A Letter to a Politician

by Don Boudreaux on September 17, 2008

in Politics

Here’s one of the few letters that I’ve ever sent to a politician:

16 September 2008

Sen. Bill Nelson (D-FL)
Capitol Hill
Washington, DC

Dear Sen. Nelson:

A
friend forwarded to me a mass-email that you recently sent to your
Florida constituents.  In it, you brag about introducing legislation -
the "Prepaid Calling Card Consumer Protection Act of 2008" – to
"protect" consumers from what you allege to be harmful practices by
merchants who sell telephone calling cards.

You identify, as a chief justification for this government intervention, "low barriers to enter the market."  How curious.

Low
entry barriers means that competition is especially robust.  It means
that merchants who cheat consumers, or who simply don’t offer the best
deals possible, will quickly lose customers to rivals who treat
consumers better.  The only way such competition will fail to work
under such circumstances is if the vast majority of consumers in this
market are utter imbeciles, unable to detect when they’re getting
ripped off or too witless to switch to competing suppliers.

Because,
by introducing this bill, you show that you obviously regard most Americans to be
utter imbeciles, you surely cannot fancy that your election to the
Senate is the result of a wise, or even defensible, judgment by Florida
voters.  These people, after all, are among those whom you regard as
incapable of sensibly choosing among competing telephone calling-cards.

If
you’re correct about the (lack of) intelligence of ordinary Americans,
then you and other members of Congress owe your political success only
to what you, as revealed by your words and actions, believe to be the
intractable stupidity of your fellow citizens – which prompts me to
ask: Why should anyone take you seriously?

Sincerely,
Donald J. Boudreaux

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{ 30 comments }

dave smith September 17, 2008 at 3:03 pm

Please let us know if you get a (non form) response.

I'll bet you don't.

Paul September 17, 2008 at 3:21 pm

Unfortunately, he won't even see your letter.

PJN September 17, 2008 at 3:35 pm

Let me get this straight,

On behalf of the top pre-paid calling card companies, the good Senator is introducing the bill to establish more barriers to enter the market. This, the already established calling card companies assure him, will promote healthy competition and is for the good of the consumer.

Chris September 17, 2008 at 4:32 pm

There is some damage done when a company enters a market offering apparently low prices, cheats its initial customers and then is driven out of business. In the pre-paid phone card market, it's common for people to do this repeatedly.

Ideally, these people (I call them "criminals") would just be prosecuted. But, that doesn't seem to ever happen.

I suspect that the people who use pre-paid calling cards, a group that includes many recent "illegal" immigrants, may not be "utter imbeciles," but are likely to be very unsophisticated consumers, many of whom may not speak english well. It's a small subset of the population, not "most Americans" (and, may include many non-Americans.)

Now, if you let the market work for long enough, eventually, people will begin to recognize the legitimate brands and the problem will disappear. Well, at least until the criminals discover that it's really easy to print AT&T's logo on a pre-paid card.

Tom September 17, 2008 at 4:34 pm

Good. Very good. Great work, by the way, on your book, Globalization. Splendidly written.

kebko September 17, 2008 at 4:52 pm

"Well, at least until the criminals discover that it's really easy to print AT&T's logo on a pre-paid card."

So people who commit corporate fraud in a relatively free market will cease their criminal activity because new market regulations are in place? Hmmm…

Chris September 17, 2008 at 5:12 pm

Kebko —

I think the theory is that if you make the market harder to get into, it won't be worth their while. Of course, that also applies to legitimate businesses.

My preferred solution to regulation would be more investigation and jailtime, preferably all paid for by the forfeiture of the criminal's assets. Alternatively, banishment to Antarctica might work.

Eddie September 17, 2008 at 6:03 pm

"I suspect that the people who use pre-paid calling cards, a group that includes many recent "illegal" immigrants, may not be "utter imbeciles," but are likely to be very unsophisticated consumers, many of whom may not speak english well."

