Posts tagged public choice
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 remedy?
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?
Adoration of Government Regulation
Tibor R. Machan
On a recent Monday I went to hear a talk by Professor James K. Galbraith, author of the free market-bashing 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 government regulates the production processes. 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 egregious 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. If the criminal law operated this way we would all be in jail.
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 habit should be tossed. Free men and women deserve better.