Friday, September 16, 2011

Libertarians and Pricing

Noapinion (via the Money Illusion) thinks more liberty means annoying prices on everything.I think the key misunderstanding is found here:
Intuitively, this makes a lot of sense: if the government can come and confiscate your stuff, or tell you what to do with it, you don’t feel very free at all. But libertarians tend to take this basic concept to its maximal extent; the more things are brought within the cash nexus, the more free we become. No limits, no exceptions. A direct implication is that the more government functions we can privatize, the more free we will be.
First, a libertarian would stop at the first sentence. That’s freedom of contract and property. But nothing about the freedom of property or contract requires you to monetize everything, and in fact such a requirement would diminish freedom.

Second, although it does not follow that bringing everything into the “cash nexus” is optimal, the real problem we have here is that Noah really misunderstands the Economist’s argument here, which is for traditional contractual relationships and property rights in health care, not overzealous itemized billing.

The big irony, of course, is that the most obvious caricatures of “monetized everything” seem to spring out of heavily regulated and government run industries, which divorce the consumer more than usual from choice and direct payment for services. Hospitals charging $20 per aspirin, for instance, isn’t a libertarian or market outcome, it’s a regulatory outcome.

Put simply, pricing exists under every system. Libertarians argue for maximal contract and property rights, which will generally lead to efficient pricing. And nickel and diming everyone to death is generally not very efficient unless you’re severely restricted in your alternatives as a producer and your consumers are likely severely restricted in their alternatives to coming to you.

A “progressive” society has increased incentives to nickel and dime over a “libertarian” society, because the former is subject to many more non-market price distortions that need to be compensated for in order to turn a profit.

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