Tuesday, November 1, 2016

Masters of Our Own Demand?

Producers, policies, and veils help determine consumption

In its editorial yesterday on the "opioid epidemic", the Washington Post wrote about the Drug Enforcement Administration's work to ensure "that legally produced narcotics aren’t diverted for improper or illegal use".
DEA career personnel responded to the rise in opioid abuse after the turn of the 21st century by pursuing aggressive civil enforcement against wholesalers suspected of pumping drugs into corrupt “pill mills” around the country ... Yet the DEA officials told The Post they eventually ran into resistance from higher-level Justice Department officials who were being heavily lobbied by the wholesalers, which include some of the biggest corporations in the United States.
Basically DEA was cramping the drug manufacturers' business of selling more drugs. This sounds horrible, but take a look at similar behavior outside the context of drug addiction.

Fossil fuels – oil, gas, coal, and others – are extracted from the ground and refined into energy products that we use to produce electricity, run our cars, and heat our homes. Natural resource companies want to sell more natural resources; that's only natural. Should they be interested in boosting the fortunes of rival energy producers such as nuclear, solar, wind, or biofuel? Is it in their interest to increase energy efficiency and reduce energy intensity? Would there be a positive impact in their profitability by reducing traffic congestion or increasing the efficiency of the national power grid?  The answer to all these questions is "no": it's in their interest to sell more fuel and erect market and regulatory barriers to alternatives and conservation.

Last month Wells Fargo bank admitted that its employee had created millions of bank and credit card accounts over the course of five years that cost its customers unauthorized, hidden fees. The bank's admission came with a $185 million fine and $5 million in refunds to customers. According to CNN, "The phony accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money."

Employer-provided pre-tax benefits also have hidden costs. Exclusion of medical insurance premiums from taxable income costs taxpayers over $200 billion each year and drives up tax rates, medical premiums, and health care costs. Defined contribution retirement plans such as 401(k) plans cost taxpayers almost $75 billion annually, reducing competition for retirement services which increases the cost to plan participants, reduces investment options, and hides administration and middleman costs.

The key to breaking these arrangements is to favor competition and transparency over favoritism and veiled practices. We may still buy lottery tickets in hopes of a big payoff or schlep over to Starbucks for an indulgent energy boost. But that's our choice: state lotteries are a self-imposed tax and we can brew our own java. We need leaders and civil servants with enough courage to say "No" to businesses who use the strength of money to promote their interests.

And we need voters who back politicians with enough backbone to do what's right without falling all over themselves to back businesses and job creation without consequence.