Friday, October 10th, 2008...1:10 am

Good economic regulations?

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Doug Wilson posted a good, quick perspective on economics and how the only thing most of us can do is cultivate a robust sense of humor in this mess.  In the comments section a debate has broken out about regulation.  Since I am limited to 300 words there, I will refute the idea (advanced by The Scylding) that we need “good” economic regulations to control greed and that Canada is an example of good economic regulation.

Is there such a thing as a good economic regulation?  There is, but it’s nothing of the order that The Scylding is advocating.  And those good economic regulations are defined by the word of God.  Here are a couple:

“Thou shalt not have in thy bag divers weights, a great and a small.  Thou shalt not have in thine house divers measures, a great and a small. But thou shalt have a perfect and just weight, a perfect and just measure shalt thou have: that thy days may be lengthened in the land which the LORD thy God giveth thee. For all that do such things, and all that do unrighteously, are an abomination unto the LORD thy God.” (Deuteronomy 25:13-16)

“Thou shalt not remove thy neighbour’s landmark, which they of old time have set in thine inheritance, which thou shalt inherit in the land that the LORD thy God giveth thee to possess it.” (Deuteronomy 19:14) . . . “Cursed be he that removeth his neighbour’s landmark. And all the people shall say, Amen.” (Deuteronomy 27:17)

These are both commandments against fraud.  These are good commandments, and the civil government ought to uphold such things and punish violators by forcing them to pay restitution.  Modern governments, through their central banks and volumes of arbitrary regulations, are the greatest violators of these two commands from God.

Regulations “against greed” as The Scylding advocates are not only impractical but immoral for several reasons.

  1. The Creator-creature distinction: God is God.  His creation is not God.  Only God has the wisdom to manage the economy as a whole, and his primary means for regulating the economy is letting people reap what they sow.  When a speculative bubble bursts, the greedy man is punished and the prudent man is vindicated.  Human regulators are not capable of centrally planning an economy without committing gross injustice against many citizens.  It is precisely because of the extreme interconnectedness of the economy, that these regulations will not be just.  (This first part is not even taking the sinfulness of the regulators into account.  These are just unintended consequences.)  Any attempt to centrally plan an economy must necessarily lead to a messianic view of the state.
  2. Moral hazard: Once you have man-made centrally planned regulations in place, especially when they are as bloated and arbitrary as those of the modern messianic state, people will inevitably begin to think that if something is within the bounds of the regulations, it must be a sound investment.  Even worse, if the government subsidizes something it distorts the prices and values of these things.  The government-subsidized artificially low interest rates distorted the value of everything that people might borrow money to buy.  When a government subsidized entity fails, it gets bailed out.  (If a government-subsidized program was to fail, it would look bad.)  This encourages subsidized entities to be as reckless as possible.  The U.S government had been subsidizing crazy risk for years.  Now that it has bailed out this risk, you will get more of it.  This punishes prudent behavior while rewarding recklessness.  Regulations don’t stop greed, they reward it.
  3. Regulations benefit the politically-connected (large corporations): The primary reason for a vast majority of regulations is to keep small businesses from being able to compete with large corporations who can afford the quasi-bureaucracy necessary to comply with all the regulations.  The logical ends of these regulations are monopolies and cartels.
  4. Political power breeds corruption: The more powerful a government is, the more corruption there will be.  This spirals upon itself.  The type of people who are generally attracted to and succeed in political office are intelligent, manipulative, dishonest men who seek power for its own sake.  As such, politicians are even more disqualified from being able to regulate economics than normal people.

What about deregulation?  There is no such thing as “deregulation” in the U.S. (nor was there in Iceland).  Changing your regulations so they are looser is not deregulation and has the same problems as covered above.  In an unregulated economy (exept for the civil magistrate punishing theft, fraud, and other things the Bible expressly permits the government to act on), you will reap what you sow.  If you deposit your silver in a bad bank, and that bad bank fails because they were irresponsible and make loans based on fractional reserves, then you are receiving the consequences of your actions.  (Note that an unregulated economy, your money would be commodity-based or “hard money” economy.  Paper money and electronic money would need to be backed by some sort of commodity or it would trade at a discounted rate.)  In a regulated economy, you get punished for other people’s actions and failures.  (A tax burden of 35%-50% for said bloated government is an example of being punished for other people’s actions and failures.)

Canada is all about Keynesian central economic planning just as the US is.  The Canadian government is just not destroying its economy as radically or as quickly as the United States is, largely because they don’t have a worldwide empire and enormous standing army to maintain.  (I’m actually commending Canada on these points, by the way.)


  • Scylding is all wet. Regulation is what got us into this mess and now Regulation is offered as the answer to get us out of this mess.

    Nice piece here Michael.

    Someday people will learn that oil (command and control economies) and water (free unregulated markets) don’t mix in the slightest.

  • Michael: Thanks for the engagement.

    I did not automatically aloow for bailouts, and I am not sure how to handle that issue, to be honest. Your no.3 also presupposes a certain type of regulation. There is no reason why it can’t go the other way. No.4 is certainly true, but that argument, together with your first one, will also go against the police force, for instance. Shall we abolish speed limits, roadworthy tests, rules of the road etc etc? Also, the police is policed themselves, at least in civilised countries. There is no reason why a market regulator, to invent a position, cannot be policed as well. It is all about checks and balances. You might have seen in one of my earlier posts that I also hold, in some fashion, to Distributivism. I’m not a de facto big business supporter.

    Also: Canada is more Third Way/Roepke/Austrian Economic school of thought than Kenyesian. The US is Kenyesian.

    Lastly: I’m not a Theonomist / Reconstructionist etc – as a Lutheran, I tend to view the world with the “Two Kingdom” view.

    But I think these conversations are important – even if nobody convinces anybody else, at least it helps to crystallize our thought.


  • Bret,

    Thanks for reading.


    I would agree that #3 could go the other way. Regulations could intentionally harm the wealthy to the aid of the proletariat, but that would be just as unjust. Whenever you add a regulation to the market, you are restricting people from making choices with their own property.

    I have used number 4 against the police force and will continue to do so. In the States, the police has become very much like an occupying army. They refuse to hire people who are above a certain intelligence level or who have an uncompromising moral code (Christians who act like Christians, for example) because they might question orders.

    If we abolished speed limits, government roads, and drivers licenses, and instituted biblical penal sanctions for cases of negligent homicide (capital punishment) or property damage (restitution), I believe you would see traffic fatalities drop by an order of magnitude.

    Canada does not use an Austrian Economic model (which is what I’m advocating), or else it would not have all the regulative bureaucracy, oppressive tax burden, or a central bank printing paper fiat money.

  • Michael,

    In Canada, as I stated elsehwere, although personal tax is high, (mine is hovering around 32%), the ability to claim back is also high – I got a sizeable amount back last tax year. Also corporate taxes are actually lower than in the US.

    The Canadian police force is very much not like the US model. Neither was it in other countries I’ve been in. I have often wondered about the “police state” nature of policing in the US. When did this start?

    As to no.2. Again, this depends on the regulations.

    Anyaway, it looks like we will have to agree to disgree. At least here is no name calling, as in a different internet debate I recently was unfortuante enough to get involved in – so if you ever visit the Saskatoon area, drop by for a pint. It is so much easier to solve the world’s problems with a bitter in hand….

  • BTW, Bret, what is meant by “wet”? Behind the ears? Or slow? Or ..?

  • “…drop by for a pint. It is so much easier to solve the world’s problems with a bitter in hand….”

    That’s something we can certainly agree on. 🙂

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