Regulation Is Not Our Salvation

        There is much talk of regulation and the need for it in every aspect of our “dangerous capitalistic” society; however, there is seldom talk of what regulation is and of what precisely it accomplishes. Ironically, the very people who exhibit the greatest disdain for “big business” are often the most ardent supporters of regulation (besides the big businesses themselves, of course). Democrats, and statists of all parties, are particularly interested in imposing regulations for the stated purpose of controlling the “animal instincts” of the free market. These are the same people who often deride big business publicly for taking advantage of consumers and keeping the “little man” down. And this is where it becomes interesting.

          What if I were to tell you that regulation is largely designed to do that very thing and that the politicians who both advocate and introduce regulation understand very clearly that it will remove competition by restricting new market participants? I know, I know–many people out there will be shaking their heads in outright refusal of this assertion. I can just hear it now: “we need government to protect us from big corporations”; or “that’s not what the news said”; or “Obama said we deregulated too much.” Food for thought, though: big opponents of airline deregulation were the (big) airlines and the big opponents of trucking deregulation?…you guessed it, the (big) trucking companies. That, by the way, is not an isolated situation.

          Now, before people start into the irrational argument that I hate all regulation or that I am an anarchist; try to refrain from acting arbitrarily dramatic, ‘cause it just ain’t true! Here is an example of the real world scenario and why most regulation is not only supported by “big business,” but also why they (and their lobbyists) write a significant amount of the legislation.

          Let us assume that I am a builder of houses in a small economy with a relatively static population (a miniature US, for example). I am the only builder of houses as I have been an innovator in early house building technology. Let us also assume I hired you to work for me as my helper and you worked your way up to foreman over some amount of time. At this point you realize that you know everything you would need to provide the same service that I do, but feel you can do it more cheaply (because I am operating as a monopolist and thus my pricing is artificially high). So, you strike out on your own and begin competing with me. This does not please me for obvious reasons.

          So, I go see the executive (president/governor) of this “state” we live and work in and I convince him that we should, for the safety of all consumers, get control of the house building market and pass some regulations so that amateur and dangerous new builders do not hurt anyone financially or physically. The executive, not wanting his constituents hurt or angry sees great value in regulation that will control the evil capitalists (besides me, of course as I will be grandfathered in…) and will make one of his major campaign contributors happy. He goes to the legislative branch and convinces them to draft a law; however, how can these lawmakers draft regulations about housing that will safeguard their citizens when they themselves have never built houses? Hmmmm…Wait, they have an idea—they should approach the local expert for help in constructing these regulations. My phone rings and I gladly accept my civic duty of drawing up regulations for housing standards so that I am guaranteed customers…I mean, so that the citizens are safe!

          Now, back to you, my only competitor; if am lucky I can build in professional fees and licensing, insurance, or even capital requirements that create a great enough obstacle to you not being able to continue in the market. If not, I have almost guaranteed that neither of our employees will likely ever be able to afford to compete with us.   Here is the best part, though. Having seen how well the appeal to citizens to safeguard them from “greedy profit-driven” capitalists worked out for his polling numbers; the executive decides to move on to another market segment. Once again, this executive finds great public support (who doesn’t want to be safer) and also finds he has more campaign contributions rolling in from companies which no longer have to fear any significant competition in their field.

     Here is the reality and the bad side of this equation. First, capitalism in this example no longer exists (incidentally, there has not been true capitalism in the U.S. for many decades except perhaps in some isolated market segments). The little man has been effectively “held down” and kept out of the marketplace. Skill, pricing, or a combination of the two is no longer that which is primarily supplied by market participants; instead, the ability to navigate the political waters and afford to pay for these regulatory burdens is what determines market participation.

          Second, the government has created a moral hazard in which the citizenry no longer feels responsible for ensuring quality in the products and services they purchase; additionally, government takes on no liability that the work they attest to (through regulatory obstacles) is of high or even good quality. For example, if you have a house built, it will have to be approved by government inspectors on many occasions for different purposes. However, if that house burns down later from faulty wiring that was inspected; the government that essentially told you it was safe carries no liability. This begs a tangential question: what is the point, exactly?

          Third, in fields that are “regulated” it has been made essentially illegal for people to work. To license something is defined as: the ability to grant a license to (someone or something) to permit the use of something or to allow an activity to take place. If something requires a license, it is otherwise illegal—ergo, it is illegal to work and earn a living if the government does not permit you to do so. Yet another disincentive towards working, just what we need!

          The rise in corporations over the last century is not due to not enough government. Inversely, it is due to too much government. I understand there is a long held belief in most people that government is there to help us, but we must get beyond misconceptions and use logic to approach questions. Whether a politician is well-intentioned or not, regulation still results in the same thing. Also, do not believe the hype that the Bush administration marked the biggest rollback of regulations in modern history—that could not be further from the truth. In fact, if you are a fan of regulation, you should have a picture of “W” over your mantle right next to your picture of Obama.

          If people actually understand what the true effects of regulation are, it is likely that we will tolerate less of it. However, I understand there is a draw in believing in wholesale regulation; the comfort of feeling like someone evil and rich is being halted on their wicked quest for world domination is probably great. But, perception a reality does not make. Regulation is the pet of “big business” that does not wish to compete and colorful plumage which politicians display to prove how “caring” and “egalitarian” they are; both, instead, use it largely as a tool to monopolize market segments and line their own pockets; perverting capitalism into cronyism.

          When you consider the effectiveness of government in solving all our problems you should truly ponder why all of governments “wars” of morality such as the one on drugs and the one on poverty have only resulted in more of both. Certainly, in the thousands of years of human history it is unlikely that humans have only recently gone bad; perhaps, we should realize that government has the anti-Midas effect of turning everything it touches into crap instead of gold.

 

Leave a Reply

Your email address will not be published. Required fields are marked *