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Yes, the system is rigged. But how?

Summary:
The Atlantic has a recent piece on how the optometrist industry is rigged against consumers: In every other country in which I’ve lived—Germany and Britain, France and Italy—it is far easier to buy glasses or contact lenses than it is here. In those countries, as in Peru, you can simply walk into an optician’s store and ask an employee to give you an eye test, likely free of charge. If you already know your strength, you can just tell them what you want. You can also buy contact lenses from the closest drugstore without having to talk to a single soul—no doctor’s prescription necessary. Another Atlantic article finds similar problems in dentistry.  The NYT finds similar problems in health care: Much of what we accept as legal in medical billing would be regarded as

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The Atlantic has a recent piece on how the optometrist industry is rigged against consumers:

In every other country in which I’ve lived—Germany and Britain, France and Italy—it is far easier to buy glasses or contact lenses than it is here. In those countries, as in Peru, you can simply walk into an optician’s store and ask an employee to give you an eye test, likely free of charge. If you already know your strength, you can just tell them what you want. You can also buy contact lenses from the closest drugstore without having to talk to a single soul—no doctor’s prescription necessary.

Another Atlantic article finds similar problems in dentistry.  The NYT finds similar problems in health care:

Much of what we accept as legal in medical billing would be regarded as fraud in any other sector.

And NPR provides an example:

If you think these are isolated incidents, think again.  I personally know of similar examples (one involved an $8,000 bill for a mild cold, paid by taxpayers), so I very much doubt that they are unusual.

It’s not just health care.  Consumers buying cars are ripped off by a car dealer cartel, which prevents direct sales from manufacturers.  The fireman industry is a huge rip-off, with America having roughly twice as many fire stations as needed, as a huge cost to taxpayers.  Young homebuyers are ripped off by older homeowners who prevent new construction in towns like Reston, Virginia. There are similar examples in dozens of other industries, perhaps hundreds of others.

Politicians often complain that middle-class Americans are lagging behind because the system is rigged against them.  They are right.  But the politicians don’t tell the entire story.  Only a modest portion of the rigging is done by big corporations like Facebook, Google, Goldman Sachs and JP Morgan.  The biggest problem is various interest groups comprised of middle class people, who rip off the general public.

If we had free markets in health care, dentistry, optometry, fire protection, home building, car retailing and many other industries, then we could shed enormous numbers of workers from useless activities.  These workers could then produce useful output elsewhere, dramatically boosting real GDP and living standards.  The WSJ reports that our living standards are being depressed by a lack of workers:

If a politician promised to crack down on doctors, dentists, teachers, firemen, and older homeowners (like me), they’d certainly get my vote.  Unfortunately, that’s pretty much the only vote they would get.

And yet, we should not despair.  There is a great deal of ruin in a nation.  Despite all of these inefficiencies, living standards continue to rise:

Median family income adjusted for inflation was $29,000 in 1955. Today it’s just over $63,000, an all-time high. . . .

In the 1950s camping was an acceptable vacation. Hand-me-downs were acceptable clothes. A 983 square foot house was an acceptable size. Kids sharing a room was an acceptable arrangement. A tire swing was acceptable entertainment. Few of those things are acceptable baselines for most households today. The average new home now has more bathrooms than occupants.

In 1971, I stayed in a hotel for the first time in my life, at age 16.  I shared a bedroom with my brother, and we had a tire swing in the backyard.  No computer games in those days.  And yet you’ll hear “experts” tell you that living standards haven’t risen since the early 1970s.

We could do much better, but we are still doing pretty well.

HT: Aaron Renn, Tyler Cowen

Yes, the system is rigged.  But how?

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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