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Who Protects the Consumer?

September 28, 2011

Tags Free MarketsLegal SystemInterventionism

Consumers are sometimes asked to pay too much for goods. This has been true since the beginning of time. Their great protection against overcharging has been competition. The intelligent shopper can compare price and quality, and go to the merchant who offers the best goods at the cheapest price.

Consumers are sometimes cheated. This also has been true since the beginning of time. They have sometimes been the victims of deceptive practices; they have been sold shoddy goods, or defective goods, or goods that have been misrepresented. Again, their greatest protection has always been competition. They can cease to buy from the dishonest merchant. In addition, when the amount involved is large enough, they have been able under general laws against dishonest practices to resort to the law or to take a case to court.

But in recent years, particularly in the Kennedy and Johnson administrations, an ominous network of legislation has grown up that attempts to regulate quality and quantity in the minutest detail in one industry or trade after another.

An idea of the scope of this can be gathered from a single message to Congress by President Johnson on February 17, 1967. Here are some of his requests:

I recommend the Truth-in-Lending Act of 1967.…

I recommend the Interstate Land Sales Full Disclosure Act of 1967.…

I recommend the Welfare and Pension Protection Act of 1967.…

I recommend the Medical Device Safety Act of 1967.…

I recommend the Clinical Laboratories Improvement Act of 1967.…

I recommend the Wholesome Meat Act of 1967.…

I recommend the Fire Safety Act of 1967.…

I recommend the Natural Gas Pipeline Safety Act of 1967.…

He also recommended that Congress give "careful consideration to the [346-page] report and recommendations of the Securities and Exchange Commission" on the detailed control of mutual funds, and that it enact new controls of the electric-power industry as soon as a report by the Federal Power Commission was completed.

All this in one message. All this to be rushed through in 1967.

Furthermore, this message came when the most detailed regulation of special industries had already been enacted. On March 15, 1962, President Kennedy had sent a similar special message to Congress with similar recommendations. One result was that Congress that year passed a far more stringent drug-control law. Previously the government had power only to prevent the marketing of unsafe drugs. A new drug could be marketed if the government took no action within 60 days after an application was filed. The new law reversed this, and gave a bureaucrat power to hold up approval of a drug indefinitely until the manufacturer could prove to the bureaucrat’s satisfaction that the drug was not only safe but "effective." This could give the bureaucrat life-or-death power over a company or its products. It is a very dubious legal principle that allows any bureaucrat to keep off the market something that, even though harmless, is in his opinion "ineffective," and that in addition puts the burden of proof of effectiveness on the producer. The new drug law has discouraged research and slowed down the introduction of new life-extending drugs.

Before President Johnson’s 1967 message on consumer protection, an automobile-safety law had been passed, as well as a food-labeling and -packaging law. Presumably the designs of future cars will not be specified by engineers, but by lawyers and congressmen, who will also take increasing control over labeling.

There is one very nasty by-product of this itch for more and more federal control of business. The congressmen and bureaucrats who favor it begin by an enormous propaganda campaign against the industry or trade that they want to control. Thus, in order to get through the Wholesome Meat Act, government officials charged that unsafe and filthy meat was being sold almost everywhere. Then in order to get through a poultry-control bill, Miss Betty Furness, President Johnson’s consumer adviser, stated, "There's not a place in the US … where you can order a chicken sandwich with the confidence you are not endangering your health." Earlier in 1968, in a sweeping indictment, she had charged that every merchant was "after your back teeth."

A Senate committee recently held hearings to decide whether the automobile-repair industry, with its tens of thousands of local garages and repairmen, ought not to be brought under direct federal control. The committee credulously listened to witnesses who told it that the chances are 99 to 1 that work ordered will not be done properly, if it is done at all. The implication was left that the industry is made up mainly of incompetents and crooks.

Just how detailed were some of the new regulations that President Johnson was urging in his 1967 message can be judged from its passages on the control of medical devices. Government bureaucrats were to prescribe "standards" for "bone pins, catheters, X-ray equipment and diathermy machines." Bureaucrats were to say what kinds of nails and screws were to be used for bone repair, and what kinds of artificial eyes were to be permitted.

All this is an ominous reminder of medieval despotism. One thinks of the law of Henry VIII, that made it a penal offense to sell any pins but such as were "double-headed, and their head soldered fast to the shank, and well smoothed; and the shank well shaven; and the point well and round-filed and sharpened."

The pervading assumption of the Kennedy and Johnson administrations was that any and all problems could be solved if only we piled up enough new laws and restrictions. Yet it may be doubted that consumers are going to be helped much by defaming and harassing producers.

The consumer has one great protection against incompetent producers or dishonest sellers. This is his own intelligence and his own decisions. His views are heard every day in his purchases and refusals to purchase. With every penny that he spends, the individual consumer is casting his vote for this product and against that. He does not need to sign petitions or march in picket lines. If he patronizes a product, the firm that makes it prospers and grows; if he stops buying a product, the firm that makes it goes out of business. The consumer is the boss. The producers must please him or die.

But this is another way of saying that the great protection of the consumer is the competition among producers for his patronage. This is another way of saying, as even President Johnson admitted in his consumer-protection message, that: "Most of these problems are resolved in the free competitive market through the energies of private enterprise. It is remarkable how well the free enterprise system does its job." This was excellent lip service, but Mr. Johnson's detailed recommendations were based on the opposite assumption.

A thousand examples could be cited of the miraculous effect of free-market competition in serving the consumer. I will content myself with one—the food industry.

The original packaging bill before the 89th Congress not only sought to protect the consumer against fraudulent or deceptive labeling and packaging, but it sought to standardize sizes, shapes, and proportions of packages and net weights and quantities. Industry witnesses showed by numerous examples, however, how this would have discouraged innovation and restricted consumer choice. "If there are 8,000 different items in the average supermarket today as compared with 2,000 some years ago," testified Arthur E. Larkin, Jr., president of the General Foods Corporation, "it's because the consumer wants it that way.… No one of those 8,000 items will continue to be produced and occupy shelf space if the customers don't take it off the shelf and put it in their shopping bags.… Each product must win its right to survival. Each must be sold in sufficient quantity to be profitable."

In other words, once more, the way to protect the consumer is not to impede and harass, but to encourage the producer.

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