I have experienced ineffective central governments in small doses and it was not pretty. Despite the constant refrain from the Grover Norquist and Tea Party types, life without taxes is solitary, poor, brutish, and short. Oh yeah, and it is manifestly unfair. For all the problems our government may (or may not) have, our government generally makes commercial transactions smooth, predictable, and fair.
Several years ago I took a trip to Laos and Thailand with my wife and some of my in-laws, all of whom were born in Laos and emigrated to the U.S. after communists took over the Lao state. One of the most interesting aspects of the trip was shopping because of the difference between shopping in the U.S. or other developed countries to which I have been. Most noteworthy is the lack of predictability in basic transactions.
In both Thailand and Laos we shopped mostly in markets, though we did go to a couple of westernized malls and department stores. Here is what I found at the malls and department stores: prices were higher but shopping was far more efficient. You found something you wanted, it had a price tag, you took it to a cashier, and you paid the listed price. Generally, the merchandise appeared to be what it was purported to be. For example, if you purchased a Nike soccer shirt it appeared to be a Nike soccer shirt in terms of quality and design. Thus, if one purchased an Arsenal jersey it was for all intents and purposes the same Arsenal jersey one would get at any soccer store in the U.S. The price was also similar.
The experience at the markets was entirely different. I looked at a handful of jerseys at one of Bangkok's famous night markets, including an Arsenal jersey. This was during The Invincibles season at Arsenal. http://en.wikipedia.org/wiki/2003%E2%80%9304_Arsenal_F.C._season I urge any soccer fans to check out footage of The Invincibles at Arsenal. Like Ajax and Holland in the early 1970's before them and Barcelona in 2010-2011, The Invincibles were not only astonishingly good, they also played the most aesthetically beautiful soccer. In any case, I checked out a jersey and was quoted a price, which wasn't marked on the jersey. I did a little negotiation and the price dropped 10 baht or so. I handled the jersey and it was clear from the construction that despite bearing the famous swoosh strip the jersey was a knock off. I mentioned the jersey to my wife and she took a crack at it. She was quoted an initial price that was lower than my negotiated price. She was able to knock off a few baht through negotiating. We were with my future sister-in-law, who was a Bangkok resident, and she told us that she could get it for even less, about half of the original price quoted to me. She said she would have to negotiate alone outside of our presence to get the best price because the vendor would jack up the price if they knew a falang (or white person) was ultimately going to purchase it.
This is how the markets work: there is one price for falang, there is another price for non-Thai Asians (excluding Japanese who actually have to pay the highest prices), and yet another price for native Thais. In order to get the best price, shoppers have to dicker with the vendor. While some people may find the act of dickering for products enjoyable, this is how nearly everything is purchased from markets. The process is hopelessly inefficient if one shops for the majority of products at markets. In addition, the actual product is likely to be a counterfeit version of what one actually intends to purchase. Obviously, this is not fair to the manufacturers of the original product and deprives the original manufacturer of income that would otherwise be theirs.
Why can this happen? In large part the market transactions can occur because the government does not actively police the retail market. I am sure Thailand has laws prohibiting the sale of counterfeit products, but the laws do little good because no one enforces them. I can only imagine the outcry that would occur in this country if such markets were allowed to flourish unchecked. Can you imagine what Nike would do if thousands upon thousands of counterfeit Nike products were sold in every population center? I suspect that Nike would demand that the government intervene and police the markets to ensure that counterfeit products would be rooted out of the markets.
The bottom line is that efficient retail transactions can only occur in a well-regulated retail marketplace. Like it or not, a well-regulated retail market requires government intervention. Without regulation of the products being sold, the prices being charged, and the profits being generated, the shopping experience becomes fraught with unpredictability and hopelessly time consuming. According to my relatives, the retail market is not the only one subject to the vagaries of prejudice and lack of regulation. The housing market is similar as are practically any commercial transaction one can think of that does not occur at the highest end of any market.
So how have we achieved predictability and efficiency in our markets? The simple answer is through taxation and regulation. The sales tax is a simple mechanism for generating income necessary to regulate retail markets. The sales tax provides a uniform mechanism for collecting both funds and data regarding the operation of markets. When sellers are required to record transactions and recover a sales tax based on the actual sale of a product, the net effect is to streamline the process. While a large retailer could operate without fixed prices and still charge sales taxes, the administrative inefficiency would be crushing. It is much easier to have a fixed price and a cash register system that automatically applies the sales tax to both the receipt and the data collection mechanisms in place. I have stood in line at Target and witnessed customers upset simply because the line was not moving fast enough. Can you imagine the rage that would occur if every person who went through the line could dicker about the price?
Regulation also ensures fairness. In a regulated commercial market, it is much easier to ensure that the products being sold are not counterfeit. Surely counterfeit products still make their way through the retail market in the U.S. but the incidence has to be much lower than the incidence of counterfeit products in an unregulated market like the ones I encountered in Thailand and Laos. The only way to ensure the efficiency of markets is through government regulation. If anyone doubts the truth of this, consider the crash of the U.S. housing market. The housing market crashed largely because of the unregulated derivatives and credit default obligation markets.
If we really want smaller government, we can certainly have it; just be prepared for our markets to become less efficient, less predictable, and less profitable. If we want robust markets, we need a reasonable amount of government regulation to ensure transparency, fairness, and predictability.
