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 basing 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 the production processes are regulated by government. 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 serious 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.

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 paradigm should be tossed. Free men and women deserve better.