I had one of those moments where I was reminded that heart disease runs in the family. Delana Derakhshani, policy counsel for Consumers Union offered testimony today before the Senate Sub-Committee on Communications, Technology, and the Internet where she asserted that when it comes to consumer welfare and wireless services, economic theory does not matter. Her statement was a rebuttal to an earlier statement by Mr. George Ford, chief economist for the Phoenix Center.
My first reaction to Ms. Derakhshani’s comment was to figuratively reach for my chest and take a couple deep breaths. I couldn’t believe my ears. It was one of the most asinine statements in a Congressional hearing that I’ve ever heard ( and we know that a Congressional hearing is ripe for those kind of statements).
Anyway, after seriously contemplating a four-hour drive back to Tallahassee to formally return by economics degree and seek a refund for four years of tuition, I decided to dig into the crates and pull out an old text book and look up the definition of consumer welfare.
According to Weimer and Vining’s Policy and Analysis: Concepts and Practice, consumers seek to increase the value they extract from the market place by finding a price for a good or service that is lower than they maximum they are prepared to pay. The wider the gap between the price offered in the market and the price the consumer is willing to pay, the greater the consumers welfare.
In the competitive market that Ms. Derakhshani and other consumer advocates claim to want, the consumer is willing to pay the maximum amount, the value of the service or good, that his budget or other consumption constraints allow. In other words, it’s not up to a wireless carrier to worry about a potential wireless subscriber’s budget constraints. If the subscriber can’t afford the carrier’s text message services or data plans, the subscriber is free to do without the service or seek out another carrier who is willing to adjust their rates downward or offer some deal sweetener in order to garner the subscriber.
Just as importantly, it is not up to government to help find that balance between happy smartphone purchaser and happy wireless carrier. That’s not the role of government in a market economy.