Naked Economics by Wheelan, Charles (best books to read .TXT) 📗

woman is trying to buy a Lada, one of the cheap automobiles made in the former Soviet Union. The dealer tells her that there is a shortage of these cars, despite their reputation for shoddy quality. Still, the woman insists on placing an order. The dealer gets out a large, dusty ledger and adds the woman’s name to the long waiting list. “Come back two years from now on March 17th,” he says.

The woman consults her calendar. “Morning or afternoon?” she asks.

“What difference does it make?” the surly dealer replies. “That’s two years from now!”

“The plumber is coming that day,” she says.

If the USSR taught us anything, it is that monopoly stifles any need to be innovative or responsive to customers. And government is one very large monopoly. Why is the clerk at the Department of Motor Vehicles plodding and surly? Because she can be. What would your business look like if your customers, by law, could not go anywhere else? It would certainly make me think twice about working late, or, for that matter, working at all on warm summer days when the Cubs were playing at home.

Government operations are often described as inefficient. In fact, they operate exactly as we would expect given their incentives. Think about the Department of Motor Vehicles, which has a monopoly on the right to grant driver’s licenses. What is the point of being friendly, staying open longer, making customers comfortable, adding clerks to shorten lines, keeping the office clean, or interrupting a personal call when a customer comes to the window? None of these things will produce even one more customer! Every single person who needs a driver’s license already comes to the DMV and will continue to come no matter how unpleasant the experience. There are limits, of course. If service becomes bad enough, then voters may take action against the politicians in charge. But that is an indirect, cumbersome process. Compare that to your options in the private sector. If a rat scampered across the counter at your favorite Chinese take-out restaurant, you would (presumably) just stop ordering there. End of problem. The restaurant will get rid of the rats or go out of business. Meanwhile, if you stop going to the Department of Motor Vehicles, you may end up in jail.

This contrast was illustrated to me quite sharply when a check I was expecting from Fidelity, the mutual fund company, failed to show up in the mail. (I needed the money to pay back my mother, who can be a fierce creditor.) Day after day went by—no check. Meanwhile, my mother was “checking in” with increasing frequency. One of two parties was guilty, Fidelity or the U.S. Postal Service, and I was getting progressively more angry. Finally I called Fidelity to demand proof that the check had been mailed. I was prepared to move all of my (relatively meager) assets to Vanguard, Putnam, or some other mutual fund company (or at least make the threat). Instead, I spoke with a very friendly customer assistant who explained that the check had been mailed two weeks earlier but apologized profusely for my inconvenience anyway. She canceled the check and issued another one in a matter of seconds. Then she apologized some more for a problem that, it was now apparent, her company did not cause.

The culprit was the post office. So I got even angrier and then…I did nothing. What exactly was I supposed to do? The local postmaster does not accept complaints by phone. I did not want to waste time writing a letter (which might never arrive anyway). Nor would it help to complain to our letter carrier, who has never been consumed by the quality of his service. Roughly once a month he gets “off” by a house and delivers every family’s mail to the house one door to the west. The point, carefully disguised in this diatribe, is that the U.S. Postal Service has a monopoly on the delivery of first-class mail. And it shows.

There are two broader lessons to be learned from this. First, government should not be the sole provider of a good or service unless there is a compelling reason to believe that the private sector will fail in that role. This exclusion leaves plenty for government to do in areas ranging from public health to national defense. Having just lambasted the Department of Motor Vehicles, I must admit that issuing driver’s licenses is probably a function that should remain in the hands of government. Private firms issuing driver’s licenses might not compete only on price and quality of service; they would have a powerful incentive to attract customers by issuing licenses to drivers who don’t deserve them.

Still, that leaves a lot of things that government should not be doing. Delivering mail is one of them. A century ago the government may have had legitimate reasons for being in the mail business. The U.S. Postal Service indirectly assisted underdeveloped regions of the country by guaranteeing mail delivery at a subsidized rate (since delivering mail to remote areas is more expensive than delivering to a metropolitan area but the stamp costs the same). The technology was different, too. In 1820, it was unlikely that more than one private firm would have made the massive investment necessary to build a system that could deliver mail anywhere in the country. (A private monopoly is no better—and perhaps worse—than a government monopoly.) Times have changed. FedEx and UPS have proved that private firms are perfectly capable of building worldwide delivery infrastructures.

Is there a huge economic cost associated with mediocre mail service? Probably not. But imagine the U.S. Postal Service controlling other important sectors of the economy. Elsewhere in the world, the government runs steel mills, coal mines, banks, hotels, airlines. All the benefits that competition can bring to these businesses are lost, and citizens are made worse off as a result. (Food for thought: One of the largest government monopolies remaining in the United States is public education.)

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