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The Price Fixing "Solution"
January 2000There was a time when modern liberalism stood four square against price fixing. There was a time when Congress, taking note of private conspiracies to fix prices and restrain trade, passed a now-famous act to stop them. This was the Sherman Antitrust Act of 1890, and its principal author was Vermont Sen. George F. Edmunds.
Americans of that day abhorred price fixing. They did so because it was a means for business interests to extract illicit profits from their customers, who paid more for the goods than they would have in a free market.
Today, private conspiracies to fix prices remain illegal, but it has now become popular for special interests to demand that governments do the price fixing. Their purpose, as in price fixing by private parties, is to transfer wealth from victims to the politically powerful, or drive low-cost competitors out of the market.
Exhibit A: the minimum wage. It was first enacted to protect white labor against blacks who, because a racist society denied them education and opportunity to compete, had little choice but to work for less. By requiring employers to pay workers more than the market wage, the minimum wage assured that higher wage white workers would be hired first, and some lower skill workers not at all. Problem solved!
Exhibit B: milk pricing. The government first established a floor price for dairy products to protect all dairy farmers at the expense of consumers. Then it added a differential to protect regional dairy farmers against more efficient dairy farmers in other regions. When the federal support price plus this regional differential failed to assure desired dairy profits, New England dairy farmers pushed through the Dairy Compact. The Compact Commission has the power to fix the price that handlers must pay to dairy farms throughout the region at a level well above the federal support price. The result: milk drinkers, primarily young families with children, are taxed to increase the incomes of dairy farmers. Problem solved!
The idea of price fixing once appalled political leaders. Now some of them find it so attractive that they are eager to have the government try it in new areas.
Vermont's electric costs are close to being the highest in the nation. Consumers want lower power prices, so the price fixers have proposed a wonderful way to do that. Lt. Gov. Racine and Speaker Obuchowski have demanded that the utilities be made to reduce their prices by 10%. Problem solved!
There is a vocal seniors lobby demanding cheaper prescription drugs. Once again, the price fixers have a wonderful solution: pass a law requiring the pharmaceutical companies to sell their drugs at lower prices. Problem solved! When special interests use government to fix prices to raise the incomes of politically powerful groups, unorganized and relatively powerless groups (typically consumers) bear the costs. When politicians get the government to order some sellers to sell at below-market prices to benefit voters who want cheaper goods, the competitive free market is destroyed. The affected companies must either exit the market or put money into political action to protect their interests.
Governments should stay out of the price fixing business. Government price fixing today is different from the corporate price fixing made illegal 110 years ago, but just as destructive of a free society. Indeed, more so, for there is no Sherman Act to restrain the government.
