by Chris Wood
In the wake of some 1,500 or so salmonella cases from tainted eggs, more than 500 million eggs have been recalled and the FDA is calling for – you guessed it – more money, more power, and more regulation.
Raise your hand if you think piling on even more regulations will prevent such events from happening again.
If your hand is up, you should give me a call, I’ve got a bridge to sell you.
Think of all the regulation that was in place to keep the financial markets in check and prevent a collapse of the system prior to 2008. Just a few of the agencies charged with regulation and protection were the Federal Reserve, the Treasury (including the Office of Thrift Supervision), the Comptroller of the Currency, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation. The federal government had multiple (would-be redundant) layers of regulators and regulations in place concerning mortgages, financial institutions, and stock markets. And still all of this regulation could not stop the crisis from coming or keep it at bay once it got going.
Now we have a new financial reform bill that’s been passed to “prevent anything like this from happening again.” Hmmm, I’m pretty sure I’ve heard that before. This new legislation and the regulation that comes out of it will not make things any better. Because it’s government regulation (read: intervention) itself that is the problem.
Most people think government regulation is generally good because they erroneously believe that there are no self-regulatory aspects of individual behavior in the marketplace. Thus, as William L. Anderson points out in his article, “A Primer on Regulation”:
This does not only mean a belief that there are no self-policing mechanisms, but also that markets operate on the edge of chaos. This is patently untrue. Because private enterprise works on a voluntary basis, a business owner cannot coerce someone to do business with him. Things like loss of reputation, shoddy products, poor service and the like serve as real boundaries for business owners, who in a free market survive only by offering goods that people are willing to purchase.
Moreover, there are numerous private (read that, voluntary) organizations that police businesses, settle disputes, independently test products, and provide needed information for consumers and producers alike. Yes, these organizations do have a regulating effect upon the behavior of individuals who participate in private production and exchange. Thus, the statist claim that without government, markets would be a chaotic mess is simply untrue.
Once you take the mental leap to recognize markets are self-regulating and the economy itself would not erupt into chaos absent government regulation, it’s easy to see other huge problems with today’s regulatory system that are so often overlooked. Glossing over the fact that the system is clearly unconstitutional, two biggies are that heavy regulation favors big business at the expense of small business and the moral hazard created by the blind trust people put in regulations and regulators. On these matters I’d like to quote Dr. Ron Paul:
It is important to understand that regulators are not omniscient. It is not feasible for them to anticipate every possible thing that could go wrong with whatever industry or activity they are regulating. They are making their best guesses when formulating rules. It is often difficult for those being regulated to understand the many complex rules they are expected to follow. Very wealthy corporations hire attorneys who may discover a myriad of loopholes to exploit and render the spirit of the regulations null and void. For this reason, heavy regulation favors big business against those small businesses who cannot afford high-priced attorneys.
The other problem is the trust that people blindly put in regulations, and the moral hazard this creates. Too many people trust government regulators so completely that they abdicate their own common sense to these government bureaucrats. They trust that if something violates no law, it must be safe. How many scams have “It’s perfectly legal” as a hypnotic selling point, luring in the gullible? Many people did not understand the financial house of cards that are derivatives, but since they were legal and promised a great return, people invested. It is much the same in any area rife with government involvement. Many feel that just because their children are getting good grades at a government school, they are getting a good education. After all, they are passing the government-mandated litmus test. But, this does not guarantee educational excellence. Neither is it always the case that a child who does NOT achieve good marks in school is going to be unsuccessful in life. Is your drinking water safe, just because the government says it is? Is the internet going to magically become safer for your children if the government approves regulations on it? I would caution any parent against believing this would be the case. Nothing should take the place of your own common sense and due diligence.
Whether you buy into these arguments and the notion that government regulation should be seen as the problem rather than the solution is, of course, up to you. You’re free to think that more regulation is exactly what’s needed in the case of the egg fiasco, the financial markets, and everything else. But I would urge you at the very least to think seriously about these matters rather than blindly calling on the nanny state to do more every time something goes wrong. I’d also urge you to consider all the regulation currently in place and ponder, how much is enough?
Chris Wood works for Casey Research, LLC and is the occasional editor of its Casey's Daily Dispatch
