When we find that something is not working correctly (that is, according to consumer demand and the likely opportunity cost of production), we often discover that restrictive regulations are the culprit. Consider hearing aids. Why are they so expensive, usually thousands of dollars? Until two years ago, a Food and Drug Administration regulation prohibited its sale without a prescription and required a prescription from an audiologist (Dominique Mosbergen and Julie Jargon, “FDA clears hearing aids for sale without a prescription,” Wall Street JournalAugust 16, 2022).
Whether we model the prescription requirement as a government restriction on supply or as an excise tax on consumers, the effect has been higher prices, a reduction in market size, and fewer incentives for innovation. Who knew what consumers were missing?
We got part of the answer when Apple announced that it will soon offer a $250 software update for its AirPods Pro 2 that will give them a hearing aid feature for low to moderate hearing loss (the FDA restriction remains in place for more severe hearing loss). fallen). The striking shape of the AirPods has the disadvantage of being advertised as hearing impaired, but some old people may think wearing them looks cool (see Ben Cohen, “Apple has a great new product. It’s a hearing aid”, September 13, 2014). This new competition from outside the previously regulated market will likely lead to a decline in the prices of more conventional hearing aids.
How many months earlier could people with hearing problems have used the new device if there were no regulations in place? It is true that a technological innovation or adaptation of existing technology was necessary, but technology depends on research and research depends on the expectation that its products can be profitable.
We still have to wait and see how well the AirPods will work as hearing aids, but we know that this innovation and many others will be less likely if they are legally stymied. The story illustrates a more general argument for individual freedom, well formulated by Friedrich Hayek (see part 1 of his book). Law, legislation and freedomoriginally published in 1973):
Because the value of freedom rests on the opportunities it provides for unforeseen and unpredictable actions, we will rarely know what we lose by any particular restriction of freedom. …And so we always overestimate the benefits of central control if we decide every issue solely on what appears to be its individual merits.
In the marketplace, you don’t have to “vote” with one ballot to get what you want, or hope that entrepreneurs and innovators will offer you goods or services that you would want if you only knew they existed. The only requirement is that enough consumers, but not necessarily a majority or a politically vocal minority, will be probabilistically willing to pay for it.
Compare this to the ideal government of Rexford Guy Tugwell (1891-1979), a proponent of government planning and close associate of Franklin D. Roosevelt. In a 1932 American economics magazine article he wrote:
New industries will not simply emerge as the auto industry did; they will have to be foreseen and argued so that they seem likely to be desirable features of the whole economy before they can be entered.
(See also Mine Regulation judgement from his 1933 book Industrial discipline and the arts of government; also available in pdf format, pp. 71 ff.)
Could you have effectively voted in the political ‘market’ for iPhones or AirPods that can be used as hearing aids? Lobbying politicians or regulators is expensive, especially when it comes to what only exists in the minds of entrepreneurs or innovators. How do we know what we are missing with the 188,346 pages of federal regulationsapart from national and local regulations? The question is relevant in all countries.
******************************
