Tibor R. Machan
On a recent Monday I went to hear a talk by Professor James K. Galbraith,
author of the free market basing book, Predator State: How Conservatives
Abandoned the Free Market and Why Liberals Should Too. The talk repeated
what so many modern liberals have been saying about the current financial
fiasco, namely, that it’s all due to the free market, to the late Milton
Friedman’s influence, and that deregulation is mostly to blame.
This is not especially novel, given that nearly everything wrong with
America is blamed by such modern liberals on, well, the absence of
sufficient modern liberalism in the country’s governance. Why not?
Champions of the free market make similar claims when trouble
arises—modern liberalism is to blame. And I am often among the latter
group. I admit—I am much more favorably disposed toward the principles of
a fully free society than toward those of a mixed economy (or even fiercer
government involvement in the economy).
Let me spend a line or two explaining why I find the hosannas sung to
government regulation by the likes of Professor Galbraith so bizarre.
First, government regulators are people, no different from those whom they
set out to regulate. Second, governments make use of physical force or its
threat in order to achieve their goals, while the free market relies on
voluntary interaction by market agents. Third, government regulators lack
the restraints that market agents face when they carry out their plans in
the market place—namely, the need to earn their resources from willing
lenders or buyers. Governments can raise their resources through taxation
which is collected whether those paying it chose to pay or not. Fourth,
government regulators tend to be far removed from the firms and people
they regulate, relying on vague, general information instead of local
knowledge that market agents use as they make their decisions.
Other differences exists that, in my view, clearly favor market processes
as against government regulation—public choice theory (for which Professor
James Buchanan received the Nobel Prize and which was left totally out of
consideration by Professor Galbraith in his talk), explains them very
well. But let me focus on one particular point made by Professor
Galbraith in his support of extensive government regulation. He noted
that people in the People’s Republic of China prefer buying goods from
America because American goods are produced with the benefit of government
regulation. So they can be trusted, while those in regions around the
globe that lack government regulation are untrustworthy.
This is what is called in logic a non-sequitor because the conclusion does
not follow from the premises. Chinese may buy American goods but that
could be for innumerable reasons other than that the production processes
are regulated by government. Generally American production has a very
favorable reputation around the globe. Yes, American goods tend to cost
more but that’s because American labor and management is more expensive
than labor and management elsewhere. However, one tends to get what one
pays for, namely, pretty good products.
American technology is far more advanced than technology elsewhere, which
also contributes to the higher quality of American goods. Science and
technology in America is top of the line—just count the number of American
scientists who have won the Nobel Prize and consider how many foreigners
come to study at American technical universities such as MIT and Cal Tech.
Furthermore, even if some of the confidence in American products stems
from the fact that there is government regulation in America, it doesn’t
follow that government regulation is indispensable. There are plenty of
scholars who have found serious flaws in the regulatory process, such as
the slowing down of drugs coming on the market because of irrational rules
imposed by the Food and Drug Administration, the capture of regulator
agencies by the very firms they are supposed to regulate impartially, etc.
In addition, and very importantly, Professor J. C. Smith’s “The Processes
of Adjudication and Regulation, A Comparison,” published in a book I
helped edit, Rights and Regulation, Ethical, Political, and Economic
Issues (Pacific Institute for Public Policy Research, 1983) lays out the
case in favor of changing from government regulation to legal adjudication
where now the former is deemed to be necessary.
Finally, there is a fundamental injustice involved in most government
regulation. This is prior restraint. Burdens are imposed on citizens who
are being subjected to government regulation without it having been
demonstrated in court that these burdens are deserved. This amounts to
treating citizens as if they had been convicted of a crime whereas, in
fact, all that can be held against them is that they might possibly do
something wrong, injurious, harmful to someone.
The adoration of government regulation is misplaced and belongs with the
ancient practice of deference to the monarch who was deemed to be superior
in wisdom and virtue to ordinary “subjects.” This paradigm should be
tossed. Free men and women deserve better.