Monday, August 29, 2011

A Problem with Government Regulations

In recent posts, I have probably establish the impression that I am an economic liberal.

I favor taxing the wealthy in part to provide aid to the poor. There is no natural right to property, but instead a set if institutions that a person with good desires (desires that tend to fulfill other desires - desires that people generally have the most and strongest reason to support through the moral praise and condemnation) and true beliefs would act so as to realize.

However, there is a significant problem with government solutions such that, whenever governments get involved, they will be strongly disposed to use this power to take from regular people for the benefit of the rich. Anything that has the appearance of helping the poor are a few bones tossed over the shoulder to appease the masses.

Perhaps the best way to protect the poor from this type of exploitation is to place limits on government - to identify a group of things that governments may not do.

Raise your hand if you can tell me the names of the Secretary of Transportation? Energy? interior?

Well, you can bet that every oil company (for example) has a team of people who know their names, the names of their suppose and children, their birthdays and anniversaries, their school transcripts, their entire work history, and has copies of every paper those people have written and transcripts of every speech they have given. They have people on their staff who were hired precisely because they know the people in power, or they know the people on the staff of those who are in power.

Now, imagine that an opportunity comes along to interpret some piece of regulation - the effect if which will take $1.00 per year out of the pocket of every household in America - over $100 million total. However, the company will obtain $50 million in benefits per year.

For the sake of protecting that dollar, it isn't worth it to you to even go to the effort of learning the names of these agency heads, let alone keep track of every regulation and interpretation the agency might come up with. And it certainly isn't worthwhile to maintain the types of intimate contact that can be used to guide the agency's actions even if you did know about these specific concerns.

For the sake of getting that $50 million, it is more than worthwhile for that company to create a department and hire a staff that does nothing but study the people in each department and the ways they do business - and to establish intimate contacts with those people. One way to do this, of course, is to find people in the department and offer them more pay than the government can provide to come and work for the company. Meanwhile, that person's replacement in the agency knows, "I had better play ball with these people or I can kiss that six-figure income goodbye."

They are not corrupt. You have seen how easy it is for people to believe what they want to believe. It is extremely common for people to use their emotions - their comfort level - as evidence for what is true. They like the ideas that the industry they are supposed to be regulating tell them to like. They embrace flawed reasoning and biased evidence as sound precisely because the conclusions are comfortable - and a comfortable conclusion must be true.

So each of us lives a life of a hundred thousand nibbles - $1.00 here, 25 cents there, 10 cents someplace else - all of which adds up to a considerable amount of money directed out of our pockets and into the pockets of the very rich. And it is not just time - it is labor. We spend our days producing the goods and services that the very rich consume. People who have the most money to spend, also have the most money to buy things. Thus, they have the power to direct the largest portion of economic activity towards the fulfillment of their interests and desires.

Take the food and drug administration, for example. Consider how much drug testing is done because it provides assistance to the public, and how much is required because it creates a huge barrier to new companies entering the field.

From the company's perspective, "Yes, I have to spend $100 million to get this drug tested, but I have $100 million to spend. These high costs lock out anybody who only has $50 million. Meanwhile, when my drug hits the market, I will have a monopoly. When people complain about the high prices, I can shout right back at them, 'But look at how much money I have to spend on testing!'"

For you and me, useful medicines are delayed and, when they finally get here, we pay more for them. However, if any noise should be made about lowering these barriers to entry, the drug companies themselves will fire up their propaganda machines to flood us with warnings about the dangers of these unsafe drugs entering the marketplace.

And they will believe what they say. They actually do convince themselves that they are angels serving the public good. It is a very comfortable belief to have. Though this belief is not driven so much by an objective evaluation of the evidence, but a dislike of the idea that they will lose money and a want to believe that what is good for them also benefits others.

While I was getting my hair cut recently, the staff was discussing the horrors that would result if hair stylists were not licensed by the State to cut hair. They truly believed that this would be a disaster for the public. Not a word was given to the absurd possibility that they simply did not want to have to deal with competitors who would charge a lower price.

And they contacted their lobbying group to make sure this measure was defeated.

For the sake of protecting a $50 million benefit, a company can spend $10 million in public relations (including some well-placed phone calls to friendly members of the press - with whom their public relations branches have also bought and paid for intimate knowledge relationships). For the sake of protecting that dollar you would lose, it is not even worth the time to write an email.

And yet this is for a hypothetical program that ultimately funnels $100 million from regular people to give $50 million to the super rich.

These are not problems that can be fixed by getting "the right people" in government. These are problems that suggest that we simply cannot get the right people into government. Human nature is such that this is an unreasonable expectation - meaning, an expectation that no reasonable person would have.

Some people may be comforted by the belief that these institutions will work in our favor. But, then, people do tend to believe that which is comfortable. Besides, the company that can get the $50 million benefit has both the means and the motive to make sure that we stay comfortable with that belief, don't they?


Anonymous said...

You seem to be insinuating that it is a better solution to abolish government departments rather than reform them and make them better. At least, that's the interpretation I got.

I am all for eliminating waste, pork, useless bureaucracy and failed programs. There probably should be an entire department dedicated to that.

What I am not for is rampaging through every government department with a scythe, dicing up and shredding every program that exudes a hint of inefficiency.

Let's see if we can try and reform programs before putting them on the chopping block.

Alonzo Fyfe said...

No - I would not use this as an argument for eliminating agencies. Some people might. I would consider such a leap to be simple-minded and disrespectful of the complexities involved.

It does suggest that there is a potentially significant cost with expanding regulatory power, or creating regulations that are so complex or inconsistent that they leave a lot of room for interpretation.

However, as I argued in an earlier post, even a free market is simply one form of regulation among many.

This post simply identifies a fact that does - reasonably and rationally - argue for limiting the scope of government regulation to something that can be more easily monitored.