Column on Are Government Regulators Incorruptible

Are Regulators Incorruptible?

Tibor R. Machan


     Enthusiast for increasing government regulations of people in
business, including those in the financial markets, never bother to
answer the one basic question that any rational person would need to
have answered before joining them as champions of their proposed
remedies of our economic wows.  This question is, "Why would those in
governments regulating those in markets manage to be incorruptible?" 
For incorruptibility is a presumption of the policy that these
enthusiasts are committed to. Otherwise what’s the point?  Where is the

        You see, if those in government are not
incorruptible, their regulation of business cannot be of any help.  They
would just as easily game the system as those whom they intend to
regulate, indeed, more easily because of their legal power.  Are there
ways to stop them doing this? Would they be regulated by some other
regulators who would make sure they aren’t corrupt?  And then how would
those regulators manage to be invulnerable to corruption? More
regulators, ad infinitum?

     It is plain common sense and historically fully validated that
people in government easily fall prey to the temptation of corruption. 
Since the time of Aristotle and before it has been noted over and over
again that people with power over other people tend toward corruption. 
Aristotle argued that despite the fact that the idea of an ideal leader
of society sounds appealing, it is a trap because once in power, such
"ideal" leaders tend to become despotic.  Which is exactly true about
government regulators, sometimes quite unintentionally (when the system
goes bad).

        As Lord Acton is often quoted to have said,
"Power tends to corrupt and absolute power corrupts absolutely."  And
this is no mere cheap slogan.  Those in government have a great many
ways to dodge any charge of corruption.  A prominent legal device is
sovereign immunity–since government officials, including regulators,
are agents of the citizenry, they cannot be sued by us.  It would be
like suing ourselves!  So the only way to cope with malpractice by such
folks is to implore their bosses to fire them or to vote against those
who hired them.  Only if they are out and out thieves or embezzlers can
they be touched.  Favoring their pals as they make decisions, for
example, isn’t something for which they can be convicted.  And one of
the big charges against government regulators is precisely that they
favor those like them in the market place–former colleagues, past
employers, etc.

        The economic school of thought called
"public choice theory" has developed this idea so well that some of its
pioneers have received the Nobel Prize (Professor James Buchanan, for
example). Others have shown that regulators don’t manage to anticipate
problems early enough and by the time they go after some company about
some possible malpractice, it’s too late.  Also, regulators tend to
worry about easily detected problems and leave those that are difficult
to detect untreated.  What is seen gets their attention but what is
hidden does not.

        Aside from these pitfalls government
regulators face there is also the plain fact of their having agendas of
their own; and there is the problem, as well, that they often have no
clue what exactly is the public interest they are supposed to promote
since the public interest is, in fact, a multitude of private interests
pursued by millions of different market agents.

        So, the
bottom line is that government regulation is mired in confusion and the
probability of ineptitude and malpractice, probably much more so than
faced by market agents who are supposed to be regulated.  So this faith
in government regulation repeatedly voiced by Obama & Co. simply
isn’t well founded.  Indeed, it is most often misdirected.  Sure, now
and then regulators can do something right but even a broken clock shows
time correctly twice a day.  This is no reason to have confidence in
such clocks any more than in government regulation.

 Anytime I am told not to worry about things because the government will
regulate something and we will be saved from the problems of reckless,
anarchic free markets, I cringe about the naivete of those who believe
such things. When will they learn?

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