So, you're trying to protect the people whom truly work for a market wage, and ironically enough probably understand economics better than most. In terms of opportunity cost, wages, and freedom of entry and exit out of a market, one day you could be landscaping the next day you could be dry walling.

Most of these people are actually fairly smart and amongst there small communities detect which cards are valid and which ones aren't. If there's one thing we can learn from them is that if we work as a community we are less likely to have fraud committed against us, it might happen once, but if they all do their part it won't happen again within that small circle.

Chris September 17, 2008 at 6:33 pm

Eddie –

I'm not trying to do anything other than explain the rationale. However, to your comment, I doubt that those communities are that effective at sharing information about the cards.

Evidently, it's a fairly big business. The FTC's website lists a number of actions taken by the FTC against the sellers of these cards for deceptive business practices.

Charlie September 17, 2008 at 7:09 pm

"The only way such competition will fail to work under such circumstances is if the vast majority of consumers in this market are utter imbeciles, unable to detect when they're getting ripped off or too witless to switch to competing suppliers."

This is a very odd thing to say. There is vast economics literature on markets failing when there are not barriers to entry. (Imperfect information, moral hazard, externalities, incomplete markets…almost all of them but entry barriers)

SteveO September 17, 2008 at 7:25 pm

As the kids like to say these days…
BOO-YAH!

Don has been in fine form lately.

DJB September 17, 2008 at 10:58 pm

Oh to be able to express me thoughts like that.

SheetWise September 18, 2008 at 12:44 am

It's interesting to note that the fraud rate has been going up as the crackdown on illegal internet gambling has gained a foothold on all other means of transferring funds.

Phone cards have become a means of laundering money. You buy a $100 card, call the number in to a casino, and get credit. That's it. The contract on those cards reads that all funds are forfeited on the first call — even though they give great rates, such as 1c a minute with a $10 connection fee — which is great if you want to stay on the phone for 150 hours. The fact that some idiot buys this card without understanding the agreement shouldn't reflect on the guy who never intended to have to honor the contract because no idiot would ever buy it. Clear?

SheetWise September 18, 2008 at 12:52 am

addendum: I think I meant to add something about unintended consequences and state run economies.

T L Holaday September 18, 2008 at 5:55 am

For the record: on September 16th, the day after Lehman Brothers and Merrill Lynch ceased to exist, you blogged about prepaid phone cards.

Don Boudreaux September 18, 2008 at 6:28 am

T L Holaday:

No — I blogged about the trustworthiness of politicians, the officials that so many folks are now looking to for 'answers' and 'solutions.'

If ordinary people cannot choose or demand good phone-card services WHEN THE MARKET IS WIDE OPEN TO COMPETITION, how can they choose good political reprsentatives?

Martin Brock September 18, 2008 at 8:13 am

If ordinary people cannot choose or demand good phone-card services WHEN THE MARKET IS WIDE OPEN TO COMPETITION, how can they choose good political representatives?

They can't, obviously, but major shit is going down in the Big Money financial markets, and folks are naturally interested and would like to see it addressed more in this forum. I'm not suggesting that you mimic the know-nothing principles of Big Media, but under the circumstances, you might tie you posts to the problems Big Media is reporting at the moment. Tens and hundreds of billions of Treasury bucks are circulating among organizations that can't even attract capital from dollar-rich central banks, like the People's Bank of China, much less truly private capital. We want to know how you account for it, and what might be done (or not done) about it.

Of course, the honest politicians will tell us that our political system is not wide open to competition, because two established parties with a practical lock on ballot access vet the candidates. They'll tell us that this system is preferable to wide open competition for much the same reason that we need Big Brother policing phone card contracts.

Phone cards are subject to the consumer dissatisfaction described above, because the cards basically involve the extension of credit. When I buy a phone card, I'm buying service to be rendered in the future. I'm essentially extending credit to the phone card seller, so the problem with cards described above (1c per minute with a $10 connection fee) involves non-standard terms of credit that few consumers imagine without reading the fine print.

