Wednesday, April 28, 2010

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?

Monday, April 26, 2010

Anti-Libertarian Point Refuted

Tibor R. Machan

The English Marxist political philosopher Ted Honderich asks us to imagine a perfectly just society, constituted according to libertarian principles. Then he asks, rhetorically, whether it is possible that there exist starving people in such a society? (Sure, that might be so but that's true of any society and much less likely in a free one.) So Honderich then continues: "[I]n this perfectly just society they have no claim to food, no moral right to it. No one and nothing does wrong in letting them starve to death. There is no obligation in this society, on the state or anything else, to save them from starving to death. It is not true of anyone that he or she ought to have helped them. This is vicious."(p.44)

Here we have a blatantly misleading assessment of a free society as well as men and women in such a society. Yes, Honderich is right that no one has an enforceable claim on other people providing food for them. There is in such a country no legal right to be supported except by parents of their children. That's correct.

But first, to backtrack a bit, libertarians do not usually claim that a society with a libertarian political system is "perfectly just." Only Socrates has laid such claim to a society, namely the imaginary one in his Republic. What libertarians claim is that their legal order secures political and criminal justice better than do alternatives. With libertarian principles in its constitution, such a system has a better chance at resolving conflicts justly than do others.

Now to Honderich's charge: In a society with such a system of law it is quite often morally wrong for many who know of such a case to fail to provide help. (If, however, they had more vital goals to pursue, say attending to their children's medical needs, this wouldn't be so.) Lack of generosity, compassion, or support for those who deserve it would be morally wrong. Indeed, it could well be true of many that they ought to help anyone in such dire straits and very wrong for them not to do so. What the libertarian is convinced of is that no such help may be coerced from anyone, that government, in particular, has no moral authority to mandate the help, to use its power to make some people help others. Government exists to secure our rights, not to make us morally good, whether as this is understood by modern liberals or by modern conservatives.

This is something very different from the claim that no one ought to help those in dire straits, quite the opposite. Where there is no unjust, coercive welfare state, it is the citizenry's responsibility to reach our and help when people are suffering through no fault of their own.

Would there be such people in a free country? Of course. To begin with, the near-free countries around the globe, such as the USA, are also the most generous when, for example, tsunamis or earthquakes occur! The people give freely, without having to be made to do so. Then, also, if the administrators of a welfare state could find the extra resources to help the needy, why couldn't the citizenry itself do this? After all, supposedly the welfare state is representative of its citizenry--it would be implementing policies of which the citizenry approves. So the same motives that may induce them to forge the welfare state would also induce them to be generous. The only difference would be that there would be no coercion involved.

By the way, Professor Honderich is also one of the most avid hard determinists in contemporary philosophical circles, so talk by him of what people ought to do and not do is entirely superfluous. He cannot mean it, not if he is convinced that que sera, que sera, what will be will be. Only men and women with free will could be implored to do anything they aren't doing, including to provide help to the poor. There is no morality without freedom to choose. At most one can talk about prodding or encouraging certain kinds of behavior but since the behavior isn't chosen by the agents, it has no moral significance.

Sunday, April 25, 2010

It wasn't Capitalism, Stupid

Tibor R. Machan

The Sunday, April 25, 2010, issue of The NYT Magazine carried a very clearly written essay by Roger Lowenstein, titled "Cracked Foundation, Fannie and Freddie are Broken. What would fixing them mean?" It further substantiates the point I have been making in numerous columns, essays and scholarly papers over the last several months, namely, that capitalism had nothing to do with the recent financial fiasco. Indeed, it was nearly all due to government meddling, especially with the policy exemplified best by the establishment and operation of Fannie Mae and Freddie Mac, the mortgage giants established by the federal government and recently bailed out by taxpayers at a cost of "upward of $125 billion."

As Lowenstein put it, "government support of the mortgage twins was among the original sins of the financial crisis. It stemmed from the country's affection for homeownership--a legacy of a frontier nation that subsidized homesteading for pioneers and encouraged later generations to homestead in the suburbs via the mortgage-interest deduction...."

Now whatever one may think of the sentiments that drove all this, one matter should be crystal clear: laissez-faire capitalism is entirely incompatible with such public policy. Accordingly, all the blather about how market fundamentalism (Paul Krugman's favorite term) led to the fiasco should by now be admitted to be utterly false.

There is a lot more and anyone who insist that laissez-faire capitalism is the source of our wows would need to come to terms with what the essay makes evident, namely, that government meddling, overt and covert, was the culprit. And it is useful to note that this article is published in The New York Times, a paper that has backed the Krugman explanation all along. Admittedly, the Sunday magazine has, on a few occasions, published essays and notices that put forth a dissenting account, akin to what we get from Lowenstein. The first of those I noticed was published about a year ago, by Professor Niall Ferguson of Harvard University back on May 17, 2009, titled "Diminished Returns," and made the point up front, namely, "The biggest blunder of all [behind the financial meltdown] had nothing to do with deregulation."

As I see it, the best objection to government regulations and other type of interference with people's economic activities rests on the fact that free men and women tend, in the main, to be far more competent at managing their own professional affairs than do government bureaucrats and, even more importantly, have every right to do so without others' intrusive meddling. Call it interference, call it paternalism, or call it nudging, as I understand human community affairs no one has the proper authority to manage the affairs of other people who haven't invited them to do so and have done nothing to violate anyone's rights. That this may now and then result in what some folks consider unwelcome--high risks, high or low prices, lack of full employment or complete financial security--is no excuse for the violation of anyone's rights. It is, in fact, part and parcel of a regime of individual rights that personal errors, even by large groups, will probably be made now and then. But it is far less damaging than the damage caused by governmental intrusions in the free market place.

Now this line of reasoning is out of fashion in our time because it rests on principles that are defended as true. That's because in our day pragmatism is very popular. As Rahm Emanuel, Mr. Obama's Chief of Staff put it in an interview in Bloomberg Businessweek (4/26-5/2, 2010, page 41), "Well, he [Obama] is a pragmatist....He is not wedded to a philosophy or ideology." (But, quite oddly, Mr. Emenuel adds: "[Obama] sees government mainly for setting rules and then letting the private sector operate within those rules." Oh yes? Utterly dishonest, this remark.)

Anyway, despite being a principled opponent of government interference in people's lives, economic or otherwise, I do keep my eyes on the arguments made by more empirical minded thinkers and so I welcome Mr. Lowenstein's contribution in The Times, indicating that my principled stance has the backing of the more research-minded folks.