Arnold Kling  

Anti-Consumer Regulation

Paris in the Springtime... Comment of the Week, 2003-05-2...

Two recent columns concerning the regulation of Internet commerce show how regulation sometimes restricts competition at the expense of the consumer. The Wall Street Journal argues that state regulations prevent consumers from obtaining health insurance that otherwise would be available via the Internet.

New Jersey's regulators, for example, have the power to tell insurers what kind of policies they must offer, and its regulators can enforce those restrictions on companies from other states trying to sell policies to New Jersey residents. That's why you can buy a mortgage or an automobile on the Internet from anywhere in the country, but you still can't shop around for a family health policy.

James Justin Wilson discusses the regulation of real estate listings.

According to Colby Fambrotto,'s owner, his company has seen geometric growth since 1999, and continues to expand. This has understandably irked some in the real estate industry.

Realtors responded by pressuring the states to enforce licensing regulations on internet real estate websites. Most recently, the State of California sent a letter to among other websites informing them that they could no longer list homes for sale without a certified Realtor's license.

For Discussion. Does the Internet make the rent-seeking characteristics of regulated industries more transparent? Will this affect the politics of regulation?

Comments and Sharing

COMMENTS (9 to date)
Brian writes:

The thing will really expose some difficulties in the field of middleman regulation.

Many salesmen rely on the ability to prohibit competitors from advertising to maintain their advantages. But under 44 Liquormart there is a constitutional right to tell the truth about commercial activity. can advertise all the listings it wants and link to all the banks and mortgage companies and California won't be able to stop it as long as it isn't actually doing business "inside" California.

It would be bold to try the same with NJ health insurance. Write the contract in another state and promise to pay doctors in any state that meet objective criteria. Allow disputes to be adjudicated by the laws of a nearby state (DE?). Nonbinding agreements with doctors are as good as NJ contracts for the patients and for the doctors as long as the company has a reputation for reliable payment.

Mcwop writes:

There is no doubt that state regulations can effect health insurance costs. Example, Maryland passed a law banning the use of credit reports in determining auto insurance rates for individuals. Result: rates increased across the board because insurers lost an accurate predictor of accident rates/payouts.

A secondary problem, is that health insurance covers nickel and dime stuff, like a simple doctor visits where the doctor only takes a pulse, weight, height blood pressure and sends you home. There is a high probability that the insured will incur small health costs throughout the year, and premiums reflect that. By design Insurance does a better job in protecting against catastrophic financial loss.

Another example is Medicare. It covers routine things, but you have to pay extra for Medigap to protect against big losses. My in-laws had to declare bankruptcy when they discovered that the costs (big costs) for prostate cancer treatment were not covered by Medicare (they did not have Medigap), but hey, the $50 doctor visit is free.

So the problem is much deeper than X number of people not having coverage, or searching for rates on the Internet (my in-laws don’t even have net access, they needed Medigap education), but what is the most efficient way to allow people access to health care without breaking the bank. We are not in the efficient environment right now, and few proposals show promise.

Eric writes:

How about the rent seeking of local governments trying to impose sales taxes on faraway retailers!?! Why should collect sales taxes for municipalities where it has no physical presence?

For that matter, as a consumer, why should I pay sales taxes in communities where I don't live?

As for the other rent seeking behavior, we have a fundamental dichotomy between the Interstate Commerce Clause and the Ninth Ammendment. On one hand, we don't want states to errect barriers to interstate competition, but on the other we don't want the Feds sticking their noses where they do not belong.

I'd be interested in a federalist perspective, as opposed to utilitarian, economist's perspective. This federalist tends to think that the ICC trunps No. 9.

Bernard Yomtov writes:


"How about the rent seeking of local governments trying to impose sales taxes on faraway retailers!?! Why should collect sales taxes for municipalities where it has no physical presence?"

A sales tax is a tax on transactions, not on retailers.

"For that matter, as a consumer, why should I pay sales taxes in communities where I don't live?"

Not sure what your complaint is here. Are you talking about sales taxes you pay when you travel? As far as taxes on Internet sales and the like my impression is that those who favor collecting them would have them go to the buyer's community. Maybe I'm mistaken about that.

Eric Krieg writes:

Bernard, I understand that the tax is on the transaction, but what is the logic behind the sales tax? If I live in one community but buy in another, for what reason am I paying a sales tax? What services have been provided to me by that municipality, for which they think that they can charge me 8.25% (in my case)?

I think that you are correct about who the tax should go to if Amazon started collecting it, but what a logistical nightmare! The database needed to track the addresses and tax rate of every man, woman, and child in America would be huge.

Bernard Yomtov writes:


It seems to me that if you are physically present somewhere, and make a purchase, then you are provided with some services: roads, police, fire protection, come to mind. And lots of times you go places and use services without paying taxes, so it's hard to get worked up over this particular injustice.

If you're talking about Internet or mail order purchases then the tax, as noted, is intended to go to your home state and town. It doesn't have to be a logistical nightmare. The database you describe, which is not necessary, could fit on a 120GB disk, (400 bytes/person, a somewhat terrifying fact in its own right) an example of which I have sitting on my desk as I type.

But you could just track rates by zip code for example. That might fit on a spreadsheet. Or you could also establish a sort of national average rate and just use it and distribute it by home state (or zip).

It would be work, and you'd have to keep up with it, or more likely subscribe to a service that did so, but I suspect the administrative cost to Amazon, as a percent of sales, would be substantially less than that to most local merchants.

Eric Krieg writes:

Bernard, let me tell you a little story about government incompetance.

Here is Chicago, there are certain streets that you need a permit to park on, in an effort to limit parking there to people who live in the neighborhood.

My friend lives on a block that does not have the permit, but surrounding streets have the permit.

Very recently, he has started to get tickets while parked on his own, permitless block, for not having a permit. He saw an officer giving his car a ticket, and tried to explain to the officer the permit situation, but was told in no uncertain terms to buzz off or go to jail.

So my friend decided to contest the ticket. He researched the ordinances that govern the permits, and found that, yes, his street has no permit. So he writes up a little note, includes his evidence, and send it in to the Chicago Department of Revenue (yes, that's what it is called!) along with his contested ticket.

And he gets a letter back that the CDR rejected his appeal. He can either pay the fine or go to court. My friend decided that it was too much trouble for a $75 fine, and he's going to just buy a permit.

So think about this story when you say that creating a sales tax detabase would be easy. Nothing is easy when it comes to the government. It is staffed by a bunch of unionized public employees who get paid no matter what their job performance. What incentive do they have to make sure the database is accurate? And who do you appeal to when the tax Amazon is charging is inaccurate?

Bernard Yomtov writes:


Well, that little episode certainly establishes beyond doubt that sales taxes are a bad idea.

If you have an ideology that, in your mind, governs all aspects of government, then say so to start with. Don't start a thread on a specific topic and then fall back on your ideology to trump any opposing arguments. You waste people's time.

Eric Krieg writes:

As a great man from Tennessee once said, "There's no need to be snippy".

The sales tax is an example of an institution that is being made obsolete by technology. Perhaps, as you say, there are other technologies that can allow the instituion to survive, but common sense tells us that the execution of that technology might create an environment that is oppressive.

Some of us are interested in values greater than mere utility. If you believe that makes us ideological, well, so be it. Others would just see it as being good debaters.

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