Saturday, April 19th, 2014...8:21 pm

How the state ruins everything: Regulations

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All Americans have been bombarded with the narrative from about the time they could talk: there are evil businessmen out there everywhere, so we need government regulations to protect us from them.  This is taught in various ways at all levels of government schools, and almost as ubiquitous in mainstream entertainment as the regulations themselves.  (When isn’t the villain in a Scooby Doo mystery the evil businessman?) The narrative is rarely examined because it makes sense to most people at face value.  Therefore we let the various levels of government regulate everything, from the precise chemical composition of our motor vehicle fuel, to the size of our toilet bowls. Government regulators tell employers who they can hire (child labor regulations, regulations about labor organization, immigration regulations) for how much (minimum wage regulations), and how long (occupational safety regulations).  But the narrative making sense at face value is not an adequate substitute for taking a critical look at it.  What if in practice the regulations actually accomplished the opposite of what the average person thinks they do?  What if those regulations, and all regulations dating back beyond the so-called “Progressive Era” were actually crafted by agents of the evil corporations to advance their own ends?  After all, what’s more evil than using force and coercion to achieve your business goals?

The Validity and Place of Regulations

The Bible has all kinds of regulations and commandments for how people ought to live their lives in obedience to God.  Here are a few examples of these regulations:

  • Work six days and rest one (Exodus 20:8-11)
  • Do not lend with interest to the poor (Leviticus 25: 35-38)
  • Do not wholly reap the corners of the field when harvesting. Leave the gleanings for the poor and the stranger. (Leviticus 19:9-10)
  • Do not use unjust weights and measures (Deuteronomy 25:13-16)
  • Do not muzzle an ox when it is treading out the grain. (Deuteronomy 25:4)
  • Give a tithe of your increase. (Deuteronomy 14:22-27)

With the exception of Sabbath-breaking in Israel, none of these regulations carried a civil penal sanction.  Rather, those that failed to keep God’s commandments fell under the judgment of the Triune God.  You will reap what you sow, and unlike a petty bureaucrat, God won’t look the other way and take a bribe.  Because God will judge all men and women on the last day, the primary form of regulation in the Bible is self regulation, not coercive external government regulation.  If you believe (like I do with good reason) that the God of the universe is sovereign over every aspect of history, including the uncertainty of entrepreneurial activity, the fact that God has revealed the right way to do things is enough.  There is no need or value for the government to add additional coercive regulations to God’s law.  The remainder of this article will be devoted to convincing other people who don’t share my biblical absolutism that government regulations do more harm than good, and that the unhampered free market provides the best regulatory system.

Who is doing the regulating?

Most people support or reject legislation based on the title of the bill and the sound byte of a politician being carefully and wilfully distorted through the lens of pro-regulation media.  I will link here to a recent example of a typical letter written by the Food and Drug Administration to 23andMe telling them to cease and desist selling their product.  The letter is saturated megalomaniacal (and since it’s coming from the FDA, absurdly hypocritical) disdain for all things not the state.  For those of you who don’t feel like reading the letter let me translate it: That’s a nice company you got there.  It would be a shame if something were to happen to it.  How’s about you pay us some protection money? Because, you know, unfortunate things like FBI raids happen to businesses all the time.

These are the people who are doing the regulating.  The libido dominandi (lust to dominate) is as old as sin and the people with the greatest lust for power are the ones who get elected to political office and appointed to government positions.  Even if you don’t have the first-hand experience of living in a neighborhood with a home owners’ association, the concept of a home owners’ association president on a power trip is one that is almost universally identified with.  If the local home owners’ association can bring out the worst in people and invariably attract the most power-hungry busybody in the neighborhood, imagine what kind of sociopaths the prime positions in a world-dominating empire attracts.

Now, I know there are individual counter-examples who nobly refuse to act according to the incentives of political power (Ron Paul being chief among them), but these people are rare and they must have a general fear and mistrust of political power to refrain from using it to further their own ends or the ends of those that hold their purse strings.  Another well known tendency of government regulatory agencies is the “revolving door” relationship government regulators and officers of large corporations have.  Hank Paulson’s famous jump from Goldman Sachs to the Secretary of the Treasury is regularly mirrored by smaller fish jumping back and forth between the corporate and regulatory ponds.  And this shouldn’t surprise anybody because…

Who Is Actually Helped and Harmed By Government Regulations?

Who is helped more by government regulations, giant corporations or the guy trying to start a business out of his basement?  Let me ask some questions to see if we can figure it out:

1. Who is more able to afford an army of lawyers to staff necessary to maintain regulatory compliance?

2. Who has more power to be able to buy politicians via campaign contributions and political action committees?

3. Who has greater ability to hire an cadre of lobbyists to ensure that the actual words in the regulations (not the titles of the bills, mind you, the actual content) promote their interests at the expense of everybody else?

The answer to all three of these questions is obviously giant corporations.  This should come as no surprise.  These snake oil salesmen have been at it for quite some time.  Who funded the so-called Progressive Era?  Were the little consumers that the laws claimed to protect the ones providing the huge grants to universities and the campaign contributions to the people who took power?  No, the Progressive Era with all its anti-business rhetoric was financially backed by the very same people who were allegedly going to be  hurt by it.  It worked out pretty well for the J.P. Morgans of the world.

