To Regulate Or Not To Regulate?

By Author: Marcus Stalder
Total Articles: 491
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The real question is to decide exactly what government is for. One side may say there is no real need for centralized services of any kind except for defense and broader economic management. The other side will say government is there to offer some degree of protection to all the people who live in the country. This can be supporting minimum standards of education and healthcare, offering a safety net if there is unemployment, and so on. Thus, the little government side would always avoid regulation, saying it was for the markets to regulate themselves. While the big government side would be there with regulation every time it felt the markets were not working properly to protect people's interests. There is no right answer. Capitalism as a system works well so long as the economy is sound. It gets confused about what should happen when a recession hits.

As an example of the knots politicians can tie themselves into, let us go down to Texas where the Democrats are challenging for the governorship. One of the top issues is proving to be the premium rates for home ...
... insurance. The Democratic candidate asserts the rates are an average of $625 higher in Texas than in other states and this justifies detailed regulation to protect consumers. The Republican incumbent accepts the Texan rates are the second highest in the US, but denies the need to intervene in the market. As it stands, insurers do not have to seek prior approval for any rate increases. The Department of Insurance can intervene after the event if there is evidence the rates are excessive.

The campaign is coming down to a choice between keeping the current system or requiring all insurance companies to justify increases before being allowed to apply them. The insurance industry says any more regulation would kill whatever was left of competition on price. As it is, an insurer will lose market share if prices are raised too high. As the internet allows people to compare and contrast prices, it is quickly obvious when one company is out of line. If the state regulated prices, there would be no incentive to continue competition. The Democrats reject this saying the insurers collude to increase their prices together so that no company is ever really out of line. Since they are never asked to justify their increases, they think of a number and announce it. The largest homeowners insurance company, State Farm, has been locked in litigation with the Department of Insurance for the last eight years, alleging it wrongfully instructed it to reduce it premiums. Pending the outcome, no further premium rate increases have been challenged. Overall, rates have risen by 50% during this period.