Column on the Regulation Trap

The Regulation Trap
Tibor R. Machan
Mercantilism, socialism, and fascism have pretty much been discredited as
economic systems by Adam Smith, Ludwig von Mises, F. A. Hayek, and actual
economic history. One could have learned from the lessons that government
economic regulation was no less refuted as a way to deal with economic
problems but, alas, the fantasy of useful, helpful and just state coercion
keeps bouncing back. The resilience of such faith in the state rests on
nothing but wishful thinking and the myth of the power of public service.
For starters, the very same reasons that incline people to distrust market
processes should lead them to distrust government regulations. This that
people can often misbehave when they have a chance to do so unless some
virtuous and wise overseers make sure they do not. Government regulators
are among these people and since they have no one overseeing them, the
likelihood that they will misbehave is considerable. Given the power
government regulators have over those they regulate, and given how power
tends to corrupt, government regulators are far more likely to misbehave
than are the people they are supposed to regulate. We might put this as
follows: Government regulators are in far greater need of government
regulation than are free market agents whom they believe they must
regulate!
Then there is the regulators’ necessarily limited knowledge, indeed
ignorance, regarding what those whom they regulate need to do. Because of
such ignorance, combined with the imperative to do something, anything, to
prove their worth to the electorate, malpractice is more the rule than the
exception for government regulators.
There is more. Who is to regulate the regulators, given that they are far
more powerful than the rest of us? Profit may tempt market agents to
misbehave but the regulator’s political power nearly guarantees that the
he or she will do so.
All of this plus some matters better left to longer discussions ought to
silence those who keep insisting that what must happen in a market economy
is for there to be more government regulation. There is just now good
reason to think that in general government regulation is going to help
avoid the occasional malpractice in a free market place. And, indeed,
nearly all the problems with markets come not from the misconduct of
market agents–who, of course, do make mistakes and do now and then act
badly–but from the interference of ignorant, powerful, self-deceived
government regulators urged on by even more mendacious politicians and
their cheerleaders in the general culture.
Most of this is pretty much implicit in the theory of public choice for
the development of which Professor James Buchanan received the Nobel Prize
back in 1986. This theory argues, fairly straightforwardly, that people
who presume to regulate the rest of us from their seats of government
power are no less motivated by their own agenda than are all those in the
market place. Except that there are inherent restraints on those in the
market–any fraud or theft or violation of property rights is actionably
illegal–whereas government regulatory misconduct is nearly untouchable by
the law! (It has the protection of sovereign immunity, the idea that what
governments do is immune to prosecution because it amounts to something we
all do to ourselves via the democratic process!)
Ever since the end of the 18th century people eager to use government to
get what they want without having to peacefully ask for it have championed
government regulations. Innumerable agencies at the federal, state, county
and municipal levels of government were established to interfere with free
market processes. This is especially so with financial markets, beginning
with the socialization of money itself!
Now that some of the adverse consequences of all this are coming home to
roost, the politicians and their academic cheerleaders insist that the
solution is, yes you guessed it, even more government regulation. So a few
years hence we will be facing the same troubles and then, too, it will be
the free market–the alleged ubiquity of laissez-faire in our society,
will once again be blamed! But this isn’t that surprising: people in power
never hold power wielding responsible for any problems they create. No. It
is always the lack of even greater power that is to blame!

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