29 Oct 2014

“Breaking Bad: Can Regulation Be Fixed?”

Shameless Self-Promotion 10 Comments

My latest article in the Freeman. An excerpt:

The whole schtick of the regulatory State is that we can trust a group of technocrats in Washington, DC, to guard the interests of the people by standing up to the greedy and soulless business tycoons who — left to their own devices — would lie, cheat, and kill in order to turn a profit. Yet, anyone with an open mind can see that this approach has, time and again, utterly failed in practice.

For example, Harry Markopolos had been writing the SEC since 1999 warning that Bernie Madoff was running a Ponzi scheme, yet the SEC (which had ties to Madoff and his family) ignored the obvious red flags. In the end, Madoff’s kids turned him in.

Or how about another classic example, where the federal government stands valiantly in the breach to protect Americans from the big, bad oil companies? The Minerals Management Service (MMS) was the previous name of a group inside the Interior Department. In a major scandal that caused it to change its name, MMS employees in Colorado were caught accepting drugs and sex from the companies they were supposed to be regulating, while MMS employees in Alaska got in trouble for throwing a party with a cake that said “Drill, Baby, Drill” on the frosting.

10 Responses to ““Breaking Bad: Can Regulation Be Fixed?””

  1. Cosmo Kramer says:

    It is less about “good” regulation and more about selling the idea.

  2. Major.Freedom says:

    The whole basket can be full of bad apples, but as long as the thought of good apples remains, then no amount of real world evil can deter the believer.

  3. Andrew says:

    The American people will never agree to eliminating financial or environmental regulation altogether. Most people believe that corrupt, incompetent, and unreliable regulation is better than no regulation at all. If these institutions are to be fixed, it will be done through increased visibility into their operations, not outright abolition. This was Ron Paul’s guidance on the Fed*. Unfortunately it was largely drowned out by chants of “End the Fed.”

    *Admittedly, Ron Paul’s stated end goal was to abolish the Fed altogether. This, in my opinion, was a tactical mistake. Take a cue from successful political manipulators: Sell the people on step 1 (Fed Oversight, ACA, etc.) without admitting to your long term plans (Fed Abolition, Single Payer, etc.).

    • John says:

      I’m not sure I understand this post. Is there some doubt that the environment has improved dramatically since the advent of environmental regulation or that there are frwer industrial accidents since the advent of safety regulations, or for that matter that prior (and even during regulation) businesses cut safety and other precautions to turn a profit? Although I understand that regulatory capture exists, and that regulated businesses do what they can to “influence” the regulators (which is what we would expect in our capitalist system), I’m not sure that means something is fundamentally wrong with regulation. It appears to have improved the air, water, and worker safety substantially. It also prevents child labor, 15 hour work days, no breaks during the day, etc. I don’t know if it’s easy to make the case that it’s just a hopeless failure.

      • Andrew says:

        Well, we agree that it’s not “easy to make the case that [government regulation is] just a hopeless failure.”

        From Bob’s article, “In a genuinely free market, private organizations would provide many of the oversight and ‘regulatory’ functions that people wrongly assume only the federal government can offer.” This means eliminating government regulatory bodies in favor of free market solutions. I was arguing that this is politically infeasible and that the best libertarians can hope for is increased visibility into the actions of regulatory bodies. In time, we could conceivably gather enough evidence that these agencies are harmful and even that the problems are systemic. At that time, we would have a lot more political motive to eliminate or at least greatly reduce the role of these agencies such that free market solutions might spring up to replace them.

        • John says:

          The free market, if genuinely free, will actually regulate itself. I get it. I’m not sure it’s very likely in the real world, but I get it.

          • Andrew says:

            There are real world examples of free market self regulation. I don’t have time to find them for you right now, but I have read about them. Something about historic Ireland… Also, burgeoning industries that the government hadn’t gotten around to regulating yet. A lot of government regulations actually start out as industry best practices that then get codified, bureaucratized, and then eventually corrupted.

          • Andrew says:

            Here’s an example: seat belts. Seat belts were not a government invention. They were invented by auto manufacturers. Then the government required that all cars have seat belts by law. While this is obviously better than no cars having any safety features, it is not necessarily better than whatever the free market might have come up with to improve upon seat belts had they not been required by law.

            While this example doesn’t highlight government corruption or concrete failures of regulation, it does show that the free market is capable of solving the types of problems that are usually considered the domain of regulation. It also displays how regulation can actually have unintended consequences that preclude better solutions from ever being conceived.

            So yes, It is currently very difficult to prove that government regulation is an outright failure. But no, it is not inconceivable that we might be better off without it.

  4. John says:

    I’m not sure this isn’t an example of why regulation may be necessary. The auto companies actively resisted and lobbied against shoulder belts, particularly in back seats, because of the expense. They succeeded for a long time, despite evidence of which they were keenly aware that use of only seat belts in back seats sometimes resulted in unnecessary paralysis after accidents. They fought air bags for similar reasons. Look at GM’s recent conduct. I’m not saying the market night not somehow regulate itself. I’m just saying that on its face I don’t think there’s much evidentiary support for that notion.

    • Major.Freedom says:

      Forcing higher costs on car companies makes the cars less safe, not more safe. Forcing a seatbelt before customers are able and willing to pay for it will reduce the quality of the car elsewhere, like thinner doors, or more fault prone components that lead to more dangerous accidents.

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