In many cases, something is not working properly (i.e. consumer demand and expected opportunity cost It turns out that production-restricting regulations are to blame. Think about hearing aids. Why are they so expensive? They usually cost thousands of dollars. Until two years ago, Food and Drug Administration regulations prohibited them from being sold over the counter and required a prescription from an audiologist (Dominique Mosbergen and Julie Jargon, “FDA approves over-the-counter sale of hearing aids“, The Wall Street Journal(August 16, 2022)
Whether one models prescription mandates as government supply restrictions or as an excise tax on consumers, the effects have been higher prices, smaller market sizes, and less incentive to innovate. Who knew what consumers were missing out on?
Part of the answer has come today, with Apple announcing that it will soon be releasing a software update to its $250 AirPods Pro 2 that will add hearing support for people with mild to moderate hearing loss. (The FDA’s regulations don’t apply to people with more severe hearing loss.) The AirPods’ conspicuous shape has the downside of advertising your hearing loss, but some older people might find them cooler (Ben Cohen’s “Apple launches exciting new product: hearing aids(September 13, 2014) This new competition from outside the previously regulated market will likely drive down the price of traditional hearing aids.
How many months sooner would people with hearing impairments have been able to use this new device if it had not been regulated? It is true that innovation and adaptation of existing technology are necessary, but technology depends on research, and research depends on the expectation that products will generate profits.
While it remains to be seen how well AirPods will work as hearing aids, we do know that this innovation, and many others, would be difficult to achieve if they were legally blocked. This story nicely illustrates a larger debate about individual freedom. Friedrich Hayek (look His Vol. 1 Law, legislation and freedom(First published in 1973):
Since the value of freedom depends on providing opportunities for unexpected and unpredictable action, we can hardly know what we would lose by restricting freedom. … If, therefore, we judge each issue solely on its supposed individual merits, we will invariably overestimate the advantages of central direction.
In the marketplace, you don’t have to cast your vote to get what you want, and you don’t have to hope that entrepreneurs and innovators will provide you with the goods and services you want if only you knew they existed. The only requirement is that a sufficient number of consumers, not necessarily a majority or a politically vocal minority, are probabilistically willing to pay for the good or service.
Contrast this with the ideal government of Rexford Guy Tugwell (1891-1979), a believer in government planning and a close collaborator of Franklin D. Roosevelt. American Economic Review In the article he writes:
New industries do not just spring up like the automobile industry: before they enter the market, they must be anticipated, debated, and seen as a possibly desirable feature of the economy as a whole.
(reference my Regulation review Books from 1933 Industrial discipline and governing art; Also available at pdf format, starting from page 71.
In the political “marketplace,” could we effectively vote for an iPhone or AirPods that doubles as a hearing aid? Lobbying politicians and regulators is expensive, especially for something that exists only in the minds of entrepreneurs and innovators. Federal Regulations 188,346Excluding state and local regulations? This question applies to all countries.
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