away, let’s fix it now. It will not be comfortable, but while the previous generation was fine with passing the costs to future generations, I am not. I will pick up their tab and my own in order to allow a fair start to the next generation. I shouldn’t have to, but someone has to act responsibly.
You aptly point out that the only way to do this is by “choosing programs we currently spend money on, and deciding to stop spending money on them.” I absolutely agree. This is exactly what we need to do. I applaud your honesty. You agree on freezing non-security domestic spending for the next five years, a savings of $400 Billion over ten years; allowing the government to negotiate medicare drug prices, $240 Billion over ten years; getting rid of big oil subsidies and tax-breaks, $64 Billion over ten years; and stopping unneeded military spending, who knows how much over ten years.
Great! Get it done. But just so we are being clear, what does saving mean? Does this mean that at the end of ten years the actual amount of debt that the country has will be this much less? Or, does this mean that the debt will be more than it is now, but it will be less than it would have been if you hadn’t made these cuts. The first is acceptable, but the second is not. Accumulating debt slower than we would have is not fiscal responsibility. Paying down the debt is fiscal responsibility.
You do not want to cut spending on education, innovation, infrastructure, paying heating bills, job training, head start, health research, and high-speed rail. They are labeled as “cuts we simply cannot afford to make.” I agree that many of these items are important, but help me to understand why the government must fund these good things by answering the following question:
It seems that the budget of the government is limited to what the government receives in taxes from U.S. citizens. Helping the unfortunate, educating our children, health research, infrastructure, innovation – these are important, but the only reason that the government would need to fund these with taxpayers’ money is because the government doesn’t trust the taxpayers to choose wisely. Do you trust taxpayers to spend their hard-earned money on things that matter? Furthermore, if they wouldn’t spend it on things that matter, why would the government who is representing them elect to spend the money differently than they would personally?
Finally, it seems that one of your major concerns is that Minnesotans would be affected adversely and disproportionally (I assume more) by some of the legislation aimed at paying down the national debt. If this is true, could it be because Minnesotans are disproportionally (again more) reliant on the federal government? It seems reasonable that the states that are most reliant on the federal government should be affected more by cuts to reduce the national debt. Of course citizens could choose to privately fund anything the government cuts, but having the federal government spend more than taxpayers pay is the actual meaning of what "we simply can't afford."
If you are waiting for legislation that will have more adverse effects on states other than Minnesota, I shame on you for taking advantage of the nation’s fiscal crisis in order to play a game by which we use other people as a shield to lessen the consequences of our actions. That is downright un-Minnesotan. On the other hand, if you are waiting for legislation that will affect everyone equally, don’t be naive. It isn’t going to happen and, depending on the reliance of each state on the federal government, maybe it shouldn’t.
As our leader, please do everything within your power to strengthen the nation by erasing our reliance on other countries who buy our debt. I hope that Minnesota would lead by example when we step up to tackle the federal budget deficit, even if we bear more burden than the next state. Admittedly, the situation is unfair because we should not have to pay for goods and services that were consumed by our parents, but doing the right thing means that we should not continue the same systems that will make it so our children have to pay our way. A leader is willing to bear more of the burden because he can, not because his hand is forced. Please don't let it go until our hand is forced.
Respectfully,
John Guidry
A few weeks ago I sent a letter to my congressman, Al Franken, asking him to pay special attention to the mounting national debt. This is the letter that I recieved:
Dear John,
Thank you for contacting me about the federal budget. I appreciate hearing your thoughts on this matter of critical importance to our nation.
As you may know, our country faces a tremendous challenge in getting our fiscal house in order. Our debt has grown for decades under Congresses and Presidents of both parties. And while it's easy to agree that we should cut government spending, it's much harder to agree on what we should cut. We can't just say, "Let's cut $500 billion" or make vague promises about "increasing efficiency." Cutting spending means choosing programs we currently spend money on, and deciding to stop spending money on them. These decisions have real impacts on Minnesotans.
The President's budget does a good job of keeping our priorities in order while getting our deficits under control. It would freeze non-security domestic spending across the board for five years, which would result in $400 billion in savings over the next decade. I also believe the President's budget makes the right decision by continuing to invest in education, innovation, and infrastructure-areas key to creating jobs and growing our economy.
That being said, I worry that a few of the specific cuts proposed by the President will hurt Minnesotans disproportionately, particularly cuts to the Low Income Home Energy Assistance Program (LIHEAP). These cuts would mean that nearly 50,000 households in Minnesota could lose assistance and have to choose between food or heat next winter. Anyone who's lived through a Minnesota winter knows that you simply can't go without heat. As the budget process moves forward, I will fight to keep full funding for LIHEAP.
But while the President's budget generally hits the right mark, the spending legislation recently passed in the House, H.R. 1, puts our entire economy at risk. H.R. 1 would slash vital programs in an indiscriminate and ideological way. Mark Zandi, chief economist of Moody's Analytics and advisor to Senator John McCain's 2008 presidential campaign, has estimated that H.R. 1 would cause the loss of 700,000 jobs by the end of 2012 if it were enacted. Jan Hatzius of Goldman Sachs estimates that 2 percent of our nation's GDP would be wiped out by H.R. 1. During a fragile recovery, we can't be making indiscriminate or ideologically-driven cuts that will cost us jobs when we need them most.
Most troubling of all, H.R. 1 would take a meat cleaver to programs that disproportionately affect Minnesotans. I've heard from tens of thousands of Minnesotans who say these cuts would have a direct impact on their families and their livelihoods. H.R. 1 would slash funding for job training programs at a time when 3,000 Minnesotans are on a waiting list to get trained and find new employment. $1.1 billion in funding for Head Start would be cut, denying thousands of Minnesota children the chance to get their educations started right. $1.6 billion in health research funding would be lost, delaying clinical trials and costing Minnesota good-paying medical research jobs. All funding for high speed rail would be cut, and transportation grants that have funded projects like the Central Corridor Light Rail would be gutted. These are cuts we simply cannot afford to make.
As you may know, Congress recently passed legislation that averted a government shutdown for two weeks, and we're poised to pass another three week extension. Combined, these two measures made roughly $10 billion in spending cuts to federal programs. However, making further cuts requires us to look at broader reforms, and I've proposed several that will significantly bring down our long-term deficits.
First, the government doesn't negotiate prices directly with drug companies under Medicare. The Department of Veterans Affairs does, and for the ten most prescribed drugs, the VA pays about half as much. Getting rid of the rule preventing Medicare from negotiating would save up to $240 billion over ten years. Likewise, the oil industry already enjoys enormous profits, and yet still receives huge subsidies and tax breaks. Many of these tax giveaways don't even help with domestic oil production. Cutting these would save $64 billion over ten years. And lastly, when the military says it doesn't need or want something, we should listen. Defense Secretary Robert Gates has said the military doesn't need the F-35 alternate engine, the Marine Expeditionary Fighting Vehicle, or the Non-Line of Sight Launch System. Simply not buying these items will save us billions of dollars.
I hope we'll be able to put our differences aside and find a way forward in addressing our nation's long-term deficits. Minnesotans' jobs-and our place in the global economy-depend on it.
Again, thank you for contacting me, and please don't hesitate to do so in the future regarding this or any other matter of concern to you.
Sincerely,
Al Franken
United States Senator
