Ontario’s Consumer Protection for Cell Phone Users Means Less Cell Phone Users

It’s hard to imagine that even 150 years after the publication of french political philosopher Frederic Bastiat’s classic essay “That Which is Seen, and That Which is Not Seen,” tired examples of politicians attempting to supersede the laws of scarcity still pop up.  From U.S. President Obama’s landmark health care initiative guaranteeing health insurance for all to the European Central Bank refinancing Eurozone banks with cheap liquidity to get them buying up the bonds of distressed governments, the idea of the state curing all societal ills with guns and the printing press has never been more en vogue.  Of course it doesn’t take a PhD in economics to realize that the government can force the purchase of any product, thus ensuring its universal obtainment, with the threat of a visit by tax enforcers.  And if printing money only solves funding issues insomuch that the printing goes on in perpetuity, one only needs to see the can-kicking end results to realize its overall ineffectiveness.

(Chart via investor Ed Yardeni- It must be remembered that the ECB established its long term refinancing operations to stem the jump in Italy and Spain bond yields towards the end of 2011.  The program has ended and yields are starting to move upward yet again)

In both these examples, Bastiat’s important lesson about the unseen is disregarded.  Obamacare may force millions into the health insurance market but the red tape and cost controls that follow will result in shortages if simple logic is any guide.  Since money printing by itself solves nothing besides papering over previous malinvestments while creating fresh ones, any short term boost in market confidence will be at the expense of later, more widespread pain.

Like the proto-Keynesian who rejoice in the fact that the shopkeeper in Bastitat’s tale will stimulate the economy by paying for a new window after his initial one is broken by a thoughtless hooligan, proponents of government intervention often find it difficult to see beyond the immediate effect of their favored policies.

The same insight can be applied to the Ontario government’s latest attempt to save hapless consumers.  In the eyes of paternalistic lawmakers, cell phone shoppers are an uniformed mass incapable of making sensible decisions for themselves.  From the Globe and Mail:

The Ontario government is vowing to beef up consumer protection for wireless services by adopting new legislation that would allow cellphone users to cancel their contracts at any time, while placing strict caps on any penalties.

In doing so, Ontario becomes the fourth province in recent years to step into the regulatory void left by the federal telecommunications regulator, which decided against the active regulation of cellular contracts nearly 20 years ago.

According to Member of Provincial Parliament David Orazietti,

“This is a pocketbook issue that consumers want addressed, and our government bill contains measures that will reduce costs, cap cancellation fees, prevent automatic renewal and make cellphone contracts considerably more fair and transparent.”

Judging by this admittance, Orazeitti doesn’t understand the concept of scarcity and tradeoffs.  He pictures himself and his legislative peers as providing a free lunch to taxpayers that costs nothing down the road.  Politicians like Orazeitt time and time again prove the old economic proverb espoused by Thomas Sowell correct:

The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

What this proposed consumer protection bill will accomplish is simply increase the risk for cell phone companies to accept new customers.  By capping the price of risk, that is limiting the charge for cancellations, stopping instant contract renewal, and mandating a change in standard contracts, the potential for profit losses is that much more.  Corporations aren’t in the business of providing charity.  They endeavor to gain a return by selling goods and services to consenting purchasers.  Business, based on unreliable and changing consumer preferences, is inherently risky.  Financial success is never a guarantee.

If the prospect of not making a large enough return to cover input costs is increased, then supply offered will decrease if entrepreneurs can’t offset the risk by increasing prices offered to ensure their limited capital isn’t wasted.  Government mandates are never free; a fact always lost on statist interventionists.  By the same token, small, less resourceful competitors find it more difficult to even enter the market as legislative decree drives up the cost of entry.

All of these instances result in a tendency for supply offered on the market to fall.  If quantity demanded stays the same or increases, simple economics teaches that price rise.  Either that, or shortages must develop.

Again, the political class, despite its fantastical overestimation of its own abilities, can’t eliminate the law of scarcity.