The Toughest Regulator of Them All: The Free Market

Another part of the standard narrative is that the free market doesn’t work because it favors the corporations at the expense of the average person.  The establishment asserts the following:

1. The free market ends in monopoly. You need the government to step in and regulate the size of corporations and ensure fair competition.

2. The government must enact regulations to protect the consumers.

Given the previous section about who actually writes, funds, and lobbies for regulations, the reader should already be suspicious about this.

In a market economy free of coercion, the consumer (not the producer) has the power.  The consumer is always looking for the best product at the best price.  Even the brands with the best loyalty have to prove themselves anew to their customers or they will lose business to competitors.  Let’s use the example of the fanatical Apple Zealot. Apple has more leeway with the Apple Zealot than the average firm does with its customer. Apple doesn’t need to worry about losing the Apple Zealot to Microsoft, but if Apple rested on its laurels and didn’t improve its product much (like in the 1990s)  while some start-up out of his garage (say, the next Steve Jobs) develops a better product and sells it at a better price, all except for the True Believer would consider abandoning Apple for the hypothetical product.

The free market does not tolerate complacency from entrepreneurs.  If you have a profitable business, other entrepreneurs will enter the field to compete with you. The higher the profit margin; the more competitors enter the field.  If you don’t continue to improve your offering to the marketplace, those sales will go to competitors. Those profits will turn into losses and the free market will regulate you out of business.  It is difficult to stay on top in a free market.  That’s why the robber barons resorted to regulation.  If you have legal, coercive barriers to entry, it takes much less work to maintain your place on top because fewer people can enter the field to compete with you.  It is far easier for someone with inherited wealth to buy a bureaucracy than it is to please a customer.

A true profit and loss system rewards those who love their neighbors as themselves in the marketplace. Continued and sustained success in the free market is actually an application of the golden rule.  Absent coercion, voluntary exchange can only take place when both parties value what they are receiving in the exchange more than they are giving in the exchange.  Moreover a pure profit and loss system incentivizes civility.  If you have the choice between two firms for a product or service that are otherwise equal, you will choose the one that treats you better.

A pure profit and loss system helps curb the wickedness of man whereas a meddlesome government amplifies it.  One of the primary criticisms of the free market is that it is utopian.  The criticism goes something like this: “Sure, I’d be in favor of a free market if all men were saints, but because there are wicked and evil people in the world we need government regulation to keep these wicked people in line.”  The widespread acceptance of this narrative doesn’t make it true or valid.  Given the wickedness of man, a system that rewards evil people for being civil and providing useful products and services to others can use will tend to mute the evil tendencies that people have.  Evil people will try to press for every advantage they can get, but if they are limited to voluntary exchange they have no choice but to at least pretend to be good people.  I’ve already covered above (see Who is doing the regulating?) the incentives that cause the most vile and evil people with the greatest lust to power to pursue political power. A coercive regulatory system doesn’t keep the wicked people in line; it gives the wolves the keys to the hen house.  The bigger and more powerful the government, the more vile the lot of thugs and mountebanks that run it will be.

Summary and Conclusion

In this article, I have argued that the existing system of regulation in the modern state does not actually achieve what its proponents claim that it does.  The most effective form of regulation is self regulation before the eye of Almighty God. The regulatory racket helps large, well connected corporations and bureaucrats at the expense of small businesses, entrepreneurs, and ultimately consumers. Government regulations inhibit the ability of the market to adapt to the changing conditions affected by supply and demand, creating (hopefully) unintended consequences that tend toward the impoverishment of the average person.  The alternative, the free market consists of voluntary transactions. It rewards those who are of the most service to the consumer and causes those who cannot provide adequate goods and services to go out of business, which in turn frees resources up for other entrepreneurial efforts. The free market is a far stricter regulator than any man-made law could ever be because each day the entrepreneur must seek to satisfy customers at the risk of losing them to the competition. The free market also tends to foster voluntary cooperation and competition over against government regulation where the biggest scoundrels always seem to find themselves in charge and use force and threats of force to get people to bend to their will.

The narrative in favor of government regulation and against the free market, when examined critically, turns out to be nothing but propaganda.  The idea is to have enough people who are seen as experts (preferably with Ph D. at the end of their names) repeat the lie over and over again with room for debate or dissent. At the end of the day, unless you are an influential member of a government agency or large corporation all these regulations don’t help you, they hurt you. Even if you are part of one of the special interest groups that directly benefits from regulation in your occupation, you are hurt enough by the regulation of everything else that you still lose out overall. Don’t just think of the known affect that this has (fewer more expensive choices) but think of the opportunity cost of regulation.  How many things have not been invented or improved upon (or have been invented but never made it to market) because of the stifling regulatory environment?  The regulatory environment in the United States is not a net boon to society; it is a severe drag, crippling entrepreneurship like the Handicapper General in Harrison Bergeron.

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