The US is justly proud of its reputation as the home of capitalism and has promoted the idea of free markets to countries around the world. The fact that a bubble in the property market fuelled this recession does not change the philosophical power of the US economic model. When it works properly, the free market pushes businesses to compete. This improves the quality of service and keeps down the price. The consumer benefits. All federal government need do is intervene when there is clear evidence of a company abusing its dominant position to damage the consumers’ interests. Unfortunately, under the last administration, antitrust enforcement was scaled back. Worse, there were deeply entrenched monopolies and cartels that could not be investigated or regulated. The leading example of this immunity is enjoyed by the insurance industry. Some sixty-five years ago, it was exempted from federal antitrust laws by the McCarran-Ferguson Act. This is a sad example of corruption in government. Vested interests bought enough votes to get the Act passed. Lobbyists’ money has kept the immunity in place ever since.

Why is this immunity as bad thing? Competition improves choice. Given a reasonable number of companies competing in the same market, each must offer features to distinguish their product from the others. Once consumers see one product is better, they will transfer their business. The competitors must therefore match or improve on those features to win back market share. If there’s no effective competition, an artificially small number of products will be offered. The companies will agree not to compete on quality and price which rigs the market and divides it up between the suppliers. In the insurance market, patients have been paying artificially high prices. Doctors have also been paying inflated prices for their medical malpractice insurance. At a time when the costs of healthcare and drugs have been rising faster than inflation, this is penalizing the US consumer and the taxpayer who often ends up subsidising payment of these inflated prices. There is no justification for retaining this immunity. Read the rest of this entry »