The reality is that if consumers truly wanted the issues Orazeitti addressed, they would make their grievances known to those businesses they patronize before signing on the dotted line.  Consumer protection is a deceitful term invoked whenever the state looks to bring another industry further under its regulatory grasp.  Orazeitti’s bill is a power grab; plain and simple.

Backers of government-enforced consumer protection may relish in the short term effects of legislation but they don’t account for unseen.  As regulation cuts down on market competition and supply, the unconsidered effects are the price increases and lack of technical innovation that could be achieved on an uninhibited market.  The latter results are what constitute real consumer protection.

Bastait’s simple lesson may be generations old but it still shoots intellectual holes through the short-sighted efforts of public officials and their supporters.  If Orazeitti’s bill passes, Ontario cell phone users will be left worse off  just as the man paying for a broken window instead of having income left over to purchase a new suit.

Tags: , , ,

5 Responses to “Ontario’s Consumer Protection for Cell Phone Users Means Less Cell Phone Users”

  1. Ohhh Henry says:

    The highly restricted and hampered telecoms market is in this state for one reason: the govt regulators – who have a monopoly on control of the market – benefit from regulating it badly. Being normal human animals they are programmed by nature to always seek the most advantage for themselves and for their immediate family and close friends. A very lightly regulated or unregulated telecom market would mean that there would be nobody coming to them with bribes and kickbacks. There would be no patronage jobs in the regulatory bureaucracy which they could award to their friends and family. They could not award juicy contracts to their cronies to perform "studies" and "surveys" of the market in order (allegedly) that they could come up with better rules.

    The monopolists benefit greatly from making the telecom market hampered, closed, and very badly managed because the worse it's managed and the harder it is to enter the market and compete in it, the more money they are given to "come up with improvements" and the more bribes and kickbacks they will get from companies that are desperate to break through the licensing and regulatory barriers. No barriers, no kickbacks. And when I say bribes and kickbacks, it doesn't (necessarily) mean envelopes of cash … there are many, many other forms of corruption such as giving jobs or contracts to the government leaders' friends and family, hiring retired politicians and bureaucrats as "consultants", and so on.

    So the nub of the problem is that giving someone monopoly powers over other people (that is the power of initiating violence against others) will always and inevitably lead to them using the power for their own interest and against the interests of those who are subject to their power. There is no possible way that giving someone even more monopoly powers, on top of their existing powers, is going to improve in any way the problems that have been caused by their previous use of those powers. That would be adding gasoline to an already roaring fire. They would very quickly find ways to turn the new powers to their own advantage, because that is what humans do. In a non-monopoly, those who serve others badly are quickly "fired" when their customers switch their business to someone who gives better service for less money. But the inescapable nature of a monopoly is that the monopoly-holder's interests never coincides with the interests of the subjects of the monopoly.

  2. Tom Young says:

    I couldn't have said it any better than Financial God, let alone that billions of people are heavily dependent on cell phones. Another thing, consumers deserve as much power as possible in regards to this matter.

  3. I understand your concern but you are going about this issue in the wrong way. Yes, the telecom industries are given a special privilege by the government. I think we could both agree that the right course of action would be to abolish these benefits. However, the wrong solution is for the state to pass more measures to correct its previous mistakes. After all, I think you would agree, again, that the state lives off of intervening, creating disaster, and further intervention.

    The answer isn’t to use government force to aid consumers after it gave a benefit to big business. The solution is to get rid of the initial state-sanctioned benefit and not extend the reach of politicians into the market; as distorted as it may be.

  4. Especially this quote "As regulation cuts down on market competition and supply, the unconsidered effects are the price increases and lack of technical innovation that could be achieved on an uninhibited market. " pretty disingenious if you think that this regulation is moving Canada's telco market away from an "uninhibited market"!

  5. Given the undue privileges given to the Big 3 telcos (Robellus), it's pretty hard for me to get on board with an article like this. The regulation does not exist in a vacuum. I would prefer a free market without protectionism and crony capitalism, but given that we have this, giving some power back to consumers is better than the alternative.

Leave a Reply

You must be logged in to post a comment.