The free-market principle of open entry is challenged by governmental restrictions on access to consumer markets. There are many official justifications for these restrictions, but the main one is this: “Customers do not know what is good for them.” They do not know what products to buy, what prices to pay, or what arrangements to negotiate with respect to return and replacement. Customers are in fact woefully ignorant of what they really need, so the state enters the marketplace to restrict what customers are legally allowed to purchase. The idea here is that state officials know what customers really need as distinguished from what customers are willing to pay for.
One of the justifications for this is that advertising deludes customers. This means that customers are considered not able to sort out fact from fiction when they read or see an advertisement. It is interesting that the same advertising agencies hired by businesses to sell products are also hired by politicians to produce advertisements in election years. In other words, advertising is accepted as a legitimate way to motivate people to take action during election years, but is placed under suspicion when it comes to advertising products and services. People in their capacity as voters are supposedly perfectly capable of making accurate decisions based on advertising. On the other hand, those same people in their capacity as customers supposedly are incapable of making accurate decisions based on advertising. This is utterly illogical, but it is basic to understanding all modern governments in the West …
Whenever the state intervenes in a market to restrict entry by sellers, it results in higher prices. Customers are not able to buy the kinds of goods and services they want, at a price they are willing to pay. So the producers who would otherwise have entered the market are forced to enter other markets. These markets are less profitable than the restricted markets. Customers in the regulated markets are worse off, and so are marginal suppliers who leave those markets.
We can see this principle at work in the market for education. The supply of education is limited by government restrictions on academic certification. Teachers must go through a specified regimen at the college level in order to be eligible to teach in the nation’s tax-funded school systems. This reduces the supply of teachers who can legally be hired by local school districts. Furthermore, restrictions on school construction by private entrepreneurs limit the amount of competition tax-funded schools face.