Are Consumers to Blame?

During a recent discussion with a friend about immigration, I made the argument that prices on some goods and services would be higher if it weren't for the availability of cheap labor provided by illegal immigrants. My friend responded with skepticism because she doesn't believe the cost savings on labor are necessarily being passed on to consumers. This belief is pretty common, and those of us who are believers in the invisible hand of the free market would argue that competition among businesses provides an incentive for passing those savings on to their customers, as he who offers the best service at the lowest price should be the most successful. Still, this doesn't mean that some businesses don't continue to save money on labor (or other factors of production), charge the same prices, and pocket the difference. But how can a business that does so stay in business if the potential exists that his rivals will underprice him, thereby taking away his customers?

I think I have an idea of at least one factor that contributes to that ability significantly...irresponsible consumerism.

My friend cited landscaping and painting as her example, as there are services for which she's contracted with local businesses in the past. She said that it's been her experience that bids for the same job from different businesses seem to come in "all over the place." Business A may bid $1000 for a painting job, while business B may bid $3000 for the same work. Why the difference?

There could be many reasons. Business A may not do as good a job as B, or B may be in higher demand than A. Maybe B uses only certified, bonded laborers, whereas A hires day labor. Regardless of the reasons for the disparity, it is the consumer's responsibility to ensure that he or she is getting the best value. This is why my friend gets at least 3 bids for any job, putting her among the responsible ones. There are plenty of people, though, who simply take the first bid they get. Since prices are ultimately determined by what people are willing to pay for a particular good or service, this could certainly contribute to rising prices.

In addition to shopping around, further responsible action may be required, such as asking Business B why his bid is so much higher than his rival's. This gives notice to B that he must compete with A for your money, providing him with incentive to either lower his price or convince you that his work is worth the additional cost. By the same token, calling A to find out how he's able to charge so much less than B would provide information that could help make an informed decision. Of course, A, B, or both could simply respond by talking smack about the other, which would be telling in itself.

Too often, people are unwilling to put in the legwork necessary to make an informed purchase decision, and in the event that it leads to a bad experience the typical response is to shift the cost of the poor choice onto someone else. Whether the cost is shifted to the manufacturer or service provider in the form of a lawsuit, or widely distributed to taxpayers and consumers in the form of increased regulation resulting in higher prices, we all pay extra for the bad choices made by some. Government intervention in the form of regulation, the Consumer Product Safety Commission (CPSC), and the Food and Drug Administration (FDA) only serve to exacerbate the problem by making it unnecessary for consumers to act responsibly. Such paternalistic tendencies affect all areas of our lives, undermining personal responsibility every step of the way.