Maybe it's not "fraud" exactly, if a consumer could have read the fine print, but it offends many people's sense of propriety anyway. Does it offend yours? Is "capitalism" a game in which the cleverest architect of contractual terms, contracting with the most gullible consumers, wins?

The problem with this game is that most people don't like the rules. If some nominally "libertarian" ideology forcibly prohibits only force and fraud (ignoring the obvious contradiction), what does "fraud" mean exactly? It's a fair question, and it bears on terms of credit under scrutiny now, like ballooning payments on ARMs with "low introductory rates" on houses with prices inflated by all the credit extended this way.

T L Holaday September 18, 2008 at 9:10 am

For the record, on the day after US Treasury bills traded at 0.01 basis point, and according to some reports went negative, you argued, with apparent sincerity, that politicians (the people who operate the US Treasury) are untrustworthy.

Martin Brock September 18, 2008 at 9:24 am

I trust 'em to shoot me if I don't contribute to the tax revenue they market. Apparently, many "investors" do too.

Chris September 18, 2008 at 9:51 am

But, Martin, paying more taxes is the patriotic thing to do. Get with the program.

T L Holaday September 18, 2008 at 9:52 am

If ordinary people cannot choose or demand good phone-card services WHEN THE MARKET IS WIDE OPEN TO COMPETITION …

Do you have evidence to suggest that it gets easier to find Waldo as Martin Handford adds more characters to the picture? If it is difficult to find Waldo in a crowd, perhaps it is harder to find a nontoxic phonecard in a crowd, too.

Did the scholastics blog about angels on pins because they were reluctant to explore whether the Black Death might challenge their theology? Is something similar going on in Cafe Hayek?

T L Holaday September 18, 2008 at 9:59 am

Martin, apparently the market trusts the politicians to shoot you if you do not pay your taxes, and also trusts the politicians to pay, not shoot, the the bond, note, and bill holders when the bonds, notes, and bills fall due.

Why do you suppose that is?

John Smith September 18, 2008 at 11:18 am

"Earlier this evening, Barack Obama was in Hollywood at a big fundraiser, a sold-out fundraiser featuring Barbra Streisand singing. $28,500 a ticket. Barbra Streisand was singing. All the big Hollywood stars were there. It featured dinner prepared by the finest Hollywood chefs serving an array of gourmet food…..

I believe the topic tonight was how John McCain is out of touch with the common people."

— Jay Leno, The Tonight Show

http://www.fff.org/whatsNew/index.asp

Martin Brock September 18, 2008 at 11:47 am

Why do you suppose that is?

Because state Capitalism differs little from state Anything Else. It's the rent seeking, stupid.

Martin Brock September 18, 2008 at 11:49 am

By the way, "stupid" isn't directed at you, Holaday. It's a figure of speech since the first Clinton campaign.

Martin Brock September 18, 2008 at 12:10 pm

Is something similar going on in Cafe Hayek?

It's going on everywhere.

Sam Grove September 18, 2008 at 1:03 pm

Does the existence of a market for phone cards have anything to do with the pre-existing telecom regulatory structure?

Often, the roots of current "market" problems lie in past regulatory solutions.

richard September 18, 2008 at 3:46 pm

I think the telephone company, the politicians and the oil companies have all teamed up.

You have to admit: Inventing the price gouging ghost is no easy feat.

The_Chef September 18, 2008 at 4:52 pm

"But, Martin, paying more taxes is the patriotic thing to do. Get with the program.

Posted by: Chris | Sep 18, 2008 9:51:26 AM"

*chuckles* Being looted is so patriotic … lets push for more looting.

piperTom September 19, 2008 at 6:50 pm

Hooray for Don Boudreaux! That's the best letter to a politician I've read in a long time (at least since Friedman was taken from us).

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