Evil Choice

by Russ Roberts on September 10, 2004

in Competition

Steve Pearlstein in today’s Washington Post thinks economists overestimate the power of choice.

Among economists, it is an axiom that choice is good and more choice is better. Giving buyers more choice means more — and more intense — competition, which lowers prices, raises quality and fosters innovation. In the end, workers are more productive, consumers are better off and the economy is bigger and more efficient.

It’s a lovely theory, and one that is particularly attractive to conservatives, who use it to justify replacing government services — Medicare, Social Security, public housing, public schools — with market-based solutions.

Unfortunately, it turns out not to be true. Yes, up to a point, choice does enhance efficiency and consumer welfare. But at some point, there get to be so many options about what to buy or what career to go into or which mutual fund to invest in that many people make worse decisions than they would if they had fewer choices — or simply put off making a decision at all. Even when people make what seems, objectively, to be the right choice, odds are they will be less happy about it as they second-guess themselves.

Pearlstein then discusses a new book by Barry Schwartz, a Swarthmore psychologist who finds that people are sometimes overwhelmed by a profusion of choices, choose foolishly and so on.

So choice is good, but only up to a point. I wonder where that point is.

Do we have too many newspapers? Too many bloggers? Too many internet sources of news? Too many columnists? Too many at the Washington Post? Too many TV channels? Radio stations? Candidates for President?

If people are overwhelmed by choice, how did Home Depot ever become successful carrying so many items? How does a Wal-Mart superstore manage to compete with 7-11?

Are we all lured and seduced into the virtues of choice by some great marketing scheme? Or is it possible that actually, we really do like choice? (I do, by the way. I even like it in ridiculous areas. I like that my foldable lawn chair can come with or without a drinkholder.)

This theme, that capitalism produces too many choices probably goes back to Marx. It was a common theme among my friends in the early 70′s growing up in Lexington, Massachusetts. How many car brands do we really need, they would ask. How many brands of toothpaste? Toilet paper? The Soviet Union had a better system. They didn’t waste all those resources with endless, wasteful permutations that were pure marketing slickness producing nothing. Yes, better to drive a Ladha than have to choose among all those brands.

As for those market-based choices that Pearlstein criticizes, if choice in say, education is such a foolish idea, why have so many different public schools, each neighborhood wastefully running its own school. Would it be more efficient to have a single school in each city? Would it be well run or would a little competition like we have now improve the quality? Would even more competition not prove even more beneficial?

And what about the Post Office. Should we ban FedEx and UPS? Isn’t one deliverer enough? It sure would make life easier.

And as for private social security—if it’s so unhealthy, maybe we should stop allowing people to make all those private choices from that vast array of mutual funds. It’s so bewildering. Why not have all savings and investment done by the government. Would that simpler world be a better one?

I like choice. Give me more of it not less. As adults, I suspect most of us feel the same way.

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