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The Power of Consumers: A Response to S.V. Yumlu

Originally Published in the Herald-Mail

Economic & Fiscal Policy

by Thomas A. Firey

OP-EDS

The most important virtue of limited government is the freedom it gives people to live life by their own values, preferences and circumstances. As I discussed in a recent column, limited government only intervenes in clear cases of “market failure”—a technical term meaning cases where people’s voluntary decisions and agreements with each other are obstructed or distorted.[1] Even in those cases, limited government only steps in when the benefits to citizens clearly outweigh the costs. And when it does intervene, it does so at the lowest level of government possible, so that it is responsive to citizens. Such a government is especially appropriate in a country as diverse as the United States.

A few weeks after that column appeared, frequent Herald-Mail letter-writer S.V. Yumlu wrote in to criticize limited government.[2] He argued, “In a diverse society we need more government oversight contrary to what Mr. Firey proposes. …There is no correlation between a bad government and its size, and there is no such thing as ‘the invisible hand,’ but only visible greed.” His letter offered many examples that, Mr. Yumlu said, show the need for more interventionist government.

However, most of the examples don’t help his argument. Some involve market failures, and so don’t conflict with the idea of limited government. (In many of the examples, the benefits of government intervention don’t seem to outweigh the costs, but that’s a discussion for another time.) Other examples outright contradict Mr. Yumlu’s argument. For instance, he points to prescription drugs that have been taken off the market in recent years for safety reasons, saying they show the need for big government. But all those drugs were on the market because they had received approval from the U.S. Food and Drug Administration following extensive government-mandated testing under the agency’s strict and extensive regulations.

However, one of Mr. Yumlu’s examples does seem to have teeth. He writes, “Today we are driving the safest cars ever manufactured, thanks to Mr. Nader.” That is, according to Mr. Yumlu, if it weren’t for Ralph Nader’s mid-1960s auto safety campaign and ensuing federal regulations, consumers wouldn’t have the safe cars they desire and are willing to pay for. If he’s right on this, it would be a powerful argument against limited government.

But is he right? Nearby is a graph of U.S. automobile fatality data from 1928 to 2007.[3] The low fatality rate in recent years supports the idea that cars today are safer than in previous decades. But notice that the fatality rate has been falling at roughly the same long-term rate throughout the entire data series, steadily pushed downward as if by some invisible hand. The decline didn’t become steeper following the appearance of Nader’s landmark book “Unsafe at Any Speed” in late 1965. Nor did it become steeper following the federal requirement that all new cars include seat belts beginning in 1968. (Automakers had been including seatbelts as an option since the mid-1950s.[4]) The same goes for state laws requiring people to wear seatbelts (the first mandate was New York’s in 1984), the 1989 federal airbag mandate or the 1998 revised airbag mandate. Indeed, the fatality rate fell faster in the era before government intervention in auto safety began in 1965.

Instead of government intervention, the data suggest that improved auto safety is the result of factors that have been present throughout the eight decades of data. One of those factors is consumers’ desire for safer cars, balanced against other consumer demands for power, styling, comfort, reliability and low cost. Automakers, driven by the “visible greed” Mr. Yumlu mentions, have catered to those demands—after all, you make money by offering consumers what they want, and you go broke if you don’t.

Or at least, you do under limited government. In recent years, under an increasingly interventionist U.S. government, automakers have received taxpayer dollars for building cars that consumers don’t want—hence the $11 billion government handout[5] and $18 billion in unwarranted “tax forgiveness”[6] for General Motors, and the $1.3 billion handout to Chrysler.[7] Add in another $3 billion for the “Clash for Clunkers” program.[8]

Perhaps such policies are good “government oversight.” I’d prefer more visible greed.

To download a spreadsheet with the vehicle fatality data used in this report:  Vehicle Fatalities Data.