Often, when we see that something is not working properly (that is, in terms of consumer demand and the opportunity cost of production), we find that restrictive legislation is the cause. Consider hearing aids. Why are they so expensive, often thousands of dollars? Until two years ago, Food and Drug Administration regulations prohibited their sale over the counter and required a prescription from an audiologist (Dominique Mosbergen and Julie Jargon, “FDA Clears Hearing Aids for Over-the-Counter Sale,” The Wall Street JournalAugust 16, 2022).
Whether we modeled prescription liability as a government restriction on supply or as an excise tax on consumers, the result was higher prices, shrinking market size, and less incentive to innovate. Who knew what consumers were missing?
We got part of the answer when Apple announced that it will soon provide a software update for its $250 AirPods Pro 2 that will give them a function to help hearing in low to moderate hearing loss (the FDA limit will remain in place for more severe cases). The prominent shape of AirPods has the drawback of advertising that one cannot hear, but some adults may think that wearing them looks cool (see Ben Cohen, “Apple Has a Hot New Product. A Hearing Aid,” September 13, 2014) . This new competition from outside the previously regulated market may result in lower prices for conventional hearing aids.
How many months ago would hearing impaired people be able to use a new device if it was not regulated? It is true that technological innovation or adaptation of existing technology was necessary, but technology depends on research and research depends on the expectation that their products can be profitable.
We still have to wait to see how well AirPods will work as hearing aids, but we know that this innovation and many others are unlikely to happen if it is banned by law. The story illustrates the general argument for individual freedom, well developed by Friedrich Hayek (see Volume 1 of his book. Law, Law, and Freedomfirst published in 1973):
Since the value of freedom depends on the opportunities it provides for unexpected and unpredictable actions, we cannot know what we lose by using certain limits of freedom. … Therefore, when we decide each case on what seems to be its own merits, we always overestimate the advantages of the middle direction.
In the market, you don’t have to “vote” with your one vote to get what you want or hope that entrepreneurs and innovators will provide you with the goods or services you would want if you knew they existed. The only requirement is that enough consumers, but not a majority or some politically speaking minority, will possibly agree to pay for it.
Contrast this with the good government of Rexford Guy Tugwell (1891-1979), a believer in federalism and a close associate of Franklin D. Roosevelt. In 1932 American Economic Review article, he wrote:
New industries will not just happen like the car industry did; they will have to be foreseen, argued for, so that they appear to be desirable features of the entire economy before they are entered into.
(See also mine Regulation a review of his 1933 book Industrial Conduct and the Art of Government; and available in pdf format, pp. 71 ff.)
In the political “marketplace”, would you vote for iPhones or AirPods that can be used as hearing aids? Persuading politicians or regulators is expensive, especially for what exists only in the minds of entrepreneurs or founders. How do we know what we’re missing from the 188,346 pages of federal regulations, not to mention state and local laws? The question is important for all countries.
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